SECURITIES PURCHASE AGREEMENT BY AND BETWEEN THEATER XTREME ENTERTAINMENT GROUP, INC. AND KINZER TECHNOLOGY, LLC MARCH 6, 2007
BY
AND BETWEEN
AND
XXXXXX
TECHNOLOGY, LLC
MARCH
6, 2007
TABLE OF CONTENTS
| ARTICLE I DEFINITIONS |
1
|
|
|
1.1
|
Definitions
|
1
|
|
ARTICLE
II
PURCHASE AND SALE
|
5
|
|
|
2.1
|
Closing
|
5
|
|
2.2
|
Deliveries.
|
5
|
|
ARTICLE
III
REPRESENTATIONS AND WARRANTIES
|
5
|
|
|
3.1
|
Representations
and Warranties of the Company
|
5
|
|
3.2
|
Representations
and Warranties of Purchaser
|
16
|
|
ARTICLE
IV
OTHER AGREEMENTS OF THE PARTIES
|
18
|
|
|
4.1
|
Transfer
Restrictions.
|
18
|
|
4.2
|
Acknowledgment
of Dilution
|
20
|
|
4.3
|
Furnishing
of Information
|
20
|
|
4.4
|
Integration
|
20
|
|
4.5
|
Reservation
and Listing of Conversion Shares.
|
20
|
|
4.6
|
Exercise
Procedures
|
21
|
|
4.7
|
Securities
Laws Disclosure; Publicity
|
21
|
|
4.8
|
Shareholder
Rights Plan
|
22
|
|
4.9
|
[INTENTIONALLY
DELETED.]
|
22
|
|
4.10
|
No
Impairment
|
22
|
|
4.11
|
Indemnification
of Purchaser
|
22
|
|
4.12
|
Blue
Sky Filings
|
23
|
|
4.13
|
Piggy-Back
Registrations
|
23
|
|
ARTICLE
V
MISCELLANEOUS
|
23
|
|
i
|
5.1
|
Fees
and Expenses
|
23
|
|
5.2
|
Entire
Agreement
|
23
|
|
5.3
|
Notices
|
24
|
|
5.4
|
Amendments;
Waivers
|
24
|
|
5.5
|
Headings
|
24
|
|
5.6
|
Successors
and Assigns
|
24
|
|
5.7
|
No
Third-Party Beneficiaries
|
25
|
|
5.8
|
Governing
Law
|
25
|
|
5.9
|
Survival
|
25
|
|
5.10
|
Execution
|
25
|
|
5.11
|
Severability
|
26
|
|
5.12
|
Rescission
and Withdrawal Right
|
26
|
|
5.13
|
Replacement
of Securities
|
26
|
|
5.14
|
Remedies
|
26
|
|
5.15
|
Payment
Set Aside
|
26
|
|
5.16
|
Usury
|
27
|
|
5.17
|
Liquidated
Damages
|
27
|
|
5.18
|
Construction
|
27
|
ii
EXHIBITS:
Exhibit
A Form
of
Debenture
Exhibit
B Form
of
Warrant
SCHEDULES:
Schedule
3.1(d) Conflicts
Schedule
3.1(e) Filings, Consents and Approvals
Schedule
3.1(z) Indebtedness
Schedule
3.1(ee) Senior Indebtedness
iii
This
Securities Purchase Agreement (this “Agreement”) is dated as of March 6, 2007 by
and between Theater Xtreme Entertainment Group, Inc., a Florida corporation
(the
“Company”), and Xxxxxx Technology, LLC, a Virginia limited liability company
(“Purchaser”).
WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant
to
Section 4(2) of the Securities Act, the Company desires to issue and sell to
Purchaser, and Purchaser desires to purchase from the Company, securities of
the
Company as more fully described in this Agreement.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration, the receipt and adequacy of
which
are hereby acknowledged, the Company and Purchaser agree as
follows:
ARTICLE
I
DEFINITIONS
1.1 Definitions
.
In
addition to the terms defined elsewhere in this Agreement: (a) capitalized
terms
that are not otherwise defined herein have the respective
meanings given to such terms in the Debenture or Warrant (as defined herein),
and (b) the following terms have the respective meanings set forth in this
Section 1.1:
“Affiliate”
of
a
Person means any other Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with
the
first such Person.
“Cancelled
Debenture”
means
that certain Seven Hundred Thousand Dollar ($700,000.00) debenture purchased
by
Purchaser pursuant to that certain Securities Purchase Agreement by and between
the Company and Purchaser dated December 22, 2006, and which is being
surrendered to the Company by Purchaser and cancelled pursuant to the terms
of
this Agreement.
“Cash
Amount”
shall
have the meaning ascribed to such term in Section 4.5(c).
“Closing”
means
the closing of the purchase and sale of the Debenture and Warrant pursuant
to
Section 2.1.
“Closing
Date”
means
the Trading Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions precedent to
(i)
the Purchaser’s obligations to surrender the Cancelled Debenture and pay the
Purchase Price, and (ii) the Company’s obligations to deliver the Debenture and
Warrant have been satisfied or waived.
“Code”
means
the Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder.
1
“Commission”
means
the Securities and Exchange Commission.
“Common
Stock”
means
the common stock of the Company, par value $0.001 per share, and any other
class
of securities into which such securities may hereafter be reclassified or
changed.
“Common
Stock Equivalents”
means
any securities of the Company which would entitle the holder thereof to acquire
at any time Common Stock, including, without limitation, any debt, preferred
stock, rights, options, warrants or other instrument that is at any time
convertible into or exercisable or exchangeable for, or otherwise entitles
the
holder thereof to receive, Common Stock.
