EXHIBIT 2
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of
December 21, 2001, by and among INPRIMIS, INC., a Florida corporation, with
headquarters located at 0000 Xxxxx Xxxxx Xxxx, Xxxx Xxxxx, Xxxxxxx 00000
("COMPANY"), and ENER1 HOLDINGS, INC., a Florida corporation, with headquarters
at 000 Xxxx Xxxxxxx Xxxxx Xxxx, Xxxxx 000, Xxxx Xxxxxxxxxx, XX 00000 (the
"BUYER").
WHEREAS:
The Buyer desires to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, (i) 12,500,001
shares of Common Stock (the "CLOSING SHARES") to be delivered at the Closing (as
defined below), (ii) a convertible subordinated promissory note of the Company,
in the form attached hereto as EXHIBIT "A" in the aggregate principal amount of
Four Hundred Eighty-One Thousand Seven Hundred Six and 27/100 Dollars
($481,706.27) (the "CONVERTIBLE NOTE"), convertible into 18,917,594 shares of
common stock, par value $0.01 per share, of the Company (the "COMMON STOCK," and
the shares of Common Stock into which the Convertible Note are convertible, the
"CONVERSION SHARES"), and (iii) subject to the terms and conditions of this
Agreement and the Escrow Agreement (the "ESCROW AGREEMENT") in the form attached
hereto as EXHIBIT "B" being executed by the Company and the Buyer
contemporaneously herewith, 15,708,821 shares of Common Stock (the "ESCROW
SHARES" and, together with the Convertible Note, the Conversion Shares and the
Closing Shares, the "SECURITIES"), to be delivered in accordance with the terms
of the Escrow Agreement;
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
SECTION 1. PURCHASE AND SALE OF THE CONVERTIBLE NOTE AND COMMON STOCK.
1.1 PURCHASE OF SECURITIES. Subject to the terms and
conditions of the Escrow Agreement, on the Closing Date (as defined below), the
Company shall issue and sell to the Buyer and the Buyer agrees to purchase from
the Company, the Closing Shares, the Convertible Note, the Conversion Shares and
the Escrow Shares.
1.2 FORM OF PAYMENT. Subject to the terms and condition of the
Escrow Agreement, on the Closing Date, the Buyer shall pay the purchase price of
$1,200,000 (the "PURCHASE PRICE"), consisting of (i) in respect of the Closing
Shares, $246,464.40 to be delivered by wire transfer of immediately available
funds to the Escrow Agent (as defined in the Escrow Agreement) as part of the
Closing Escrow Funds (as defined in the Escrow Agreement), and $71,829.33 to be
delivered to the Escrow Agent as part of the Holdback Amount (as defined below);
(ii) in respect of the Convertible Note, $433,535.60 to be delivered by wire
transfer of immediately available funds to the Escrow Agent as part of the
Closing Escrow Funds and $48,170.67 to be delivered to the Escrow Agent as part
of the Holdback Amount; (iii) $520,000, by wire transfer of immediately
available funds to the Escrow Agent, subject to and in accordance with the terms
of the Escrow Agreement, $400,000 of which shall be in exchange for the Escrow
Shares and $120,000 of which shall comprise the Holdback Amount. Notwithstanding
anything in this Agreement to the contrary, the Escrow Agent shall, in
accordance with the terms hereof and of the Escrow Agreement, withhold $120,000
of the Purchase Price (the "HOLDBACK AMOUNT") for a period of 120 days following
the Closing (the "HOLDBACK PERIOD"), in order to cover losses for, or claims
related to, Indemnifiable Damages, which arise during the Holdback Period.
Notwithstanding anything in this Agreement to the contrary, upon the execution
of this Agreement, the Buyer agrees to send the entire amount of the Purchase
Price, in immediately available funds, to the Escrow Agent, to be held and
disbursed by the Escrow Agent in accordance with the terms of the Escrow
Agreement.
1.3 POST-CLOSING PURCHASE PRICE ADJUSTMENTS. The Purchase
Price shall be adjusted as provided herein based on the actual amount of the
Stockholders' Equity of the Company, as determined in accordance with GAAP (but
without giving effect to any adjustment that is required by GAAP solely in
respect of the Liberate Licenses), as of December 31, 2001 (the CLOSING
STOCKHOLDERS' EQUITY"). Within 30 days after the Closing Date (the "REVIEW
PERIOD"), the Determination Committee (as defined below) shall cause to be
prepared and delivered to the Buyer a determination (the "Determination") of the
Closing Stockholders' Equity (which amount is referred to herein as the
"PRELIMINARY ACTUAL AMOUNT"), including the basis for such Determination set
forth in reasonable detail, prepared in accordance with GAAP. If, within 30 days
after the date on which the Determination is delivered to the Buyer, the Buyer
shall not have given written notice to the Determination Committee setting forth
in reasonable detail any objection of the Buyer to such Determination, then such
Determination shall be final and binding upon the parties and the Preliminary
Actual Amount shall be deemed the final actual amount of the Closing
Stockholders' Equity (including, as may be determined mutually by the parties or
by the Settlement Accountant, as described below, the "FINAL ACTUAL AMOUNT"). In
the event that the Buyer gives written notice of any objection to such
Determination within such 30-day period, the Determination Committee and the
Buyer shall use all reasonable efforts to resolve the dispute within fifteen
(15) days following the receipt by the Determination Committee of such written
notice from the Buyer. If the Determination Committee and the Buyer are able to
reach an agreement during such 15-day period, the Closing Stockholders' Equity
they agree upon shall be the Final Actual Amount. If the parties are unable to
reach an agreement as to the Final Actual Amount within such 15-day period, the
matter shall be submitted to a mutually agreed upon "big five" certified public
accounting firm (the "SETTLEMENT ACCOUNTANT") for determination of the Final
Actual Amount to be made within 20 days after submission, and the determination
of the Settlement Accountant of the Final Actual Amount shall be final and
binding upon the Buyer and the Company. The Buyer and the Company shall
contribute equally to all costs (including fees and expenses charged by the
Settlement Accountant) in connection with the resolution of any such dispute.
The Buyer and the Company agree that the Buyer shall be entitled to receive from
the Stockholders' Equity Adjustment Escrow Funds (as defined in the Escrow
Agreement), and the Purchase Price shall be adjusted downward by, the positive
amount, if any, equal to (i) $700,000, less (ii) the Final Actual Amount, (the
"STOCKHOLDERS' EQUITY ADJUSTMENT AMOUNT"); provided, however, that the
Stockholders' Equity Adjustment Amount to be received by the Buyer pursuant to
this Section 1.3 shall not exceed $200,000. The sole source of funds for
recovery of any Stockholders' Equity Adjustment Amount shall be the
Stockholders' Equity Adjustment Escrow Funds. As used herein, the term
"DETERMINATION COMMITTEE" means a committee consisting of the members of the
Board of Directors of the Company (the "BOARD") in office immediately prior to
the Closing; provided that, in the event any member of the Determination
Committee as of the Closing of the Securities Purchase Agreement is removed or
resigns or fails to be re-elected as a
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director of the Company, then the Determination Committee shall consist of such
Persons that were members of the Determination Committee as of the Closing of
the Securities Purchase Agreement and are, as of the relevant time, directors of
the Company; further provided that, in the event no such persons remain as
directors of the Company, the Company shall appoint an independent trustee to
serve on the Determination Committee.
