EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of September 30,
2005, by and among InkSure Technologies Inc., a Delaware corporation, with
headquarters located at 0000 X.X. 00xx Xxxxxx, Xxxx Xxxxxxxxxx, Xxxxxxx 00000,
(the "COMPANY"), and the investors listed on the Schedule of Buyers attached
hereto (individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and each Buyer is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and Rule 506 of
Regulation D ("REGULATION D") as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the 1933 Act.
B. The Company has authorized a new series of convertible notes of the
Company, which notes shall be convertible into the Company's common stock, par
value $0.01 per share (the "COMMON STOCK"), in accordance with the terms of the
Notes.
C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement, that aggregate principal amount
of Notes, in substantially the form attached hereto as EXHIBIT A (the "INITIAL
NOTES"), set forth opposite such Buyer's name in column (3) on the Schedule of
Buyers (which aggregate amount for all Buyers shall be $6,000,000) (as
converted, collectively, the "INITIAL CONVERSION SHARES").
D. Subject to the terms and conditions set forth in this Agreement, the
Buyers shall have the right to purchase in Additional Closings (as defined in
Section 1(a)(ii) below), that aggregate principal amount of Notes, in
substantially the form attached hereto as EXHIBIT A (collectively, the
"ADDITIONAL NOTES" and, collectively with the Initial Notes, the "NOTES"), set
forth opposite such Buyer's name in column (4) on the Schedule of Buyers (which
aggregate amount for all Buyers shall be up to $1,250,000) (as converted,
collectively, the "ADDITIONAL CONVERSION SHARES" and, collectively with the
Initial Conversion Shares, the "CONVERSION SHARES").
E. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as EXHIBIT B (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights with respect to the Conversion Shares under the 1933 Act and
the rules and regulations promulgated thereunder, and applicable state
securities laws.
F. The Notes and the Conversion Shares are collectively are referred to
herein as the "SECURITIES".
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF NOTES.
(a) PURCHASE OF NOTES.
(i) INITIAL NOTES. Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6(a) and 7(a) below, the Company
shall issue and sell to each Buyer, and each Buyer severally, but not
jointly, agrees to purchase from the Company on the Initial Closing
Date (as defined below), a principal amount of Initial Notes as is set
forth opposite such Buyer's name in column (3) on the Schedule of
Buyers (the "INITIAL CLOSING").
(ii) ADDITIONAL NOTES. Subject to the satisfaction (or waiver) of
the conditions set forth in Sections 1(c), 6(b) and 7(b) below, the
Company shall issue and sell to each Buyer electing to participate in
such Additional Closing pursuant to Section 1(c) below, and each such
Buyer severally, but not jointly, agrees to purchase from the Company
on such Additional Closing Date (as defined below), a principal amount
of Additional Notes as is set forth opposite such Buyer's name in
column (4) on the Schedule of Buyers (each, an "ADDITIONAL CLOSING").
(iii) CLOSING. The Initial Closing and the Additional Closings
are each referred to in this Agreement as a "CLOSING". Each Closing
shall occur on the applicable Closing Date at the offices of Xxxxxxx
Xxxx & Xxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
(iv) PURCHASE PRICE. The purchase price for each Buyer of the
Initial Notes to be purchased by each such Buyer at the Initial
Closing shall be the amount set forth opposite such Buyer's name in
column (5) of the Schedule of Buyers (the "INITIAL PURCHASE PRICE").
Each Buyer shall pay $1.00 for each $1.00 of principal amount of
Additional Notes to be purchased at each Additional Closing (the
"ADDITIONAL PURCHASE PRICE", and together with the Initial Purchase
Price, the "PURCHASE PRICE").
(b) INITIAL CLOSING DATE. The date and time of the Initial Closing
(the "INITIAL CLOSING DATE") shall be 10:00 a.m., New York City Time, on
the date hereof after notification of satisfaction (or waiver) of the
conditions to the Initial Closing set forth in Sections 6(a) and 7(a) below
(or such later date as is mutually agreed to by the Company and each
Buyer).
(c) ADDITIONAL CLOSING DATE. The date and time of the Additional
Closings (each, an "ADDITIONAL CLOSING DATE," and together with the Initial
Closing Date, each or "CLOSING DATE" and collectively, the "CLOSING DATES")
shall be 10:00 a.m., New York City Time, on the date specified in the
applicable Additional Closing Notice (as defined below), subject to
satisfaction (or waiver) of the conditions to each Additional Closing set
forth in Sections 6(b) and 7(b) and the conditions contained in this
Section 1(c) (or such later date as is mutually agreed to by the Company
and the applicable Buyer). Subject to the requirements of Sections 6(b) and
7(b) and the conditions contained in this Section 1(c), each Buyer may
purchase, at such Buyer's option, Additional Notes by delivering written
notice to the Company (an "ADDITIONAL CLOSING NOTICE") at any time prior to
March 30, 2007. An Additional Closing Notice shall be delivered at least
five Business Days prior to the applicable Additional Closing Date set
forth in such Additional Closing Notice. An Additional Closing Notice shall
set forth (i) the principal amount of Additional Notes to be purchased by
such Buyer at the applicable Additional Closing, which principal amount,
when added to the principal amount of any Additional Notes previously
purchased by such Buyer, shall not exceed the principal amount of
Additional Notes as is set forth opposite such Buyer's name in column (4)
on the Schedule of Buyers, (ii) the aggregate Additional Purchase Price for
the Additional Notes to be purchased and (iii) the proposed Additional
Closing Date. The Company shall promptly deliver a copy of each Additional
Closing Notice to each Buyer that did not issue such Additional Closing
Notice and allow such Buyer to participate in such Additional Closing,
provided such Buyer gives written notice of its election to participate two
(2) Business Days prior to the Additional Closing Date. As used herein,
"BUSINESS DAY" means any day other than Saturday, Sunday or other day on
which commercial banks in The City of New York are authorized or required
by law to remain closed.
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(d) FORM OF PAYMENT. On the Initial Closing Date, each Buyer shall pay
the Initial Purchase Price to the Company for the Notes to be issued and
sold to such Buyer at the Initial Closing by wire transfer of immediately
available funds for such Initial Purchase Price in accordance with the
Company's written wire instructions. On each Additional Closing Date, each
Buyer shall pay the Additional Purchase Price to the Company for the
Additional Notes to be issued and sold to such Buyer at the Additional
Closing by wire transfer of immediately available funds for such Additional
Purchase Price in accordance with the Company's written wire instructions.
At each Closing, the Company shall deliver to each Buyer the Notes (in the
principal amounts as such Buyer shall request) which such Buyer is then
purchasing duly executed on behalf of the Company and registered in the
name of such Buyer or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
(a) NO PUBLIC SALE OR DISTRIBUTION. Such Buyer is (i) acquiring the
Notes and (ii) upon conversion of the Notes will acquire the Conversion
Shares, for its own account and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant
to sales registered or exempted under the 1933 Act; PROVIDED, HOWEVER, that
by making the representations herein, such 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.
Such Buyer is acquiring the Securities hereunder in the ordinary course of
its business. Such Buyer does not presently have any agreement or
understanding, directly or indirectly, with any Person to distribute any of
the Securities.
(b) ACCREDITED INVESTOR STATUS. Such Buyer is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D.
(c) RELIANCE ON EXEMPTIONS. Such Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from
the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy
of, and such Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth
herein in order to determine the availability of such exemptions and the
eligibility of such Buyer to acquire the Securities.
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(d) INFORMATION. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of
the Securities which have been requested by such Buyer. Such Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of
the Company. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on
the Company's representations and warranties contained herein. Such Buyer
understands that its investment in the Securities involves a high degree of
risk. Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect
to its acquisition of the Securities.
(e) NO GOVERNMENTAL REVIEW. Such Buyer understands that no United
States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Securities or the fairness or suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of
the offering of the Securities.
(f) TRANSFER OR RESALE. Such Buyer understands that except as provided
in the Registration Rights Agreement: (i) the Securities have not been and
are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to
the Company an opinion of counsel, in a generally acceptable form, to the
effect that such Securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such
registration, or (C) such Buyer provides the Company with reasonable
assurance that such Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act, as
amended, (or a successor rule thereto) (collectively, "RULE 144"); (ii) any
sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the
seller (or the Person (as defined in Section 3(s)) through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the
0000 Xxx) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) neither
the Company nor any other Person is under any obligation to register the
Securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder.
(g) LEGENDS. Such Buyer understands that the certificates or other
instruments representing the Notes and, until such time as the resale of
the Conversion Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the stock certificates
representing the Conversion Shares, except as set forth below, shall bear
any legend as required by the "blue sky" laws of any state and a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
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[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN] [THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE
OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL,
IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale, assignment or other transfer, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that such
sale, assignment or transfer of the Securities may be made without registration
under the applicable requirements of the 1933 Act, or (iii) such holder provides
the Company with reasonable assurance that the Securities can be sold, assigned
or transferred pursuant to Rule 144 or Rule 144A.
(h) VALIDITY; ENFORCEMENT. This Agreement and the Registration Rights
Agreement to which such Buyer is a party have been duly and validly
authorized, executed and delivered on behalf of such Buyer and shall
constitute the legal, valid and binding obligations of such Buyer
enforceable against such Buyer in accordance with their respective terms,
except as such enforceability may be limited by general principles of
equity or to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
(i) NO CONFLICTS. The execution, delivery and performance by such
Buyer of this Agreement and the Registration Rights Agreement to which such
Buyer is a party and the consummation by such Buyer of the transactions
contemplated hereby and thereby will not (i) result in a violation of the
organizational documents of such Buyer or (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would
become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which such Buyer is a party, or (iii) result in a violation
of any law, rule, regulation, order, judgment or decree (including federal
and state securities laws) applicable to such Buyer, except in the case of
clauses (ii) and (iii) above, for such conflicts, defaults, rights or
violations which would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the ability of such Buyer to
perform its obligations hereunder.
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(j) RESIDENCY. Such Buyer is a resident of that jurisdiction specified
below its address on the Schedule of Buyers.