“Company
Counsel”
means
Xxxxxxx Xxxxx Xxxxxxx and Xxxxxxxxx, LLP with offices at 0000 Xxxxxx Xxxxxx,
00xx
Xxxxx,
Xxxxxxxxxxxx, Xxxxxxxxxxxx, 00000−7599.
“Contracts”
shall
have the meaning ascribed to such term in Section 3.1(jj).
“Debenture”
means
the 10% Debenture to be issued by the Company to Purchaser pursuant to the
terms
of this Agreement at the Closing in the form of Exhibit
A
attached
hereto.
“Designated
Officers”
means
Xxxxx X. Xxxxx, Xxxxxxx X. Xxxxxx, and Xxxxx X. Xxxxxxxx, the Chief Executive
Officer, President, and Chief Financial Officer of the Company, respectively.
“ERISA”
means
the Employee Retirement Income Security Act of 1974, as amended.
“Evaluation
Date”
shall
have the meaning ascribed to such term in Section 3.1(r).
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Financial
Statements”
shall
have the meaning ascribed to such term in Section 3.1(h).
“Form
8-K Filing”
shall
have the meaning ascribed to such term in Section 4.7.
“GAAP”
shall
have the meaning ascribed to such term in Section 3.1(h).
“Indebtedness”
shall
have the meaning ascribed to such term in Section 3.1(z).
“Intellectual
Property Rights”
shall
have the meaning ascribed to such term in Section 3.1(o).
“Legend
Removal Date”
shall
have the meaning ascribed to such term in Section 4.1(c).
“Lien”
means
a
lien, charge, security interest, pledge, encumbrance, right of first refusal,
preemptive right or other preferential arrangement or restriction.
2
“Material
Adverse Effect”
shall
have the meaning assigned to such term in Section 3.1(b).
“Material
Permits”
shall
have the meaning ascribed to such term in Section 3.1(m).
“Maximum
Rate”
shall
have the meaning ascribed to such term in Section 5.16.
“Person”
means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“Plans”
shall
have the meaning ascribed to such term in Section 3.1(kk).
“Proceeding”
means
an action, claim, suit, arbitration, inquiry, notice of violation, investigation
or proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or, to the knowledge of
the
Designated Officers, threatened.
“Purchase
Price”
shall
have the meaning ascribed to such term in Section 2.1.
“Purchaser
Counsel”
means
Xxxxx Xxxxxx LLP with offices at 0000 Xxxx Xxxxxxxxx Xxxxxx, Xxxxx 000, Xxxxxxx,
Xxxxxxx 00000-0000.
“Purchaser
Party”
shall
have the meaning ascribed to such term in Section 4.11.
“Registrable
Securities”
means
(i) all Warrant Shares, (ii) any additional shares of Common Stock issuable
in
connection with any anti-dilution provisions in the Warrant (in each case,
without giving effect to any limitations on exercise set forth in the Warrant),
and (iii) any securities issued or issuable upon any stock split, dividend
or
other distribution, recapitalization or similar event with respect to the
foregoing.
“Required
Filings”
shall
have the meaning ascribed to such term in Section 3.1(e).
“Required
Minimum”
means,
as of any date, the maximum aggregate number of shares of Common Stock then
issued or potentially issuable in the future pursuant to the Transaction
Documents.
“Rule
144”
means
Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such
Rule.
“SEC
Reports”
shall
have the meaning ascribed to such term in Section 3.1(h).
“Securities”
means
the Debenture, the Warrant and the Warrant Shares.
3
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated hereunder.
“Short
Sales”
means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
Act (but shall not be deemed to include the location and/or reservation of
borrowable shares of Common Stock).
“Subsidiary”
with
respect to a Person, means another Person more than 50% of the equity and voting
interests of which are owned, directly or indirectly, by the first such
Person.
“Trading
Day”
means
a
day on which the Common Stock is traded on a Trading Market.
“Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
the
New York Stock Exchange, or the OTC Bulletin Board.
“Transaction
Documents”
means
this Agreement, the Debenture, the Warrant, and any other documents or
agreements executed in connection with the transactions contemplated
hereunder.
“Transfer
Agent”
means
Stock Trans, Inc., with a mailing address of 00 X. Xxxxxxxxx Xxxxxx, Xxxxxxx,
Xxxxxxxxxxxx 00000 and a facsimile number of (610) 649−7302, and any successor
transfer agent of the Company.
“VWAP”
means,
for any date, the price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the Trading Market on which the Common Stock
is
then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day
from
9:30 a.m. New York City time to 4:02 p.m. New York City time); (b) if the OTC
Bulletin Board is not a Trading Market, the volume weighted average price of
the
Common Stock for such date (or the nearest preceding date) on the OTC Bulletin
Board; (c) if the Common Stock is not then listed or quoted on the OTC Bulletin
Board and if prices for the Common Stock are then reported in the “Pink Sheets”
published by Pink Sheets, LLC (or a similar organization or agency succeeding
to
its functions of reporting prices), the last bid price per share of the Common
Stock so reported on such date (or the nearest preceding date); or (d) in all
other cases, the fair market value of a share of Common Stock as determined
by
an independent appraiser selected in good faith by the Purchaser and reasonably
acceptable to the Company, the fees and expenses of which shall be paid by
the
Company.
“Warrant”
means
the Common Stock purchase warrant to be delivered to Purchaser pursuant to
the
terms of this Agreement at the Closing in accordance with Section 2.2(a) hereof,
in the form of Exhibit
B
attached
hereto.
“Warrant
Shares”
means
the shares of Common Stock issuable upon exercise of the Warrant.
