SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
January 26, 2010, between Worldwide Energy and Manufacturing USA, Inc., a
Colorado corporation (the "Company"), and each purchaser identified on the
signature pages hereto (each, including its successors and assigns, a
"Purchaser" and collectively, the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings set forth in this Section 1.1:
"2008 Share Escrow Agreement" means the Escrow Agreement, dated as
of June 23, 2008, by and among the Company, the Wangs and Company Counsel
as escrow agent, pursuant to which the Wangs deposited 1,620,954 shares of
Common Stock in escrow subject to the terms and conditions of the 2008
Shares Escrow Agreement.
"2010 Form 10-K" shall have the meaning ascribed to such term in
Section 4.19.
"2010 EBITDA Milestone" shall have the meaning ascribed to such term
in Section 4.19(a).
"2010 EBITDA Milestone Date" shall have the meaning ascribed to such
term in Section 4.19(a).
"Acquiring Person" shall have the meaning ascribed to such term in
Section 4.5.
"Action" shall have the meaning ascribed to such term in Section
3.1(j).
"Adjusted EBITDA" means, for the applicable period, earning before
interest, taxes, depreciation and amortization of
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the Company and its consolidated Subsidiaries, determined in accordance
with GAAP, consistently applied, plus (i) any provision for (or less any
benefit from) income taxes, (ii) any deduction for interest expense, net
of interest income, (iii) depreciation and amortization expense and (iv)
non-cash expenditures All determinations of the components of Adjusted
EBITDA shall be derived from the Company's most recently filed Form 10-Q
or Form 10-K, as applicable.
"Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed
under Rule 405 under the Securities Act.
"Board of Directors" means the board of directors of the Company.
"Business Day" means any day except any Saturday, any Sunday, any
day which is a federal legal holiday in the United States or any day on
which banking institutions in the State of New York are authorized or
required by law or other governmental action to close.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day on which all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers' obligations
to pay the Subscription Amount and (ii) the Company's obligations to
deliver the Securities, in each case, have been satisfied or waived, but
in no event later than the third Trading Day following the date hereof.
"Closing Statement" means the Closing Statement in the form on Annex
A attached hereto.
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" means the common stock of the Company, no par value
per share, and any other class of securities into which such securities
may hereafter be reclassified or changed.
"Common Stock Equivalents" means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire at any
time Common Stock, including, without limitation, any debt, preferred
stock, rights, options, warrants or other instrument that is at any time
convertible into or exercisable or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock.
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"Company Counsel" means Sichenzia Ross Friedman Ference LLP, with
offices located at 61 Broadway, New York, New York 10006.
"Company Make Good Shares" shall have the meaning ascribed to such
term in Section 4.19(b).
"Disclosure Schedules" shall have the meaning ascribed to such term
in Section 3.1.
"Effective Date" means the earlier of the date that (a) all of the
Registrable Securities (as defined in the Registration Rights Agreement)
have been registered for resale by the holders thereof pursuant to a
registration statement(s) declared effective by the Commission and (b) all
of the Registrable Securities have been sold pursuant to Rule 144 or may
be sold pursuant to Rule 144 without the requirement for the Company to be
in compliance with the current public information required under Rule 144
and without volume or manner-of-sale restrictions.
"Evaluation Date" shall have the meaning ascribed to such term in
Section 3.1(r).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Executive Make Good Shares" shall have the meaning ascribed to such
term in Section 4.19(b).
"Exempt Issuance" means the issuance of (a) shares of Common Stock
or options to employees, officers, directors or consultants of the Company
pursuant to any stock or option plan duly adopted for such purpose, by a
majority of the non-employee members of the Board of Directors or a
majority of the members of a committee of non-employee directors
established for such purpose (provided, however, any such issuances to
consultants shall not exceed an aggregate of 100,000 shares, subject to
adjustment for forward and reverse stock splits, stock dividends and
similar transactions of the Common Stock that occur after the Closing
Date, in any 12-month period), (b) securities upon the exercise or
exchange of or conversion of any Securities issued hereunder and/or other
securities exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement,
provided that such securities have not been amended since the date of this
Agreement to increase the number of such securities or to decrease the
exercise price, exchange price or conversion price of such securities, (c)
securities issued pursuant to acquisitions or strategic transactions
approved by a majority of the disinterested directors of the Company,
provided that any such issuance shall only be to a Person (or to the
equityholders of a Person) which is, itself or through its subsidiaries,
an operating company or
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an owner of an asset in a business synergistic with the business of the
Company and shall provide to the Company additional benefits in addition
to the investment of funds, but shall not include a transaction in which
the Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities
and (d) and (d) with the prior written consent of Ladenburg Thalmann &
Co., Inc., up to an amount of Common Stock and warrants equal to the
difference between $8,000,000 and the aggregate Subscription Amounts
hereunder, on the same terms and conditions and prices as hereunder, with
investors executing definitive agreements for the purchase of such
securities and such transactions having closed on or before January 29,
2010.
"Funds Escrow Agent" means SunTrust Bank, with offices located at
777 Brickell Avenue, Miami, Florida 33131.
"Funds Escrow Agreement" shall mean the Escrow Agreement by and
among the Company, the placement agent and the Funds Escrow Agent, entered
into on or before the date hereof.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Indebtedness" shall have the meaning ascribed to such term in
Section 3.1(aa).
"Intellectual Property Rights" shall have the meaning ascribed to
such term in Section 3.1(o).
"Legend Removal Date" shall have the meaning ascribed to such term
in Section 4.1(c).
"Liens" means a lien, charge, security interest, encumbrance, right
of first refusal, preemptive right or other restriction.
"Make Good Shares" shall have the meaning assigned to such term in
Section 4.19(b).
"Material Adverse Effect" shall have the meaning assigned to such
term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).
"Per Share Purchase Price" equals $4.50, subject to adjustment for
reverse and forward stock splits, stock dividends, stock combinations and
other similar transactions of the Common Stock that occur after the date
of this Agreement.
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"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an informal investigation or
partial proceeding, such as a deposition), whether commenced or
threatened.
"Public Information Failure" shall have the meaning ascribed to such
term in Section 4.2(b).
"Public Information Failure Payments" shall have the meaning
ascribed to such term in Section 4.2(b).
"Purchaser Party" shall have the meaning ascribed to such term in
Section 4.8.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers, in
the form of Exhibit A attached hereto.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering
the resale by the Purchasers of the Shares and the Warrant Shares.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 424" means Rule 424 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended or interpreted from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same purpose and effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Shares, the Warrants and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
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"Shares" means the shares of Common Stock issued or issuable to each
Purchaser pursuant to this Agreement.
"Share Escrow Agent" means Sichenzia Ross Friedman Ference LLP, with
offices located at 61 Broadway, New York, New York 10006.
"Share Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit D hereto executed and delivered
contemporaneously with this Agreement.
"Short Sales" means all "short sales" as defined in Rule 200 of
Regulation SHO under the Exchange Act (but shall not be deemed to include
the location and/or reservation of borrowable shares of Common Stock).
"Subscription Amount" means, as to each Purchaser, the aggregate
amount to be paid for Shares and Warrants purchased hereunder as specified
below such Purchaser's name on the signature page of this Agreement and
next to the heading "Subscription Amount," in United States dollars and in
immediately available funds.
"Subsidiary" means any subsidiary of the Company as set forth on
Schedule 3.1(a) and shall, where applicable, also include any direct or
indirect subsidiary of the Company formed or acquired after the date
hereof.
"Trading Day" means a day on which the principal Trading Market is
open for trading.
"Trading Market" means any of the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the NYSE AMEX, the Nasdaq Capital Market, the Nasdaq Global
Market, the Nasdaq Global Select Market, the New York Stock Exchange or
the OTC Bulletin Board (or any successors to any of the foregoing).
"Transaction Documents" means this Agreement, the Warrants, the
Registration Rights Agreement, the Share Escrow Agreement, the Funds
Escrow Agreement, all exhibits and schedules thereto and hereto and any
other documents or agreements executed in connection with the transactions
contemplated hereunder.