1.4 CLOSING DATE. Subject to the satisfaction (or waiver) of
the conditions thereto set forth in Section 5 and Section 6 below, the closing
of the transactions contemplated by this Agreement (the "CLOSING") shall occur
as soon as practicable after the execution of this Agreement (the "CLOSING
DATE"), at the offices of Akerman, Senterfitt & Edison, P.A. at SunTrust
International Center, Xxx X.X. Xxxxx Xxxxxx, 00xx Xxxxx, Xxxxx, Xxxxxxx 00000,
or at such other location as may be agreed to by the parties.
SECTION 2. BUYER'S REPRESENTATIONS AND WARRANTIES. The Buyer hereby
represents and warrants to the Company that as of the date hereof and as of the
Closing Date:
2.1 ORGANIZATION. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and it has all corporate authority to enter into, and perform its
obligations under, this Agreement and the other agreements to which it is a
party pursuant hereto.
2.2 INVESTMENT PURPOSE. As of the date hereof, the Buyer is
purchasing the Securities for its own account and not with a present view
towards the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the Securities Act of 1933, as
amended (the "1933 ACT"); PROVIDED, HOWEVER, that by making the representations
herein, the Buyer does not agree to hold any of the Securities for any minimum
or other specific term and reserves the right to dispose of the Securities at
any time in accordance with or pursuant to a registration statement or an
exemption under the 1933 Act.
2.3 GOVERNMENTAL REVIEW. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
2.4 TRANSFER OR RE-SALE. The Buyer understands that (i) except
as provided in his Agreement, the sale or re-sale of the Securities has not been
and is not being registered under the 1933 Act or any applicable state
securities laws, and the Securities may not be transferred unless (A) the
Securities are sold pursuant to an effective registration statement under the
1933 Act, or (B) the Buyer shall have delivered to the Company an opinion of
counsel reasonably acceptable to the Company (which opinion shall be in form,
substance and scope reasonably acceptable to counsel to the Company) to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration.
2.5 LEGENDS. The Buyer understands that until such time as the
Securities have been registered under the 1933 Act as contemplated by this
Agreement or otherwise may be sold pursuant to Rule 144 without any restriction
as to the number of securities as of a particular date that can then be
immediately sold, the Securities may bear a restrictive legend in
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substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the
absence of an effective registration statement for the
securities under said Act, or an opinion of counsel reasonably
acceptable to the Company, in form, substance and scope
reasonably acceptable to counsel for the Company, that
registration is not required."
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (i)
such Security is registered for re-sale under an effective registration
statement filed under the 1933 Act, or (ii) such holder provides the Company
with an opinion of counsel, in form, substance and scope reasonably acceptable
to the Company, to the effect that a public sale or transfer of such Security
may be made without any restriction as to the number of Securities as of a
particular date that can then be immediately sold without registration under the
1933 Act. The Buyer agrees to sell all Securities, including those represented
by a certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
2.6 AUTHORIZATION; ENFORCEMENT. This Agreement and the Escrow
Agreement have been duly and validly authorized. This Agreement has been duly
executed and delivered on behalf of the Buyer, and this Agreement constitutes,
and upon execution and delivery by the Buyer of the Escrow Agreement, such
agreement will constitute, valid and binding agreements of the Buyer enforceable
in accordance with their terms.
2.7 RESIDENCY. The Buyer has its principal office in the
jurisdiction set forth immediately below such Buyer's name on the signature
pages hereto.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Buyer that as of the date hereof and as of
the Closing Date:
3.1 ORGANIZATION AND QUALIFICATION. The Company and each of
its Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other) to
own, lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. SCHEDULE 3.1 sets forth a
list of all of the Subsidiaries of the Company and the jurisdiction in which
each is incorporated. The Company and each of its Subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which its ownership or use of property or the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the
Securities, (ii) the business, operations, assets, financial condition, results
of operations,
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properties or prospects of the Company and its Subsidiaries, if any, taken as a
whole, (iii) the transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith, or (iv) the authority or
the ability of the Company to perform its obligation under this Agreement, the
Escrow Agreement or the Convertible Note. The following Subsidiaries of the
Company are not active: Boca Research International Holdings Ltd.; Boca Research
International, Inc.; and Complete Acquisition Corp. "SUBSIDIARIES" means any
corporation or other organization, whether incorporated or unincorporated, in
which the Company owns, directly or indirectly, any equity or other ownership
interest.
3.2 AUTHORIZATION; ENFORCEMENT. (i) Other than approval by the
Company's shareholders of the Share Increase (as defined below), the Company has
all requisite corporate power and authority to enter into and perform this
Agreement, the Escrow Agreement and the Convertible Note and to consummate the
transactions contemplated hereby and thereby and to issue the Securities, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Escrow Agreement and the Convertible Note by the Company,
and the consummation by it of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Convertible Note, the
Closing Shares and the Escrow Shares, and the issuance of the Conversion Shares
issuable upon conversion of the Convertible Note) have been duly authorized by
the Board and no further consent or authorization of the Company or the Board,
other than shareholder approval of the Share Increase, is required for the valid
issuance thereof by the Company, (iii) this Agreement has been duly executed and
delivered by the Company, and (iv) this Agreement constitutes, and upon
execution and delivery by the Company of the Escrow Agreement and the
Convertible Note, each of such agreements and instruments will constitute, a
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency or similar laws or other laws affecting the
rights of creditors generally.
3.3 CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) 25,000,000 shares of Common Stock,
of which 11,781,604 shares are issued and outstanding; and (ii) 5,000,000 shares
of preferred stock, none of which are issued and outstanding. All of such
outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company are subject to preemptive rights or any other similar
rights of the shareholders of the Company or any liens or encumbrances imposed
through the actions or failure to act of the Company. As of the date hereof, the
Company has outstanding options to purchase 1,739,446 shares of Common Stock;
such options are held by such persons, in such amounts and are subject to such
vesting schedules as are listed on SCHEDULE 3.3(A) hereto. Except as disclosed
in this Section 3.3 and in SCHEDULE 3.3(B), as of the effective date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries,
(ii) there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of its or their
securities under the 1933 Act, and (iii) there are no anti-dilution or price
adjustment provisions contained in any security issued by the Company (or in any
agreement providing rights to security holders) that
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will be triggered by the issuance of the Closing Shares, the Convertible Note,
the Conversion Shares or the Escrow Shares. The Company has furnished to the
Buyer true and correct copies of the Company's Articles of Incorporation as in
effect on the date hereof ("ARTICLES OF INCORPORATION"), the Company's Bylaws,
as in effect on the date hereof (the "BYLAWS"), and the terms of all securities
convertible into or exercisable for Common Stock of the Company and the material
rights of the holders thereof in respect thereto.
3.4 ISSUANCE OF SHARES. The Closing Shares will be validly
issued, fully paid and non-assessable, and free from all taxes, liens, claims
and encumbrances and shall not be subject to preemptive rights or other similar
rights of shareholders of the Company and will not impose personal liability
upon the holder thereof. The Escrow Shares and the Conversion Shares will, if
and when issued pursuant to the terms of this Agreement, the Escrow Agreement
and the Convertible Note (as applicable), be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and encumbrances and
shall not be subject to preemptive rights or other similar rights of
shareholders of the Company and will not impose personal liability upon the
holder thereof.
