EXHIBIT 10.1
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▇▇▇▇▇▇, INC.
SECURITIES PURCHASE AGREEMENT
January 14, 2004
TABLE OF CONTENTS
Page
1. AGREEMENT TO SELL AND PURCHASE........................................1
2. FEES..................................................................1
3. CLOSING, DELIVERY AND PAYMENT.........................................2
3.1 Closing......................................................2
3.2 Delivery.....................................................2
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................2
4.1 Organization, Good Standing and Qualification................2
4.2 Subsidiaries.................................................2
4.3 Capitalization; Voting Rights................................3
4.4 Authorization; Binding Obligations...........................3
4.5 Liabilities..................................................4
4.6 Agreements; Action...........................................4
4.7 Obligations to Related Parties...............................4
4.8 Changes......................................................5
4.9 Title to Properties and Assets; Liens, Etc...................6
4.10 Intellectual Property........................................6
4.11 Compliance with Other Instruments............................7
4.12 Litigation...................................................7
4.13 Tax Returns and Payments.....................................7
4.14 Employees....................................................7
4.15 Registration Rights and Voting Rights........................8
4.16 Compliance with Laws; Permits................................8
4.17 Environmental and Safety Laws................................8
4.18 Valid Offering...............................................9
4.19 Full Disclosure..............................................9
4.20 Insurance....................................................9
4.21 SEC Reports..................................................9
4.22 Listing.....................................................10
4.23 No Integrated Offering......................................10
4.24 Stop Transfer...............................................10
0 Dilution....................................................10
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5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.....................10
5.1 Requisite Power and Authority...............................10
5.2 Investment Representations..................................10
5.3 Purchaser Bears Economic Risk...............................11
5.4 Acquisition for Own Account.................................11
5.5 Purchaser Can Protect Its Interest..........................11
5.6 Accredited Investor.........................................11
5.7 Legends.....................................................11
6. COVENANTS OF THE COMPANY.............................................12
6.1 Stop-Orders.................................................12
6.2 Listing.....................................................12
6.3 Market Regulations..........................................12
6.4 Reporting Requirements.....................................13
6.5 Use of Funds................................................13
6.6 Access to Facilities........................................13
6.7 Taxes.......................................................13
6.8 Insurance...................................................13
6.9 Intellectual Property.......................................13
6.10 Properties..................................................13
6.11 Confidentiality.............................................14
6.12 Required Approvals..........................................14
6.13 Reissuance of Securities....................................14
6.14 Opinion.....................................................14
6. COVENANTS OF THE COMPANY.............................................15
6.11 Confidentiality.............................................15
6.14. COVENANTS OF THE COMPANY AND PURCHASERS REGARDING INDEMNIFICATION....15
8.1 Company Indemnification.....................................15
8.2 Purchaser's Indemnification.................................15
8.3 Procedures..................................................15
9. CONVERSION OF CONVERTIBLE NOTES......................................16
9.1 Mechanics of Conversion.....................................16
0 Maximum Conversion..........................................17
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10. REGISTRATION RIGHTS..................................................17
0 Registration Rights Granted.................................17
10.2 Indemnification and Contribution............................17
11. RIGHT OF FIRST REFUSAL...............................................19
11 Offering Restrictions.......................................19
12. COLLATERAL...........................................................19
13. MISCELLANEOUS........................................................21
13.1 Governing Law...............................................21
13.2 Survival....................................................21
13.3 Successors and Assigns......................................22
13.4 Entire Agreement............................................22
13.5 Severability................................................22
13.6 Amendment and Waiver........................................22
13.7 Delays or Omissions.........................................22
13.8 Notices.....................................................22
13.9 Attorneys' Fees.............................................23
13.10 Titles and Subtitles........................................23
13.11 Counterparts................................................23
13.12 Broker's Fees...............................................23
13.13 Construction................................................23
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▇▇▇▇▇▇, INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of January 14, 2004, by and between ▇▇▇▇▇▇, Inc., a Delaware corporation
(the "Company"), and Laurus Master Fund, Ltd., a Cayman Islands company (the
"Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
convertible note in the aggregate principal amount of $1,500,000 (the "Note"),
which Note is convertible into shares of the Company's common stock, $0.01 par
value per share (the "Common Stock") at a fixed conversion price of $3.50 per
share of Common Stock ("Fixed Conversion Price");
WHEREAS, Purchaser desires to purchase the Note on the terms and conditions
set forth herein; and
WHEREAS, the Company desires to issue and sell the Note to Purchaser on the
terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company a Note in the amount of $1,500,000 , convertible in
accordance with the terms thereof into shares of the Company's Common Stock in
accordance with the terms of the Note and this Agreement. The Note purchased on
the Closing Date shall be known as the "Offering." A form of the Note is annexed
hereto as Exhibit A. The Note will have a Maturity Date (as defined in the Note)
twenty four (24) months from the date of issuance. Collectively, the Note and
Common Stock issuable in payment of the Note, upon conversion of the Note are
referred to as the "Securities."
2. FEES. On the Closing Date:
(a) Upon execution and delivery of this Agreement by the Company
and Purchaser, the Company shall pay to Laurus Capital Management, LLC, manager
of the Purchaser, (i) a closing payment in an amount equal to three (3%) of the
aggregate principal amount of the Note. The foregoing fee is referred to herein
as the "Closing Payment".
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(b) The Company shall reimburse the Purchaser for its reasonable
legal fees for services rendered to the Purchaser in preparation of this
Agreement, the Related Agreements and relevant matters. Amounts required to be
paid hereunder will be paid at the Closing and shall be $15,000.
(c) The Closing Payment and legal fees shall be paid at the
Closing out of funds held pursuant to a Funds Escrow Agreement, of even date
herewith among the Company, Purchaser and an Escrow Agent (the "Funds Escrow
Agreement").