"Transfer Agent" means Corporate Stock Transfer, the current
transfer agent of the Company, with a mailing address of 3200 Cherry
Creek Dr. South Suite 430, Denver Co. 80209 and a facsimile number of
(303) 282-5800, and any successor transfer agent of the Company.
"Variable Rate Transaction" shall have the meaning ascribed to such
term in Section 4.12(b).
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"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by
Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time)
to 4:02 p.m. (New York City time)), (b) if the OTC Bulletin Board is not
a Trading Market, the volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the OTC Bulletin Board,
(c) if the Common Stock is not then listed or quoted for trading on the
OTC Bulletin Board and if prices for the Common Stock are then reported in
the "Pink Sheets" published by Pink OTC Markets, Inc. (or a similar
organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported, or
(d) in all other cases, the fair market value of a share of Common Stock
as determined by an independent appraiser selected in good faith by the
Purchasers of a majority in interest of the Shares then outstanding and
reasonably acceptable to the Company, the fees and expenses of which shall
be paid by the Company.
"Wangs" means, collectively, Jimmy Wang and Mindy Wang, residing at
408 N. Canal Street, Unit A&B, South San Francisco, California 94080.
"Warrants" means, collectively, the Common Stock purchase warrants
delivered to the Purchasers at the Closing in accordance with Section
2.2(a) hereof, which Warrants shall be exercisable immediately and have a
term of exercise equal to 5 years, in the form of Exhibit C attached
hereto.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
"WS" means Weinstein Smith LLP with offices located at 420 Lexington
Avenue, Suite 2620, New York, New York 10170-0002.
ARTICLE II.
PURCHASE AND SALE
2.1Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell,
and the Purchasers, severally and not jointly, agree to purchase, up to an
aggregate of $8,000,000 of Shares and Warrants. Each Purchaser shall deliver to
the Company via wire transfer or a certified check of immediately available
funds equal to such Purchaser's Subscription Amount as set forth on the
signature page hereto executed by such Purchaser, and the Company shall deliver
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to each Purchaser its respective Shares and a Warrant, as determined pursuant to
Section 2.2(a), and the Company and each Purchaser shall deliver the other items
set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the
covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall
occur at the offices of WS or such other location as the parties shall mutually
agree.
2.2Deliveries.
(a) On or prior to the Closing Date, the Company shall
deliver or cause to be delivered to each Purchaser the following:
(i) this Agreement duly executed by the
Company;
(ii) a legal opinion from Company Counsel and
the Company's PRC counsel addressed to the Purchasers and the
placement agent, substantially in the form of Exhibit B attached
hereto;
(iii) a copy of the irrevocable instructions to
the Transfer Agent instructing the Transfer Agent to deliver, on an
expedited basis, a certificate evidencing a number of Shares equal
to such Purchaser's Subscription Amount divided by the Per Share
Purchase Price, registered in the name of such Purchaser;
(iv) a Warrant registered in the name of such
Purchaser to purchase up to a number of shares of Common Stock equal
to 100% of such Purchaser's Shares, with an exercise price equal to
$5.65, subject to adjustment therein;
(v) the Share Escrow Agreement duly executed by
the Company, the Share Escrow Agent and the Wangs;
(vi) instruction letter instructing the transfer
agent to issue the Company Make Good Shares, which shall be
delivered on or before April 22, 2010 duly executed by the Company;
and
(vii) the Registration Rights Agreement duly
executed by the Company.
(b) On or prior to the Closing Date, each Purchaser shall
deliver or cause to be delivered to the Company the following:
(i) this Agreement duly executed by such
Purchaser;
(ii) such Purchaser's Subscription Amount by
wire transfer to the Funds Escrow Agent;
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(iii) the Share Escrow Agreement duly executed by
such Purchaser;
(iv) the Registration Rights Agreement duly
executed by such Purchaser; and
(v) the Selling Shareholder Questionnaire
attached to the Registration Rights Agreement, duly executed by such
Purchaser.
2.3Closing Conditions.
(a) The obligations of the Company hereunder in connection with
the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects on
the Closing Date of the representations and warranties of the
Purchasers contained herein (unless as of a specific date therein);
(ii) all obligations, covenants and agreements
of each Purchaser required to be performed at or prior to the
Closing Date shall have been performed; and
(iii) the delivery by each Purchaser of the items
set forth in Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder
in connection with the Closing are subject to the following conditions
being met:
(i) the accuracy in all material respects when
made and on the Closing Date of the representations and warranties
of the Company contained herein (unless as of a specific date
therein);
(ii) all obligations, covenants and agreements
of the Company required to be performed at or prior to the Closing
Date shall have been performed;
(iii) the delivery by the Company of the items
set forth in Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse
Effect with respect to the Company since the date hereof; and
(v) from the date hereof to the Closing Date,
trading in the Common Stock shall not have been suspended by the
Commission or the Company's principal Trading Market
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(except for any suspension of trading of limited duration agreed to
by the Company, which suspension shall be terminated prior to the
Closing), and, at any time prior to the Closing Date, trading in
securities generally as reported by Bloomberg L.P. shall not have
been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such service,
or on any Trading Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities
nor shall there have occurred any material outbreak or escalation of
hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in, any
financial market which, in each case, in the reasonable judgment of
each Purchaser, makes it impracticable or inadvisable to purchase
the Securities at the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1Representations and Warranties of the Company. Except as set forth in
the Disclosure Schedules, which Disclosure Schedules shall be deemed a part
hereof and shall qualify any representation or otherwise made herein to the
extent of the disclosure contained in the corresponding section of the
Disclosure Schedules, the Company hereby makes the following representations and
warranties to each Purchaser:
(a) Subsidiaries. All of the direct and indirect
subsidiaries of the Company are set forth on Schedule 3.1(a). The Company
owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all of the
issued and outstanding shares of capital stock of each Subsidiary are
validly issued and are fully paid, non-assessable and free of preemptive
and similar rights to subscribe for or purchase securities. If the
Company has no subsidiaries, all other references to the Subsidiaries or
any of them in the Transaction Documents shall be disregarded.
(b) Organization and Qualification. The Company and each
of the Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization, with the requisite power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. Neither the Company nor any Subsidiary
is in violation nor default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational
or charter documents. Each of the Company and the Subsidiaries is duly
qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it
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makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, could not have or
reasonably be expected to result in: (i) a material adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company's ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
"Material Adverse Effect") and no Proceeding has been instituted in any
such jurisdiction revoking, limiting or curtailing or seeking to revoke,
limit or curtail such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the
requisite corporate power and authority to enter into and to consummate
the transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary action on the part of
the Company and no further action is required by the Company, the Board of
Directors or the Company's stockholders in connection therewith other than
in connection with the Required Approvals. Each Transaction Document to
which it is a party has been (or upon delivery will have been) duly
executed by the Company and, when delivered in accordance with the terms
hereof and thereof, will constitute the valid and binding obligation of
the Company enforceable against the Company in accordance with its terms,
except: (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally,
(ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii)
insofar as indemnification and contribution provisions may be limited by
applicable law.
(d) No Conflicts. The execution, delivery and performance
by the Company of the Transaction Documents, the issuance and sale of the
Securities and the consummation by it of the transactions contemplated
hereby and thereby to which it is a party do not and will not: (i)
conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would
become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, or give to
others any rights of termination, amendment,
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acceleration or cancellation (with or without notice, lapse of time or
both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including
federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could not
have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not
required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of
the Transaction Documents, other than: (i) the filings required pursuant
to Section 4.4 of this Agreement, (ii) the filing with the Commission
pursuant to the Registration Rights Agreement, (iii) the notice and/or
application(s) to each applicable Trading Market for the issuance and sale
of the Securities and the listing of the Securities for trading thereon in
the time and manner required thereby, and (iv) the filing of Form D with
the Commission and such filings as are required to be made under
applicable state securities laws (collectively, the "Required Approvals").
(f) Issuance of the Securities. The Securities are duly
authorized and, when issued and paid for in accordance with the applicable
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents.