3.5 ACKNOWLEDGMENT OF DILUTION. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Closing Shares, the Escrow Shares and the Conversion Shares
(upon conversion of the Convertible Note). The Company's directors and executive
officers have studied and fully understand the nature of the Securities being
sold hereunder. The Company further acknowledges that its obligation to issue
the Closing Shares, the Escrow Shares and the Conversion Shares (upon conversion
of Convertible Note) is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
shareholders of the Company. Taking the foregoing into account, the Company's
Board has determined, in its good faith business judgment, that the issuance of
the Securities hereunder and the consummation of the transactions contemplated
hereby and thereby are in the best interests of the Company and its
shareholders.
3.6 NO CONFLICTS. The execution, delivery and performance of
this Agreement, the Escrow Agreement, and the Convertible Note by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the issuance and reservation for
issuance of the Closing Shares, the Escrow Shares and the Conversion Shares)
will not (i) conflict with or result in a violation of any provision of the
Articles of Incorporation or Bylaws or (ii) except as set forth on SCHEDULE
3.6(A), violate or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which with notice or lapse of time or both
could become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its Subsidiaries is
a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including, but not limited to, federal and state securities
laws and regulations of any self-regulatory organizations to which the Company
or its securities are subject) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect). Neither
the Company nor any of its Subsidiaries is
6
in violation of its Articles of Incorporation, Bylaws or other organizational
documents and neither the Company nor any of its Subsidiaries is in default (and
no event has occurred which with notice or lapse of time or both could put the
Company or any of its Subsidiaries in default) under, and neither the Company
nor any of its Subsidiaries has taken any action or failed to take any action
that would give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party or by which any property or assets of the
Company or any of its Subsidiaries is bound or affected (except for such
violations, conflicts, defaults, terminations, amendments, accelerations and
cancellations as would not, individually or in the aggregate, have a Material
Adverse Effect). The businesses of the Company and its Subsidiaries, if any, are
not being conducted, and shall not be conducted so long as the Buyer owns any of
the Securities, in violation of any law, ordinance or regulation of any
governmental entity. Except as specifically contemplated by this Agreement and
as required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency, regulatory
agency, self regulatory organization or stock market or any third party in order
for it to execute, deliver or perform any of its obligations under this
Agreement, the Escrow Agreement or the Convertible Note in accordance with the
terms hereof, or thereof or to issue and sell the Securities in accordance with
the terms hereof or thereof. Except as disclosed in SCHEDULE 3.6(B), all
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company is not in violation of the
listing requirements of the Over-the-Counter Bulletin Board (the "OTC BB") and
does not reasonably anticipate that the Common Stock will cease trading on the
OTC BB in the foreseeable future (unless such cessation in trading is due to the
fact the Common Stock has been listed or included for quotation on the Nasdaq
National Market ("NASDAQ NMS"), the Nasdaq SmallCap Market ("NASDAQ SMALLCAP"),
the New York Stock Exchange ("NYSE") or the American Stock Exchange (the
"AMEX"). No officers of the Company or its Subsidiaries are aware of any facts
or circumstances which might give rise to any of the foregoing.
3.7 SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as disclosed
on SCHEDULE 3.7, as of the date hereof, the Company or its predecessors have
timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the United States Securities and Exchange
Commission (the "SEC") pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 ACT") (all of the foregoing filed
prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits to such
documents) incorporated by reference therein, being hereinafter referred to as
the "SEC Documents"). The Company has delivered to the Buyer true and complete
copies of the SEC Documents, except for such exhibits and incorporated
documents. As of their respective dates, the SEC Documents complied in all
respects with the requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents, and none of the
SEC Documents, at the time they were filed with the SEC, 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 light of
the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have been
amended or
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updated in subsequent filings prior to the date hereof). As of their respective
dates, the financial statements of the Company included in the SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance with United
States GAAP, consistently applied, during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the consolidated financial position of the Company and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
Except as set forth in the financial statements of the Company included in the
SEC Documents, the Company has no material liabilities, contingent or otherwise,
that are required in accordance with GAAP to be disclosed in the Company's
financial statements, other than (A) liabilities incurred in the ordinary course
of business subsequent to September 30, 2001, and (B) obligations under
contracts and commitments incurred in the ordinary course of business which,
individually or in the aggregate, are not materially adverse to the financial
condition or operating results of the Company. SCHEDULE 3.7(B) sets forth the
Company's good faith estimate of the consolidated fixed assets, cash and cash
equivalents, stockholder's equity, accounts payable and accounts receivable in
each case calculated in accordance with GAAP, of the Company and its
Subsidiaries, as of November 30, 2001.
3.8 ABSENCE OF CERTAIN CHANGES. Other than as set forth in
SCHEDULE 3.8, since September 30, 2001, none of the following has occurred with
respect to the Company:
(a) any circumstance, condition, event or state of
facts (either singly or in the aggregate), which has caused, is causing or will
cause a Material Adverse Effect;
(b) any increase in, or any commitment or promise to
increase, the rates of cash compensation to any employee of, or consultant to,
the Company as of the date hereof, or the amounts or other benefits paid or
payable under any Employee Pension Benefit Plan (as defined below) or other
compensation plan except for ordinary and customary bonuses and salary increases
for employees at the times and in the amounts consistent with its past practice;
(c) any distribution, sale or transfer of, or any
commitment to distribute, sell or transfer, any of its assets or properties of
any kind which singly is, or in the aggregate are, material to the business or
the Company, other than distributions, sales or transfers in the ordinary course
of its business and consistent with its past practices;
(d) any cancellation, or agreement to cancel, any
indebtedness, obligation or other liability owing to it, including any
indebtedness, obligation or other liability of any shareholder or any related
person or affiliate thereof, provided that the Company may negotiate and adjust
bills in the course of good faith disputes with customers in a manner consistent
with past practice and in the ordinary course;
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(e) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of its assets,
property or rights or requiring consent of any Person (as defined below) to the
transfer and assignment of any such assets, property or rights;
(f) any purchase or acquisition of, or agreement,
plan or arrangement to purchase or acquire, any property, rights or assets
outside of the ordinary course of its business consistent with its past
practices;
(g) any waiver of any of its rights or claims that
singly is or in the aggregate with waivers of other rights or claims are
material to the Company;
(h) any transaction or series of related transactions
by it outside of the ordinary course of its business or not consistent with its
past practices;
(i) any incurrence by it of any indebtedness or any
guaranty, or any commitment to incur any indebtedness or any such guaranty;
(j) any investment in the capital stock, options,
warrants, rights to acquire the capital stock or the indebtedness of any Person
other than short-term certificates of deposit of a commercial bank or trust
company;
(k) any capital expenditure or commitments to make
capital expenditures, singly or in the aggregate, in excess of $7,500; or
(l) any cancellation or termination of a Material
Agreement.
3.9 ABSENCE OF LITIGATION. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body (each, an "ACTION")
pending or threatened against or affecting the Company or any of its
Subsidiaries, or their officers or directors in their capacity as such, other
than as disclosed on SCHEDULE 3.9. The Company and its Subsidiaries are unaware
of any facts or circumstances which might give rise to any Action.
3.10 PATENTS, COPYRIGHTS, ETC.
(a) Except as disclosed on SCHEDULE 3.10, the Company
and each of its Subsidiaries owns or possesses the requisite licenses or rights
to use all patents, patent applications, patent rights, inventions, know-how,
trade secrets, trademarks, trademark applications, service marks, service names,
trade names and copyrights ("INTELLECTUAL PROPERTY") reasonably necessary to
enable it to conduct its business as now operated (and, except as set forth in
SCHEDULE 3.10 hereof, as presently contemplated to be operated in the future);
there is no claim or action by any person pertaining to, or proceeding pending
or threatened which challenges the right of the Company or of a Subsidiary with
respect to any Intellectual Property necessary to enable it to conduct its
business as now operated (and, except as set forth in SCHEDULE 3.10 hereof, to
the best of the Company's knowledge, as presently contemplated to be operated in
the future); to the best of the Company's knowledge, the Company's or its
Subsidiaries' current and intended products, services and processes do not
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infringe on any Intellectual Property or other rights held by any Person; and
the Company is unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and each of its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of their Intellectual Property.