(k) CERTAIN TRADING ACTIVITIES. Such Buyer has not directly or
indirectly engaged in any Short Sales involving the Company's securities
since the time that such Buyer was first contacted by the Agent with
respect to the transactions contemplated hereby. "SHORT SALES" include,
without limitation, all "SHORT SALES" as defined in Rule 200 promulgated
under Regulation SHO under the 1934 Act and all types of direct and
indirect stock pledges, forward sale contracts, options, puts, calls, short
sales, swaps and similar arrangements (including on a total return basis),
and sales and other transactions through non-US broker dealers or foreign
regulated brokers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
(a) ORGANIZATION AND QUALIFICATION. The Company and its "SUBSIDIARIES"
(which for purposes of this Agreement means any entity in which the
Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) are entities duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are formed, and
have the requisite power and authorization to own their properties and to
carry on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign entity to do business and is in
good standing in every jurisdiction in which its ownership of property or
the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be
in good standing would not have a Material Adverse Effect. As used in this
Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse effect on
the business, properties, assets, operations, results of operations,
condition (financial or otherwise) or prospects of the Company and its
Subsidiaries, taken as whole, or on the transactions contemplated hereby
and the other Transaction Documents or by the agreements and instruments to
be entered into in connection herewith or therewith, or on the authority or
ability of the Company to perform its obligations under the Transaction
Documents (as defined below). The Company has no Subsidiaries, except as
set forth on SCHEDULE 3(A).
(b) AUTHORIZATION; ENFORCEMENT; VALIDITY. The Company has the
requisite power and authority to enter into and perform its obligations
under this Agreement, the Notes, the Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 5(b)), and
each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement
(collectively, the "TRANSACTION DOCUMENTS") and to issue the Securities in
accordance with the terms hereof and thereof. The execution and delivery of
the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby, including,
without limitation, the issuance of the Notes and the reservation for
issuance and the issuance of the Conversion Shares issuable upon conversion
of the Notes, have been duly authorized by the Company's Board of Directors
and (other than the filing with the SEC of (i) a Form D under Regulation D
of the 1933 Act in accordance with Section 4(b) hereof, (ii) one or more
Registration Statements in accordance with the requirements of the
Registration Rights Agreement and (iii) one or more Current Reports on Form
8-K pursuant to Section 4(i) hereof), no further filing, consent, or
authorization is required by the Company, its Board of Directors or its
stockholders. This Agreement and the other Transaction Documents of even
date herewith have been duly executed and delivered by the Company, and
constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies. Any of the
Transaction Documents dated after the date hereof, upon execution and
delivery, will have been duly executed and delivered by the Company, and
constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
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(c) ISSUANCE OF SECURITIES. The issuance of the Notes are duly
authorized and are free from all taxes, liens and charges with respect to
the issue thereof. As of the applicable Closing, the Company shall have
reserved from its duly authorized capital stock not less than the sum of
130% of the maximum number of shares of Common Stock issuable upon
conversion of the Notes issuable at such Closing and issued at any prior
Closing (assuming for purposes hereof, that the Notes are convertible at
the initial Conversion Price and without taking into account any
limitations on the conversion of the Notes set forth in the Notes). Upon
conversion in accordance with the Notes, the Conversion Shares will be
validly issued, fully paid and nonassessable and free from all preemptive
or similar rights, taxes, liens and charges with respect to the issue
thereof, with the holders being entitled to all rights accorded to a holder
of Common Stock. The offer and issuance by the Company of the Securities is
exempt from registration under the 1933 Act.
(d) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Notes and reservation for issuance and
issuance of the Conversion Shares) will not (i) result in a violation of
the Certificate of Incorporation (as defined in Section 3(r)) of the
Company or any of its Subsidiaries, any capital stock of the Company or
Bylaws (as defined in Section 3(r)) of the Company or any of its
Subsidiaries or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under,
or 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, except which are the subject
of written waivers or consents which have been obtained or effected, or
(iii) result in a violation of any law, rule, regulation, order, judgment
or decree (including federal and state securities laws and regulations and
the rules and regulations of the OTC Bulletin Board (the "PRINCIPAL
MARKET")) 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 in the case of clauses (ii) and (iii), for such breaches
or defaults as could not reasonably be expected to have a Material Adverse
Effect.
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(e) CONSENTS. The Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any
court, governmental agency or any regulatory or self-regulatory agency or
any other Person in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents, in each
case in accordance with the terms hereof or thereof (other than the filing
with the SEC of (i) a Form D under Regulation D of the 1933 Act in
accordance with Section 4(b) hereof, (ii) one or more Registration
Statements in accordance with the requirements of the Registration Rights
Agreement and (iii) one or more Current Reports on Form 8-K pursuant to
Section 4(i) hereof). 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
applicable Closing Date, and the Company and its Subsidiaries are unaware
of any facts or circumstances which might prevent the Company from
obtaining or effecting any of the registration, application or filings
pursuant to the preceding sentence. The Company is not in violation of the
listing requirements of the Principal Market and has no knowledge of any
facts which would reasonably lead to delisting or suspension of the Common
Stock in the foreseeable future.
(f) ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF SECURITIES. The
Company acknowledges and agrees that each Buyer is acting solely in the
capacity of arm's length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby and that no
Buyer is (i) an officer or director of the Company, (ii) an "affiliate" of
the Company (as defined in Rule 144) or (iii) to the knowledge of the
Company, a "beneficial owner" of more than 10% of the shares of Common
Stock (as defined for purposes of Rule 13d-3 of the Securities Exchange Act
of 1934, as amended (the "1934 ACT")). The Company further acknowledges
that no Buyer is acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to the Transaction Documents and
the transactions contemplated hereby and thereby, and any advice given by a
Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to such Buyer's purchase of the Securities. The
Company further represents to each Buyer that the Company's decision to
enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives and partially
in reliance upon the representations and warranties of each Buyer
hereunder.
(g) NO GENERAL SOLICITATION; PLACEMENT AGENT'S FEES. Neither the
Company, nor any of its affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the
offer or sale of the Securities. The Company shall be responsible for the
payment of any placement agent's fees, financial advisory fees, or brokers'
commissions (other than for persons engaged by any Buyer or its investment
advisor) relating to or arising out of the transactions contemplated
hereby. The Company shall pay, and hold each Buyer harmless against, any
liability, loss or expense (including, without limitation, attorney's fees
and out-of-pocket expenses) arising in connection with any such claim. The
Company acknowledges that it has engaged Jefferies & Co. as placement agent
(the "AGENT") in connection with the sale of the Securities. Other than the
Agent, the Company has not engaged any placement agent or other agent in
connection with the sale of the Securities.
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(h) NO INTEGRATED OFFERING. None of the Company, its Subsidiaries, any
of their affiliates, and any Person acting on 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 of any of the Securities under the 1933 Act or cause this
offering of the Securities to be integrated with prior offerings by the
Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations
of any exchange or automated quotation system on which any of the
securities of the Company are listed or designated. None of the Company,
its Subsidiaries, their affiliates and any Person acting on their behalf
will take any action or steps referred to in the preceding sentence that
would require registration of any of the Securities under the 1933 Act or
cause the offering of the Securities to be integrated with other offerings.
(i) DILUTIVE EFFECT. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Notes will
increase in certain circumstances. The Company further acknowledges that
its obligation to issue Conversion Shares upon conversion of the Notes in
accordance with this Agreement and the Notes is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the
ownership interests of other stockholders of the Company.
(j) APPLICATION OF TAKEOVER PROTECTIONS; RIGHTS AGREEMENT. The Company
and its board of directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Certificate
of Incorporation or the laws of the jurisdiction of its formation which is
or could become applicable to any Buyer as a result of the transactions
contemplated by this Agreement, including, without limitation, the
Company's issuance of the Securities and any Buyer's ownership of the
Securities. The Company has not adopted a stockholder rights plan or
similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company.
(k) SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as disclosed in
SCHEDULE 3(K), during the two (2) years prior to the date hereof, the
Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the 1934 Act (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements, notes
and schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the "SEC DOCUMENTS"). The Company has delivered
to the Buyers or their respective representatives true, correct and
complete copies of the SEC Documents not available on the XXXXX system. As
of their respective dates, the SEC Documents complied in all material
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 the light of the circumstances under
which they were made, not misleading. 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 generally
accepted accounting principles, 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 exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results
of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments). No
other information provided by or on behalf of the Company to the Buyers
which is not included in the SEC Documents, including, without limitation,
information referred to in Section 2(d) of this Agreement, contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading.
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(l) ABSENCE OF CERTAIN CHANGES. Except as disclosed in SCHEDULE 3(L),
since December 31, 2004, there has been no material adverse change and no
material adverse development in the business, properties, operations,
condition (financial or otherwise), results of operations or prospects of
the Company. Except as disclosed in SCHEDULE 3(L), since December 31, 2004,
the Company has not (i) declared or paid any dividends, (ii) sold any
assets, individually or in the aggregate, in excess of $100,000 outside of
the ordinary course of business or (iii) had capital expenditures,
individually or in the aggregate, in excess of $100,000. The Company has
not taken any steps to seek protection pursuant to any bankruptcy law nor
does the Company have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings or any actual
knowledge of any fact which would reasonably lead a creditor to do so. The
Company is not as of the date hereof, and after giving effect to the
transactions contemplated hereby to occur at the applicable Closing, will
not be Insolvent (as defined below). For purposes of this Section 3(l),
"INSOLVENT" means (i) the present fair saleable value of the Company's
assets is less than the amount required to pay the Company's total
Indebtedness (as defined in Section 3(s)), (ii) the Company is unable to
pay its debts and liabilities, subordinated, contingent or otherwise, as
such debts and liabilities become absolute and matured, (iii) the Company
intends to incur or believes that it will incur debts that would be beyond
its ability to pay as such debts mature or (iv) the Company has
unreasonably small capital with which to conduct the business in which it
is engaged as such business is now conducted and is proposed to be
conducted.
(m) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES.