The Warrant Shares, when issued in accordance with the terms of the
Transaction Documents, will be validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents.
The Company has reserved from its duly authorized capital stock the
maximum number of shares of Common Stock issuable pursuant to this
Agreement and the Warrants.
(g) Capitalization. The capitalization of the Company is
as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include
the number of shares of Common Stock owned beneficially, and of record, by
Affiliates of the Company as of the date
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hereof. Except as disclosed on Schedule 3.1(g), the Company has not issued
any capital stock since its most recently filed periodic report under the
Exchange Act, other than pursuant to the exercise of employee stock
options under the Company's stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company's employee stock
purchase plans and pursuant to the conversion and/or exercise of Common
Stock Equivalents outstanding as of the date of the most recently filed
periodic report under the Exchange Act. No Person has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
Except as a result of the purchase and sale of the Securities, there are
no outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights
or obligations convertible into or exercisable or exchangeable for, or
giving any Person any right to subscribe for or acquire any shares of
Common Stock, or contracts, commitments, understandings or arrangements by
which the Company or any Subsidiary is or may become bound to issue
additional shares of Common Stock or Common Stock Equivalents. The
issuance and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than the
Purchasers) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price
under any of such securities. All of the outstanding shares of capital
stock of the Company are validly issued, fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws,
and none of such outstanding shares was issued in violation of any
preemptive rights or similar rights to subscribe for or purchase
securities. No further approval or authorization of any stockholder, the
Board of Directors or others is required for the issuance and sale of the
Securities. There are no stockholders agreements, voting agreements or
other similar agreements with respect to the Company's capital stock to
which the Company is a party or, to the knowledge of the Company, between
or among any of the Company's stockholders.
(h) SEC Reports; Financial Statements. Except as set forth
on Schedule 3.1(h), the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by the Company under
the Securities Act and the Exchange Act, including pursuant to Section
13(a) or 15(d) thereof, for the two years preceding the date hereof (or
such shorter period as the Company was required by law or regulation to
file such material) (the foregoing materials, including the exhibits
thereto and documents incorporated by reference therein, being
collectively referred to herein as the "SEC Reports") on a timely basis or
has received a valid extension of such time of filing and has filed any
such SEC Reports prior to the expiration of any such extension. As of
their respective dates, the SEC Reports complied in all material
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respects with the requirements of the Securities Act and the Exchange Act,
as applicable, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Except as set forth on Schedule 3.1(h), the Company has never
been an issuer subject to Rule 144(i) under the Securities Act. The
financial statements of the Company included in the SEC Reports comply in
all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect
at the time of filing. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved ("GAAP"), except
as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects
the financial position of the Company and its consolidated Subsidiaries as
of and for the dates thereof and the results of operations and cash flows
for the periods then ended, subject, in the case of unaudited statements,
to normal, immaterial, year-end audit adjustments.
(i) Material Changes; Undisclosed Events, Liabilities or
Developments. Since the date of the latest audited financial statements
included within the SEC Reports, except as specifically disclosed in a
subsequent SEC Report filed prior to the date hereof: (i) there has been
no event, occurrence or development that has had or that could reasonably
be expected to result in a Material Adverse Effect, (ii) the Company has
not incurred any liabilities (contingent or otherwise) other than (A)
trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required to
be reflected in the Company's financial statements pursuant to GAAP or
disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) except as disclosed on
Schedule 3.1(i), the Company has not issued any equity securities to any
officer, director or Affiliate, except pursuant to existing Company stock
option plans. The Company does not have pending before the Commission any
request for confidential treatment of information. Except for the
issuance of the Securities contemplated by this Agreement or as set forth
on Schedule 3.1(i), no event, liability, fact, circumstance, occurrence or
development has occurred or exists, or is reasonably expected to occur or
exist, with respect to the
- 14 -
Company or its Subsidiaries or their respective business, properties,
operations, assets or financial condition, that would be required to be
disclosed by the Company under applicable securities laws at the time this
representation is made or deemed made that has not been publicly disclosed
at least 1 Trading Day prior to the date that this representation is made.
(j) Litigation. There is no action, suit, inquiry, notice
of violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company, any Subsidiary
or any of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal,
state, county, local or foreign) (collectively, an "Action") which (i)
adversely affects or challenges the legality, validity or enforceability
of any of the Transaction Documents or the Securities or (ii) could, if
there were an unfavorable decision, have or reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty.
There has not been, and to the knowledge of the Company, there is not
pending or contemplated, any investigation by the Commission involving the
Company or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or,
to the knowledge of the Company, is imminent with respect to any of the
employees of the Company, which could reasonably be expected to result in
a Material Adverse Effect. None of the Company's or its Subsidiaries'
employees is a member of a union that relates to such employee's
relationship with the Company or such Subsidiary, and neither the Company
nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their
relationships with their employees are good. No executive officer, to the
knowledge of the Company, is, or is now expected to be, in violation of
any material term of any employment contract, confidentiality, disclosure
or proprietary information agreement or non-competition agreement, or any
other contract or agreement or any restrictive covenant in favor of any
third party, and the continued employment of each such executive officer
does not subject the Company or any of its Subsidiaries to any liability
with respect to any of the foregoing matters. The Company and its
Subsidiaries are in compliance with all U.S. federal, state, local and
foreign laws and regulations relating to employment and employment
practices, terms and conditions of employment and
- 15 -
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary:
(i) is in default under or in violation of (and no event has occurred that
has not been waived that, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has the
Company or any Subsidiary received notice of a claim that it is in default
under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or
by which it or any of its properties is bound (whether or not such default
or violation has been waived), (ii) is in violation of any judgment,
decree, or order of any court, arbitrator or governmental body or (iii) is
or has been in violation of any statute, rule, ordinance or regulation of
any governmental authority, including without limitation all foreign,
federal, state and local laws relating to taxes, environmental protection,
occupational health and safety, product quality and safety and employment
and labor matters, except in each case as could not have or reasonably be
expected to result in a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in the SEC
Reports, except where the failure to possess such permits could not
reasonably be expected to result in a Material Adverse Effect ("Material
Permits"), and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any
Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have
good and marketable title in fee simple to all real property owned by them
and good and marketable title in all personal property owned by them that
is material to the business of the Company and the Subsidiaries, in each
case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with the
use made and proposed to be made of such property by the Company and the
Subsidiaries and Liens for the payment of federal, state or other taxes,
the payment of which is neither delinquent nor subject to penalties. Any
real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable
leases with which the Company and the Subsidiaries are in compliance.
- 16 -
(o) Patents and Trademarks. The Company and the
Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade
names, trade secrets, inventions, copyrights, licenses and other
intellectual property rights and similar rights as described in the SEC
Reports as necessary or material for use in connection with their
respective businesses and which the failure to so have could have a
Material Adverse Effect (collectively, the "Intellectual Property
Rights"). None of, and neither the Company nor any Subsidiary has
received a notice (written or otherwise) that any of, the Intellectual
Property Rights has expired, terminated or been abandoned, or is expected
to expire or terminate or be abandoned, within two (2) years from the date
of this Agreement. Neither the Company nor any Subsidiary has received,
since the date of the latest audited financial statements included within
the SEC Reports, a written notice of a claim or otherwise has any
knowledge that the Intellectual Property Rights violate or infringe upon
the rights of any Person, except as would not have a Material Adverse
Effect. To the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights. The Company and its
Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their intellectual
properties, except where failure to do so could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
(p) Insurance. The Company and the Subsidiaries are
insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary in the
businesses in which the Company and the Subsidiaries are engaged,
including, but not limited to, directors and officers insurance coverage
at least equal to the aggregate Subscription Amount. Neither the Company
nor any Subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as
set forth in the SEC Reports, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of
- 17 -
the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $120,000 other than for: (i) payment of
salary or consulting fees for services rendered, (ii) reimbursement for
expenses incurred on behalf of the Company and (iii) other employee
benefits, including stock option agreements under any stock option plan of
the Company.