4
ARTICLE
II
PURCHASE
AND SALE
2.1 Closing.
Upon
the terms and subject to the conditions set forth herein, substantially
concurrent with the execution and delivery of this Agreement by the parties
hereto, the Company shall and hereby agrees to sell, and Purchaser, shall and
hereby agrees to purchase, the Warrant and Two Million Seven Hundred Thousand
Dollars ($2,700,000.00) in principal amount of the Debenture. On the Closing
Date, (a) Purchaser shall (i) deliver to the Company, via wire transfer, Two
Million Dollars ($2,000,000.00) (the “Purchase Price”) in immediately available
funds, and (ii) surrender to the Company for cancellation the Cancelled
Debenture, (b) the Company shall deliver to Purchaser the Debenture and Warrant,
and (c) the Company and Purchaser shall deliver the other items set forth in
Section 2.2 deliverable at the Closing. Upon satisfaction of the conditions
set
forth in Section 2.2, the Closing shall occur at the offices of Purchaser
Counsel or such other location as the parties shall mutually agree.
2.2 Deliveries.
(a) On
the
Closing Date, the Company shall deliver or cause to be delivered to Purchaser
the following:
(i) a
legal
opinion of Company Counsel, in a form reasonably acceptable to Purchaser
Counsel;
(ii) the
Debenture registered in
the
name of Purchaser;
(iii) the
Warrant registered in the name of Purchaser;
and
(iv) any
other
document reasonably requested by Purchaser or Purchaser Counsel in connection
with the transactions contemplated hereunder.
(b) On
the
Closing Date, Purchaser shall deliver or cause to be delivered to the Company
the following:
(i)
the
Purchase Price (less all accrued but unpaid interest under the Cancelled
Debenture) by wire transfer to the account as specified in writing by the
Company; and
(ii)
the
Cancelled Debenture.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES
3.1 Representations
and Warranties of the Company.
The
Company hereby makes the following representations and warranties to
Purchaser:
(a) Subsidiaries.
The
Company does not directly or indirectly control or own any interest in any
other
Person.
5
(b) Organization
and Qualification.
The
Company is an entity duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, with the requisite
power and authority to own, lease and use its properties and assets and to
carry
on its business as currently conducted. The Company is not in violation or
default of any of the provisions of its articles of incorporation or bylaws.
The
Company is duly qualified to conduct business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not have or reasonably be expected to result in (i) a material adverse
effect on the legality, validity or enforceability of any Transaction Document,
(ii) a material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company, or (iii) a
material adverse effect on the Company’s ability to perform fully on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or (iii),
a “Material Adverse Effect”), and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.
(c) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction Documents
and otherwise to carry out its obligations hereunder and thereunder.
The execution, delivery and performance of each of the Transaction Documents
by
the Company and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action on
the
part of the Company and no further consent or action is required by the Company,
its Board of Directors or its stockholders in connection therewith other than
actions necessary to satisfy the Company’s post-closing obligations under the
Transaction Documents including, to the extent necessary, making the Required
Filings. Each Transaction Document has been duly executed by the Company and,
when delivered in accordance with the terms hereof and thereof, will constitute
the valid and legally binding obligation of the Company enforceable against
the
Company in accordance with its terms except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium
and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies, and (iii) insofar
as
indemnification and contribution provisions may be limited by applicable law.
(d) No
Conflicts.
Except
as set forth on Schedule 3.1(d)
attached
hereto, the execution, delivery and performance of the Transaction Documents
by
the Company and the consummation by the Company of the other transactions
contemplated hereby and thereby do not and will not: (i) conflict with or
violate any provision
of the Company’s articles of incorporation or bylaws, (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, result in the creation of any Lien upon any
of
the properties or assets of the Company, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company debt or otherwise) or other understanding
to
which the Company is a party or by which any property or asset of the Company
is
bound or affected, or (iii) subject to the Required Filings, conflict with
or
result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which
the
Company is subject (including federal and state
6
securities
laws and regulations), or by which any property or asset of the Company is
bound
or affected; except in the case of each of clauses (ii) and (iii), such as
could
not have or reasonably be expected to result in a Material Adverse
Effect.
(e) Filings,
Consents and Approvals.
Except
as set forth on Schedule
3.1(e),
the
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court
or
other federal, state, local or other governmental authority or other Person
in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) filings required pursuant to Section
4.7,
and (ii) such filings (if any) as are required to be made under applicable
state
securities laws (collectively, the “Required Filings”). All filings of the
Company required to be filed with federal, state, local or governmental
authorities (including the Federal Trade Commission) in connection with the
Company’s sale of franchises are current as of the date of this
Agreement.
(f) Issuance
of the Securities.
The
Debenture and Warrant are duly authorized and, when issued and paid for in
accordance with this Agreement, will be duly and validly issued, fully paid
and
nonassessable, free and clear of all Liens imposed by the
Company other than those provided for in the Transaction Documents. The Warrant
Shares, when issued and paid for by Purchaser in accordance with the terms
of
the Transaction Documents, will: (i) be validly issued, fully paid and
nonassessable; (ii)
be
issued in compliance with an exemption from registration under all applicable
federal and state securities laws; and (iii) be free
and
clear of all Liens imposed by the Company. The Company has reserved from its
duly authorized capital stock a number of shares of Common Stock for issuance
of
the Warrant Shares at least equal to the Required Minimum.
(g) Capitalization.