No event, liability, development or circumstance has occurred or exists
with respect to the Company, its Subsidiaries or their respective business,
properties, prospects, operations or financial condition, that would be
required to be disclosed by the Company under applicable securities laws on
a registration statement on Form S-1 filed with the SEC relating to an
issuance and sale by the Company of its Common Stock and which has not been
publicly announced.
(n) CONDUCT OF BUSINESS; REGULATORY PERMITS. Neither the Company nor
its Subsidiaries is in violation of any term of or in default under its
Certificate of Incorporation or Bylaws or their organizational charter or
certificate of incorporation or bylaws, respectively. Neither the Company
nor any of its Subsidiaries is in violation of any judgment, decree or
order or any statute, ordinance, rule or regulation applicable to the
Company or its Subsidiaries, and neither the Company nor any of its
Subsidiaries will conduct its business in violation of any of the
foregoing, except for possible violations which would not, individually or
in the aggregate, have a Material Adverse Effect. Since December 31, 2003,
(i) the Common Stock has been designated for quotation on the Principal
Market, (ii) trading in the Common Stock has not been suspended by the SEC
or the Principal Market and (iii) the Company has received no
communication, written or oral, from the SEC or the Principal Market
regarding the suspension or delisting of the Common Stock from the
Principal Market. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate
regulatory authorities necessary to conduct their respective businesses,
except where the failure to possess such certificates, authorizations or
permits would not have, individually or in the aggregate, a Material
Adverse Effect, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.
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(o) 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 of its Subsidiaries has, in the
course of its actions for, or on behalf of, the Company (i) used any
corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or
(iv) made any unlawful bribe, rebate, payoff, influence payment, kickback
or other unlawful payment to any foreign or domestic government official or
employee.
(p) XXXXXXXX-XXXXX ACT. The Company is in compliance with any and all
applicable requirements of the Xxxxxxxx-Xxxxx Act of 2002 that are
effective as of the date hereof, and any and all applicable rules and
regulations promulgated by the SEC thereunder that are effective as of the
date hereof, except where such noncompliance would not have, individually
or in the aggregate, a Material Adverse Effect.
(q) TRANSACTIONS WITH AFFILIATES. Except as set forth in the SEC
Documents filed at least ten days prior to the date hereof and other than
the grant of stock options disclosed on SCHEDULE 3(Q), 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
ordinary course services as employees, officers or 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 such officer,
director or employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any such officer, director, or
employee has a substantial interest or is an officer, director, trustee or
partner.
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(r) EQUITY CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) 35,000,000 shares of
Common Stock, of which as of the date hereof, 15,161,325 are issued
and outstanding, 1,345,184 shares are reserved for issuance pursuant
to the Company's stock option and purchase plans and 3,676,222 shares
are reserved for issuance pursuant to securities (other than the
Notes) exercisable or exchangeable for, or convertible into, shares of
Common Stock and (ii) 10,000,000 shares of preferred stock, $0.01 par
value per share, of which as of the date hereof, none is issued and
outstanding. All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable.
Except as disclosed in SCHEDULE 3(R): (i) none of the Company's
capital stock is subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the
Company; (ii) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any capital stock of the Company or
any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may
become bound to issue additional capital stock of the Company or any
of its Subsidiaries or options, warrants, scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable
for, any capital stock of the Company or any of its Subsidiaries;
(iii) there are no outstanding debt securities, notes, credit
agreements, credit facilities or other agreements, documents or
instruments evidencing Indebtedness of the Company or any of its
Subsidiaries or by which the Company or any of its Subsidiaries is or
may become bound; (iv) there are no financing statements securing
obligations in any material amounts, either singly or in the
aggregate, filed in connection with the Company or any of its
Subsidiaries; (v) there are no agreements or arrangements under which
the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement); (vi) there are no outstanding
securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no
contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a
security of the Company or any of its Subsidiaries, except to the
extent that a cashless exercise feature in options or warrants may be
treated as a redemption; (vii) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered
by the issuance of the Securities; (viii) the Company does not have
any stock appreciation rights or "phantom stock" plans or agreements
or any similar plan or agreement; and (ix) the Company and its
Subsidiaries have no liabilities or obligations required to be
disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the
Company's or its Subsidiaries' respective businesses and which,
individually or in the aggregate, do not or would not have a Material
Adverse Effect. The Company has furnished to the Buyer true, correct
and complete copies of the Company's Certificate of Incorporation, as
amended and as in effect on the date hereof (the "CERTIFICATE OF
INCORPORATION"), and the Company's Bylaws, as amended and as in effect
on the date hereof (the "BYLAWS"), and the terms of all securities
convertible into, or exercisable or exchangeable for, shares of Common
Stock and the material rights of the holders thereof in respect
thereto.
- 12 -
(s) INDEBTEDNESS AND OTHER CONTRACTS. Except as disclosed in SCHEDULE
3(S), neither the Company nor any of its Subsidiaries (i) has any
outstanding Indebtedness (as defined below), (ii) is a party to any
contract, agreement or instrument, the violation of which, or default under
which, by the other party(ies) to such contract, agreement or instrument
would result in a Material Adverse Effect, (iii) is in violation of any
term of or in default under any contract, agreement or instrument relating
to any Indebtedness, except where such violations and defaults would not
result, individually or in the aggregate, in a Material Adverse Effect, or
(iv) is a party to any contract, agreement or instrument relating to any
Indebtedness, the performance of which, in the judgment of the Company's
officers, has or is expected to have a Material Adverse Effect. SCHEDULE
3(S) provides a detailed description of the material terms of any such
outstanding Indebtedness. For purposes of this Agreement: (x)
"INDEBTEDNESS" of any Person means, without duplication (A) all
indebtedness for borrowed money, (B) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
trade payables entered into in the ordinary course of business), (C) all
reimbursement or payment obligations with respect to letters of credit,
surety bonds and other similar instruments, (D) all obligations evidenced
by notes, bonds, debentures or similar instruments, including obligations
so evidenced incurred in connection with the acquisition of property,
assets or businesses, (E) all indebtedness created or arising under any
conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired
with the proceeds of such indebtedness (even though the rights and remedies
of the seller or bank under such agreement in the event of default are
limited to repossession or sale of such property), (F) all monetary
obligations under any leasing or similar arrangement which, in connection
with generally accepted accounting principles, consistently applied for the
periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or
for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though
the Person which owns such assets or property has not assumed or become
liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of the
kinds referred to in clauses (A) through (G) above; (y) "CONTINGENT
OBLIGATION" means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any indebtedness,
lease, dividend or other obligation of another Person if the primary
purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability
that such liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such
liability will be protected (in whole or in part) against loss with respect
thereto; and (z) "PERSON" means an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(t) ABSENCE OF LITIGATION. There is no action, suit, proceeding,
inquiry or investigation before or by the Principal Market, any court,
public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company, threatened against or
affecting the Company, the Common Stock or any of the Company's
Subsidiaries or any of the Company's or its Subsidiaries' officers or
directors, except as set forth in SCHEDULE 3(T).
(u) INSURANCE. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has
been refused any insurance coverage sought or applied for and neither the
Company nor any such Subsidiary has any reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.
- 13 -
(v) EMPLOYEE RELATIONS. (i) Except as set forth in SCHEDULE 3(V),
neither Company nor any of its Subsidiaries is a party to any collective
bargaining agreement or employs any member of a union. The Company and its
Subsidiaries believe that their relations with their employees are good. No
executive officer of the Company or any of its Subsidiaries (as defined in
Rule 501(f) of the 0000 Xxx) has notified the Company or any such
Subsidiary that such officer intends to leave the Company or any such
Subsidiary or otherwise terminate such officer's employment with the
Company or any such Subsidiary. No executive officer of the Company or any
of its Subsidiaries, to the knowledge of the Company or any such
Subsidiary, is, or is now expected to be, in violation of any material term
of any employment contract, confidentiality, disclosure or proprietary
information agreement, non-competition agreement, or any other contract or
agreement or any restrictive covenant, and the continued employment of each
such executive officer does not subject the Company or any such Subsidiary
to any liability with respect to any of the foregoing matters.
(ii) The Company and its Subsidiaries are in compliance with all
federal, state, local and foreign laws and regulations respecting
labor, employment and employment practices and benefits, terms and
conditions of employment and wages and hours, except where failure to
be in compliance would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(w) TITLE. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and 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 do not materially affect the value
of such property and do not interfere with the use made and proposed to be
made of such property by the Company and any of its Subsidiaries. Any real
property and facilities held under lease by the Company and any of its
Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with
the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
(x) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights
("INTELLECTUAL PROPERTY RIGHTS") necessary to conduct their respective
businesses as now conducted. Except as set forth in SCHEDULE 3(X), none of
the Company's Intellectual Property Rights have expired or terminated, or
are expected to expire or terminate, within three years from the date of
this Agreement. The Company does not have any knowledge of any infringement
by the Company or its Subsidiaries of Intellectual Property Rights of
others. There is no claim, action or proceeding being made or brought, or
to the knowledge of the Company, being threatened, against the Company or
its Subsidiaries regarding its Intellectual Property Rights. The Company is
unaware of any facts or circumstances which might give rise to any of the
foregoing infringements or claims, actions or proceedings. The Company and
its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their intellectual properties.
- 14 -
(y) ENVIRONMENTAL LAWS. To the knowledge of the Company, the Company
and its Subsidiaries (i) are in compliance with any and all Environmental
Laws (as hereinafter defined), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in compliance with all
terms and conditions of any such permit, license or approval where, in each
of the foregoing clauses (i), (ii) and (iii), the failure to so comply
could be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect. 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.
(z) SUBSIDIARY RIGHTS. Except as set forth in SCHEDULE 3(Z), the
Company or one of its Subsidiaries has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by
the Company or such Subsidiary.
(aa) TAX STATUS. Except as set forth in Schedule 3(aa), the Company
and each of its Subsidiaries (i) has made or filed all foreign, federal and
state income and all other tax returns, reports and declarations required
by any jurisdiction to which it is subject, (ii) has paid all taxes and
other governmental assessments and charges that are material in amount,
shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and (iii) has set aside on its
books provision 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.
(bb) INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities
at reasonable intervals and appropriate action is taken with respect to any
difference.