(r) Sarbanes-Oxley; Internal Accounting Controls. Except
as disclosed in Exhibit 31.1 to the Company's most recently filed periodic
SEC Report, the Company is in compliance with any and all applicable
requirements of the Sarbanes-Oxley Act of 2002 that are effective as of
the date hereof, and any and all applicable rules and regulations
promulgated by the Commission thereunder that are effective as of the date
hereof and as of the Closing Date. 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 Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that information required to
be disclosed by the Company in the reports it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission's rules and forms. The Company's
certifying officers have evaluated the effectiveness of the Company's
disclosure controls and procedures as of the end of the period covered by
the Company's most recently filed periodic report under the Exchange Act
(such date, the "Evaluation Date"). The Company presented in its most
recently filed periodic report under the Exchange Act the conclusions of
the certifying officers about the effectiveness of the disclosure controls
and procedures based on their evaluations as of the Evaluation Date.
Since the Evaluation Date, there have been no changes in the Company's
internal control over financial reporting (as such term is defined in the
Exchange Act) that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial
reporting.
(s) Certain Fees. Except as set forth in Schedule 3.1(s)
attached hereto, no brokerage or finder's fees or commissions are or will
be payable by the Company to any broker, financial
- 18 -
advisor or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by the
Transaction Documents. The Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf of
other Persons for fees of a type contemplated in this Section that may be
due in connection with the transactions contemplated by the Transaction
Documents.
(t) Private Placement. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and sale
of the Securities by the Company to the Purchasers as contemplated hereby.
The issuance and sale of the Securities hereunder does not contravene the
rules and regulations of the Trading Market.
(u) Investment Company. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the Securities,
will not be or be an Affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended. The Company
shall conduct its business in a manner so that it will not become an
"investment company" subject to registration under the Investment Company
Act of 1940, as amended.
(v) Registration Rights. Other than each of the
Purchasers, no Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the Company.
(w) Listing and Maintenance Requirements. The Common Stock
is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and
the Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that the Commission is contemplating terminating such registration. The
Company has not, in the 12 months preceding the date hereof, received
notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with
the listing or maintenance requirements of such Trading Market. The
Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.
(x) Application of Takeover Protections. The Company and
the Board of Directors have taken all necessary action, if any, in order
to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company's
certificate of incorporation (or
- 19 -
similar charter documents) or the laws of its state of incorporation that
is or could become applicable to the Purchasers as a result of the
Purchasers and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation
as a result of the Company's issuance of the Securities and the
Purchasers' ownership of the Securities.
(y) Disclosure. Except with respect to the material terms
and conditions of the transactions contemplated by the Transaction
Documents, the Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Purchasers or their agents or
counsel with any information that it believes constitutes or might
constitute material, non-public information. The Company understands and
confirms that the Purchasers will rely on the foregoing representation in
effecting transactions in securities of the Company. All of the
disclosure furnished by or on behalf of the Company to the Purchasers
regarding the Company, its business and the transactions contemplated
hereby, including the Disclosure Schedules to this Agreement, is true and
correct and does not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made,
not misleading. The press releases disseminated by the Company during the
twelve months preceding the date of this Agreement taken as a whole do not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they
were made and when made, not misleading. The Company acknowledges and
agrees that no Purchaser makes or has made any representations or
warranties with respect to the transactions contemplated hereby other than
those specifically set forth in Section 3.2 hereof.
(z) No Integrated Offering. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2,
neither the Company, nor any of its Affiliates, nor any Person acting on
its or their behalf has, directly or indirectly, made any offers or sales
of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of (i) the
Securities Act which would require the registration of any such securities
under the Securities Act, or (ii) any applicable shareholder approval
provisions of any Trading Market on which any of the securities of the
Company are listed or designated.
(aa) Solvency. Based on the consolidated financial
condition of the Company as of the Closing Date, after giving effect to
the receipt by the Company of the proceeds from the
- 20 -
sale of the Securities hereunder: (i) the fair saleable value of the
Company's 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 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 current cash
flow of the Company, together with the proceeds the Company would receive,
were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or
in respect of its liabilities when such amounts are required to be paid.
The Company does not intend to incur debts beyond its ability to pay such
debts as they mature (taking into account the timing and amounts of cash
to be payable on or in respect of its debt). The Company has no knowledge
of any facts or circumstances which lead it to believe that it will file
for reorganization or liquidation under the bankruptcy or reorganization
laws of any jurisdiction within one year from the Closing Date. Schedule
3.1(aa) sets forth as of the date hereof all outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For the purposes of this
Agreement, "Indebtedness" means (x) any liabilities for borrowed money or
amounts owed in excess of $50,000 (other than trade accounts payable
incurred in the ordinary course of business), (y) all guaranties,
endorsements and other contingent obligations in respect of indebtedness
of others, whether or not the same are or should be reflected in the
Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (z) the present value
of any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.
(bb) Tax Status. Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to result
in a Material Adverse Effect, the Company and each Subsidiary (i) has made
or filed all United States federal and state income and all foreign income
and franchise tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations and (iii)
has set aside on its books provision reasonably adequate for the payment
of all material taxes for periods subsequent to the periods to which such
returns, reports or
- 21 -
declarations apply. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company or of any Subsidiary know of no basis for any such
claim.
(cc) No General Solicitation. Neither the Company nor any
person acting on behalf of the Company has offered or sold any of the
Securities by any form of general solicitation or general advertising.
The Company has offered the Securities for sale only to the Purchasers and
certain other "accredited investors" within the meaning of Rule 501 under
the Securities Act.
(dd) Foreign Corrupt Practices. Neither the Company, nor to
the knowledge of the Company, any agent or other person acting on behalf
of the Company, has: (i) directly or indirectly, used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds,
(iii) failed to disclose fully any contribution made by the Company (or
made by any person acting on its behalf of which the Company is aware)
which is in violation of law or (iv) violated in any material respect any
provision of the Foreign Corrupt Practices Act of 1977, as amended.
(ee) Accountants. The Company's accounting firm is set
forth on Schedule 3.1(ee) of the Disclosure Schedules. To the knowledge
and belief of the Company, such accounting firm: (i) is a registered
public accounting firm as required by the Exchange Act and (ii) shall
express its opinion with respect to the financial statements to be
included in the Company's Annual Report for the year ending December 31,
2009.
(ff) No Disagreements with Accountants and Lawyers.
There are no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the Company and the
accountants and lawyers formerly or presently employed by the Company and
the Company is current with respect to any fees owed to its accountants
and lawyers which could affect the Company's ability to perform any of its
obligations under any of the Transaction Documents.
(gg) Acknowledgment Regarding Purchasers' Purchase of
Securities. The Company acknowledges and agrees that each of the
Purchasers is acting solely in the capacity of an arm's length purchaser
with respect to the Transaction Documents and the transactions
contemplated thereby. The Company further acknowledges that no Purchaser
is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to the Transaction Documents and the
transactions
- 22 -
contemplated thereby and any advice given by any Purchaser or any of their
respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated thereby is merely incidental
to the Purchasers' purchase of the Securities. The Company further
represents to each Purchaser that the Company's decision to enter into
this Agreement and the other Transaction Documents has been based solely
on the independent evaluation of the transactions contemplated hereby by
the Company and its representatives.
(hh) Acknowledgment Regarding Purchaser's Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding (except for Sections 3.2(f) and 4.15 hereof), it is
understood and acknowledged by the Company that: (i) none of the
Purchasers have been asked by the Company to agree, nor has any Purchaser
agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or "derivative" securities based on securities
issued by the Company or to hold the Securities for any specified term,
(ii) past or future open market or other transactions by any Purchaser,
specifically including, without limitation, Short Sales or "derivative"
transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the
Company's publicly-traded securities, (iii) any Purchaser, and counter-
parties in "derivative" transactions to which any such Purchaser is a
party, directly or indirectly, may presently have a "short" position in
the Common Stock and (iv) each Purchaser shall not be deemed to have any
affiliation with or control over any arm's length counter-party in any
"derivative" transaction. The Company further understands and
acknowledges that (y) one or more Purchasers may engage in hedging
activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the
value of the Warrant Shares deliverable with respect to Securities are
being determined, and (z) such hedging activities (if any) could reduce
the value of the existing stockholders' equity interests in the Company at
and after the time that the hedging activities are being conducted. The
Company acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction Documents.