The
capitalization of the Company is as follows: 50,000,000 shares of Common Stock,
par value $.001 per share, are authorized, of which 19,847,425 shares are issued
and outstanding on the date hereof, and 5,000,000 shares of preferred stock,
without
par value, are authorized, of which no shares are issued or outstanding. No
Person has any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by the
Transaction Documents. In addition to the Warrant offered for sale to Purchaser
hereunder, there are three outstanding warrants to purchase 440,000 shares
of
Common Stock in the aggregate at an exercise price of $1.00 per share and one
outstanding warrant to purchase 560,000 shares of Common Stock at an exercise
price of $1.10 per share. There are no other outstanding warrants or options,
script rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exercisable or exchangeable for, or giving any Person any right to subscribe
for
or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company is or may become bound
to
issue additional shares of Common Stock or Common Stock Equivalents other than
pursuant to the exercise of employee stock options under the Company’s stock
option plans or the issuance of shares of Common Stock to employees pursuant
to
the Company’s employee stock purchase plan or pursuant to the warrants referred
to in the preceding sentence. The issuance and sale of the Securities will
not
obligate the Company to issue shares of Common Stock or other securities to
any
Person (other than Purchaser) and will not result in a right of any holder
of
Company securities to adjust the exercise, conversion, exchange or reset price
under any of such securities.
7
All
of
the outstanding shares of capital stock of the Company are validly issued,
fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. No further approval or authorization of any stockholder,
the Board of Directors of the Company or others is required for the issuance
and
sale of the Securities. There are no stockholders’ agreements, voting agreements
or other similar agreements with respect to the Company’s capital stock to which
the Company is a party or, to the knowledge of the Company, between or among
any
holder of securities of the Company.
(h) SEC
Reports; Financial Statements.
The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof,
for the two (2) years preceding the date hereof (or such shorter period as
the
Company was required by law or regulation to file such material) (the foregoing
materials, including the exhibits thereto and documents incorporated by
reference therein, being collectively referred to herein as the “SEC Reports”)
on a timely basis or has received a valid extension of such time of filing
and
has filed any such SEC Reports prior to the expiration of any such extension.
Except to the extent set forth in that certain letter dated February 27, 2007
from the Commission to the Company (the “Commission’s Letter”), as of their
respective dates of filing with the Commission, the SEC Reports, together with
any amendments thereto, complied in all material respects with the requirements
of the Securities Act and the Exchange Act, as applicable. Notwithstanding
the
Commission’s Letter, none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to
be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. Except
to
the extent set forth in the Commission’s Letter, the financial statements of the
Company included in the SEC Reports (the “Financial Statements”) comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time
of
filing. Except to the extent set forth in the Commission’s Letter, the Financial
Statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the periods
involved (“GAAP”), except as may be otherwise specified in the Financial
Statements or the notes thereto and except that unaudited financial statements
may not contain all footnotes required by GAAP and are subject to routine
year-end adjustments which are not material in the aggregate. Notwithstanding
the Commission’s Letter, the Financial Statements fairly present in all material
respects the financial position of the Company as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, year-end audit
adjustments as referred to above. The Company has never had and does not
currently have any off-balance sheet arrangements (as defined in Item 303(c)(2)
of Regulation S-B as promulgated by the Commission) that have had, or are
reasonably likely to have, a current or future effect on the Company’s financial
condition, changes in financial condition, revenues or expense, results of
operations, liquidity, capital expenditures or capital resources. The Company
will respond to that certain letter dated February 27, 2007 from the Commission
to the Company in a timely manner, and the Company’s response to the Commission
and any amendments to its SEC Reports in connection therewith will not have
a
Material Adverse Effect.
8
(i) Material
Changes.
Since
the date of the latest audited financial statements included in the SEC Reports,
except as specifically disclosed in a subsequent SEC Report filed prior to
the
date hereof, (i) there has been no event, occurrence or development that has
had
or
that could reasonably be expected to result in a Material Adverse Effect, (ii)
the Company has not incurred any liabilities (contingent or otherwise) other
than (A) trade payables, new real estate leases, and accrued expenses incurred
in the ordinary course of business consistent with past practice, and (B)
liabilities not required to be reflected in the Company’s financial statements
pursuant to GAAP or disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting, (iv) the Company has not
declared or made any dividend or distribution of cash or other property to
its
shareholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock, and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to existing
Company stock option plans. The Company does not have pending before the
Commission any request for confidential treatment of information. Except for
the
issuance of the Securities contemplated by this Agreement, no event, liability
or development has occurred or exists with respect to the Company or its
business, properties, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws at the time
this
representation is made that has not been publicly disclosed at least one Trading
Day prior to the date that this representation is made.
(j) Litigation.
There
is no Proceeding pending or, to the knowledge of the Company, threatened against
or affecting the Company or any of its properties before or by any court,
arbitrator,
governmental or administrative agency or regulatory authority (federal, state,
county, local or foreign) which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents, or
(ii) could, if there were an unfavorable decision, have or reasonably be
expected to result in a Material Adverse Effect. Neither the Company, nor any
director or officer thereof, is or has been the subject of any Proceeding
involving a claim of violation of or liability under federal or state securities
laws or a claim of breach of fiduciary duty. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission or the Federal Trade Commission involving the
Company or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company under the
Exchange Act or the Securities Act.
(k) Labor
Relations.
No
labor dispute exists or, to the knowledge of the Company, is imminent with
respect to any of the employees of the Company which could reasonably be
expected to result in a Material Adverse Effect. None of the Company’s
employees
is a member of a union that relates to such employee’s relationship with the
Company, and the Company is not a party to a collective bargaining agreement,
and the Company believes that its relationships with its employees are good.