3. CLOSING, DELIVERY AND PAYMENT.
3.1 Closing. Subject to the terms and conditions herein, the closing
of the transactions contemplated hereby (the "Closing"), shall take place on the
date hereof, at such time or place as the Company and Purchaser may mutually
agree (such date is hereinafter referred to as the "Closing Date").
3.2 Delivery. Pursuant to the Funds Escrow Agreement, in the form
attached as Exhibit C, at the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Escrow Agent, among other things, a Note
in the form attached as Exhibit A representing the principal amount of
$1,500,000 and the Purchaser will deliver to the Escrow Agent, among other
things, $1,500,000 , by certified funds or wire transfer made payable to the
order of the Escrow Agent.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as of the
date of this Agreement as set forth below which disclosures are supplemented by,
and subject to the Company's filings and other filings identifying the Company
as issuer under the Securities Exchange Act of 1934 (collectively, the "Exchange
Act Filings"), copies of which have been provided to the Purchaser.
4.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has the corporate power and authority to
own and operate its properties and assets, to execute and deliver this
Agreement, , the Funds Escrow Agreement and all other agreements referred to
herein (collectively, the "Related Agreements"), to issue and sell the Note and
the shares of Common Stock issuable upon conversion of the Note (the "Note
Shares") (in the case of the Company only), , and to carry out the provisions of
this Agreement and the Related Agreements and to carry on its business as
presently conducted. The Company is duly qualified and is authorized to do
business and is in good standing as a foreign corporation in all jurisdictions
in which the nature of its activities and of its properties (both owned and
leased) makes such qualification necessary, except for those jurisdictions in
which failure to do so would not have a material adverse effect on the Company
or its business.
4.2 Subsidiaries. Except as disclosed on Schedule 4.2, the Company
does not own or control any equity security or other interest of any other
corporation, limited partnership or other business entity.
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4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, as of September
30, 2003 , consists of 20,000,000 shares of Common Stock, par value $0.01 per
share, 13,942,238 shares of which are issued and outstanding and 10,000,000
shares preferred stock, par value $1.00 per share of which 190,000 shares are
outstanding.
(b) Except as disclosed on Schedule 4.3, other than (i) the
shares reserved for issuance under the Company's stock option plans; and (ii)
shares which may be granted pursuant to this Agreement and the Related
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Neither the
offer, issuance or sale of any of the Note or the issuance of any of the Note
Shares , nor the consummation of any transaction contemplated hereby will result
in a change in the price or number of any securities of the Company outstanding,
under anti-dilution or other similar provisions contained in or affecting any
such securities.
(c) All issued and outstanding shares of the Company's Common
Stock (i) have been duly authorized and validly issued and are fully paid and
nonassessable and (ii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the
shares of the Common Stock are as stated in the Company's Certificate of
Incorporation (the "Charter"). The Note Shares have been duly and validly
reserved for issuance. When issued in compliance with the provisions of this
Agreement and the Company's Charter, the Securities will be validly issued,
fully paid and nonassessable, and will be free of any liens or encumbrances;
provided, however, that the Securities may be subject to restrictions on
transfer under state and/or federal securities laws as set forth herein or as
otherwise required by such laws at the time a transfer is proposed.
4.4 Authorization; Binding Obligations. All corporate action on the
part of the Company, its officers and directors necessary for the authorization
of this Agreement and the Related Agreements, the performance of all obligations
of the Company hereunder at the Closing and, the authorization, sale, issuance
and delivery of the Note has been taken or will be taken prior to the Closing.
The Agreement and the Related Agreements, when executed and delivered and to the
extent it is a party thereto, will be valid and binding obligations of the
Company enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights, and (b) general
principles of equity that restrict the availability of equitable or legal
remedies. The sale of the Note and the subsequent conversion of the Note into
Note Shares are not and will not be subject to any preemptive rights or rights
of first refusal that have not been properly waived or complied with. The Note,
when executed and delivered in accordance with the terms of this Agreement, will
be valid and binding obligations of the Company, enforceable in accordance with
their respective terms.
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4.5 Liabilities. Except as set forth in Schedule 4.5, the Company, to
the best of its knowledge, knows of no material contingent liabilities, except
current liabilities incurred in the ordinary course of business and liabilities
disclosed in any Exchange Act Filings.
4.6 Agreements; Action. Except as set forth on Schedule 4.6 or as
disclosed in any Exchange Act Filings:
(a) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or to its knowledge by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $50,000 (except for 2003, for which such limit shall be
$175,000) (other than obligations of, or payments to, the Company arising from
purchase or sale agreements entered into in the ordinary course of business), or
(ii) the transfer or license of any patent, copyright, trade secret or other
proprietary right to or from the Company (other than licenses arising from the
purchase or sale of "off the shelf" or other standard products), or (iii)
provisions restricting the development, manufacture or distribution of the
Company's products or services, or (iv) indemnification by the Company with
respect to infringements of proprietary rights (other than obligations of the
Company arising from purchase or sale agreements entered into in the ordinary
course of business).