(ii) Regulation M Compliance. The Company has not, and to
its knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of
the Securities, or (iii) paid or agreed to pay to any Person any
compensation for soliciting another to purchase any other securities of
the Company, other than, in the case of clauses (ii) and (iii),
- 23 -
compensation paid to the Company's placement agent in connection with the
placement of the Securities.
(jj) Stock Option Plans. Each stock option granted by the
Company under the Company's stock option plan was granted (i) in
accordance with the terms of the Company's stock option plan and (ii) with
an exercise price at least equal to the fair market value of the Common
Stock on the date such stock option would be considered granted under GAAP
and applicable law. No stock option granted under the Company's stock
option plan has been backdated. The Company has not knowingly granted,
and there is no and has been no Company policy or practice to knowingly
grant, stock options prior to, or otherwise knowingly coordinate the grant
of stock options with, the release or other public announcement of
material information regarding the Company or its Subsidiaries or their
financial results or prospects.
(kk) Office of Foreign Assets Control. Neither the Company
nor, to the Company's knowledge, any director, officer, agent, employee or
affiliate of the Company is currently subject to any U.S. sanctions
administered by the Office of Foreign Assets Control of the U.S. Treasury
Department ("OFAC").
(ll) U.S. Real Property Holding Corporation. The Company is
not and has never been a U.S. real property holding corporation within the
meaning of Section 897 of the Internal Revenue Code of 1986, as amended,
and the Company shall so certify upon Purchaser's request.
(mm) Bank Holding Company Act. Neither the Company nor any
of its Subsidiaries or Affiliates is subject to the Bank Holding Company
Act of 1956, as amended (the "BHCA") and to regulation by the Board of
Governors of the Federal Reserve System (the "Federal Reserve"). Neither
the Company nor any of its Subsidiaries or Affiliates owns or controls,
directly or indirectly, five percent (5%) or more of the outstanding
shares of any class of voting securities or twenty-five percent or more of
the total equity of a bank or any entity that is subject to the BHCA and
to regulation by the Federal Reserve. Neither the Company nor any of its
Subsidiaries or Affiliates exercises a controlling influence over the
management or policies of a bank or any entity that is subject to the BHCA
and to regulation by the Federal Reserve.
(nn) Money Laundering. The operations of the Company are
and have been conducted at all times in compliance with applicable
financial record-keeping and reporting requirements of the Currency and
Foreign Transactions Reporting Act of 1970, as amended, applicable money
laundering statutes and applicable rules and regulations thereunder
(collectively, the "Money Laundering Laws"), and no action, suit or
proceeding by or before
- 24 -
any court or governmental agency, authority or body or any arbitrator
involving the Company with respect to the Money Laundering Laws is pending
or, to the knowledge of the Company, threatened.
3.2Representations and Warranties of the Purchasers. Each Purchaser, for
itself and for no other Purchaser, hereby represents and warrants as of the date
hereof and as of the Closing Date to the Company as follows (unless as of a
specific date therein):
(a) Organization; Authority. Such Purchaser is either an
individual or an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with full
right, corporate or partnership power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of the Transaction Documents and performance by
such Purchaser of the transactions contemplated by the Transaction
Documents have been duly authorized by all necessary corporate,
partnership, limited liability company or similar action, as applicable,
on the part of such Purchaser. Each Transaction Document to which it is a
party has been duly executed by such Purchaser, and when delivered by such
Purchaser in accordance with the terms hereof, will constitute the valid
and legally binding obligation of such Purchaser, enforceable against it
in accordance with its terms, except: (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions
may be limited by applicable law.
(b) Own Account. Such Purchaser understands that the
Securities are "restricted securities" and have not been registered under
the Securities Act or any applicable state securities law and is acquiring
the Securities as principal for its own account and not with a view to or
for distributing or reselling such Securities or any part thereof in
violation of the Securities Act or any applicable state securities law,
has no present intention of distributing any of such Securities in
violation of the Securities Act or any applicable state securities law and
has no direct or indirect arrangement or understandings with any other
persons to distribute or regarding the distribution of such Securities in
violation of the Securities Act or any applicable state securities law
(this representation and warranty not limiting such Purchaser's right to
sell the Securities pursuant to the Registration Statement or otherwise in
compliance with applicable federal and state
- 25 -
securities laws). Such Purchaser is acquiring the Securities hereunder in
the ordinary course of its business.
(c) Purchaser Status. At the time such Purchaser was
offered the Securities, it was, and as of the date hereof it is, and on
each date on which it exercises any Warrants, it will be either: (i) an
"accredited investor" as defined in Rule 501 under the Securities Act or
(ii) a "qualified institutional buyer" as defined in Rule 144A(a) under
the Securities Act. Such Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either
alone or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as to
be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks of
such investment. Such Purchaser is able to bear the economic risk of an
investment in the Securities and, at the present time, is able to afford a
complete loss of such investment.
(e) General Solicitation. Such Purchaser is not purchasing
the Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Certain Transactions and Confidentiality. Other than
consummating the transactions contemplated hereunder, such Purchaser has
not directly or indirectly, nor has any Person acting on behalf of or
pursuant to any understanding with such Purchaser, executed any purchases
or sales, including Short Sales, of the securities of the Company during
the period commencing as of the time that such Purchaser first received a
term sheet (written or oral) as of the Company or any other Person
representing the Company setting forth the material terms of the
transactions contemplated hereunder and ending immediately prior to the
execution hereof. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser's assets and
the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Purchaser's assets, the representation set forth above shall only apply
with respect to the portion of assets managed by the portfolio manager
that made the investment decision to purchase the Securities covered by
this Agreement. Other than to other Persons party to this Agreement, such
Purchaser has maintained the confidentiality of all disclosures made to it
in connection with this transaction
- 26 -
(including the existence and terms of this transaction). Notwithstanding
the foregoing, for avoidance of doubt, nothing contained herein shall
constitute a representation or warranty, or preclude any actions, with
respect to the identification of the availability of, or securing of,
available shares to borrow in order to effect Short Sales or similar
transactions in the future.
The Company acknowledges and agrees that the representations contained in
Section 3.2 shall not modify, amend or affect such Purchaser's right to rely on
the Company's representations and warranties contained in this Agreement or any
representations and warranties contained in any other Transaction Document or
any other document or instrument executed and/or delivered in connection with
this Agreement or the consummation of the transaction contemplated hereby.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1Transfer Restrictions.
(a) The Securities may only be disposed of in compliance
with state and federal securities laws. In connection with any transfer
of Securities other than pursuant to an effective registration statement
or Rule 144, to the Company or to an Affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor and reasonably acceptable to the
Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in
writing to be bound by the terms of this Agreement and the Registration
Rights Agreement and shall have the rights and obligations of a Purchaser
under this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1, of a legend on any of the Securities in the
following form:
THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL
- 27 -
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF
WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED
BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT
OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from time
to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the
Securities to a financial institution that is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and who agrees to be bound
by the provisions of this Agreement and the Registration Rights Agreement
and, if required under the terms of such arrangement, such Purchaser may
transfer pledged or secured Securities to the pledgees or secured parties.
Such a pledge or transfer would not be subject to approval of the Company
and no legal opinion of legal counsel of the pledgee, secured party or
pledgor shall be required in connection therewith. Further, no notice
shall be required of such pledge. At the appropriate Purchaser's expense,
the Company will execute and deliver such reasonable documentation as a
pledgee or secured party of Securities may reasonably request in
connection with a pledge or transfer of the Securities, including, if the
Securities are subject to registration pursuant to the Registration Rights
Agreement, the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list
of Selling Stockholders (as defined in the Registration Rights Agreement)
thereunder.