No
executive officer, to the knowledge of the Company, is or is now expected to
be,
in violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement or non-competition agreement,
or
any other contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer does not subject the Company to any
liability with respect to any of the foregoing matters. The Company is in
compliance with all U.S. federal, state, local and foreign laws and regulations
relating to employment and employment practices, terms and conditions of
employment and wages and hours, except where
9
the
failure to be in compliance could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(l) Compliance.
The
Company (i) is not in default under or in violation of (and no event has
occurred that has not been waived that, with notice or lapse of time or both,
would result in a default by the Company under), nor
has
the Company received notice of a claim that it is in default under or that
it is
in violation of, any indenture, loan or credit agreement or any other agreement,
contract or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been waived),
(ii) is in violation of any order of any court, arbitrator or governmental
body,
or (iii) is or has been in violation of any statute, rule or regulation of
any
governmental authority, including without limitation all foreign, federal,
state
and local laws applicable to its business, including franchise laws, and all
such laws that affect the environment, except in each case as could not have
or
reasonably be expected to result in a Material Adverse Effect.
(m) Regulatory
Permits.
The
Company possesses all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities necessary
to
conduct its business as described in the SEC Reports,
except where the failure to possess such permits could not have or reasonably
be
expected to result in a Material Adverse Effect (“Material Permits”), and the
Company has not received any notice of Proceedings relating to the revocation
or
modification of any certificates, authorizations or permits applicable to the
Company.
(n) Title
to Assets.
The
Company has good and marketable title in fee simple to all real property owned
by it that is material to the business of the Company and good and marketable
title in all personal
property owned by it that is material to the business of the Company, in each
case free and clear of all Liens, except for purchase money security interests,
Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Company and Liens for the payment of federal, state or other taxes,
the
payment of which is neither delinquent nor subject to penalties. Any real
property and facilities held under lease by the Company are held by it under
valid, subsisting and enforceable leases with which the Company is in material
compliance.
(o) Patents
and Trademarks.
The
Company has, or has rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, trade secrets, inventions,
copyrights, licenses and other intellectual property rights
and similar rights necessary for use in connection with its business as
described in the SEC Reports and which the failure to so have would have a
Material Adverse Effect (collectively, the “Intellectual Property Rights”). The
Company has not received a notice (written or otherwise) that the Intellectual
Property Rights used by the Company violates or infringes upon the rights of
any
Person. To the knowledge of the Company, all such Intellectual Property Rights
are enforceable and there is no existing infringement by another Person of
any
of the Intellectual Property Rights. The Company has taken reasonable security
measures to protect the secrecy, confidentiality and value of all of its
intellectual properties, except where failure to do so could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse
Effect.
10
(p) Insurance.
The
Company is insured against such losses and risks and in such amounts as
management of the Company believes to be prudent. The Company has
no
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.
(q) Transactions
With Affiliates and Employees.
Except
as set forth in the SEC Reports, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of the
Company is currently a party to any transaction with the Company
(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or
from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any entity in which any officer,
director, or any such employee has a substantial interest or is an officer,
director, trustee or partner, in each case in excess of $60,000 other than
(i)
for payment of salary or consulting fees for services rendered, (ii)
reimbursement for expenses incurred on behalf of the Company, and (iii) for
other employee benefits, including stock option agreements under any stock
option plan of the Company.
(r) Xxxxxxxx-Xxxxx;
Internal Accounting Controls.
The
Company is in compliance with all provisions of the Xxxxxxxx-Xxxxx Act of 2002
which are applicable to it as of the Closing Date. The Company maintains a
system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. If applicable to the Company on the
date hereof, the Company has established disclosure controls and procedures
(as
defined in Exchange Act Rules 13a−15(e) and 15d−15(e)) for the Company and
designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits
under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission’s rules and forms. If applicable to the
Company on the date hereof, the Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and procedures as of the end
of the period covered by the Company’s most recently filed periodic report under
the Exchange Act (such date, the “Evaluation Date”). The Company presented in
its most recently filed periodic report under the Exchange Act the conclusions
of the certifying officers about the effectiveness of the disclosure controls
and procedures based on their evaluations as of the Evaluation Date. Since
the
Evaluation Date, there have been no changes in the Company’s internal control
over financial reporting (as such term is defined in the Exchange Act) that
has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
(s) Brokerage
or Finder’s Fees.
No
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect
to the transactions
11
contemplated
by the Transaction Documents. Purchaser shall have no obligation with respect
to
any fees or with respect to any claims made by or on behalf of other Persons
for
fees of a type contemplated in this subsection (s) that may be due in connection
with the transactions contemplated by the Transaction Documents.
(t) Private
Placement.
Assuming the accuracy of Purchaser’s representations and warranties set forth in
Section 3.2, no registration under the Securities Act is required for the offer
and sale of the Securities by the Company to Purchaser as contemplated hereby.
The
issuance and sale of the Securities hereunder does not contravene the rules
and
regulations of the Trading Market.
(u) Investment
Company.
The
Company is not, and is not an Affiliate of, and immediately after receipt of
payment for the Securities, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.
The
Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act of 1940, as amended.
(v) Registration
Rights.
Other
than Purchaser, no Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the Company, except
for any such rights which have been satisfied by the Company.
(w) Listing
and Maintenance Requirements.
The
Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the
Exchange Act, and the Company has taken no action designed to, or which to
its
knowledge is likely to have the effect of, terminating
the registration of the Common Stock under the Exchange Act nor has the Company
received any notification that the Commission is contemplating terminating
such
registration. The Company has not, in the twelve (12) months preceding the
date
hereof, received notice from any Trading Market on which the Common Stock is
or
has been listed or quoted to the effect that the Company is not in compliance
with the listing or maintenance requirements of such Trading Market. The Company
is, and has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with all such listing and maintenance
requirements. Trading in the Common Stock has not been suspended by the
Commission or the Company’s principal Trading Market.