(b) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate, (iii) made any loans or advances to any person not in
excess, individually or in the aggregate, of $100,000, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
4.7 Obligations to Related Parties. Except as set forth on Schedule
4.7, there are no obligations of the Company to officers, directors,
stockholders or employees of the Company other than (a) for payment of salary
for services rendered and for bonus payments, (b) reimbursement for reasonable
expenses incurred on behalf of the Company, (c) for other standard employee
benefits made generally available to all employees (including stock option
agreements outstanding under any stock option plan approved by the Board of
Directors of the Company) and (d) obligations listed in the Company's financial
statements or disclosed in any of its Exchange Act Filings. Except as described
above or set forth on Schedule 4.7, none of the officers, directors or, to the
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best of the Company's knowledge, key employees or stockholders of the Company or
any members of their immediate families, are indebted to the Company,
individually or in the aggregate, in excess of $50,000 or have any direct or
indirect ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company, other than passive investments in
publicly traded companies (representing less than 1% of such company) which may
compete with the Company. Except as described above, no officer, director or
stockholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company and no
agreements, understandings or proposed transactions are contemplated between the
Company and any such person. Except as set forth on Schedule 4.7, the Company is
not a guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
4.8 Changes. Since September 30, 2003 , except as disclosed in any
Exchange Act Filing or in any Schedule to this Agreement or to any of the
Related Agreements, there has not been:
(a) Any change in the assets, liabilities, financial condition,
prospects or operations of the Company, other than changes in the ordinary
course of business, none of which individually or in the aggregate has had or is
reasonably expected to have a material adverse effect on such assets,
liabilities, financial condition, prospects or operations of the Company;
(b) Any resignation or termination of any officer, key employee
or group of employees of the Company;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) Any direct or indirect material loans made by the Company to
any stockholder, employee, officer or director of the Company, other than
advances made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity related to the Company;
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(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company is
a party or by which it is bound which may materially and adversely affect the
business, assets, liabilities, financial condition, operations or prospects of
the Company;
(m) Any other event or condition of any character that, either
individually or cumulatively, has or may materially and adversely affect the
business, assets, liabilities, financial condition, prospects or operations of
the Company; or
(n) Any arrangement or commitment by the Company to do any of the
acts described in subsection (a) through (m) above.
4.9 Title to Properties and Assets; Liens, Etc. Except as set forth on
Schedule 4.9, the Company has good and marketable title to its properties and
assets, and good title to its leasehold estates, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (a) those
resulting from taxes which have not yet become delinquent, (b) minor liens and
encumbrances which do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company, and (c)
those that have otherwise arisen in the ordinary course of business. All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by the Company are in good operating condition and repair and are
reasonably fit and usable for the purposes for which they are being used. Except
as set forth on Schedule 4.9, the Company is in compliance with all material
terms of each lease to which it is a party or is otherwise bound.
4.10 Intellectual Property.
(a) The Company owns or possesses sufficient legal rights to all
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes necessary for
its business as now conducted and to the Company's knowledge as presently
proposed to be conducted (the "Intellectual Property"), without any known
infringement of the rights of others. There are no outstanding options, licenses
or agreements of any kind relating to the foregoing proprietary rights, nor is
the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary rights
and processes of any other person or entity other than such licenses or
agreements arising from the purchase of "off the shelf" or standard products.
(b) Except as set forth on Schedule 4.10(b), the Company has not
received any communications alleging that the Company has violated any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity, nor is the Company aware
of any basis therefor.
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(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company, except for inventions,
trade secrets or proprietary information that have been rightfully assigned to
the Company.
4.11 Compliance with Other Instruments. Except as set forth on
Schedule 4.11, the Company is not in violation or default of any term of its
Charter or Bylaws, or of any material provision of any mortgage, indenture,
contract, agreement, instrument or contract to which it is party or by which it
is bound or of any judgment, decree, order or writ. The execution, delivery and
performance of and compliance with this Agreement and the Related Agreements to
which it is a party, and the issuance and sale of the Note by the Company and
the other Securities by the Company each pursuant hereto, will not, with or
without the passage of time or giving of notice, result in any such material
violation, or be in conflict with or constitute a default under any such term or
provision, or result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the Company or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
authorization or approval applicable to the Company, its business or operations
or any of its assets or properties.
4.12 Litigation. Except as set forth on Schedule 4.12, there is no
action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company that prevents the Company to
enter into this Agreement or the Related Agreements, or to consummate the
transactions contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company, nor is the Company aware
that there is any basis for any of the foregoing. The Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
4.13 Tax Returns and Payments. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it. Except as set
forth on Schedule 4.13, all taxes shown to be due and payable on such returns,
any assessments imposed, and to the Company's knowledge all other taxes due and
payable by the Company on or before the Closing, have been paid or will be paid
prior to the time they become delinquent. Except as set forth on Schedule 4.13,
the Company has not been advised (a) that any of its returns, federal, state or
other, have been or are being audited as of the date hereof, or (b) of any
deficiency in assessment or proposed judgment to its federal, state or other
taxes. The Company has no knowledge of any liability of any tax to be imposed
upon its properties or assets as of the date of this Agreement that is not
adequately provided for.
4.14 Employees. Except as set forth on Schedule 4.14, the Company has
no collective bargaining agreements with any of its employees. There is no labor
union organizing activity pending or, to the Company's knowledge, threatened
with respect to the Company. Except as disclosed in the Exchange Act Filings,
the Company is not a party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation plan or
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agreement. To the Company's knowledge, no employee of the Company, nor any
consultant with whom the Company has contracted, is in violation of any term of
any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business to be conducted
by the Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's contracts
with its independent contractors, will not result in any such violation. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company. The Company has
not received any notice alleging that any such violation has occurred. Except
for employees who have a current effective employment agreement with the
Company, no employee of the Company has been granted the right to continued
employment by the Company or to any material compensation following termination
of employment with the Company. The Company is not aware that any officer, key
employee or group of employees intends to terminate his, her or their employment
with the Company, nor does the Company have a present intention to terminate the
employment of any officer, key employee or group of employees.
4.15 Registration Rights and Voting Rights. Except as set forth on
Schedule 4.15 and except as disclosed in Exchange Act Filings, the Company is
presently not under any obligation, and has not granted any rights, to register
any of the Company's presently outstanding securities or any of its securities
that may hereafter be issued. Except as disclosed in Exchange Act Filings, to
the Company's knowledge, no stockholder of the Company has entered into any
agreement with respect to the voting of equity securities of the Company.
4.16 Compliance with Laws; Permits. Except as set forth on Schedule
4.16, to its knowledge, the Company is not in violation in any material respect
of any applicable statute, rule, regulation, order or restriction of any
domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties which
violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement and the
issuance of any of the Securities, except such as has been duly and validly
obtained or filed, or with respect to any filings that must be made after the
Closing, as will be filed in a timely manner. The Company has all material
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which would
materially and adversely affect the business, properties, prospects or financial
condition of the Company.