(c) Certificates evidencing the Shares and Warrant Shares
shall not contain any legend (including the legend set forth in Section
4.1(b) hereof), (i) while a registration statement (including the
Registration Statement) covering the resale of such security is effective
under the Securities Act, (ii) following any sale of such Shares or
Warrant Shares pursuant to Rule 144, (iii) if such Shares or Warrant
Shares are eligible for sale under Rule 144, without the requirement for
the Company to be in compliance with the current public information
required under Rule 144 as to such Shares and Warrant Shares and without
volume or manner-of-sale restrictions, or (iv) if such legend is not
required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue a legal opinion
to the Transfer Agent promptly after the Effective Date if required by the
Transfer Agent to effect the removal of the legend hereunder. If all or
any portion of a Warrant is exercised at a time when there is an
- 28 -
effective registration statement to cover the resale of the Warrant
Shares, or if such Shares or Warrant Shares may be sold under Rule 144 and
the Company is then in compliance with the current public information
required under Rule 144, or if the Shares or Warrant Shares may be sold
under Rule 144 without the requirement for the Company to be in compliance
with the current public information required under Rule 144 as to such
Shares or Warrant Shares or if such legend is not otherwise required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission)
then such Warrant Shares shall be issued free of all legends. The Company
agrees that following the Effective Date or at such time as such legend is
no longer required under this Section 4.1(c), it will, no later than three
Trading Days following the delivery by a Purchaser to the Company or the
Transfer Agent of (y) a certificate representing Shares or Warrant Shares,
as the case may be, issued with a restrictive legend and (z) solely in
connection with the removal of a legend under clauses (ii) and (iii)
herein, a customary Rule 144 representation letter confirming acquisition
date and affiliate status (such third Trading Day after the delivery of
(y) and, as applicable, (z) herein, the "Legend Removal Date"), deliver or
cause to be delivered to such Purchaser a certificate representing such
shares that is free from all restrictive and other legends. The Company
may not make any notation on its records or give instructions to the
Transfer Agent that enlarge the restrictions on transfer set forth in this
Section 4. Certificates for Securities subject to legend removal
hereunder shall be transmitted by the Transfer Agent to the Purchaser by
crediting the account of the Purchaser's prime broker with the Depository
Trust Company System as directed by such Purchaser.
(d) In addition to such Purchaser's other available
remedies, the Company shall pay to a Purchaser, in cash, as partial
liquidated damages and not as a penalty, for each $1,000 of Shares or
Warrant Shares (based on the VWAP of the Common Stock on the date such
Securities are submitted to the Transfer Agent) delivered for removal of
the restrictive legend and subject to Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day five (5) Trading Days after such
damages have begun to accrue) for each Trading Day after the Legend
Removal Date until such certificate is delivered without a legend. Nothing
herein shall limit such Purchaser's right to pursue actual damages for the
Company's failure to deliver certificates representing any Securities as
required by the Transaction Documents, and such Purchaser shall have the
right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.
- 29 -
(e) Each Purchaser, severally and not jointly with the
other Purchasers, agrees with the Company that such Purchaser will sell
any Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery requirements,
or an exemption therefrom, and that if Securities are sold pursuant to a
Registration Statement, they will be sold in compliance with the plan of
distribution set forth therein, and acknowledges that the removal of the
restrictive legend from certificates representing Securities as set forth
in this Section 4.1 is predicated upon the Company's reliance upon this
understanding.
4.2Furnishing of Information; Public Information.
(a) If the Common Stock is not registered under Section
12(b) or 12(g) of the Exchange Act on the date hereof, the Company agrees
to cause the Common Stock to be registered under Section 12(g) of the
Exchange Act on or before the 60[th] calendar day following the date
hereof. Until the time that no Purchaser owns Securities (other than
Warrants that have expired pursuant to their terms), the Company covenants
to maintain the registration of the Common Stock under Section 12(b) or
12(g) of the Exchange Act and to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act even if the Company is not then subject to the reporting
requirements of the Exchange Act. As long as any Purchaser owns
Securities (other than Warrants that have expired pursuant to their
terms), if the Company is not required to file reports pursuant to the
Exchange Act, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities, including without
limitation, under Rule 144. The Company further covenants that it will
take such further action as any holder of Securities may reasonably
request, to the extent required from time to time to enable such Person to
sell such Securities without registration under the Securities Act,
including without limitation, within the requirements of the exemption
provided by Rule 144.
(b) At any time during the period commencing from the six
(6) month anniversary of the date hereof and ending at such time that all
of the Securities may be sold without the requirement for the Company to
be in compliance with Rule 144(c)(1) and otherwise without restriction or
limitation pursuant to Rule 144, if the Company shall fail for any reason
to satisfy the current public information requirement under Rule 144(c) (a
"Public Information Failure") then, in addition to such Purchaser's other
available remedies, the Company shall pay to a Purchaser, in cash, as
partial liquidated damages and not as a penalty, by reason of any such
delay in or reduction of its ability to sell
- 30 -
the Securities, an amount in cash equal to one and one-half percent (1.5%)
of the aggregate Subscription Amount of such Purchaser's Securities on the
day of a Public Information Failure and on every thirtieth (30[th]) day
(pro rated for periods totaling less than thirty days) thereafter until
the earlier of (a) the date such Public Information Failure is cured and
(b) such time that such public information is no longer required for the
Purchasers to transfer the Shares and Warrant Shares pursuant to Rule
144. The payments to which a Purchaser shall be entitled pursuant to this
Section 4.2(b) are referred to herein as "Public Information Failure
Payments." Public Information Failure Payments shall be paid on the
earlier of (i) the last day of the calendar month during which such Public
Information Failure Payments are incurred and (ii) the third (3[rd])
Business Day after the event or failure giving rise to the Public
Information Failure Payments is cured. In the event the Company fails to
make Public Information Failure Payments in a timely manner, such Public
Information Failure Payments shall bear interest at the rate of 1.5% per
month (prorated for partial months) until paid in full. Nothing herein
shall limit such Purchaser's right to pursue actual damages for the Public
Information Failure, and such Purchaser shall have the right to pursue all
remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
4.3Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities or that would be integrated with
the offer or sale of the Securities for purposes of the rules and regulations of
any Trading Market such that it would require shareholder approval prior to the
closing of such other transaction unless shareholder approval is obtained before
the closing of such subsequent transaction.
4.4Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m.
(New York City time) on the Trading Day immediately following the date hereof,
issue a Current Report on Form 8-K and press release disclosing the material
terms of the transactions contemplated hereby, and including the Transaction
Documents as exhibits thereto. From and after the issuance of such press
release, the Company shall have publicly disclosed all material, non-public
information delivered to any of the Purchasers by the Company or any of its
subsidiaries, or any of their respective officers, directors, employees or
agents in connection with the transactions contemplated by the Transaction
Documents. The Company and each Purchaser shall consult with each other in
issuing any other press releases with respect to the transactions contemplated
hereby, and neither the Company nor any Purchaser shall issue any such press
release nor
- 31 -
otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of any Purchaser, or without the
prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld or delayed, except if
such disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except: (a) as required by federal
securities law in connection with (i) any registration statement contemplated by
the Registration Rights Agreement and (ii) the filing of final Transaction
Documents (including signature pages thereto) with the Commission and (b) to the
extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide the Purchasers with prior notice of such
disclosure permitted under this clause (b).
4.5Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that any
Purchaser is an "Acquiring Person" under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that any Purchaser could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and the
Purchasers.
4.6Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company covenants and agrees that neither it, nor any other Person acting on its
behalf, will provide any Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Purchaser shall have executed a written agreement with the
Company regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
covenant in effecting transactions in securities of the Company.
4.7Use of Proceeds. Except as set forth on Schedule 4.7 attached hereto,
the Company shall use the net proceeds from the sale of the Securities hereunder
for working capital purposes and shall not use such proceeds for: (a) the
satisfaction of any portion of the Company's debt (other than payment of trade
payables in the ordinary course of the Company's business and prior practices),
(b) the redemption of any Common Stock or Common Stock Equivalents, (c) the
settlement of any outstanding litigation or (d) in violation of the FCPA or OFAC
regulations.