(x) Disclosure.
Subject
to the limitations acknowledged by Purchaser in Section 3.2(f)(iii), all
disclosure furnished by or on behalf of the Company to Purchaser regarding
the
Company, its business and the transactions contemplated hereby, is true and
correct and does not contain any untrue statement of a material fact or omit
to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
The
press
releases disseminated by the Company during the twelve (12) months prior to
the
Closing Date did not contain, at the time of their respective releases, 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, in light of
the
circumstances under which they were made and when made, not misleading. The
Company acknowledges and agrees that Purchaser makes no or has made no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2
hereof.
12
(y) No
Integrated Offering.
Assuming the accuracy of Purchaser’s representations and warranties set forth in
Section 3.2, neither the Company, nor any of its Affiliates, nor any Person
acting on its or their behalf has, directly or indirectly, made any offers
or
sales of
any
security or solicited any offers to buy any security, under circumstances that
would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of the Securities Act or any applicable
shareholder approval provision of any Trading Market on which any of the
securities of the Company are listed or designated.
(z) Solvency.
Based
on the financial condition of the Company as of the Closing Date after giving
effect to the receipt by the Company of the proceeds from the sale of the
Securities hereunder: (i) the fair saleable value of the Company’s assets
exceeds the amount that
will
be required to be paid on or in respect of the Company’s existing debts and
other liabilities (including known contingent liabilities) as they mature;
(ii)
the Company’s assets do not constitute unreasonably small capital to carry on
its business as now conducted and as proposed to be conducted including its
capital needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to liquidate
all
of its assets, after taking into account all anticipated uses of the cash,
would
be sufficient to pay all amounts on or in respect of its liabilities when such
amounts are required to be paid. The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its debt). The
Company has no knowledge of any facts or circumstances which lead it to believe
that it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the Closing Date.
The balance sheet of the Company at December 31, 2006, contained in the SEC
Reports sets forth as of the date thereof all outstanding secured and unsecured
Indebtedness of the Company, or for which the Company has any commitments.
Since
December 31, 2006, the Company has not incurred any Indebtedness except as
set
forth on Schedule
3.1(z).
For the
purposes of this Agreement, “Indebtedness” shall mean: (a) any liabilities for
borrowed money or amounts owed in excess of $50,000 (other than trade accounts
payable incurred in the ordinary course of business); (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company’s
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in
the
ordinary course of business; and (c) the present value of any lease payments
in
excess of $50,000 due under leases required to be capitalized in accordance
with
GAAP. The Company is not in default with respect to any Indebtedness. Except
as
set forth on Schedule
3.1(z),
there is
no outstanding Indebtedness of the Company owed to any Person who owns directly
or indirectly five percent (5%) or more of the issued and outstanding capital
stock of the Company.
(aa) Tax
Status.
The
Company has properly completed and timely filed all necessary federal, state
and
foreign income and franchise tax returns required to be filed by it, and has
paid all taxes shown to be payable thereon or which are otherwise due and
payable by it or as to which claim for payment has been made. There is (i)
no
claim for any tax that is an encumbrance against any of the Company’s assets and
properties, (ii) no audit of any tax return relating to the Company that is
being conducted with respect to the Company, and (iii) no extension of any
statute of limitations on the assessment of any tax with respect to the
Company.
13
The
Company has no knowledge of a tax deficiency which has been asserted or
threatened against the Company. The Company has withheld all amounts required
to
be withheld by law from payment made to any Person, whether that Person is
an
employee, independent contractor, or otherwise.
(bb) No
General Solicitation.
Neither
the Company nor any Person acting on behalf of the Company has offered or sold
any securities of the Company by any form of general solicitation or general
advertising.
(cc) Foreign
Corrupt Practices.
Neither
the Company, nor to the knowledge of the Company, any agent or other Person
acting on behalf of the Company, has (i) directly or indirectly, used any funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds, (iii)
failed to disclose fully any contribution made by the Company (or made by any
Person acting on its behalf of which the Company has knowledge) which is in
violation of law, or (iv) violated in any material respect any provision of
the
Foreign Corrupt Practices Act of 1977, as amended.
(dd) Accountants.
The
Company’s accounting firm is Xxxxxxx Xxxxx LLP. To the knowledge and belief of
the Company, such
accounting firm is a registered public accounting firm as required by the
Exchange Act.
(ee) Seniority.
Except
as set forth on Schedule
3.1(ee),
as of
the Closing Date, no Indebtedness or other claim against the Company is senior
to the Debenture in right of payment, whether with respect to interest or upon
liquidation or dissolution, or otherwise, other than indebtedness secured by
purchase money
security interests (which is senior only as to underlying assets covered
thereby) and capital lease obligations (which is senior only as to the property
covered thereby).
(ff) No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind currently existing, or reasonably anticipated
by the Company to arise, between the Company on the one hand and the accountants
and lawyers formerly or currently engaged by the Company
on the other hand.
(gg) Acknowledgment
Regarding Purchaser’s Purchase of the Securities.
The
Company acknowledges and agrees that Purchaser is acting solely in the capacity
of an arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated
thereby. The Company further acknowledges that Purchaser is not 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 thereby
and any advice given by Purchaser or any of its respective representatives
or
agents in connection with the Transaction Documents and the transactions
contemplated thereby is merely incidental to Purchaser’s purchase of the
Securities. The Company further represents to Purchaser that the Company’s
decision to enter into the Transaction Documents has been based solely on the
independent evaluation of the transactions contemplated hereby by the Company
and its representatives.