4.17 Environmental and Safety Laws. The Company is not in violation of
any applicable statute, law or regulation relating to the environment or
occupational health and safety, except for any violations that, individually or
in the aggregate, have not had and would not reasonably be expected materially
and adversely affect the business, properties, prospects or financial condition
of the Company, and to its knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
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No Hazardous Materials (as defined below) are used or have been used, stored, or
disposed of by the Company or, to the Company's knowledge, by any other person
or entity on any property owned, leased or used by the Company, except for any
use, storage or disposal that, individually or in the aggregate, have not had
and would not reasonably be expected materially and adversely affect the
business, properties, prospects or financial condition of the Company. For the
purposes of the preceding sentence, "Hazardous Materials" shall mean (a)
materials which are listed or otherwise defined as "hazardous" or "toxic" under
any applicable local, state, federal and/or foreign laws and regulations that
govern the existence and/or remedy of contamination on property, the protection
of the environment from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building materials, or (b)
any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the representations and
warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
4.19 Full Disclosure. The Company has provided the Purchaser with all
information requested by the Purchaser in connection with its decision to
purchase the Note, including all information the Company believes is reasonably
necessary to make such investment decision. Neither this Agreement, the exhibits
and schedules hereto, the Related Agreements nor any other document delivered by
the Company to Purchaser or its attorneys or agents in connection herewith or
therewith or with the transactions contemplated hereby or thereby, contain any
untrue statement of a material fact nor omit to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances in which they are made, not misleading. Any financial projections
and other estimates provided to the Purchaser by the Company were based on the
Company's experience in the industry and on assumptions of fact and opinion as
to future events which the Company, at the date of the issuance of such
projections or estimates, believed to be reasonable
4.20 Insurance. The Company has general commercial, product liability,
fire and casualty insurance policies with coverage customary for companies
similarly situated to the Company in the same or similar business.
4.21 SEC Reports. The Company has filed all proxy statements, reports
and other documents required to be filed by it under the Exchange Act. The
Company has furnished the Purchaser with copies of (i) its Annual Report on Form
10-K for the fiscal year ended December 31, 2002, (ii) its quarterly report on
From 10-Q for the period ended March 31, 2003, and (iii) its other filings
including Forms 8-K and Definitive Proxy made in 2003 (collectively, the "SEC
Reports"). Each SEC Report was, at the time of its filing, in substantial
compliance with the requirements of its respective form and none of the SEC
Reports, nor the financial statements (and the notes thereto) included in the
SEC Reports, as of their respective filing dates, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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4.22 Listing. The Company's Common Stock is traded on the OTCBB and
satisfies all requirements for the continuation of such trading. The Company has
not received any notice that its Common Stock will be ineligible to trade on the
the OTCBB or that its Common Stock does not meet all requirements for such
continued trading .
4.23 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions. Nor will the
Company or any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Securities to be so integrated with other
offerings.
4.24 Stop Transfer. The Securities are restricted securities as of the
date of this Agreement. The Company will not issue any stop transfer order or
other order impeding the sale and delivery of any of the Securities at such time
as the Securities are registered for public sale or an exemption from
registration is available, except as required by federal securities laws.
4.26 Dilution. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of the Note is
binding upon the Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other shareholders of the
Company.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company as follows
(such representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement):
5.1 Requisite Power and Authority. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
corporate action on Purchaser's part required for the lawful execution and
delivery of this Agreement and the Related Agreements have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights, and (b) as
limited by general principles of equity that restrict the availability of
equitable and legal remedies.
5.2 Investment Representations. Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement, including, without limitation, that the Purchaser is
an "accredited investor" within the meaning of Regulation D under the Securities
Act. The Purchaser has received or has had full access to all the information it
10
considers necessary or appropriate to make an informed investment decision with
respect to the Note to be purchased by it under this Agreement and the Note
Shares acquired by it upon the conversion of the Note. The Purchaser further has
had an opportunity to ask questions and receive answers from the Company
regarding the Company's business, management and financial affairs and the terms
and conditions of the Offering, the Note, and the Securities and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify any
information furnished to the Purchaser or to which the Purchaser had access.
5.3 Purchaser Bears Economic Risk. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment until the Securities are sold pursuant to (i) an effective
registration statement under the Securities Act, or (ii) an exemption from
registration is available.
5.4 Acquisition for Own Account. Purchaser is acquiring the Note and
the Note Shares for Purchaser's own account for investment only, and not as a
nominee or agent and not with a view towards or for resale in connection with
their distribution.
5.5 Purchaser Can Protect Its Interest. Purchaser represents that by
reason of its, or of its management's, business and financial experience,
Purchaser has the capacity to evaluate the merits and risks of its investment in
the Note and the Securities and to protect its own interests in connection with
the transactions contemplated in this Agreement, and the Related Agreements.
Further, Purchaser is aware of no publication of any advertisement in connection
with the transactions contemplated in the Agreement or the Related Agreements.
5.6 Accredited Investor. Purchaser represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
5.7 Legends.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR, IF APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE COMMON
STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO ▇▇▇▇▇▇, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
11
(b) The Note Shares, if not issued by DWAC system (as hereinafter
defined), shall bear a legend which shall be in substantially the following form
until such shares are covered by an effective registration statement filed with
the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF APPLICABLE, STATE
SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO ▇▇▇▇▇▇, INC.THAT SUCH
REGISTRATION IS NOT REQUIRED."