(cc) RANKING OF NOTES. Except for Permitted Senior Indebtedness (as
defined in the Notes) and as set forth on SCHEDULE (CC), no Indebtedness of
the Company is senior to the Notes in right of payment, whether with
respect of payment of redemptions, interest, damages or upon liquidation or
dissolution or otherwise.
(dd) FORM SB-2 ELIGIBILITY. The Company is eligible to register the
Conversion Shares for resale by the Buyers using Form SB-2, or other
applicable or successor form, promulgated under the 1933 Act.
- 15 -
(ee) MANIPULATION OF PRICE. The Company has not, and to its knowledge
no one acting on its behalf has, (i) taken, directly or indirectly, any
action designed to cause or to result in the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of any of the Securities, (ii) other than the Agent, sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of the
Securities, or (iii) other than the Agent, paid or agreed to pay to any
person any compensation for soliciting another to purchase any other
securities of the Company.
(ff) DISCLOSURE. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Buyers or their agents
or counsel with any information that constitutes or could reasonably be
expected to constitute material, nonpublic information other than for the
status and terms of the financing contemplated hereby. The Company
understands and confirms that each of the Buyers will rely on the foregoing
representations in effecting transactions in securities of the Company. All
disclosure provided to the Buyers regarding the Company, its business and
the transactions contemplated hereby, including the Schedules to this
Agreement, furnished by or on behalf of the Company is true and correct and
does not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not
misleading. Each press release issued by the Company during the twelve (12)
months preceding the date of this Agreement did not at the time of release
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are
made, not misleading. No event or circumstance has occurred or information
exists with respect to the Company or any of its Subsidiaries or its or
their business, properties, prospects, operations or financial conditions,
which, under applicable law, rule or regulation, requires public disclosure
or announcement by the Company but which has not been so publicly announced
or disclosed.
4. COVENANTS.
(a) BEST EFFORTS. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
(b) FORM D AND BLUE SKY. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall,
on or before the applicable Closing Date, take such action as the Company
shall reasonably determine is necessary in order to obtain an exemption for
or to qualify the Securities for sale to the Buyers at the applicable
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 Buyers on or prior to the applicable Closing Date. The Company
shall make all filings and reports relating to the offer and sale of the
Securities required under applicable securities or "Blue Sky" laws of the
states of the United States following the applicable Closing Date.
- 16 -
(c) REPORTING STATUS. Until the latest of the date on which the
Investors (as defined in the Registration Rights Agreement) shall have sold
all the Conversion Shares, none of the Notes is outstanding and the date
that no Additional Notes may be issued pursuant to the terms of this
Agreement (the "REPORTING PERIOD"), the Company shall 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 otherwise permit such termination.
(d) USE OF PROCEEDS. The Company will use the proceeds from the sale
of the Securities for working capital purposes, and not for (A) repayment
of any outstanding Indebtedness of the Company or any of its Subsidiaries
or (B) redemption or repurchase of any of its or its Subsidiaries' equity
securities.
(e) FINANCIAL INFORMATION. The Company agrees to send the following to
each Investor (as defined in the Registration Rights Agreement) during the
Reporting Period (i) unless the following are filed with the SEC through
XXXXX and are available to the public through the XXXXX system, within one
(1) Business Day after the filing thereof with the SEC, a copy of its
Annual Reports on Form 10-K or 10-KSB, any interim reports or any
consolidated balance sheets, income statements, stockholders' equity
statements and/or cash flow statements for any period other than annual,
any Current Reports on Form 8-K and any registration statements (other than
on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same
day as the release thereof, facsimile or e-mailed copies of all press
releases issued by the Company or any of its Subsidiaries, and (iii) copies
of any notices and other information made available or given to the
stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders.
(f) LISTING. The Company shall promptly secure the listing of all of
the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation
system, if any, upon which the Common Stock is then listed (subject to
official notice of issuance) and shall maintain such listing of all
Registrable Securities from time to time issuable under the terms of the
Transaction Documents. The Company shall maintain the Common Stocks'
authorization for quotation on the Principal Market unless it shall secure
listing on The Nasdaq SmallCap Market, the Nasdaq National Market or a
national securities exchange. Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to
result in the delisting or suspension of the Common Stock on the Principal
Market unless it shall secure listing on The Nasdaq SmallCap Market, the
Nasdaq National Market or a national securities exchange and except in
connection with a Fundamental Transaction, as defined in the Notes pursuant
to the terms contained in the Notes. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section
4(f).
(g) FEES. Subject to Section 8 below, at the Initial Closing, the
Company shall pay an expense allowance of $75,000 to Smithfield Fiduciary
LLC (a Buyer) or its designee(s) (in addition to any other expense amounts
paid to any Buyer prior to the date of this Agreement), which amount shall
be withheld by such Buyer from its Initial Purchase Price at the Initial
Closing. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or broker's commissions (other than
for Persons engaged by any Buyer) relating to or arising out of the
transactions contemplated hereby, including, without limitation, any fees
or commissions payable to the Agent. The Company shall pay, and hold each
Buyer harmless against, any liability, loss or expense (including, without
limitation, reasonable attorney's fees and out-of-pocket expenses) arising
in connection with any claim relating to any such payment. Except as
otherwise set forth in the Transaction Documents, each party to this
Agreement shall bear its own expenses in connection with the sale of the
Securities to the Buyers.
- 17 -
(h) PLEDGE OF SECURITIES. The Company acknowledges and agrees that the
Securities may be pledged by an Investor (as defined in the Registration
Rights Agreement) in connection with a bona fide margin agreement or other
loan or financing arrangement that is secured by the Securities. The pledge
of Securities shall not be deemed to be a transfer, sale or assignment of
the Securities hereunder, and no Investor effecting a pledge of Securities
shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or
any other Transaction Document, including, without limitation, Section 2(f)
hereof; provided that an Investor and its pledgee shall be required to
comply with the provisions of Section 2(f) hereof in order to effect a
sale, transfer or assignment of Securities to such pledgee. The Company
hereby agrees to execute and deliver such documentation as a pledgee of the
Securities may reasonably request in connection with a pledge of the
Securities to such pledgee by an Investor.
(i) DISCLOSURE OF TRANSACTIONS AND OTHER MATERIAL INFORMATION. On or
before 8:30 a.m., New York Time, on the second Business Day following the
date of this Agreement, the Company shall file a Current Report on Form 8-K
describing the terms of the transactions contemplated by the Transaction
Documents and the Acquisitions in the form required by the 1934 Act and
attaching the material Transaction Documents (including, without
limitation, this Agreement (and all schedules to this Agreement), the form
of Notes and the Registration Rights Agreement) and the material
transaction documents relating to the Acquisitions as exhibits to such
filing (including all attachments, the "INITIAL 8-K FILING"). On or before
8:30 a.m., New York City Time, on the second Trading Day following each
Additional Closing Date, the Company shall file a Current Report on Form
8-K with the SEC describing the transaction consummated on such date (the
"ADDITIONAL 8-K FILING," and together with the Initial 8-K Filing, the "8-K
FILINGS"). From and after the filing of the Initial 8-K Filing with the
SEC, no Buyer shall be in possession of any material, nonpublic information
received from the Company or any of its Subsidiaries, or any of their
respective officers, directors, employees or agents, that is not disclosed
in the Initial 8-K Filing. The Company shall not, and shall cause each of
its Subsidiaries and its and each of their respective officers, directors,
employees and agents, not to, provide any Buyer with any material,
nonpublic information regarding the Company or any of its Subsidiaries from
and after the filing of the Initial 8-K Filing with the SEC without the
express written consent of such Buyer. To the extent that the Company gives
notice to the Buyer that a portion of a Registration Statement (as defined
in the Registration Rights Agreement) or any information contemplated by
Section 3(i) of the Registration Rights Agreement contains material,
nonpublic information and, if Buyer thereafter elects not to receive such
information, notwithstanding anything to the contrary contained in Section
3(c) or 3(i) of the Registration Rights Agreement, the Company shall not be
deemed to be in violation of Section 3(c) of the Registration Rights
Agreement by its failure to deliver those portions of the Registration
Statement to the Buyer for their review and comment or, to be in violation
of Section 3(i) of the Registration Rights Agreement by not providing
access to such material non-public information. In the event of a breach of
the foregoing covenant by the Company, or any of its Subsidiaries, or any
of its or their respective officers, directors, employees and agents, in
addition to any other remedy provided herein or in the Transaction
Documents, a Buyer shall have the right to make a public disclosure, in the
form of a press release, public advertisement or otherwise, of such
material, nonpublic information without the prior approval by the Company,
its Subsidiaries, or any of its or their respective officers, directors,
employees or agents. No Buyer shall have any liability to the Company, its
Subsidiaries, or any of its or their respective officers, directors,
employees, stockholders or agents, for any such disclosure. Subject to the
foregoing, neither the Company, its Subsidiaries nor any Buyer shall issue
any press releases or any other public statements with respect to the
transactions contemplated hereby; PROVIDED, HOWEVER, that the Company shall
be entitled, without the prior approval of any Buyer, to make any press
release or other public disclosure with respect to such transactions (i) in
substantial conformity with the 8-K Filings and contemporaneously therewith
and (ii) as is required by applicable law and regulations (provided that in
the case of clause (i) each Buyer shall be consulted by the Company in
connection with any such press release or other public disclosure prior to
its release).
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(j) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS. So long as any Notes
are outstanding, the Company shall not, directly or indirectly, redeem, or
declare or pay any cash dividend or distribution on, the Common Stock
without the prior express written consent of the holders of Notes
representing not less than a majority of the aggregate principal amount of
the then outstanding Notes.