14
(hh) Acknowledgment
Regarding Purchaser’s Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding
(except for Section 3.2(g) hereof), it is understood and acknowledged by the
Company: (i) that Purchaser has not been asked to agree, nor has Purchaser
agreed, to desist from purchasing or selling, long and/or short, securities
of
the Company, or “derivative” securities based on securities issued by the
Company or to hold any securities of the Company for any specified term; (ii)
that future open market or other transactions by Purchaser with respect to
securities of the Company after the closing of this or future private placement
transactions, may negatively impact the market price of the Company’s
publicly-traded securities; and (iii) that Purchaser shall not be deemed to
have
any affiliation with or control over any arm’s length counter-party in any
“derivative” transaction. The Company further understands and acknowledges that
(a) Purchaser may engage in hedging activities at various times during the
period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Warrant Shares deliverable with respect
to Securities are being determined and (b) such hedging activities (if any)
could reduce the value of the existing stockholders’ equity interests in the
Company at and after the time that the hedging activities are being conducted.
The Company acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction Documents.
(ii) Regulation
M Compliance.
The
Company has not, and to its knowledge no one acting on its behalf has, (i)
taken, directly or indirectly, any action designed to cause or to result in
the
stabilization or manipulation of the price of any security of the Company to
facilitate
the sale or resale of any of the Securities, (ii) sold, bid for, purchased,
or
paid any compensation for soliciting purchases of, any of the securities of
the
Company, or (iii) paid or agreed to pay to any Person any compensation for
soliciting another to purchase any other securities of the Company.
(jj) Contracts.
All of
the Company’s material contracts, agreements, understandings and arrangements,
whether written or oral (collectively, the “Contracts”) are valid, subsisting,
in full force and effect and binding upon the Company and the other parties
thereto. The Company is not in default under any of the Contracts. To the
knowledge of the Company, no other party to any such Contract is in default
thereunder, nor does any condition exist that with notice or lapse of time
or
both would constitute a default by such other party thereunder, except as would
not be reasonably expected to have a Material Adverse Effect.
(kk) Employee
Benefit Plans.
The SEC
Reports describe all material employee benefit plans (including any “multiple
employer plan” within the meaning of the Code or ERISA), arrangements, policies,
programs, agreements or commitments maintained by the Company (collectively,
the
“Plans”). Except as would not reasonably be expected to have a Material Adverse
Effect, (i) each Plan (and related trust, insurance contract or fund) has been
established and administered in accordance with its terms, and complies in
form
and in operation with the applicable requirements of ERISA and the Code and
other applicable law and regulation, (ii) no claim with respect to the
administration or the investment of the assets of any Plan (other than routine
claims for benefits) is pending and all contributions (including all employer
contributions and employee salary reduction contributions) which are due have
been paid to each Plan, (iii) each Plan that is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during
the
period since its adoption; each trust created under any such Plan is exempt
from
tax under Section 501(a) of the Code and has been so
15
exempt
since its creation and (iv) there are no unfunded obligations under any Plan
which are not fully reflected on the Financial Statements.
(ll) Product
Liability Claims.
There
have been no: (i) product or service warranty claims made by the Company’s
customers which were not reimbursed or assumed by the Company’s suppliers other
than routine claims in the ordinary course of business; (ii) product recalls
by
the Company; or (iii) product and/or service warranties outstanding or currently
being offered by the Company to its customers (other than those of third parties
for which the Company has no obligation or responsibility and the Company’s
standard quality guarantee to replace any defective product or service) other
than 30-day installation warranties for which the Company receives no additional
consideration and longer-term service warranties for which the Company does
receive additional consideration. Furthermore, neither the Company nor any
of
its predecessors in interest have been subject to any product or service
liability claim relating to any of the Company’s products, services, or
operation of business of the Company and, to the knowledge of the Company,
no
such claim is threatened and no circumstance or condition exists that would
reasonably be expected to give rise to such a claim.
(mm) Environmental
Claims.
There
are no environmental claims, or environmental liabilities, pending or, to the
knowledge of the Company, threatened against the Company by any Person
(including, without limitation, any governmental entity) relating to: (i) any
of
the assets or properties of the Company; (ii) any property currently or formerly
operated, occupied or leased by the Company; or (iii) any current or former
product of the Company that has been manufactured, sold, transported or disposed
of. In addition, the Company has not released any hazardous material. The
Company is in compliance with all environmental laws.
3.2 Representations
and Warranties of Purchaser.
Purchaser
hereby makes the following representations and warranties to
the
Company:
(a) Organization;
Authority.
Purchaser is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization with the requisite power
and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out
its
obligations hereunder and thereunder. The execution, delivery and performance
by
Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of Purchaser. Each
Transaction Document to which it is a party has been duly executed by Purchaser
and, when delivered in accordance with the terms hereof and thereof, will
constitute the valid and legally binding obligation of Purchaser, enforceable
against it in accordance with its terms, except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors’ rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may
be
limited by applicable law. The Purchaser’s Federal taxpayer identification
number and mailing address for notices have been provided to the
Company.
(b) Own
Account.
Purchaser understands that the Securities are “restricted securities” and have
not been registered under the Securities Act or any applicable state
16
securities
law. Purchaser is acquiring the Securities as principal for its own account
and
not with a view to
or for
distributing or reselling such Securities or any part thereof, has no present
intention of distributing any of such Securities in violation of the Securities
Act or any applicable state securities law and has no direct or indirect
arrangement or understandings with any other Person to distribute or regarding
the distribution of such Securities (this representation and warranty not
limiting such Purchaser’s right to sell the Securities in compliance with
applicable federal and state securities laws) in violation of the Securities
Act
or any applicable state securities law. Purchaser is acquiring the Securities
hereunder in the ordinary course of its business.