5.8 No Shorting. The Purchaser or any of its affiliates and investment
partners will not and will not cause any person or entity, directly or
indirectly, to engage in "short sales" of the Company's Common Stock or any
other hedging strategies.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Purchaser as follows:
6.1 Stop-Orders. The Company will advise the Purchaser, promptly after
it receives notice of issuance by the Securities and Exchange Commission (the
"SEC"), any state securities commission or any other regulatory authority of any
stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 Listing. As applicable., the Company shall promptly secure the
listing of the shares of Common Stock issuable upon conversion of the Note on
the Pink Sheets, the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ
National Market, American Stock Exchange or New York Stock Exchange (the
"Principal Market") upon which shares of Common Stock are then listed (subject
to official notice of issuance) and shall maintain such listing so long as any
other shares of Common Stock shall be so listed. The Company will maintain the
listing of its Common Stock on a Principal Market, and will comply in all
material respects with the Company's reporting, filing and other obligations
under the bylaws or rules of the National Association of Securities Dealers
("NASD") and such exchanges, as applicable.
6.3 Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to Purchaser
and promptly provide copies thereof to Purchaser.
12
6.4 Reporting Requirements. The Company will timely file with the SEC
all reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination.
6.5 Use of Funds. The Company agrees that it will use the proceeds of
the sale of the Note to finance the construction, installation and maintenance
of its traffic surveillance systems or for other general corporate purposes.
6.6 Access to Facilities. The Company will permit any representatives
designated by the Purchaser (or any successor of the Purchaser), upon reasonable
notice and during normal business hours, at such person's expense and
accompanied by a representative of the Company, to (a) visit and inspect any of
the properties of the Company, (b) examine the corporate and financial records
of the Company (unless such examination is not permitted by federal, state or
local law or by contract) and make copies thereof or extracts therefrom and (c)
discuss the affairs, finances and accounts of any such corporations with the
directors, officers and independent accountants of the Company. Notwithstanding
the foregoing, the Company will not provide any material, non-public information
to the Purchaser unless the Purchaser signs a confidentiality agreement and
otherwise complies with Regulation FD, under the federal securities laws.
6.7 Taxes. The Company will promptly pay and discharge, or cause to be
paid and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor.
6.8 Insurance. The Company will keep its assets which are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, explosion and other risks customarily insured against by
companies in similar business similarly situated as the Company; and the Company
will maintain, with financially sound and reputable insurers, insurance against
other hazards and risks and liability to persons and property to the extent and
in the manner customary for companies in similar business similarly situated as
the Company and to the extent available on commercially reasonable terms.
6.9 Intellectual Property. The Company shall maintain in full force
and effect its corporate existence, rights and franchises and all licenses and
other rights to use Intellectual Property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.
6.10 Properties. The Company will keep its properties in good repair,
working order and condition, reasonable wear and tear excepted, and from time to
time make all needful and proper repairs, renewals, replacements, additions and
improvements thereto; and the Company will at all times comply with each
13
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could reasonably be expected to have a
material adverse effect.
6.11 Confidentiality. The Company agrees that it will submit the text
of any public announcement using the name of the Purchaser to the Purchaser
prior to its dissemination, unless and until such disclosure is required by law
or applicable regulation, and then only to the extent of such requirement.
Unless the Purchaser shall specify its objections in writing to the Company
within 24 hours of its receipt of such public announcement, the Purchaser shall
be deemed to have given its consent to the to the text of the public
announcement.
6.12 Required Approvals. For so long as 50% of the principal amount of
the Note is outstanding, the Company, without the prior written consent of the
Purchaser, shall not:
(a) directly or indirectly declare or pay any dividends;
(b) liquidate, dissolve or effect a material reorganization;
(c) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its terms
would (under any circumstances) restrict the Company's right to perform the
provisions of this Agreement or any of the agreements contemplated thereby; or
(d) materially alter or change the scope of the business of the
Company.
6.13 Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.7 above at such time as (a) the holder thereof is permitted to dispose
of such Securities pursuant to Rule 144(k) under the Securities Act, or (b) upon
resale subject to an effective registration statement after such Securities are
registered under the Securities Act. The Company agrees to cooperate with the
Purchaser in connection with all resales pursuant to Rule 144(d) and Rule 144(k)
and provide legal opinions necessary to allow such resales provided the Company
and its counsel receive reasonably requested representations from the selling
Purchaser and broker, if any.
6.14 Opinion. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to the Purchaser from the Company's legal
counsel. The Company will provide, at the Company's expense, such other legal
opinions in the future as are reasonably necessary for the conversion of the
Note.
6.15 License. The Company hereby grants to Laurus an irrevocable,
non-exclusive license (exercisable only upon the occurrence and during the
continuance of an Event of Default without payment of royalty or other
compensation to the Company) to use, transfer, license or sublicense any
Intellectual Property now owned, licensed to, or hereafter acquired by the
Company, and wherever the same may be located, and including in such license
access to all media in which any of the licensed items may be recorded or stored
and to all computer and automatic machinery software and programs used for the
compilation or printout thereof, and represents, promises and agrees that any
such license or sublicense is not and will not be in conflict with the
14
contractual or commercial rights of any third Person; provided, that such
license will terminate on the termination of this agreement and the payment in
full of all Obligations. The powers granted to Laurus pursuant to this Section
6(15) shall (i) not be exercised by Laurus unless and until an Event of Default
shall have occurred and be continuing and (ii) shall be used solely to support
and maintain the Accounts of CrossingGuard, Inc. obtained as collateral.
7. COVENANTS OF THE PURCHASER. The Purchaser covenants and agrees with the
Company as follows:
7.1 Confidentiality. The Purchaser agrees that it will not disclose,
and will not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
7.2 Non-Public Information. The Purchaser agrees not to effect any
sales in the shares of the Company's Common Stock while in possession of
material, non-public information regarding the Company, unless permitted by
applicable securities law.
8. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.
8.1 Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend Purchaser, each of Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which results, arises out of or is based upon (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement, or (ii) any breach or default in performance by Company of any
covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
8.2 Purchaser's Indemnification. Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon (i) any
misrepresentation by Purchaser or breach of any warranty by Purchaser in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (ii) any breach or default in performance by Purchaser of any
covenant or undertaking to be performed by Purchaser hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
8.3 Procedures. The procedures and limitations set forth in Section
10.2 shall apply to the indemnifications set forth in Sections 8.1 and 8.2
above.