(k) ADDITIONAL NOTES; VARIABLE SECURITIES; DILUTIVE ISSUANCES. So long
as any Buyer beneficially owns any Notes, or any Additional Notes may be
issued pursuant to the terms of this Agreement, the Company will not issue
any Notes (other than to the Buyers as contemplated hereby) and the Company
shall not issue any other securities that would cause a breach or default
under the Notes. For long as any Notes remain outstanding or any Additional
Notes may be issued pursuant to the terms of this Agreement, the Company
shall not, in any manner, issue or sell any rights, warrants or options to
subscribe for or purchase Common Stock or directly or indirectly
convertible into or exchangeable or exercisable for Common Stock at a price
which varies or may vary with the market price of the Common Stock,
including by way of one or more reset(s) to any fixed price unless the
conversion, exchange or exercise price of any such security cannot be less
than the then applicable Conversion Price (as defined in the Notes) with
respect to the Common Stock into which any Note is convertible. For long as
any Notes remain outstanding, the Company shall not, in any manner, enter
into or affect any Dilutive Issuance (as defined in the Notes) if the
effect of such Dilutive Issuance is to cause the Company to be required to
issue upon conversion of any Note, any shares of Common Stock in excess of
that number of shares of Common Stock which the Company may issue upon
conversion of the Notes, without breaching the Company's obligations under
the rules or regulations of the Eligible Market (as defined in the Notes).
(l) CORPORATE EXISTENCE. So long as any Buyer beneficially owns any
Securities or any Additional Notes may be issued pursuant to the terms of
this Agreement, the Company shall not be party to any Fundamental
Transaction (as defined in the Notes) unless the Company is in compliance
with the applicable provisions governing Fundamental Transactions set forth
in the Notes.
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(m) RESERVATION OF SHARES. So long as any Buyer owns any Notes or any
Additional Notes may be issued pursuant to the terms of this Agreement, the
Company shall take all action necessary to at all times have authorized,
and reserved for the purpose of issuance, no less than 130% of the number
of shares of Common Stock issuable upon conversion of the Notes then
outstanding (without taking into account any limitations on the conversion
of the Notes set forth in the Notes).
(n) CONDUCT OF BUSINESS. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would
not result, either individually or in the aggregate, in a Material Adverse
Effect.
(o) ADDITIONAL ISSUANCES OF SECURITIES.
(i) For purposes of this Section 4(o), the following definitions
shall apply.
(1) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) convertible into or exercisable or
exchangeable for shares of Common Stock.
(2) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or Convertible
Securities.
(3) "COMMON STOCK EQUIVALENTS" means, collectively, Options
and Convertible Securities.
(ii) From the date hereof until the date that is 90 Trading Days
(as defined in the Notes) following the Effective Date of the Initial
Registration Statement (as such terms are defined in the Registration
Rights Agreement) (the "TRIGGER DATE"), the Company will not, directly
or indirectly, offer, sell, grant any option to purchase, or otherwise
dispose of (or announce any offer, sale, grant or any option to
purchase or other disposition of) any of its or its Subsidiaries'
equity or equity equivalent securities, including, without limitation,
any debt, preferred stock or other instrument or security that is, at
any time during its life and under any circumstances, convertible into
or exchangeable or exercisable for shares of Common Stock or Common
Stock Equivalents (any such offer, sale, grant, disposition or
announcement being referred to as a "SUBSEQUENT PLACEMENT").
(iii) From the Trigger Date until the date that is eighteen
months after the Effective Date of the Initial Registration Statement,
the Company will not, directly or indirectly, effect any Subsequent
Placement unless the Company shall have first complied with this
Section 4(o)(iii).
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(1) The Company shall deliver to each Buyer a written notice
(the "OFFER NOTICE") of any proposed or intended issuance or sale
or exchange (the "OFFER") of the securities being offered (the
"OFFERED SECURITIES") in a Subsequent Placement, which Offer
Notice shall (w) identify and describe the Offered Securities,
(x) describe the price and other terms upon which they are to be
issued, sold or exchanged, and the number or amount of the
Offered Securities to be issued, sold or exchanged, (y) identify
the persons or entities (if known) to which or with which the
Offered Securities are to be offered, issued, sold or exchanged
and (z) offer to issue and sell to or exchange with such Buyers
at least one-third of the Offered Securities, allocated among
such Buyers (a) based on such Buyer's pro rata portion of the
aggregate principal amount of Notes purchased hereunder (the
"BASIC AMOUNT"), and (b) with respect to each Buyer that elects
to purchase its Basic Amount, any additional portion of the
Offered Securities attributable to the Basic Amounts of other
Buyers as such Buyer shall indicate it will purchase or acquire
should the other Buyers subscribe for less than their Basic
Amounts (the "UNDERSUBSCRIPTION AMOUNT").
(2) To accept an Offer, in whole or in part, such Buyer must
deliver a written notice to the Company prior to the end of the
fifth (5th) Business Day after such Buyer's receipt of the Offer
Notice (the "OFFER PERIOD"), setting forth the portion of such
Buyer's Basic Amount that such Buyer elects to purchase and, if
such Buyer shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Buyer elects to
purchase (in either case, the "NOTICE OF ACCEPTANCE"). If the
Basic Amounts subscribed for by all Buyers are less than the
total of all of the Basic Amounts, then each Buyer who has set
forth an Undersubscription Amount in its Notice of Acceptance
shall be entitled to purchase, in addition to the Basic Amounts
subscribed for, the Undersubscription Amount it has subscribed
for; PROVIDED, HOWEVER, that if the Undersubscription Amounts
subscribed for exceed the difference between the total of all the
Basic Amounts and the Basic Amounts subscribed for (the
"AVAILABLE UNDERSUBSCRIPTION AMOUNT"), each Buyer who has
subscribed for any Undersubscription Amount shall be entitled to
purchase only that portion of the Available Undersubscription
Amount as the Basic Amount of such Buyer bears to the total Basic
Amounts of all Buyers that have subscribed for Undersubscription
Amounts, subject to rounding by the Company to the extent its
deems reasonably necessary.
(3) The Company shall have twenty (20) Business Days from
the expiration of the Offer Period above to offer, issue, sell or
exchange all or any part of such Offered Securities as to which a
Notice of Acceptance has not been given by the Buyers (the
"REFUSED SECURITIES"), but only to the offerees described in the
Offer Notice (if so described therein) and only upon terms and
conditions (including, without limitation, unit prices and
interest rates) that are not more favorable to the acquiring
person or persons or less favorable to the Company than those set
forth in the Offer Notice.
(4) In the event the Company shall propose to sell less than
all the Refused Securities (any such sale to be in the manner and
on the terms specified in Section 4(o)(iii)(3) above), then each
Buyer may, at its sole option and in its sole discretion, reduce
the number or amount of the Offered Securities specified in its
Notice of Acceptance to an amount that shall be not less than the
number or amount of the Offered Securities that such Buyer
elected to purchase pursuant to Section 4(o)(iii)(2) above
multiplied by a fraction, (i) the numerator of which shall be the
number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities
to be issued or sold to Buyers pursuant to Section 4(o)(iii)(3)
above prior to such reduction) and (ii) the denominator of which
shall be the original amount of the Offered Securities. In the
event that any Buyer so elects to reduce the number or amount of
Offered Securities specified in its Notice of Acceptance, the
Company may not issue, sell or exchange more than the reduced
number or amount of the Offered Securities unless and until such
securities have again been offered to the Buyers in accordance
with Section 4(o)(iii)(1) above.
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(5) Upon the closing of the issuance, sale or exchange of
all or less than all of the Refused Securities, the Buyers shall
acquire from the Company, and the Company shall issue to the
Buyers, the number or amount of Offered Securities specified in
the Notices of Acceptance, as reduced pursuant to Section
4(o)(iii)(3) above if the Buyers have so elected, upon the terms
and conditions specified in the Offer. The purchase by the Buyers
of any Offered Securities is subject in all cases to the
preparation, execution and delivery by the Company and the Buyers
of the same form of purchase agreement and related documentation
as is signed by the other investors in the offering and Buyers
electing to participate shall be bound to execute such agreements
and related documentation.
(6) Any Offered Securities not acquired by the Buyers or
other persons in accordance with Section 4(o)(iii)(3) above may
not be issued, sold or exchanged until they are again offered to
the Buyers under the procedures specified in this Agreement.
(iv) The restrictions contained in subsections (ii) and (iii) of
this Section 4(o) shall not apply (i) in connection with the issuance
of any Excluded Securities (as defined in the Notes) or (ii) at any
time after the Company is acquired by a Public Successor Entity (as
defined in the Notes) having an equity market capitalization exceeding
$150 million (as of the day immediately prior to the day the Change of
Control (as defined in the Notes) is announced) held by Persons who
are not (or are not deemed to be) "affiliates" of the Company under
the 1933 Act.
(p) QUALIFICATION TO TRANSACT BUSINESS. On or prior to October 10,
2005, the Company shall cause Inksure Inc. to be qualified to transact
business in good standing in the State of Illinois, and shall deliver to
each Buyer written evidence thereof.
5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
(a) REGISTER. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate
by notice to each holder of Securities), a register for the Notes in which
the Company shall record the name and address of the Person in whose name
the Notes have been issued (including the name and address of each
transferee), the principal amount of Notes held by such Person and the
number of Conversion Shares issuable upon conversion of the Notes held by
such Person. The Company shall keep the register open and available at all
times during business hours for inspection of any Buyer or its legal
representatives.
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(b) TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to
issue certificates or credit shares to the applicable balance accounts at
The Depository Trust Company ("DTC"), registered in the name of each Buyer
or its respective nominee(s), for the Conversion Shares issued at the
applicable Closing or upon conversion of the Notes in such amounts as
specified from time to time by each Buyer to the Company upon conversion of
the Notes in the form of EXHIBIT C attached hereto (the "IRREVOCABLE
TRANSFER AGENT INSTRUCTIONS"). The Company warrants that no instruction
other than the Irrevocable Transfer Agent Instructions referred to in this
Section 5(b), and stop transfer instructions to give effect to Section 2(g)
hereof, will be given by the Company to its transfer agent, and that the
Securities shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement and the
other Transaction Documents. If a Buyer effects a sale, assignment or
transfer of the Securities in accordance with Section 2(f), the Company
shall permit the transfer and shall promptly instruct its transfer agent to
issue one or more certificates or credit shares to the applicable balance
accounts at DTC in such name and in such denominations as specified by such
Buyer to effect such sale, transfer or assignment. In the event that such
sale, assignment or transfer involves Conversion Shares sold, assigned or
transferred pursuant to an effective registration statement or pursuant to
Rule 144, the transfer agent shall issue such Securities to the Buyer,
assignee or transferee, as the case may be, without any restrictive legend.