3.11 CONTRACTS COMMITMENTS, ETC. SCHEDULE 3.11 sets forth a
complete list of each:
(a) partnership, joint venture or cost-sharing
agreement;
(b) guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(c) instrument, agreement or other obligation
evidencing or relating to indebtedness of the Company or to money lent or to be
lent to another Person;
(d) agreement to purchase, sell or lease real or
personal property;
(e) agreement for the acquisition or disposition of
services or property involving more than $20,000 in the aggregate;
(f) agreement containing any noncompetition agreement
or covenant; and
(g) other agreement or commitment not made in the
ordinary course of business to which the Company is a party or by which any of
its assets or properties are bound and which presently remains executory in
whole or in any part (the "MATERIAL AGREEMENTS").
True, correct and complete copies of all written documents with respect
to Material Agreements, and true, correct and complete written descriptions of
all oral agreements that are Material Agreements, have heretofore been delivered
or made available to Buyer. There are no existing or asserted defaults, events
of default or events, occurrences, acts or omissions that, with the giving of
notice or lapse of time or both, would constitute defaults or events of default
under any of the Material Agreements by the Company or, to the best knowledge of
the Company, any other party thereto. No penalties have been incurred, nor are
amendments pending, with respect to the Material Agreements. The Material
Agreements are in full force and effect and are valid and enforceable
obligations of the Company, and the other parties thereto in accordance with
their respective terms, and no defenses, off-sets or counterclaims have been
asserted or may be made by any party thereto (other than by the Company), nor
has the Company, waived any rights thereunder.
3.12 NO DEFAULTS. No condition or state of facts exists, or,
with the giving of notice or the lapse of time or both, would exist, which (i)
entitles any holder of any outstanding indebtedness, of the Company, or a
representative of that holder, to accelerate the maturity, or require a
mandatory prepayment, of that indebtedness, or affords that holder or its
representative, the right to require the Company to redeem, purchase or
otherwise acquire, reacquire or repay any of that indebtedness, (ii) entitles
any Person to obtain any lien upon any properties or assets constituting any
part of the business of the Company (or upon any revenues, income or profits of
10
any of the Company therefrom) or (iii) constitutes a violation or breach of, or
a default by the Company under, any Material Agreement of the Company.
3.13 TAX STATUS. Except as set forth on SCHEDULE 3.13, the
Company and each of its Subsidiaries has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or 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 know of no basis for any such
claim. The Company has not executed a waiver with respect to the statute of
limitations relating to the assessment or collection of any foreign, federal,
state or local tax. Except as set forth on SCHEDULE 3.13, none of the Company's
tax returns is presently being audited by any taxing authority.
3.14 CERTAIN TRANSACTIONS. Except for the employment
agreements listed on SCHEDULE 3.22(B) and arm's length transactions pursuant to
which the Company or any of its Subsidiaries makes payments in the ordinary
course of business upon terms no less favorable than the Company or any of its
Subsidiaries could obtain from third parties and other than the grant of stock
options disclosed on SCHEDULE 3.3(A), none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from, any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
3.15 DISCLOSURE. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and provided to
the Buyer otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to the
Company or any of its Subsidiaries or its or their business, properties,
prospects, operations or financial conditions, which has not been publicly
announced or disclosed but under applicable law, rule or regulation, requires
public disclosure or announcement by the Company (assuming for this purpose that
the Company's reports filed under the 1934 Act are being incorporated into an
effective registration statement filed by the Company under the 1933 Act).
3.16 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 require registration under the
1933 Act of the issuance of the Securities to the Buyer. The issuance of the
11
Securities to the Buyer will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of the 1933 Act or
any shareholder approval provisions applicable to the Company or its securities.
3.17 NO BROKERS. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby.
3.18 PERMITS; COMPLIANCE. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders reasonably necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted or proposed
to be conducted (collectively, the "COMPANY PERMITS"), and there is no action
pending or, to the knowledge of the Company, threatened regarding suspension or
cancellation of any of the Company Permits. Neither the Company nor any of its
Subsidiaries is in conflict with, or in default or violation of, any of the
Company Permits, except for any such conflicts, defaults or violations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries has
received any notification with respect to possible conflicts, defaults or
violations of applicable laws, except for notices relating to possible
conflicts, defaults or violations, which conflicts, defaults or violations would
not have a Material Adverse Effect.
3.19 ENVIRONMENTAL MATTERS.
(a) Except as set forth in SCHEDULE 3.19, there are,
with respect to the Company or any of its Subsidiaries or any predecessor of the
Company, no past or present violations of Environmental Laws (as defined below),
releases of any material into the environment, actions, activities,
circumstances, conditions, events, incidents, or contractual obligations which
may give rise to any common law environmental liability or any liability under
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
or similar federal, state, local or foreign laws and neither the Company nor any
of its Subsidiaries has received any notice with respect to any of the
foregoing, nor is any action pending or, to the Company's knowledge, threatened
in connection with any of the foregoing. The term "ENVIRONMENTAL LAWS" means all
federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants contaminants, or toxic or hazardous
substances or wastes (collectively, "HAZARDOUS MATERIALS") into the environment,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials, as
well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(b) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by the
Company or any of its Subsidiaries, and no
12
Hazardous Materials were released on or about any real property previously
owned, leased or used by the Company or any of its Subsidiaries or any
predecessors thereof during the period the property was owned, leased or used by
the Company or any of its Subsidiaries, except in the normal course of the
Company's or any of its Subsidiaries' business.
(c) Except as set forth in SCHEDULE 3.19, there are
no underground storage tanks on or under any real property owned, leased or used
by the Company or any of its Subsidiaries that are not in compliance with
applicable law.
3.20 TITLE TO PROPERTY. Neither the Company nor any Subsidiary
owns any real property. The Company and its Subsidiaries have good and
marketable title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in SCHEDULE 3.20 or
such as would not have a Material Adverse Effect. Facilities held under lease by
the Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as would not have a Material Adverse
Effect.
3.21 INSURANCE. The written schedule delivered to the Buyer on
December 20, 2001, and initialed by a duly authorized officer of the Company,
lists and describes the limits and general coverage provided by each of the
insurance polices of any kind or nature held by the Company or any of its
Subsidiaries.
3.22 EMPLOYEE MATTERS.
(a) EMPLOYEES; COMPENSATION. The written schedule
delivered to the Buyer on December 20, 2001, and initialed by a duly authorized
officer of the Company, sets forth a complete list of (i) the names, titles,
locations of employment, rates of annual cash compensation (and the portions
thereof attributable to salary or the equivalent, fixed bonuses, discretionary
bonuses and other cash compensation, respectively), of all employees,
nonemployee officers, nonemployee directors and consultants and independent
contractors of the Company and its Subsidiaries (collectively, the "COMPANY
PERSONNEL"), and (ii) all amounts owed and outstanding by the Company or any
Subsidiary to such Company Personnel, excluding amounts owed for services
rendered by such Company Personnel during the Company's or the Subsidiary's
current payroll period in effect as of the Closing Date (which does not exceed
the two-week period prior to the Closing Date).