15
9. CONVERSION OF CONVERTIBLE NOTE.
9.1 Mechanics of Conversion.
(a) Provided the Purchaser has notified the Company of the
Purchaser's intention to sell the Note Shares and the Note Shares are included
in an effective registration statement or are otherwise exempt from registration
when sold: (i) Upon the conversion of the Note or part thereof, the Company
shall, at its own cost and expense, take all necessary action (including the
issuance of an opinion of counsel) to assure that the Company's transfer agent
shall issue shares of the Company's Common Stock in the name of the Purchaser
(or its nominee) or such other persons as designated by the Purchaser in
accordance with Section 9.1(b) hereof and in such denominations to be specified
representing the number of Note Shares issuable upon such conversion; and (ii)
The Company warrants that no instructions other than these instructions have
been or will be given to the transfer agent of the Company's Common Stock and
that after the Effective Date (as hereinafter defined) the Note Shares issued
will be freely transferable subject to the prospectus delivery requirements of
the Securities Act and the provisions of this Agreement, and will not contain a
legend restricting the resale or transferability of the Note Shares.
(b) Purchaser will give notice of its decision to exercise its
right to convert the Note or part thereof by telecopying or otherwise delivering
an executed and completed notice of the number of shares to be converted to the
Company (the "Notice of Conversion"). The Purchaser will not be required to
surrender the Note until the Purchaser receives a credit to the account of the
Purchaser's prime broker through the DWAC system (as defined below),
representing the Note Shares or until the Note has been fully satisfied. Each
date on which a Notice of Conversion is telecopied or delivered to the Company
in accordance with the provisions hereof shall be deemed a "Conversion Date."
The Company will cause the transfer agent to transmit the shares of the
Company's Common Stock issuable upon conversion of the Note (and a certificate
representing the balance of the Note not so converted, if requested by
Purchaser) to the Purchaser by crediting the account of the Purchaser's prime
broker with the Depository Trust Company ("DTC") through its Deposit Withdrawal
Agent Commission ("DWAC") system, if available to the Company's transfer agent,
within three (3) business days after receipt by the Company of the Notice of
Conversion (the "Delivery Date").
The Company understands that a delay in the delivery of the Note
Shares in the form required pursuant to Section 9 hereof beyond the Delivery
Date could result in economic loss to the Purchaser. In the event that the
Company fails to direct its transfer agent to deliver the Note Shares to the
Purchaser via the DWAC system within the time frame set forth in Section 9.1(b)
above and the Note Shares are not delivered to the Purchaser by the Delivery
Date, as compensation to the Purchaser for such loss, the Company agrees to pay
late payments to the Purchaser for late issuance of the Note Shares in the form
required pursuant to Section 9 hereof upon conversion of the Note in the amount
equal to the greater of (i) $500 per business day after the Delivery Date or
(ii) the Purchaser's actual damages from such delayed delivery. Notwithstanding
the foregoing, the Company will not owe the Purchaser any late payments if the
delay in the delivery of the Note Shares beyond the Delivery Date is out of the
control of the Company and the Company is actively trying to cure the cause of
the delay. The Company shall pay any payments incurred under this Section in
immediately available funds upon demand and, in the case of actual damages,
16
accompanied by reasonable documentation of the amount of such damages. Such
documentation shall show the number of shares of Common Stock the Purchaser is
forced to purchase (in an open market transaction) which the Purchaser
anticipated receiving upon such conversion, and shall be calculated as the
amount by which (A) the Purchaser's total purchase price (including customary
brokerage commissions, if any) for the shares of Common Stock so purchased
exceeds (B) the aggregate principal and/or interest amount of the Note, for
which such Conversion Notice was not timely honored.
Nothing contained herein or in any document referred to herein or
delivered in connection herewith shall be deemed to establish or require the
payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest or dividends
required to be paid or other charges hereunder exceed the maximum amount
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to a Purchaser and thus refunded to the
Company.
9.2 Maximum Conversion. The Purchaser shall not be entitled to convert
on a Conversion Date, nor shall the Company be permitted to require the
Purchaser to accept, that amount of a Note in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the number of
shares of Common Stock beneficially owned by the Purchaser on a Conversion Date,
and (ii) the number of shares of Common Stock issuable upon the conversion of
the Note with respect to which the determination of this proviso is being made
on a Conversion Date, which would result in beneficial ownership by the
Purchaser of more than 4.99% of the outstanding shares of Common Stock of the
Company on such Conversion Date. For the purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and Regulation 13d-3 thereunder. Upon an Event of
Default under the Note, the conversion limitation in this Section 9.2 shall
become null and void.
10. REGISTRATION RIGHTS.
10.1 Registration Rights Granted. The Company hereby grants
registration rights to the Purchaser pursuant to a Registration Rights Agreement
dated as of even date herewith between the Company and the Purchaser.
10.2 Indemnification.
(a) In the event of a registration of any Registrable Securities
under the Securities Act pursuant to the Registration Rights Agreement, the
Company will indemnify and hold harmless the Purchaser, and its officers,
directors and each other person, if any, who controls the Purchaser within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which the Purchaser, or such persons may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such Registrable
17
Securities were registered under the Securities Act pursuant to the Registration
Rights Agreement, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Purchaser, and each such person for any reasonable legal
or other expenses incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by the Purchaser or any such person in
writing specifically for use in any such document.