The Company acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to a Buyer. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under
this Section 5(b) will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 5(b),
that a Buyer shall be entitled, in addition to all other available
remedies, to an order and/or injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
(a) INITIAL CLOSING DATE. The obligation of the Company hereunder to
issue and sell the Initial Notes to each Buyer at the Initial Closing is
subject to the satisfaction, at or before the Initial Closing Date, of each
of the following conditions, 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 by providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the
Company.
(ii) Such Buyer and each other Buyer shall have delivered to the
Company the Initial Purchase Price (less, in the case of Smithfield
Fiduciary LLC, the amounts withheld pursuant to Section 4(g)) for the
Initial Notes being purchased by such Buyer at the Initial Closing by
wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
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(iii) The representations and warranties of such Buyer shall be
true and correct in all material respects as of the date when made and
as of the Initial Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and
such Buyer 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 such Buyer at or prior to the Initial Closing Date.
(b) ADDITIONAL CLOSING DATE. The obligation of the Company hereunder
to issue and sell the Additional Notes to each Buyer at the Additional
Closing is subject to the satisfaction, at or before the Additional Closing
Date, of each of the following conditions, 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 by providing each Buyer with prior written
notice thereof:
(i) Such Buyer and each other Buyer shall have delivered to the
Company the Additional Purchase Price for the Additional Notes being
purchased by such Buyer at the Additional Closing by wire transfer of
immediately available funds pursuant to the wire instructions provided
by the Company.
(ii) The representations and warranties of such Buyer shall be
true and correct in all material respects as of the date when made and
as of the Additional Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date),
and such Buyer 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 such Buyer at or prior to the Additional Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
(a) INITIAL CLOSING DATE. The obligation of each Buyer hereunder to
purchase the Initial Notes at the Initial Closing is subject to the
satisfaction, at or before the Initial Closing Date, of each of the
following conditions, provided that these conditions are for each Buyer's
sole benefit and may be waived by such Buyer at any time in its sole
discretion by providing the Company with prior written notice thereof:
(i) The Company shall have executed and delivered to such Buyer
each of the Transaction Documents and the Initial Notes (in such
principal amounts as such Buyer shall request) which are being
purchased by such Buyer at the Initial Closing pursuant to this
Agreement.
(ii) Such Buyer shall have received the opinions of Mintz, Levin,
Cohn, Ferris, Glovsky and Popeo, P.C., the Company's outside counsel,
dated as of the Initial Closing Date, in substantially the form of
EXHIBIT D attached hereto.
(iii) The Company shall have delivered to such Buyer a copy of
the Irrevocable Transfer Agent Instructions, in the form of EXHIBIT C
attached hereto, which instructions shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
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(iv) The Company shall have delivered to such Buyer a certificate
evidencing the formation and good standing of the Company and each of
its Subsidiaries (other than Inksure Ltd.) in such entity's
jurisdiction of formation issued by the Secretary of State (or
comparable office) of such jurisdiction, as of a date within 10 days
of the Initial Closing Date.
(v) The Company shall have delivered to such Buyer a certificate
evidencing the Company's qualification as a foreign corporation and
good standing issued by the Secretary of State (or comparable office)
of each jurisdiction in which the Company conducts business, as of a
date within 10 days of the Initial Closing Date.
(vi) The Company shall have delivered to such Buyer a certified
copy of the Certificate of Incorporation as certified by the Secretary
of State of the State of Delaware within ten (10) days of the Initial
Closing Date.
(vii) The Company shall have delivered to such Buyer a
certificate, executed by the Secretary of the Company and dated as of
the Initial Closing Date, as to (i) the resolutions consistent with
Section 3(b) as adopted by the Company's Board of Directors in a form
reasonably acceptable to such Buyer, (ii) the Certificate of
Incorporation and (iii) the Bylaws, each as in effect at the Initial
Closing, in the form attached hereto as EXHIBIT E.
(viii) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the Initial
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall
have performed, satisfied and complied in all respects with the
covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Company
at or prior to the Initial Closing Date. Such Buyer shall have
received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Initial Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such
Buyer in the form attached hereto as EXHIBIT F. The representations
and warranties contained herein shall be deemed to have been modified,
as specified in the Representation Certificate (as defined below) and
shall, as modified, be true and correct as of the Additional Closing
Date.
(ix) The Company shall have delivered to such Buyer a letter from
the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the Initial Closing
Date.
(x) The Common Stock (I) shall be designated for quotation or
listed on the Principal Market and (II) shall not have been suspended,
as of the Initial Closing Date, by the SEC or the Principal Market
from trading on the Principal Market nor shall suspension by the SEC
or the Principal Market have been threatened, as of the Initial
Closing Date, in writing by the SEC or the Principal Market.
(xi) The Company shall have obtained all governmental, regulatory
or third party consents and approvals, if any, necessary for the sale
of the Securities.
(xii) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement
as such Buyer or its counsel may reasonably request.
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(b) ADDITIONAL CLOSING DATE. The obligation of each Buyer hereunder to
purchase the Additional Notes at an Additional Closing is subject to the
satisfaction, at or before the Additional Closing Date, of each of the
following conditions, provided that these conditions are for each Buyer's
sole benefit and may be waived by such Buyer at any time in its sole
discretion by providing the Company with prior written notice thereof:
(i) The Company shall have executed and delivered to such Buyer
the Additional Notes (in such principal amounts as such Buyer shall
request) which are being purchased by such Buyer at the Additional
Closing pursuant to this Agreement.
(ii) Such Buyer shall have received the opinions of Mintz, Levin,
Cohn, Ferris, Glovsky and Popeo, P.C., the Company's outside counsel,
dated as of the Additional Closing Date, in substantially the form of
EXHIBIT D attached hereto.
(iii) The Irrevocable Transfer Agent Instructions shall remain in
effect as of the Additional Closing Date and the Company shall cause
its transfer agent to deliver a letter to such Buyer to that effect.
(iv) The Company shall have delivered to such Buyer a certificate
evidencing the formation and good standing of the Company and each of
its Subsidiaries (other than Inksure Ltd.) in such entity's
jurisdiction of formation issued by the Secretary of State of the
State (or comparable office) of such jurisdiction, as of a date within
10 days of the Additional Closing Date.
(v) The Company shall have delivered to such Buyer a certificate
evidencing the Company's qualification as a foreign corporation and
good standing issued by the Secretary of State (or comparable office)
of each jurisdiction in which the Company conducts business, as of a
date within 10 days of the Additional Closing Date.
(vi) The Company shall have delivered to such Buyer a certified
copy of the Certificate of Incorporation as certified by the Secretary
of State of the State of Delaware within 10 days of the Additional
Closing Date.
(vii) The Company shall have delivered to such Buyer a
certificate, executed by the Secretary of the Company dated as of the
Additional Closing Date, as to (i) the Resolutions, (ii) the
Certificate of Incorporation and (iii) the Bylaws, each as in effect
at the Additional Closing, in the form attached hereto as EXHIBIT E.
(viii) The representations and warranties of the Company shall be
true and correct in all material respects (except for those
representations and warranties that are qualified by materiality or
Material Adverse Effect, which shall be true and correct in all
respects) as of the date when made and as of the Additional Closing
Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall
have performed, satisfied and complied in all material respects with
the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Company
at or prior to the Additional Closing Date. Such Buyer shall have
received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Additional Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by
such Buyer in the form attached hereto as EXHIBIT F; provided, that
Buyer shall be entitled to not consummate an Additional Closing if the
Representation Certificate is not acceptable to such Buyer, in its
sole discretion. Nothing herein shall be deemed a representation,
warranty, covenant or agreement that the representations and
warranties contained herein that are described in the Representation
Certificate (as defined below) shall be true and correct as of the
Additional Closing Date.
- 26 -
(ix) The Company shall have delivered to such Buyer a letter from
the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the Additional
Closing Date.
(x) The Common Stock (I) shall be designated for quotation or
listed on the Principal Market, (II) shall not have been suspended, as
of the Additional Closing Date, by the SEC or the Principal Market
from trading on the Principal Market nor shall suspension by the SEC
or the Principal Market have been threatened, as of the Additional
Closing Date, in writing by the SEC or the Principal Market and (III)
during any day during the ninety (90) Trading Days prior to the
Additional Closing Date, shall not have fallen below the minimum
listing maintenance requirements of the Principal Market.
(xi) The Company shall have obtained all governmental, regulatory
or third party consents and approvals, if any, necessary for the sale
of the applicable Additional Notes.
(xii) No Event of Default (as defined in the Notes) shall have
occurred and be continuing.
(xiii) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement
as such Buyer or its counsel may reasonably request.
8. TERMINATION. In the event that the Initial Closing shall not have
occurred with respect to a Buyer on or before five (5) Business Days from
the date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching
party's failure to waive such unsatisfied condition(s)), the nonbreaching
party shall have the option to terminate this Agreement with respect to
such breaching party at the close of business on such date without
liability of any party to any other party; PROVIDED, HOWEVER, this if this
Agreement is terminated pursuant to this Section 8, the Company shall
remain obligated to reimburse the non-breaching Buyers for the expenses
described in Section 4(g) above.
9. MISCELLANEOUS.
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(a) GOVERNING LAW; JURISDICTION; JURY TRIAL. All questions concerning
the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or
rule (whether of the State of New York or any other jurisdictions) that
would cause the application of the laws of any jurisdictions other than the
State of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in The City of New
York, Borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in
any such suit, action or proceeding by mailing a copy thereof to such party
at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law. EACH PARTY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST,
A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
(b) COUNTERPARTS. This Agreement may be executed in two or more
identical 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 delivered to the other party; provided that a facsimile
signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were
an original, not a facsimile signature.
(c) HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) 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 in that jurisdiction or the validity or enforceability of any
provision of this Agreement in any other jurisdiction.