- 32 -
4.8Indemnification of Purchasers. Subject to the provisions of this
Section 4.8, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a Purchaser
in any capacity, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser's representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by such Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser Party in
respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of counsel, a material conflict on any material issue between
the position of the Company and the position of such Purchaser Party, in which
case the Company shall be responsible for the reasonable fees and expenses of no
more than one such separate counsel. The Company will not be liable to any
Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party
effected without the Company's prior written consent, which shall not be
unreasonably withheld or delayed; or (z) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party's
breach of any of the representations,
- 33 -
warranties, covenants or agreements made by such Purchaser Party in this
Agreement or in the other Transaction Documents. The indemnification required
by this Section 4.8 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or are incurred. The indemnity agreements contained herein shall be in
addition to any cause of action or similar right of any Purchaser Party against
the Company or others, and (y) any liabilities the Company may be subject to
pursuant to law.
4.9Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement and Warrant Shares pursuant to any exercise of the Warrants.
4.10 Listing of Common Stock. The Company hereby agrees to use best
efforts to maintain the listing or quotation of the Common Stock on the Trading
Market on which it is currently listed, and concurrently with the Closing, the
Company shall apply to list or quote all of the Shares and Warrant Shares on
such Trading Market and promptly secure the listing of all of the Shares and
Warrant Shares on such Trading Market. The Company further agrees, if the
Company applies to have the Common Stock traded on any other Trading Market, it
will then include in such application all of the Shares and Warrant Shares, and
will take such other action as is necessary to cause all of the Shares and
Warrant Shares to be listed or quoted on such other Trading Market as promptly
as possible. The Company will then take all action reasonably necessary to
continue the listing or quotation and trading of its Common Stock on a Trading
Market and will comply in all respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the Trading Market.
4.11 [RESERVED]
4.12 Subsequent Equity Sales.
(a)From the date hereof until seventy five (75) days after the
Effective Date, neither the Company nor any Subsidiary shall issue, enter into
any agreement to issue or announce the issuance or proposed issuance of any
shares of Common Stock or Common Stock Equivalents; provided, however, that the
75-day period set forth in this Section 4.12 shall be extended for the number of
Trading Days during such period in which (i) trading in the Common Stock is
suspended by any Trading Market, or (ii) following the Effective Date, the
Registration Statement is not effective or the prospectus included in the
Registration Statement may not be used by the Purchasers for the resale of the
Shares and Warrant Shares.
- 34 -
(b)From the date hereof until such time as no Purchaser holds any of
the Securities, the Company shall be prohibited from effecting or entering into
an agreement to effect any issuance by the Company or any of its Subsidiaries of
Common Stock or Common Stock Equivalents for cash consideration (or a
combination of units thereof) involving a Variable Rate Transaction. "Variable
Rate Transaction" means a transaction in which the Company (i) issues or sells
any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive, additional shares of Common
Stock either (A) at a conversion price, exercise price or exchange rate or other
price that is based upon, and/or varies with, the trading prices of or
quotations for the shares of Common Stock at any time after the initial issuance
of such debt or equity securities or (B) with a conversion, exercise or exchange
price that is subject to being reset at some future date after the initial
issuance of such debt or equity security or upon the occurrence of specified or
contingent events directly or indirectly related to the business of the Company
or the market for the Common Stock or (ii) enters into any agreement, including,
but not limited to, an equity line of credit, whereby the Company may sell
securities at a future determined price. Any Purchaser shall be entitled to
obtain injunctive relief against the Company to preclude any such issuance,
which remedy shall be in addition to any right to collect damages.
(c)Notwithstanding the foregoing, this Section 4.12 shall not apply
in respect of an Exempt Issuance, except that no Variable Rate Transaction shall
be an Exempt Issuance.
4.13 Equal Treatment of Purchasers. No consideration (including any
modification of any Transaction Document) shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration is also offered to all of
the parties to the Transaction Documents. For clarification purposes, this
provision constitutes a separate right granted to each Purchaser by the Company
and negotiated separately by each Purchaser, and is intended for the Company to
treat the Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.
4.14 Certain Transactions and Confidentiality. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that neither it, nor any
Affiliate acting on its behalf or pursuant to any understanding with it will
execute any purchases or sales, including Short Sales, of any of the Company's
securities during the period commencing with the execution of this Agreement and
ending at such time that the transactions contemplated by this Agreement are
first publicly announced pursuant to the initial press release as described in
Section 4.4. Each Purchaser, severally and not jointly with the other
Purchasers, covenants that until such time as the transactions contemplated by
this Agreement are publicly disclosed by the Company
- 35 -
pursuant to the initial press release as described in Section 4.4, such
Purchaser will maintain the confidentiality of the existence and terms of this
transaction and the information included in the Transaction Documents and the
Disclosure Schedules. Notwithstanding the foregoing, and notwithstanding
anything contained in this Agreement to the contrary, the Company expressly
acknowledges and agrees that (i) no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in effecting transactions in any
securities of the Company after the time that the transactions contemplated by
this Agreement are first publicly announced pursuant to the initial press
release as described in Section 4.4, (ii) no Purchaser shall be restricted or
prohibited from effecting any transactions in any securities of the Company in
accordance with applicable securities laws from and after the time that the
transactions contemplated by this Agreement are first publicly announced
pursuant to the initial press release as described in Section 4.4 and (iii) no
Purchaser shall have any duty of confidentiality to the Company or its
Subsidiaries after the issuance of the initial press release as described in
Section 4.4. Notwithstanding the foregoing, in the case of a Purchaser that is
a multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser's assets, the covenant set forth above
shall only apply with respect to the portion of assets managed by the portfolio
manager that made the investment decision to purchase the Securities covered by
this Agreement.
4.15 Form D; Blue Sky Filings. The Company agrees to timely file a Form
D with respect to the Securities as required under Regulation D and to provide a
copy thereof, promptly upon request of any Purchaser. The Company shall take
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at the Closing under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.
4.16 Capital Changes. Until the nine month anniversary of the Effective
Date, the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of the
Purchasers holding a majority in interest of the Shares.
4.17 Delivery of Securities After Closing. The Company shall deliver, or
cause to be delivered, the respective Securities purchased by each Purchaser to
such Purchaser within 3 Trading Days of the Closing Date.
- 36 -
4.18 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including, without limitation, its obligation to issue the Shares and
Warrant Shares pursuant to the Transaction Documents, are unconditional and
absolute and not subject to any right of set off, counterclaim, delay or
reduction, regardless of the effect of any such dilution or any claim the
Company may have against any Purchaser and regardless of the dilutive effect
that such issuance may have on the ownership of the other stockholders of the
Company.
4.19 Corporate Milestone.
(a)The Company shall achieve at least $4,000,000 in Adjusted EBITDA,
on a consolidated basis with each of the Subsidiaries for the fiscal year ending
December 31, 2010, as disclosed in the Company's Form 10-K for the fiscal year
ending December 31, 2010 (the "2010 EBITDA Milestone", the date of disclosure of
such 2010 EBITDA Milestone, including any permitted extensions, the "2010 EBITDA
Milestone Date" and such 10-K, the "2010 10-K"). If the Company fails to
achieve the 2010 EBITDA Milestone, then, in accordance with the terms of the
Share Escrow Agreement, the Share Escrow Agent will transfer to the Purchasers
from such escrow account, on a pro-rata basis (based on such Purchaser's
Subscription Amount and the aggregate Subscription Amount hereunder), an
aggregate number of shares of Common Stock equal to the following formula:
- -------------------------
| E | | |
- ---------------
|((A / B) X D)| | |
- -------------------------
For the purposes of the foregoing formula:
A = 2010 Adjusted EBITDA
B = 2010 EBITDA Milestone
C = Total number of Shares issued to the Purchasers
hereunder
D = $4.50
E = Total Subscription Amount
In the event that the Company fails to file the 2010 10-K with the
Commission on or before the last date that such form is required to be filed
(after any permitted extensions under the Exchange Act), the Company shall be
irrevocably deemed to have failed to achieve the 2010 EBITDA Milestone, and the
2010 EBITDA Milestone Date shall be deemed to be the last date that the Company
was permitted to file the 2010 10-K (after any permitted extensions under the
Exchange Act). In addition, notwithstanding anything herein to the contrary, in
the event that the Company reports an Adjusted EBITDA
- 37 -
for the fiscal year ending December 31, 2010 of $2,000,000 or less or the
Company fails to file its 2010 10-K with the Commission on or before the last
date that such form is required to be filed (after any permitted extensions
under the Exchange Act), all of the Make Good Shares (as defined below) shall be
issued pro-rata to the Purchasers (based on such Purchaser's Subscription Amount
and the aggregate Subscription Amount hereunder).