(b) In the event of a registration of the Registrable Securities
under the Securities Act pursuant to the Registration Rights Agreement, the
Purchaser will indemnify and hold harmless the Company, and its officers,
directors and each other person, if any, who controls the Company within the
meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such persons may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the registration statement under which such Registrable Securities
were registered under the Securities Act pursuant to the Registration Rights
Agreement, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company and each such person for any reasonable legal or
other expenses incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action, provided, however, that the
Purchaser will be liable in any such case if and only to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished in writing to the Company by the Purchaser
specifically for use in any such document.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 10.2(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10.2(c) if and to the extent the indemnifying party is prejudiced
by such omission. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 10.2(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof; if the
indemnified party retains its own counsel, then the indemnified party shall pay
18
all fees, costs and expenses of such counsel, provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties shall have the right to
select one separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees
of such separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in
the event of joint liability under the Securities Act in any case in which
either (i) the Purchaser, or any controlling person of the Purchaser, makes a
claim for indemnification pursuant to this Section 10.2 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 10.2 provides for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of the Purchaser or controlling person of the Purchaser in circumstances
for which indemnification is provided under this Section 10.2; then, and in each
such case, the Company and the Purchaser will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion so that the Purchaser is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears to
the public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (A) the Purchaser will not
be required to contribute any amount in excess of the public offering price of
all such securities offered by it pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 10 of the Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation.
11. OFFERING RESTRICTIONS. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company; or equity or debt issued in connection
with an acquisition of a business or assets by the Company; or the issuance by
the Company of stock in connection with the establishment of a joint venture
partnership or licensing arrangement (these exceptions hereinafter referred to
as the "Excepted Issuances"), the Company will not issue any securities with a
continuously variable/floating conversion feature which are or could be (by
conversion or registration) free-trading securities (i.e. common stock subject
to a registration statement) prior to the full repayment or conversion of the
Note (the "Exclusion Period).
12. COLLATERAL.
12.1 Intentionally Omitted.
19
12.2 At the Purchaser's election, (i) if an Event of Default set forth
in Sections 4.2 or 4.3 of the Note has occurred and is continuing for thirty
(30) days or (ii) if an Event of Default specified in Sections 4.1, 4.4, 4.5,
4.7 or 4.9 of the Note has occurred and is continuing beyond any applicable
grace period, the Purchaser may notify CrossingGuard Inc.'s Account Debtors of
the Purchaser's security interest in the Accounts, collect them directly and
charge the collection costs and expenses thereof to the Company's account.
12.3 Intentionally Omitted..
12.4 The Company hereby appoints the Purchaser, or any other person
whom the Purchaser may designate as the Company's attorney, with power to: (i)
endorse the Company's or CrossingGuard, Inc.'s name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may
come into the Purchaser's possession; (ii) sign the Company's or CrossingGuard,
Inc.'s name on any invoice or ▇▇▇▇ of lading relating to any Accounts, drafts
against Account Debtors, schedules and assignments of Accounts, notices of
assignment, financing statements and other public records, verifications of
Account and notices to or from Account Debtors; (iii) verify the validity,
amount or any other matter relating to any Account by mail, telephone, telegraph
or otherwise with Account Debtors; (iv) do all things necessary to carry out
this Agreement, any Related Agreement and all related documents; and (v) on or
after the occurrence and continuation of an Event of Default, notify the post
office authorities to change the address for delivery of the Company's mail to
an address designated by the Purchaser, and to receive, open and dispose of all
mail addressed to the Company or CrossingGuard, Inc. The Company hereby ratifies
and approves all acts of the attorney. Neither the Purchaser, nor the attorney
will be liable for any acts or omissions or for any error of judgment or mistake
of fact or law. This power, being coupled with an interest, is irrevocable so
long as the Purchaser has a security interest and until all obligations from the
Company to the Purchaser have been fully satisfied. Notwithstanding the
immediately foregoing, the Purchaser shall not exercise any powers granted to it
pursuant to this Section 12.4 unless and until an Event of Default under the
Note shall have occurred and be continuing.
12.5 All terms used in this Agreement and defined in the Uniform
Commercial Code ("UCC"), shall have the meaning given therein unless otherwise
defined herein. The terms below shall be defined as follows:
(a) Account Debtor" means any person who is or may be obligated
with respect to, or on account of, an Account of CrossingGuard, Inc..
(b) "Accounts" means all "accounts", as such term is defined in
the UCC, now owned or hereafter acquired by CrossingGuard, Inc., including: (a)
all accounts receivable, other receivables, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper or
Instruments) (including any such obligations that may be characterized as an
account or contract right under the UCC); (b) all of such person's rights in, to
and under all purchase orders or receipts for goods or services; (c) all of such
person's rights to any goods represented by any of the foregoing (including
unpaid sellers' rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods); (d) all rights
to payment due to such person for goods or other property sold, leased,
licensed, assigned or otherwise disposed of, for a policy of insurance issued or
20
to be issued, for a secondary obligation incurred or to be incurred, for energy
provided or to be provided, for the use or hire of a vessel under a charter or
other contract, arising out of the use of a credit card or charge card, or for
services rendered or to be rendered by such person or in connection with any
other transaction (whether or not yet earned by performance on the part of such
person); and (e) all collateral security of any kind given by any Account Debtor
or any other person with respect to any of the foregoing.
12.6 Delivery of Additional Collateral. Except as previously executed
and delivered, the Company hereby agrees that it shall execute and deliver, and
it shall cause CrossingGuard, Inc. to execute and deliver, as an assignment for
security, all documents, including but not limited to assignment of claims
agreements, which Purchaser shall reasonably request in respect of any
Qualifying Account . Qualifying Account shall mean each of: that certain
Agreement dated as of July 11, 2002 by and between the Company and the City of
Cerritos, California, that certain Traffic Signal Violation Video-Monitoring
System Services Agreement dated as of June 19, 2002 by and between the Company
the Municipality of Fullerton California, that certain Traffic Signal Violation
Video-Monitoring System Services Agreement dated as of July 15, 2002 by and
between the Company the Municipality of Costa Mesa California, and that certain
Traffic Signal Violation Video-Monitoring System Services Agreement dated as of
June 24, 2002 by and between the Company the City of Pasadena, California.
12.7 Assignment of Qualifying Accounts. The Company hereby represents
and warrants to Purchaser that is has taken all action necessary and advisable
to effect a valid and binding security interest in each of the Qualifying
Accounts to the Purchaser and further that such valid assignment is sufficient
to enable the Purchaser to realize the practical benefits under this Agreement
and all applicable law.