(b) EMPLOYMENT AGREEMENTS. SCHEDULE 3.22(B) sets
forth a complete and accurate list of all written employment agreements of the
Company or any of its Subsidiaries. The Company is not a party to any oral
employment agreement.
(c) LIST OF EMPLOYEE BENEFIT PLANS. SCHEDULE 3.22(C)
contains a true and complete list of each Employee Benefit Plan. The Company
does not have any liability with respect to any Employee Benefit Plan.
(d) EMPLOYEE BENEFITS.
(i) Except as set forth on SCHEDULE 3.22(C),
with respect to all employees, former employees, directors and
independent contractors of the Company and
13
their dependents and beneficiaries, neither the Company nor any ERISA
Affiliate presently maintains, contributes to or has any liability
under or with respect to any Employee Benefit Plan. Each Employee
Benefit Plan (and each related trust, insurance contract or other
funding arrangement) complies in form and in operation in all respects
with the applicable requirements of ERISA, the Code, other applicable
laws and governing documents and agreements. With respect to each
Employee Benefit Plan, there has been no act or omission by the Company
or ERISA Affiliate that would impair the right or ability of the
Company or ERISA Affiliate to unilaterally amend in whole or part or
terminate such Employee Benefit Plan at any time, subject to the terms
of any insurance contract or other contractual arrangements with third
parties, and the Company has delivered to the Buyer true and complete
copies of: (i) the plan documents, including any related trust
agreements, insurance contracts or other funding arrangements and all
amendments thereto, or a written summary of the terms and conditions of
the plan if there is no written plan document; (ii) the most recent IRS
Form 5500; (iii) the most recent financial statement and, if
applicable, actuarial valuation; (iv) all correspondence with the IRS,
the Department of Labor and other governmental authority with respect
to the past three (3) plan years other than IRS Form 5500 filings; and
(v) the most recent summary plan description with a summary of material
modifications to such plan. With respect to each Employee Benefit Plan
intended to qualify under IRS Code Section 401(a) or 403(a), the IRS
has issued a favorable determination letter, which has not been
revoked, that any such plan is tax qualified and each trust created
thereunder has been determined by the IRS to be exempt from federal
income tax under IRS Code Section 501(a).
(ii) Neither the Company nor any of its
respective directors, officers or employees has any liability with
respect to any Employee Benefit Plan for failure to comply with ERISA,
the Code, any other applicable laws or any governing documents or
agreements.
(iii) No Employee Benefit Plan is an
Employee Pension Benefit Plan, and no Employee Benefit Plan has any
unfunded liability. With respect to the Employee Benefit Plans, all
applicable contributions and premium payments for all periods ending
prior to the Closing Date (including periods from the first day of the
then current plan year to the Closing Date) shall be made prior to the
Closing Date in accordance with past practice or as expressly agreed to
in advance by the Buyer.
(iv) Neither the Company nor any ERISA
Affiliate maintains, maintained, contributes to, or has any liability
(including, but not limited to, current or potential withdrawal
Liability) with respect to any Multiemployer Plan or Employee Pension
Benefit Plan.
(v) With respect to all employees and former
employees of the Company, neither the Company nor any ERISA Affiliate
presently maintains, contributes to or has any liability under any
funded or unfunded medical, health or life insurance plan or
arrangement for present or future retirees or present or future
terminated employees except as required by the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, or state continuation
coverage laws, there have been no act or acts or failure or failures to
act which would result in a disallowance of a deduction or the
imposition of a
14
Tax pursuant to IRS Code Section 4980B, or any predecessor provision,
of the Code or any related regulations. No event has occurred with
respect to which the Company or any of its affiliates could be liable
for a tax imposed by any of Sections 4972, 4976, 4977, 4979 or 4980 of
the IRS Code, or for a civil penalty under Section 502(c) of ERISA.
(vi) There is no pending, or threatened
legal action, proceeding, audit, examination or investigation against
or involving any Employee Benefit Plan maintained by the Company or any
ERISA Affiliate (other than routine claims for benefits). To the
knowledge of the Company, there is no basis for, and there are no facts
which could give rise to, any such condition, legal action, proceeding
or investigation.
(e) NO CLAIMS. Buyer will not suffer any loss, cost
or liability as a result of any claim that the Company or any ERISA Affiliates
of the Company have not complied with their respective obligations with respect
to the Employee Benefit Plans.
(f) NO LEASED EMPLOYEES. There are no leased
employees or independent contractors within the meaning of Section 414(n) of the
IRS Code who perform services for the Company.
(g) UNWRITTEN AMENDMENTS. No unwritten amendments
have been made, whether by oral communication, pattern of conduct or otherwise,
with respect to any of the employment agreements, other compensation plans or
employee policies and procedures. Any authorizations or approvals required with
respect to any Employee Benefit Plans in accordance with applicable provisions
of ERISA have been obtained and are in full force and effect.
(h) CHANGE OF CONTROL BENEFITS. The Company is not a
party to any agreement, or has established any policy, practice or program,
requiring it to make a payment or provide any other form of compensation or
benefit or vesting rights to any person performing services for the Company
which would not be payable or provided in the absence of this Agreement or the
consummation of the transactions contemplated by this Agreement, including any
payment under Section 280G of the Code.
(i) EMPLOYEE CLAIMS AND COMPLAINTS. There is no
pending or threatened legal action, proceeding, claim or complaint by an
employee of the Company against the Company or any director, officer or employee
thereof in their capacity as an agent of the Company. To the actual knowledge of
the Company, there is no basis for, and there are no facts which could give rise
to, any such legal action, proceeding, claim or complaint.
3.23 INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's Board, 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 generally accepted
accounting principles 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
15
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
3.24 FOREIGN CORRUPT PRACTICES. Neither the Company, nor any
of its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary has, in the course of his
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
3.25 NO INVESTMENT COMPANY. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement will not
be, an "investment company" required to be registered under the Investment
Company Act of 1940 (an "INVESTMENT COMPANY"). The Company is not controlled by
an Investment Company.
3.26 FORM S-3 ELIGIBILITY. The Company meets the requirements
for the use of Form S-3 for the registration and re-sale by the Buyer of the
Closing Shares, the Conversion Shares and the Escrow Shares. There exist no
facts or circumstances of which the Company is aware that would prohibit or
delay the preparation and filing of a registration statement on Form S-3 with
respect to the Closing Shares, the Conversion Shares or the Escrow Shares.
3.27 NO GENERAL SOLICITATION. Neither the Company nor any
distributor participating on the Company's behalf in the transactions
contemplated hereby, if any, nor any person acting for the Company, or any such
distributor, has conducted any "general solicitation," as such term is defined
in Regulation D as promulgated by the SEC under the 1933 Act, with respect to
any of the Securities being offered hereby.
SECTION 4. COVENANTS.
4.1 BEST EFFORTS. The parties shall use their best efforts to
satisfy each of the conditions described in Sections 5 and 6 of this Agreement
in a timely manner.
4.2 BLUE SKY LAWS. The Company shall, on or before the Closing
Date, take such action as the Company shall reasonably determine is necessary to
qualify the Securities for sale to the Buyer at the Closing pursuant to this
Agreement under applicable securities or "blue sky" laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to the Buyer on or prior to the
Closing Date.