(b) On or before April 22, 2010, the Company shall deliver newly
issued shares of Common Stock, which, added to the Executive Make Good Shares,
shall equal the number of Shares issued to the Purchasers hereunder (the
"Company Make Good Shares"), to the Share Escrow Agent for deposit in the escrow
account pursuant to the Share Escrow Agreement. The parties hereto acknowledge
that, as of the date hereof and pursuant to the 2008 Share Escrow Agreement,
Company counsel as escrow agent holds in escrow 1,620,954 shares of Common Stock
that were deposited by the Wangs (such shares, "Executive Make Good Shares" and,
together with the Company Make Good Shares, the "Make Good Shares") and that,
subject to the terms and conditions of the 2008 Share Escrow Agreement, all or a
portion of the Executive Make Good Shares shall be transferred by Company
counsel as escrow agent to the Share Escrow Agent to be held in escrow and
distributed in accordance with the terms and conditions of the Share Escrow
Agreement.
(c) [RESERVED]
(d) Within five days after the determination of the number of
Escrow Shares to which the Purchasers are entitled calculated in the manner set
forth above the Purchasers and the Company shall give joint written instructions
to the Share Escrow Agent to, and upon receipt of such written instructions, the
Share Escrow Agent shall, within five Business Days after receipt of such
instructions deliver to the Purchasers on a "pro rata" basis (based on such
Purchaser's Subscription Amount and the aggregate Subscription Amount hereunder)
such number of Make Good Shares. If less than all of the Make Good Shares are
delivered to the Purchasers, the Share Escrow Agent shall return the
undistributed Make Good Shares to the Wangs, or the Company, as the case may be,
pursuant to the joint instructions of the Purchasers and the Company.
(e) Notwithstanding anything to the contrary set forth herein,
only those Purchasers who own the Shares issued hereunder and remain
shareholders of the Company at the time that any of the Make Good Shares become
deliverable hereunder shall be entitled to their pro rata portion of the Make
Good Shares calculated based on their ownership interest at the time when the
applicable Make Good Shares become deliverable.
(f) For clarity and avoidance of doubt, all references to share
prices and shares of Common Stock in this Section 4.19 shall be subject to
adjustment for reverse and forward stock splits, stock
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dividends, stock combinations and other similar transactions of the Common Stock
that occur after the date of this Agreement.
ARTICLE V.
MISCELLANEOUS
5.1Termination. This Agreement may be terminated by any Purchaser, as to
such Purchaser's obligations hereunder only and without any effect whatsoever on
the obligations between the Company and the other Purchasers, by written notice
to the other parties, if the Closing has not been consummated on or before
February 3, 2010; provided, however, that such termination will not affect the
right of any party to sue for any breach by the other party (or parties).
5.2Fees and Expenses. At the Closing, the Company has agreed to reimburse
Ladenburg Thalmann & Co., Inc. ("Ladenburg") the non-accountable sum of $20,000
for its legal fees and expenses, $10,000 of which has been paid prior to the
Closing. Except as expressly set forth in the Transaction Documents to the
contrary, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all Transfer Agent fees,
stamp taxes and other taxes and duties levied in connection with the delivery of
any Securities to the Purchasers.
5.3Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of: (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second (2[nd]) Trading Day following the date of mailing, if sent
by U.S. nationally recognized overnight courier service or (d) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as set forth on the signature pages
attached hereto.
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5.5Amendments; Waivers. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and the Purchasers holding at least 67% in
interest of the Shares then outstanding or, in the case of a waiver, by the
party against whom enforcement of any such waived provision is sought. No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right.
5.6Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.7Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser (other than by merger). Any
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities, provided that such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to the
"Purchasers."
5.8No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.8.
Notwithstanding the foregoing, the parties hereto agree and acknowledge that
Ladenburg shall be a third party beneficiary of the representations and
warranties of the Company that are set forth in Section 3.1 herein.
5.9Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection
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herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents),
and hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper or is an
inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law. If either party shall
commence an action or proceeding to enforce any provisions of the Transaction
Documents, then in addition to the obligations of the Company under Section 4.8,
the prevailing party in such action or proceeding shall be reimbursed by the
other party for its reasonable attorneys' fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such action or
proceeding.
5.10 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery of the Securities.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a ".pdf" format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or ".pdf" signature page were an original
thereof.
5.12 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
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5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) any of
the other Transaction Documents, whenever any Purchaser exercises a right,
election, demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided, then
such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights; provided,
however, that in the case of a rescission of an exercise of a Warrant, the
applicable Purchaser shall be required to return any shares of Common Stock
subject to any such rescinded exercise notice concurrently with the return to
such Purchaser of the aggregate exercise price paid to the Company for such
shares and the restoration of such Purchaser's right to acquire such shares
pursuant to such Purchaser's Warrant (including, issuance of a replacement
warrant certificate evidencing such restored right).
5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof (in the case of mutilation), or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agree to waive and
not to assert in any action for specific performance of any such obligation the
defense that a remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally
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intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such enforcement or setoff had not
occurred.
5.17 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to independently
protect and enforce its rights, including, without limitation, the rights
arising out of this Agreement or out of the other Transaction Documents, and it
shall not be necessary for any other Purchaser to be joined as an additional
party in any proceeding for such purpose. Each Purchaser has been represented
by its own separate legal counsel in their review and negotiation of the
Transaction Documents. For reasons of administrative convenience only, each
Purchaser and its respective counsel have chosen to communicate with the Company
through WS. WS does not represent any of the Purchasers and only represents
Ladenburg as placement agent. The Company has elected to provide all Purchasers
with the same terms and Transaction Documents for the convenience of the Company
and not because it was required or requested to do so by any of the Purchasers.
5.18 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.19 Saturdays, Sundays, Holidays, etc. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall not be a Business Day, then such action may be taken or
such right may be exercised on the next succeeding Business Day.
5.20 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto. In
addition,
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each and every reference to share prices and shares of Common Stock in any
Transaction Document shall be subject to adjustment for reverse and forward
stock splits, stock dividends, stock combinations and other similar transactions
of the Common Stock that occur after the date of this Agreement.
5.21 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY
JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH
KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW,
HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER
TRIAL BY JURY.
(Signature Pages Follow)
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IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
WORLDWIDE ENERGY AND MANUFACTURING USA, INC. Address for Notice:
Mr. Jimmy Wang
President and Chief Executive Officer
Worldwide Manufacturing USA, Inc.
408 N. Canal Street, Unit A&B,
South San Francisco, California 94080
By:__________________________________________ Fax: (650) 794-9878
Name: Jimmy Wang
Title: Chief Executive Officer
With a copy to (which shall not constitute notice):
DARRIN M. OCASIO
SICHENZIA ROSS FRIEDMAN FERENCE LLP
61 BROADWAY, NEW YORK, NEW YORK 10006
FAX (212 ) 930-9725
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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[PURCHASER SIGNATURE PAGES TO WEMU SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: __________________________________________
Signature of Authorized Signatory of Purchaser: __________________
Name of Authorized Signatory: __________________
Title of Authorized Signatory: ________________
Email Address of Authorized Signatory: __________
Facsimile Number of Authorized Signatory:_______________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser
(if not same as address for notice):
Subscription Amount: $_________________
Shares: _________________
Warrant Shares: __________________
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
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