(e) ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other
Transaction Documents supersede all other prior oral or written agreements
between the Buyers, the Company, their Affiliates and Persons acting on
their behalf with respect to the matters discussed herein, and this
Agreement, the other Transaction Documents and the instruments referenced
herein and therein 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 any Buyer
makes any representation, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be amended other than by
an instrument in writing signed by the Company and the holders of at least
a majority of the aggregate number of Registrable Securities issued and
issuable hereunder, and any amendment to this Agreement made in conformity
with the provisions of this Section 9(e) shall be binding on all Buyers and
holders of Securities, as applicable. No provision hereof may be waived
other than by an instrument in writing signed by the party against whom
enforcement is sought. No such amendment shall be effective to the extent
that it applies to less than all of the holders of the applicable
Securities then outstanding. No consideration shall be offered or paid to
any Person to amend or consent to a waiver or modification of any provision
of any of the Transaction Documents unless the same consideration also is
offered to all of the parties to the Transaction Documents and the holders
of Notes. The Company has not, directly or indirectly, made any agreements
with any Buyers relating to the terms or conditions of the transactions
contemplated by the Transaction Documents except as set forth in the
Transaction Documents. Without limiting the foregoing, the Company confirms
that, except as set forth in this Agreement, no Buyer has made any
commitment or promise or has any other obligation to provide any financing
to the Company or otherwise.
- 28 -
(f) NOTICES. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be
in writing and will be deemed to have been delivered: (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one Business Day
after deposit with an overnight courier service, in each case properly
addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
If to the Company:
InkSure Technologies Inc.
0000 X.X. 00xx Xxxxxx, Xxxxx 000
Xxxx Xxxxxxxxxx, Xxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxx Xxxxxxx
With a copy (for informational purposes only) to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
Chrysler Center
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
e-mail: xxxxx@xxxxx.xxx
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxx, Esq.
If to the Transfer Agent:
Pacific Stock Transfer Co.
000 X. Xxxx Xxxxxxx Xx., Xxx. 000
Xxx Xxxxx, Xxxxxx 00000
Telephone: 000-000-0000
Facsimile: 702-433-1979
Attention: Xxxxx X. Xxxxx, Manager, Transfer Dept.
If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers,
- 29 -
with a copy (for informational purposes only) to:
Xxxxxxx Xxxx & Xxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above, respectively.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Notes. The Company shall not
assign this Agreement or any rights or obligations hereunder without the
prior written consent of the holders of at least a majority of the
aggregate number of Registrable Securities issued and issuable hereunder,
including by way of a Fundamental Transaction (unless the Company is in
compliance with the applicable provisions governing Fundamental
Transactions set forth in the Notes). A Buyer may assign some or all of its
rights hereunder without the consent of the Company, in which event such
assignee shall be deemed to be a Buyer hereunder with respect to such
assigned rights.
(h) NO 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.
(i) SURVIVAL. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4,
5 and 9 shall survive each Closing. Each Buyer shall be responsible only
for its own representations, warranties, agreements and covenants
hereunder.
(j) 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 any 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.
- 30 -
(k) INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company's other obligations under
the Transaction Documents, the Company shall defend, protect, indemnify and
hold harmless each Buyer and each other holder of the Securities and all of
their stockholders, partners, members, officers, directors, employees and
direct or indirect investors and any of the foregoing Persons' agents or
other representatives (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement)
(collectively, the "INDEMNITEES") from and against any and all actions,
causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective
of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys'
fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by any
Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument
or document contemplated hereby or thereby, provided that the
representations and warranties deemed to have been made at an Additional
Closing shall be the representations and warranties contained herein as
modified by the exceptions, if any, described in the officer's certificate
(the "REPRESENTATION CERTIFICATE") in the form of EXHIBIT G to be delivered
at such Additional Closing, (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents or any
other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such
Indemnitee by a third party (including for these purposes a derivative
action brought on behalf of the Company) and arising out of or resulting
from (i) the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Securities, (iii) any disclosure made by such Buyer
pursuant to Section 4(i), or (iv) the status of such Buyer or holder of the
Securities as an investor in the Company pursuant to the transactions
contemplated by the Transaction Documents. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each
of the Indemnified Liabilities which is permissible under applicable law.
Except as otherwise set forth herein, the mechanics and procedures with
respect to the rights and obligations under this Section 9(k) shall be the
same as those set forth in Section 6 of the Registration Rights Agreement.
(l) 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.
(m) REMEDIES. Each Buyer and each holder of the Securities shall have
all rights and remedies set forth in the Transaction Documents and all
rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the rights which such holders
have under any law. Any Person having any rights under any provision of
this Agreement shall be entitled to enforce such rights specifically
(without posting a bond or other security), to recover damages by reason of
any breach of any provision of this Agreement and to exercise all other
rights granted by law. Furthermore, the Company recognizes that in the
event that it fails to perform, observe, or discharge any or all of its
obligations under the Transaction Documents, any remedy at law may prove to
be inadequate relief to the Buyers. The Company therefore agrees that the
Buyers shall be entitled to seek temporary and permanent injunctive relief
in any such case without the necessity of proving actual damages and
without posting a bond or other security.
- 31 -
(n) PAYMENT SET ASIDE. To the extent that the Company makes a payment
or payments to the Buyers hereunder or pursuant to any of the other
Transaction Documents or the Buyers enforce or exercise their rights
hereunder or thereunder, and such payment or payments or the proceeds of
such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or
otherwise restored to the Company, a trustee, receiver or any other Person
under any law (including, without limitation, any bankruptcy law, foreign,
state or federal law, common law or equitable cause of action), then to the
extent of any such restoration the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff
had not occurred.
(o) INDEPENDENT NATURE OF BUYERS' OBLIGATIONS AND RIGHTS. The
obligations of each Buyer under any Transaction Document are several and
not joint with the obligations of any other Buyer, and no Buyer shall be
responsible in any way for the performance of the obligations of any other
Buyer under any Transaction Document. Nothing contained herein or in any
other Transaction Document, and no action taken by any Buyer pursuant
hereto or thereto, shall be deemed to constitute the Buyers as a
partnership, an association, a joint venture or any other kind of entity,
or create a presumption that the Buyers are in any way acting in concert or
as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. Each Buyer confirms that it has
independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each
Buyer shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or
out of any other Transaction Documents, and it shall not be necessary for
any other Buyer to be joined as an additional party in any proceeding for
such purpose.
[SIGNATURE PAGE FOLLOWS]
- 32 -
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
COMPANY:
INKSURE TECHNOLOGIES INC.
By:______________________
Name:
Title:
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
BUYERS:
SMITHFIELD FIDUCIARY LLC
By:______________________
Name: Xxxx X. Chill
Title: Authorized Signatory
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
THE IRREVOCABLE TRUST OF
XXXXX X. XXXXXXXXXX U/A 12/17/98
By:_____________________________
Name:
Title:
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
IROQUOIS MASTER FUND LTD.
By:______________________
Name:
Title:
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
OMICRON MASTER TRUST
By:_________________
Name:
Title:
SCHEDULE OF BUYERS
(1) (2) (3) (4) (5) (6)
AGGREGATE
AGGREGATE PRINCIPAL
PRINCIPAL AMOUNT OF
ADDRESS AND AMOUNT OF ADDITIONAL PURCHASE PRICE OF LEGAL REPRESENTATIVE'S
BUYER FACSIMILE NUMBER INITIAL NOTES NOTES INITIAL NOTES ADDRESS AND FACSIMILE NUMBER
Smithfield Fiduciary c/o Highbridge Capital $4,700,000 $979,166.67 $4,700,000 Xxxxxxx Xxxx & Xxxxx LLP
LLC Management, LLC 000 Xxxxx Xxxxxx
0 Xxxx 00xx Xxxxxx, 00xx Xxx Xxxx, Xxx Xxxx 00000
Floor Attention: Xxxxxxx Xxxxx, Esq.
Xxx Xxxx, Xxx Xxxx 00000 Facsimile: (000) 000-0000
Attention: Xxx X. Xxxxxx Telephone: (000) 000-0000
Xxxx X. Chill
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Residence: Cayman Islands
The Irrevocable Trust c/o Lineberger & Co., LLC $300,000 $62,500.00 $300,000 Xxxxxxxx Xxxxxxx LLP
of Xxxxx X. 0000 Xxxxxx Xxxx Xx. Xxx Xxxxxxxx Xxxxxxxx
Xxxxxxxxxx x/x Xxxxxx, XX 00000 000 Xxxxxxxxx Xxxxxx
12/17/98 Attention: Xxxxx Xxxxxxxxxx Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000 Attention: Xxxxxx Xxxxxxx
Telephone: (000) 000-0000 Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Iroquois Master Fund Iroquois Master Fund Ltd. $250,000 $52,083.33 $250,000
Ltd. 000 Xxxxxxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx Xxxxxxxxx
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Omicron Master Trust c/o Omicron Capital $750,000 $156,250.00 $750,000
000 Xxxxx Xxxxxx, 00xx Xx.
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxx
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Residence: Bermuda
EXHIBITS
Exhibit A Form of Notes
Exhibit B Registration Rights Agreement
Exhibit C Irrevocable Transfer Agent Instructions
Exhibit D Form of Outside Company Counsel Opinion
Exhibit E Form of Secretary's Certificate
Exhibit F Form of Officer's Certificate
Exhibit G Form of Officer's Certificate re: Representations
SCHEDULES
Schedule 3(a) Subsidiaries
Schedule 3(k) SEC Documents; Financial Statements
Schedule 3(l) Absence of Certain Changes
Schedule 3(q) Transactions with Affiliates
Schedule 3(r) Capitalization
Schedule 3(s) Indebtedness and Other Contracts
Schedule 3(t) Litigation
Schedule 3(v) Employee Relations
Schedule 3(x) Intellectual Property
Schedule 3(z) Subsidiary Rights
Schedule 3(cc) Ranking of Notes
COMPANY'S DISCLOSURE SCHEDULES
The following constitute the Company's disclosure schedules (the "Disclosure
Schedules") to that certain Securities Purchase Agreement, dated as of September
30, 2005 (the "Agreement"), by and among InkSure Technologies Inc., a Delaware
corporation (the "Company"), and the investors listed on the Schedule of Buyers
attached thereto. Any terms defined in the Agreement shall have the same meaning
when used in the Disclosure Schedules as when used in the Agreement, unless the
context requires otherwise. In the interest of full disclosure, the Disclosure
Schedules may include items that are beyond the scope of the representations and
warranties called for by the Agreement. Such inclusion, however, should not be
construed to in any way broaden the scope of the representations and warranties
made in the Agreement. Headings and captions in the Disclosure Schedules are for
convenience of reference only and shall in no way modify or effect, or be
considered in construing or interpreting, any information provided herein. No
inclusion of a matter in the Disclosure Schedules shall constitute an admission
that a matter is "material" or would have a material adverse effect on the
Company. Nothing in the Disclosure Schedules constitutes an admission of any
liability or obligation of the Company to any third party, or an admission
against its interests.