13. MISCELLANEOUS.
13.1 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to
principles of conflicts of laws. Any action brought by either party against the
other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York. Both parties and the individuals executing this Agreement
and other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. In the event that any
provision of this Agreement or any other agreement delivered in connection
herewith is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
of any agreement.
13.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby to the extent provided
therein. All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
21
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
13.3 Successors. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person who shall be a holder
of the Securities from time to time.
13.4 Entire Agreement. This Agreement, the exhibits and schedules
hereto, the Related Agreements and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
13.5 Severability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
13.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the
Purchaser under this Agreement may be waived only with the written consent of
the Purchaser.
(c) The obligations of the Purchaser and the rights of the
Company under this Agreement may be waived only with the written consent of the
Company.
13.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement, the Note or the
Related Agreements, by law or otherwise afforded to any party, shall be
cumulative and not alternative.
13.8 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by telephonically confirmed facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day, (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company at the address as set forth on the signature page hereof, to the
Purchaser at the address set forth on the signature page hereto for such
Purchaser, with a copy in the case of the Company to ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
Esq., ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ and
22
in the case of Purchaser to ▇▇▇▇ ▇. ▇▇▇▇▇▇ , Esq., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ,
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇, or at such other address as
the Company or the Purchaser may designate by ten days advance written notice to
the other parties hereto.
13.9 Attorneys' Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
13.10 Titles and Subtitles. The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
13.11 Facsimile Signatures; Counterparts. This Agreement may be
executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
13.12 Broker's Fees. The Company represents and warrants that, any
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of the Company is or will be entitled to any broker's or finder's
fee or any other commission directly or indirectly in connection with the
transactions contemplated herein will be paid by the Company. The Company
further agrees to indemnify the Purchaser for any claims, losses or expenses
incurred by it as a result of the representation in this Section 13.12 being
untrue. Purchaser represents and warrants that, no agent, broker, investment
banker, person or firm acting on behalf of or under the authority of Purchaser
is or will be entitled to any broker's or finder's fee or any other commission
directly or indirectly in connection with the transactions contemplated herein,
except the Closing Payment. Purchaser further agrees to indemnify each other
party for any claims, losses or expenses incurred by such other party as a
result of the representation in this Section 13.12 being untrue
13.13 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Agreement to
favor any party against the other.
23
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
▇▇▇▇▇▇, INC. LAURUS MASTER FUND, LTD.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ Grin
--------------------------- ------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Name: ▇▇▇▇▇▇ Grin
Title: EVP - CFO Title: Director
Address: ▇▇▇▇▇▇,Inc. Address: c/o Ironshore Corporate Services Ltd.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇.▇. ▇▇▇ ▇▇▇▇ ▇.▇.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ Queensgate House
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ South Church Street
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇ Grand Cayman, Cayman Islands
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
24
LIST OF EXHIBITS
Form of Convertible Note Exhibit A
Form of Opinion Exhibit B
25
EXHIBIT A
FORM OF CONVERTIBLE NOTE
A-1
EXHIBIT B
FORM OF OPINION
1. Each of the Company and its subsidiaries is a corporation validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as it is now being conducted.
2. Each of the Company and its subsidiaries has the requisite
corporate power and authority to execute, deliver and perform its obligations
under the Agreement and Related Agreements. All corporate action on the part of
the Company, it s subsidiaries and their officers, directors and stockholders
necessary for (i) the authorization of the Agreement and Related Agreements to
which each is a party, and the performance of all obligations of the Company
thereunder at the Closing, and (ii) the authorization, sale, issuance and
delivery of the Securities pursuant to the Agreement and the Related Agreements
has been taken. The Note Shares, when issued pursuant to and in accordance with
the terms of the Agreement and the Related Agreemennts and upon delivery, shall
be validly issued and outstanding, fully paid and non assessable.
3. The execution, delivery and performance of the Agreement, the Note
or the Related Agreements by the Company and each of its subsidiaries and the
consummation of the transactions contemplated by any thereof, will not, with or
without the giving of notice or the passage of time or both:
(a) Violate the provisions of the Charter or bylaws of the; or
(b) To such counsel's knowledge, violate any judgment, decree,
order or award of any court binding upon the Company or its subsidiaries.
4. The Agreement and Related Agreements to which each is a party
constitute and the Note, upon their issuance will constitute, valid and binding
obligations of the Company, and are enforceable against each the Company and its
subsidiaries, respectively in accordance with their respective terms, except (a)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights,
and (b) general principles of equity that restrict the availability of equitable
or legal remedies.
5. The sale of the Note and the subsequent conversion of the Note into
Note Shares are not subject to any preemptive rights or, to such counsel's
knowledge, rights of first refusal that have not been properly waived or
complied with.
6. Assuming the accuracy of the representations and warranties of the
Purchaser contained in the Agreement, the offer, sale and issuance of the
Securities will be exempt from the registration requirements of the Securities
Act. To the best of such counsel's knowledge, neither the Company, nor any of
its subsidiaries, 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 and security under circumstances that would cause the offering of
B-1
the Securities pursuant to this Agreement to be integrated with prior offerings
by the Company for purposes of the Securities Act which would prevent the
Company from selling the Securities pursuant to Rule 506 under the Securities
Act, or any applicable exchange-related stockholder approval provisions.
7. There is no action, suit, proceeding or investigation pending or,
to such counsel's knowledge, currently threatened against the Company or any of
its subsidiaries that prevents the right of the Company or any of its
subsidiaries to enter into this Agreement or any of the Related Agreements, or
to consummate the transactions contemplated thereby. To the best of such
counsel's knowledge, neither the Company nor any of its subsidiaries is a party
or subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality; nor is there any action,
suit, proceeding or investigation by the Company or any of its subsidiaries
currently pending or which the Company or any of its subsidiaries intends to
initiate.
B-2