4.3 REPORTING STATUS; ELIGIBILITY TO USE FORM S-3. The Common
Stock is registered under Section 12(g) of the 1934 Act. So long as the Buyer
beneficially owns any of the Securities, the Company shall timely file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination.
16
4.4 USE OF PROCEEDS; MANAGEMENT. The Company shall use the
proceeds from the sale of the Securities solely as follows: (i) $500,000 for the
general development of the Company's business; and (ii) $700,000 for the
development, jointly with the Buyer, of the EnerWatch project. In no event shall
the Company, directly or indirectly, use such proceeds for any loan to or
investment in any other corporation, partnership, enterprise or other person.
4.5 FINANCIAL INFORMATION. The Company agrees to send the
following reports to the Buyer until the Buyer transfers, assigns, or sells all
of the Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and
any Current Reports on Form 8-K; (ii) within one (1) day after release, copies
of all press releases issued by the Company or any of its Subsidiaries; and
(iii) contemporaneously with the making available or giving to the shareholders
of the Company, copies of any notices or other information the Company makes
available or gives to such shareholders.
4.6 SHARE INCREASE; RESERVATION OF SHARES. During the period
commencing on the Closing Date and ending as soon as is reasonably practicable
after the Closing Date, but in no event later than July 1, 2002 ("APPROVAL
PERIOD"), the Company will hold a special meeting (the "MEETING") of its
shareholders for the purpose of approving an increase in the number of shares of
Common Stock authorized for issuance to a total of 100,000,000 (the "SHARE
INCREASE"). The Company shall take any actions necessary to ensure that the
Share Increase is approved by the Company as soon as practicable. Immediately
upon the approval of the Share Increase, the Company shall issue to the Buyer
the Escrow Shares, in accordance with the Escrow Agreement, and the Conversion
Shares, in accordance with the Convertible Note. The Buyer agrees to vote all
shares of Common Stock held by it in favor of the Share Increase at the Meeting.
Upon the next meeting of the shareholders of the Company at which members of the
Board are elected, the Buyer agrees to vote all of its shares of Common Stock in
favor of appointing Eduard Will, Xxxxxxx Xxxxxxxx and Xxxx Xxxxx to serve on the
Board for a period of one year.
4.7 REGISTRATION RIGHTS. During the period commencing on the
Closing Date and ending three years thereafter, the Buyer shall have the right
to make up to four separate demands to have any of the Closing Shares, the
Escrow Shares or the Conversion Shares registered under the 1933 Act (to the
extent such Closing Shares, Escrow Shares or Conversion Shares have as of the
date of such demand been issued but not yet registered under the 0000 Xxx)
pursuant to a registration statement on a form reasonably appropriate for such
registration and what is then available for use by the Company (each, a "DEMAND
REGISTRATION"). In connection with any such Demand Registration, the following
shall apply: (i) the Company shall pay for any and all costs, fees and expenses
associated therewith; (ii) no Demand Registration may be requested by the Buyer
with respect to the registration of less than twenty percent (20%) of the total
outstanding shares of Common Stock then held by the Buyer; and (iii) other than
as expressly set forth herein, the Buyer shall have such rights with respect to
any Demand Registration as are customarily afforded to investors in venture
capital transactions regarding registration rights.
4.8 INDEMNIFICATION OF DIRECTORS AND OFFICERS. During the
seven year period immediately following the Closing Date, the Buyer agrees to
cause the Company to
17
maintain in full force and effect, with at least the same coverage as exists as
of the Closing, any and all insurance policies currently held by the Company
covering Directors and Officers' liability, or, if for any reason the Buyer,
using its best efforts, is unable to cause any such policies to be continued
through the specified period, the Buyer shall, prior to the cancellation of any
existing policy, cause the Company to procure a new policy or policies with
substantially similar coverage effective prior to or upon the cancellation of
the policy for which it is a substitute. Also during such seven year period,
Buyer shall cause the Company to indemnify its Directors and Officers to the
fullest extent permitted under the laws of the state of jurisdiction in which
the Company is then incorporated.
4.9 CONDUCT OF BUSINESS PENDING ISSUANCE OF ESCROW SHARES AND
CONVERSION SHARES. The Company shall use its best efforts to ensure, as soon as
practicable after the Closing, that designees of the Buyer constituting a
majority of the directors of the Company are appointed to the Board. Until such
time as the later of (i) the Escrow Shares and the Conversion Shares have been
issued to the Buyer, and (ii) designees of the Buyer constitute a majority of
the Board, (A) the Board shall not take any action without the written consent
of the Buyer Members (as defined below) including, but not limited to, with
respect to the issuance of any securities by the Company, (B) the Board shall
consist of not more than seven (7) members, three of which shall be Buyer
Members, (C) the Company shall conduct its business solely in the ordinary
course consistent with prior practice, (D) the Company shall not increase the
compensation paid to any employee, consultant or other third-party working for
or on behalf of the Company, (F) the Company shall not enter into any Material
Agreement without the prior written consent of the Buyer, and (G) the Company
shall not make any payments or otherwise make any disbursements of funds in an
amount greater than $50,000 without the prior written consent of the Buyer. The
Company shall use its best efforts to obtain and submit to the Buyer, at or
prior to 5:00 p.m. on December 26, 2001, letters, in form and substance
reasonably satisfactory to the Buyer, executed by holders of options to purchase
at least 1,025,072 shares of Common Stock, pursuant to which such holders agree
not to exercise any such options until the earlier of (i) July 1, 2002 and (ii)
the date that the Share Increase is approved by the shareholders of the Company
(the "REFRAIN LETTERS").
SECTION 5. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The
obligation of the Company hereunder to issue and sell the Securities to the
Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
5.1 The Buyer shall have executed this Agreement and the
Escrow Agreement, and delivered the same to the Company.
5.2 The Buyer shall have delivered the Purchase Price in
accordance with Section 1.2 above.
5.3 The representations and warranties of the Buyer shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date), and the Buyer shall have
18
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Buyer at or prior to the Closing Date.
5.4 No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
5.5 The Buyer shall have delivered a certificate with respect
to compliance with the foregoing in a form reasonably acceptable to the Company.
SECTION 6. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE. The
obligation of the Buyer hereunder to purchase the Securities at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for the Buyer's sole
benefit and may be waived by the Buyer at any time in its sole discretion:
6.1 The Company shall have executed this Agreement and the
Escrow Agreement, and delivered the same to the Buyer.
6.2 The Company shall have delivered to the Buyer the duly
executed Convertible Note and a certificate representing the Closing Shares.
6.3 The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall
have received a certificate or certificates, executed by the chief executive
officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by the Buyer
including, but not limited to, certificates with respect to the Company's
Articles of Incorporation and Bylaws, and Board resolutions relating to the
transactions contemplated hereby.
6.4 No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
6.5 Trading in the Common Stock on the OTC BB shall not have
been suspended by the SEC or the OTC BB.
19
6.6 The Buyer shall have received from the Company a
certificate with respect to compliance with the foregoing in a form reasonably
acceptable to the Company.
6.7 The designees of Buyer (the "BUYER MEMBERS") shall have
been appointed to the Board so that the Board will then consist of seven
members, including the Buyer Members.
SECTION 7. SURVIVAL, INDEMNIFICATION, ETC.
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties set forth herein and in any certificate delivered
in connection herewith with respect to any of those representations and
warranties will terminate and expire upon the lapse of the 18 month period
immediately following the Closing Date. Notwithstanding anything in this
Agreement to the contrary, a party shall have the right to commence an action to
enforce its rights hereunder after the expiration of any of the above-specified
time periods with respect to claims as to which notice was provided to the party
against which such claim is being asserted prior to the expiration of such time
period.