SCHEDULE 3(A) - SUBSIDIARIES
1. InkSure Inc.*
2. InkSure Ltd.
3. IST Operating Inc.
4. InkSure RF Inc.
* INKSURE INC. IS NOT QUALIFIED TO TRANSACT BUSINESS IN GOOD STANDING IN THE
STATE OF ILLINOIS.
SCHEDULE 3(K) - SEC DOCUMENTS, FINANCIAL STATEMENTS
None.
SCHEDULE 3(L) - ABSENCE OF CERTAIN CHANGES
As of December 31, 2004, the Company had 1.65 million dollars in cash and as of
June 30, 2005, the Company had 0.88 million dollars in cash.
SCHEDULE 3(Q) - TRANSACTION WITH AFFILIATES
Option to purchase 10,000 shares of Common Stock to Xxxxx Xxxxx, the Company's
National Accounts Manager, granted by the Company on May 5, 2005, at an exercise
price of $1.30 per share, with an expiration date of May 5, 2010.
SCHEDULE 3(R) - EQUITY CAPITALIZATION
(ii)
1. The Company is disputing the valid issuance of an option to purchase
300,480 shares of Common Stock that was granted prior to the reverse
acquisition merger to Xxxx Xxxxx at an exercise price of $0.50 per
share.
2. Attached as EXHIBIT 3(R) to this Schedule 3(r) is a listing of the
outstanding options granted by the Company and their corresponding
terms.
3. Five-year warrants to purchase an aggregate of 550,933 shares of
Common Stock to Commonwealth Associates, L.P., in connection with
Commonwealth's role as placement agent, issued on July 5, 2002, July
31, 2002 and September 6, 2002, at an exercise price of $1.61 per
share. Such warrants were exercised in part though cashless exercises,
with warrants to purchase an aggregate of 287,023 shares of Common
Stock remaining.
4. Five-year warrants to purchase an aggregate of 1,456,526 shares of
Common Stock to various investors, issued on July 5, 2002, July 31,
2002 and September 6, 2002, at an exercise price of $2.17 per share.
Such warrants were exercised in part though cashless exercises, with
warrants to purchase an aggregate of 1,434,787 shares of Common Stock
remaining.
5. Five-year warrants to purchase an aggregate of 1,904,411 shares of
Common Stock to various investors, issued on April 8, 2004, at an
exercise price of $1.00 per share.
6. Ten-year warrants to purchase 50,000 shares of Common Stock to Xxxxx
Xxxxxxx, in connection with services rendered to the Company, issued
on March 15, 2005, at an exercise price of $1.40 per share.
(iii)
The Company obtained bank guarantees in the amount of $9,000 to secure
its lease commitments.
EXHIBIT 3(R)
NAME DATE GRANT QUANTITY EXERCISE PRICE EXPIRATION DATE
---- ---------- -------- -------------- ---------------
EMPLOYEES:
Xxxxxx Xxxxxx 12/31/2001 65,000 0.8 12/31/06
Xxxxxx Xxxxxx 1/1/2002 3,197 0.8 1/1/07
Xxxxxx Xxxxx 12/31/2001 15,150 0.8 12/31/06
Xxxxxx Xxxxx 1/6/2004 4,850 1.05 1/6/09
Xxxx xxxxxx 12/31/2001 9,500 0.8 12/31/06
Xxxx xxxxxx 1/1/2002 5,500 0.8 1/1/07
Xxxx Stollero 12/31/2001 3,800 1.2 12/31/06
Xxxxx Xxxxxx 12/31/2001 3,800 1.2 12/31/06
Xxxx Xxxxxx 5/1/2002 9,500 1.2 5/1/07
Xxxx Xxxxx 1/1/2002 55,000 0.8 1/1/07
Xxxx Xxxxx 3/24/2003 25,000 1.45 3/24/08
Xxxx Xxxxx 2/24/2004 100,000 0.8 2/24/09
Xxxx Xxxxx 12/9/2004 10,000 1.25 12/9/09
Xxxxx Xxxxx 3/24/2003 30,000 1.45 3/24/08
Xxxxx Xxxxx 12/9/2004 30,000 1.25 12/9/09
Xxxxx Xxxxx 9/4/2002 100,000 1.61 9/4/07
Xxxxxx Xxxxxxxxx 1/6/2004 8,550 1.05 1/6/09
Xxx Xxxxxx 1/6/2004 5,000 1.05 1/6/09
Xxxxx Xxxxx 1/6/2004 5,000 1.05 1/6/09
Xxxxxxx Xxxxxxxxxx 1/6/2004 2,500 1.05 1/6/09
Xxxxx xxxxx 5/18/2005 10,000 1.3 5/18/10
BOARD MEMBERS:
Xxxx Xxxxxxx 2/6/2002 478,469 0.966 2/6/09
Xxxx Xxxxxxx 2/24/2004 200,000 0.8 2/24/09
Xxxx Xxxxxxx 12/9/2004 50,000 1.25 12/9/09
Xxxx Xxxxxxx 5/19/2005 250,000 1.30 5/19/09
Xxxxx Xxxxxxxx 1/1/2002 57,000 0.8 1/1/07
Xxxxx Xxxxxxxx 2/24/2004 200,000 0.8 2/24/09
Xxxxx Xxxxxxxx 12/9/2004 50,000 1.25 12/9/09
Xxxxx Xxxx 3/24/2003 22,000 1.45 3/24/08
Xxxxx Xxxx 2/24/2004 24,000 0.8 2/24/09
Xxxxx Xxxx 2/1/2005 24,000 1.35 2/1/10
Xxxx Xxxxx 3/24/2003 22,000 1.45 3/24/08
Xxx Xxxxxxxxxx 3/24/2003 22,000 1.45 3/24/08
Xxx Xxxxxxxxxx 2/24/2004 34,000 0.80 2/24/09
Xxx Xxxxxxxxxx 2/1/2005 29,000 1.35 2/1/10
Xxxxxx Xxxxxx 3/24/2003 22,000 1.45 3/24/08
Xxxxxx Xxxxxx 2/24/2004 24,000 0.80 2/24/09
Xxxxxx Xxxxxx 2/1/2005 24,000 1.35 2/1/10
Xxxxxx Xxxxxx 2/24/2004 31,000 0.80 2/24/09
Xxxxxx Xxxxxx 2/1/2005 36,000 1.35 2/1/2010
Xxxxxxx Xxxx 2/24/2004 27,000 0.80 2/24/09
Xxxxxxx Xxxx 2/1/2005 27,000 1.35 2/1/10
2,154,816
SCHEDULE 3(S) - INDEBTEDNESS AND OTHER CONTRACTS
None.
SCHEDULE 3(T) - ABSENCE OF LITIGATION
On December 12, 1999, Secu-Systems filed a lawsuit with the District Court in
Tel Aviv-Jaffa against Supercom Ltd. (IST Operating Inc.'s former parent
company) and InkSure Ltd. seeking a permanent injunction and damages. The
plaintiff asserted in its suit that the printing method applied to certain
products that have been developed by InkSure Ltd. constitutes inter alia: (a)
breach of a confidentiality agreement between the plaintiff and Supercom; (b)
unjust enrichment of Supercom and InkSure Ltd.; (c) breach of fiduciary duties
owed to the plaintiff by Supercom and InkSure Ltd.; and (d) a tort of
misappropriation of trade secret and damage to plaintiff's property.
Secu-Systems seeks, among other things, an injunction and a 50% share of profits
from the printing method at issue. At the beginning of 2004 the Company
submitted closing arguments to the Court, and Secu-Systems replied to such
closing arguments. It is expected that the Court render its decision at the
beginning of 2006.
SCHEDULE 3(V) - EMPLOYEE RELATIONS
The employees of InkSure Ltd. are entitled to "Dmey Havra'a" as provided in a
Collective Bargaining Agreement to which the General Labor Union of the Workers
in Israel is a party. Dmey Havra'a is an employee benefit program whereby
employees receive payments from their employer for vacation. In addition,
InkSure Ltd. pays a monthly amount equal to 14.53% of the salary of each
employee to an insurance policy, pension fund or combination of both, according
to the request of each such employee. Each employee pays a monthly amount to
such insurance policy equal to 5% of such employee's salary.
Schedule 3(x) - Intellectual Property Rights
None.
SCHEDULE 3(Z) - SUBSIDIARY RIGHTS
None.
SCHEDULE 3(AA) - TAX STATUS
The Company, InkSure Inc., IST Operating Inc. and InkSure RF Inc. have not filed
their 2002, 2003 and 2004 tax returns. InkSure Ltd. has not filed its 2004 tax
return. The Company is awaiting the completion of a transfer price study,
approved by the Company's audit committee and performed by the Company's
auditor, Xxxxxxxxx Almagor & Co. (a member firm of Deloitte Touche Tohmatsu)
prior to filing such tax returns. The Company estimates that such study will be
completed by November 30, 2005, and at that time the Company plans to file the
tax returns set forth above. All of the tax reports relating to the Company's
operating subsidiaries are showing tax losses. Accordingly, there will be no
taxes due upon filing such tax returns.
SCHEDULE 3(CC) - RANKING OF NOTES
None.