7.2 AGREEMENT BY THE COMPANY TO INDEMNIFY. The Company agrees
to indemnify and hold the Buyer and its officers, directors, employees, agents
and affiliates and the successors thereof (collectively, the "BUYER IDEMNITEES")
harmless from and against the aggregate of all expenses, losses, costs,
deficiencies, liabilities and damages (including, without limitation, related
reasonable counsel and paralegal fees and expenses) incurred or suffered by the
Buyer Indemnitees arising out of or resulting from (i) any breach of a
representation or warranty made by the Company in this Agreement or any other
agreement executed by the Company in connection herewith (each a "COMPANY
AGREEMENT"), (ii) any breach of the covenants or agreements made by the Company
in any Company Agreement, (iii) any inaccuracy in any certificate delivered by
the Company pursuant to this Agreement, or (iv) any claim by any third party
that the transactions contemplated herein or any discussions relating hereto
violated or undermined any agreement (whether written or oral) between such
third party and the Company, including any claims for ~ultiemp interference or
business opportunity.
7.3 AGREEMENT BY THE BUYER TO INDEMNIFY. The Buyer agrees to
indemnify and hold the Company and its officers, directors, employees, agents
and affiliates and the successors thereof (collectively, the "COMPANY
INDEMNITEES") harmless from and against the aggregate of all expenses, losses,
costs, deficiencies, liabilities and damages (including, without limitation,
related reasonable counsel and paralegal fees and expenses) incurred or suffered
by the Company Indemnitees arising out of or resulting from (i) any breach of a
representation or warranty made by the Buyer in this Agreement or any other
agreement executed by the Buyer in connection herewith (each a "BUYER
AGREEMENT"), (ii) any breach of the covenants or agreements made by the Buyer in
any Buyer Agreement, (iii) any inaccuracy in any certificate delivered by Buyer
pursuant to this Agreement, or (iv) any claim by any third party that the
transactions contemplated herein or any discussions relating hereto violated or
undermined any agreement (whether written or oral) between such third party and
the Buyer, including any claims for ~ultiemp interference or business
opportunity. The damages described in Sections 7.2 and 7.3 which are subject to
indemnification hereunder are referred to herein as "INDEMNIFIABLE DAMAGES."
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7.4 THIRD PARTY ACTIONS. With respect to each claim made by a
third party for which an Indemnified Party (as defined below) seeks
indemnification under this Section 7, such Indemnified Party shall notify the
Indemnifying Party (as defined below) thereof within a reasonable period of time
after assertion thereof; provided, further, that the failure to so notify the
Indemnifying Party shall not affect such Indemnified Party's right to
indemnification hereunder except to the extent that the Indemnifying Party's
interests are actually prejudiced thereby. The Indemnifying Party shall have the
right within thirty (30) days after receipt of such notice to assume the control
of the defense, compromise or settlement of any such action, suit, proceeding,
claim, liability, demand or assessment, including, at its own expense,
employment of counsel; provided, however, that if the Indemnifying Party shall
have exercised its right to assume such control, the Indemnified Party (i) may,
in its sole discretion, employ counsel to represent it (in additional to counsel
employed by the Indemnifying Party, and in the latter case, at the Indemnified
Party's sole expense) in any such matter, and in such event counsel selected by
the Indemnifying Party shall be required to cooperate with such counsel of the
Indemnified Party in such defense, compromise or settlement for the purpose of
informing and sharing information with such Indemnified Party, and (ii) will, at
its own expense, make available to the Indemnifying Party those employees of the
Indemnified Party or any affiliate of the Indemnified Party whose assistance,
testimony or presence is necessary to assist the Indemnifying Party in
evaluating and in defending any such action, suit, proceeding, claim, liability,
demand or assessment; provided, however, that any such access shall be conducted
in such a manner as not to interfere unreasonably with the operations of the
business of the Indemnified Party and its affiliates. The Indemnifying Party, if
it shall have assumed control of the defense, or the Indemnified Party, if the
Indemnifying Party shall not have assumed such control, shall not compromise or
settle any such action, suit, proceeding, claim, liability or assessment without
the consent of the Indemnifying Party or Indemnified Party, as the case may be,
which consent shall not be unreasonably withheld or delayed, if such compromise
or settlement does not result in a release of the Indemnifying Party or
Indemnified Party, as the case may be, form such action, suit, proceeding,
claim, liability or assessment. For purposes of this Section, an "INDEMNIFIED
PARTY" shall mean a party claiming indemnification under this Agreement, and an
"INDEMNIFYING PARTY" shall mean a party from whom indemnification is sought
under this Agreement.
7.5 CERTAIN LIMITATIONS.
(a) The amount of Indemnifiable Damages otherwise
recoverable under this Section 7 shall be reduced to the extent to which any
Federal, state, local or foreign tax liabilities of any Buyer Indemnitee or
Company Indemnitee, as applicable, or any of their respective affiliates, is
decreased by reasons of any Indemnifiable Damages in respect of which any such
Buyer Indemnitee or Company Indemnitee, as applicable, shall be entitled to
indemnity under this Agreement.
(b) No Indemnifiable Damages shall be recoverable by
a Buyer Indemnitee or Company Indemnitee pursuant to the provision of this
Section 7, and no claim therefor shall be asserted for any purpose hereunder,
unless and only to the extent that the amount of such Indemnitee's Damage equals
or exceeds $10,000 in the aggregate (the "INDEMNIFICATION DEDUCTIBLE"). Only
Indemnifiable Damages exceeding the Indemnification Deductible shall be
recoverable by the Buyer hereunder; except as otherwise expressly provided
21
herein, such Indemnifiable Damages shall be recoverable by the Buyer up until a
maximum amount equal to the Holdback Amount (the "INDEMNIFICATION CAP").
Notwithstanding anything in this Agreement to the contrary the maximum amount of
Indemnifiable Damages recoverable from the Buyer under this Agreement shall not
exceed $120,000.
(c) The Buyer shall be entitled to set-off and recoup
any Indemnifiable Damages against the Holdback Amount.
(d) Notwithstanding anything in this Agreement to the
contrary, (i) the Indemnification Cap does not apply to, and there shall be no
limit whatsoever upon, the damages or other remedies that Buyer can seek against
the Company for losses, damages or liabilities of any kind sustained by the
buyer arising out of or based upon any claim by the Buyer for fraud, or with
respect to the SEC Documents, if any misstatements or omissions thereunder
constitute a violation of Rule 10b-5 under the 1934 Act, and (ii) the Buyer
shall not be entitled to indemnification under this Section 7 for any
Indemnifiable Damages to the extent that the Buyer receives at or after the
Closing an adjustment to the Purchase Price by reason of Section 1.3 hereof with
respect to matters for which such Indemnifiable Damages would otherwise be paid.
7.6 SOLE REMEDY. The provisions of this Section 7 and Section
1.3 shall provide the sole and exclusive monetary remedy with respect to any and
all damages arising out of this Agreement and the transactions contemplated
hereby.
7.7 PAYMENTS OF INDEMNIFIABLE DAMAGES. All Indemnifiable
Damages paid by the Company to the Buyer Indemnities hereunder shall, during the
Holdback Period, be deducted from the Holdback Amount and shall be treated as
adjustment to the Purchase Price for tax purposes.
7.8 REPRESENTATION OF THE COMPANY. In all matters arising
under this Section 7, the Company shall be represented by those members of the
Board that were, as of the Closing, on the Determination Committee, or in the
event that no such members are serving on the Board as of such time, by an
independent trustee appointed by the Board for such purpose, the expenses of
which shall be borne by the Company. Such members of the Company's Board shall
have the sole authority to assert the Company's rights under this Section 7 on
the Company's behalf, and have the sole authority to make, on the Company's
behalf, any decisions relating thereto, including, subject to Section 7.4, any
decisions with respect to the defense, compromise and settlement of any
third-party claim for which indemnification is sought hereunder.
SECTION 8. GOVERNING LAW; MISCELLANEOUS.
8.1 CERTAIN DEFINED TERMS. For the purposes of this Agreement:
(a) "EMPLOYEE BENEFIT PLAN" means any Employee
Pension Benefit Plan, welfare plan and each deferred compensation, stock option,
stock purchase, bonus, medical, disability, severance or termination pay,
insurance or incentive plan, and each other employee benefit plan, program,
agreement or arrangement, (whether funded or unfunded, written or oral,
qualified or nonqualified), sponsored, maintained or contributed to, or required
to be contributed to, by the Company or by any ERISA Affiliate of the Company
for the benefit of
22
any employee, terminated employee, leased employee or former leased employee,
director, officer, shareholder or independent contractor of any of the Company
or any ERISA affiliate of the Company;
(b) "ERISA AFFILIATE" means, with respect to any
specified Person at any time, any other Person, including an affiliate of the
specified Person, that is, or at any time within six years of that time was, a
member of any ERISA group of which the specified Person is or was a member at
the same time;
(c) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended;
(d) "GOVERNMENTAL AUTHORITY" means (i) any national,
state, county, municipal or other government, domestic or foreign, or any
agency, board, bureau, commission, court, department or other instrumentality of
any such government, or (ii) any Person having the authority under any
applicable governmental requirement to assess and collect taxes;
(e) "IRS" means the Internal Revenue Service;
(f) "EMPLOYEE PENSION BENEFIT PLAN" means any
"employee pension benefit plan" of the Company as defined in Section 3(2) of
ERISA, including any plan that is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the IRS Code (excluding any
Multiemployer Plan);
(g) "MULTIEMPLOYER PLAN" means a "~ultiemployer" plan
as defined in Section 4001(a)(3) of ERISA, Section 414 of the IRS Code or
Section 3(37) of ERISA; and
(h) "PERSON" means any natural person or entity of
any kind, including but not limited to, a corporation, a limited liability
company, a partnership or an association.
8.2 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida applicable to
agreements made and to be performed in the State of Florida (without regard to
principles of conflict of laws). Both parties irrevocably consent to the
jurisdiction of the United States federal courts and the state courts located in
Broward County, Florida with respect to any suit or proceeding based on or
arising under this Agreement, the agreements entered into in connection herewith
or the transactions contemplated hereby or thereby and irrevocably agree that
all claims in respect of such suit or proceeding may be determined in such
courts. Both parties irrevocably waive the defense of an inconvenient forum to
the maintenance of such suit or proceeding. Both parties further agree that
service of process upon a party mailed by first class mail shall be deemed in
every respect effective service of process upon the party in any such suit or
proceeding. Nothing herein shall affect either party's right to serve process in
any other manner permitted by law. Both parties agree that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
8.3 COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may
be executed in one or more counterparts, all of which shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and
23
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
8.4 HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
8.5 SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
8.6 ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
8.7 NOTICES. Any notices, demands or other communication given
in connection herewith shall be in writing and be deemed given (i) when
personally delivered, (ii) sent by facsimile transmission to a number provided
in writing by the addressee and a confirmation of the transmission is received
by the sender or (iii) three (3) days after being deposited for delivery with a
recognized overnight courier, such as FedEx, with directions to deliver within
three (3) days, and addressed or sent, as the case may be, to the address or
facsimile number set forth below or to such other address or facsimile number as
such party may designate in accordance herewith:
If to the Company:
0000 Xxxxx Xxxxx Xxxx
Xxxx Xxxxx, XX 00000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
Attention: Chief Executive Officer
With copy to:
Xxxxxxx X. Xxxxxxxxx, Esq.
Pillsbury Winthrop LLP
Xxx Xxxxxxx Xxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Facsimile: (000) 000-0000
24
If to the Buyer:
Ener1 Holdings, Inc.
000 Xxxx Xxxxxxx Xxxxx Xxxx
Xxxxx 000
Xxxx Xxxxxxxxxx, XX 00000
Attention: Chief Executive Officer
With copy to:
Xxxxxx X. Xxxxx
Akerman, Senterfitt & Edison, P.A.
SunTrust International Center
Xxx X.X. Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxx, Xxxxxxx 00000-0000
Facsimile: (000) 000-0000
Each party shall provide notice to the other party of any change in
address.
8.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor the Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
8.9 THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
8.10 PUBLICITY. The Company and the Buyer shall have the right
to review a reasonable period of time before issuance of any press releases,
filings with the SEC, the National Association of Securities Dealers or any
stock exchange or interdealer quotation system, or any other public statements
with respect to the transactions contemplated hereby prepared by the other
party.
8.11 CERTAIN TAXES. The Company shall pay any and all taxes,
including, but not limited to, any documentary stamp taxes, associated with the
issuance of the Closing Shares the Convertible Note, the Conversion Shares and
the Escrow Shares.
8.12 FURTHER ASSURANCES. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
8.13 NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
8.14 REMEDIES. The Company acknowledges that a breach by it of
its obligations hereunder to issue the Closing Shares, the Escrow Share or the
Conversion Shares,
25
will cause irreparable harm to the Buyer, by vitiating the intent and purpose of
the transactions contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this Agreement to issue
the Closing Shares, the Escrow Shares, or the Conversion Shares will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of such obligations, that the Buyer shall be entitled, in addition to
all other available remedies in law or in equity, to an injunction or
injunctions or other applicable equitable remedies, to enforce specifically the
Company's obligations to issue the Closing Shares, the Escrow Share or the
Conversion Shares, without the necessity of showing economic loss and without
any bond or other security being required. All rights, powers and remedies
afforded to a party under this Agreement, by law or otherwise, shall be
cumulative (and not alternative) and shall not preclude the assertion, or the
seeking by a party of any other rights or remedies.
8.15 WAIVERS. No waiver of any provision of this Agreement
shall be binding upon a party unless such waiver is expressly set forth in a
written instrument that is executed and delivered by such party. Such waiver
shall be effective only to the extent specifically set forth in such written
instrument. Neither the exercise (from time to time and at any time) by a Party
of, nor the delay or failure (at any time or for any period of time) to
exercise, any right, power or remedy shall constitute a waiver of the right to
exercise, or impair, limit or restrict the exercise of, such right, power or
remedy or any other right, power or remedy at any time and from time to time
thereafter. No waiver of any right, power or remedy of a party shall be deemed
to be a waiver of any other right, power or remedy of such party or shall,
except to the extent so waived, impair, limit or restrict the exercise of such
right, power or remedy.
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IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused
this Agreement to be duly executed as of the date first above written.
INPRIMIS, INC.
By: /s/ EDUARD WILL
--------------------------------------------
Name: Eduard Will
Title: President and Chief Executive Officer
ENER1 HOLDINGS, INC.
By: /s/ XXXX XXX
--------------------------------------------
Name: Xxxx Xxx
Title: President
27