(c) Purchaser
Status.
At the
time Purchaser was offered the Securities, it was, and at the date hereof it
is,
either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2),
(a)(3), (a)(7) or (a)(8) under
the
Securities Act, or (ii) a “qualified institutional buyer” as defined in Rule
144A(a) under the Securities Act. Purchaser is not required to be registered
as
a broker-dealer under Section 15 of the Exchange Act.
(d) Experience
of Purchaser.
Purchaser has such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and risks of
the
investment
in the Securities, and has so evaluated the merits and risks of such investment.
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such
investment.
(e) General
Solicitation.
Purchaser is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published in
any
newspaper, magazine or similar media or broadcast over television or radio
or
presented
at any seminar or any other general solicitation or general
advertisement.
(f) Available
Information.
Purchaser understands and acknowledges that
(i) Purchaser
has been given access to, and prior to the execution of the Transaction
Documents, an opportunity to ask questions of and receive answers from, the
Company concerning the terms and conditions of the offering of the Securities
and to obtain any other information that Purchaser requested with respect to
the
Company’s operations and Purchaser’s proposed investment in the Company in order
to evaluate the investment and verify the accuracy of all information furnished
to it regarding the Company;
(ii) Purchaser
has been given access to all of the SEC Reports; and
(iii) Financial
projections have been provided to Purchaser by the Company as part of the
information sought by Purchaser, that such projections are based on assumptions
made by the Designated Officers as to Company operations, that although such
assumptions are believed by the Designated Officers to be reasonable, not all
assumptions will actually eventuate and therefore, such projections represent
possible but not necessarily the most likely financial results for the Company,
and that such projections must therefore be viewed as estimates only, and there
can be no assurance of their accuracy.
17
(g) Purchases,
Sales and Confidentiality Prior To The Date Hereof.
Other
than the transactions contemplated hereunder, Purchaser has not, nor has any
Affiliate of Purchaser,
purchased or sold (including Short Sales) any securities of the Company during
the period commencing from December 23, 2006 and ending on the date hereof.
Purchaser and its Affiliates have used reasonable efforts to maintain the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this
transaction).
ARTICLE
IV
OTHER
AGREEMENTS OF THE PARTIES
4.1 Transfer
Restrictions.
(a) Purchaser
acknowledges that the Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of the
Securities other than (i) pursuant to an effective registration statement or
Rule 144, (ii) to the Company, (iii) to an Affiliate
of Purchaser or, (iv) in connection with a pledge as contemplated in Section
4.1(b), the Company may require the transferor thereof to provide to the Company
an opinion of counsel selected by the transferor and reasonably acceptable
to
the Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company and the Transfer Agent, to the effect that such
transfer does not require registration of such transferred Securities under
the
Securities Act. In the case of (iii) and (iv) above, as a condition of transfer,
any such transferee shall agree in writing to be bound by the terms of this
Agreement.
(b) Purchaser
agrees to the imprinting, so long as is required by this Section 4.1, of a
legend on any of the Securities, as applicable, in substantially the
following form:
NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAS
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY
AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
The
Company acknowledges and agrees that Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and which agrees to be bound by the provisions of this Agreement
and, if required under the terms of such arrangement, Purchaser may transfer
18
pledged
or secured Securities to the pledgees or secured parties. Such a pledge or
transfer would not be subject to approval of the Company and no legal opinion
of
legal counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such pledge.
At
Purchaser’s expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may reasonably request
in connection with a pledge or transfer of the Securities including, if the
Securities are subject to registration with the Commission under the Securities
Act, the preparation and filing of any required prospectus supplement under
Rule
424(b)(3) under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Stockholders
thereunder.
(c) Certificates
evidencing the Warrant Shares shall not contain any legend (including the legend
set forth in Section 4.1(b) hereof) restricting transfer of the Warrant Shares
under the Securities Act: (i) while a registration statement covering the resale
of such security is effective under the Securities
Act, (ii) following any sale of such Warrant Shares pursuant to Rule 144, (iii)
if such Warrant Shares are eligible for sale under Rule 144(k), or (iv) if
such
legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff
of
the Commission). Under any such circumstances the Company shall cause its
counsel to issue a legal opinion to the Transfer Agent (if required by the
Transfer Agent) to effect the removal of the legend hereunder. If all or any
portion of a Warrant is exercised at a time when there is an effective
registration statement to cover the resale of the Warrant Shares, or if such
Warrant Shares may be sold under Rule 144(k) or if such legend on the Warrant
Shares is not otherwise required under applicable requirements of the Securities
Act (including judicial interpretations and pronouncements issued by the staff
of the Commission) then such Warrant Shares shall be issued free of all legends.
The Company agrees that at such time as such legend is no longer required under
this Section 4.1(c), it will, no later than three Trading Days following the
delivery by Purchaser to the Company or the Transfer Agent of a certificate
representing Warrant Shares, issued with a restrictive legend (such third
Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to
Purchaser a certificate representing such shares that is free from all
restrictive and other legends. The Company may not make any notation on its
records or give instructions to the Transfer Agent that enlarge the restrictions
on transfer set forth in this Section. If possible, certificates for Warrant
Shares subject to legend removal hereunder shall be transmitted by the Transfer
Agent to Purchaser by crediting the account of Purchaser’s prime broker with the
Depository Trust Company System.
(d) In
addition to Purchaser’s other available remedies, the Company shall pay to
Purchaser, in cash, as partial liquidated damages and not as a penalty, for
each
$2,000 of Warrant Shares (based on the VWAP of the Common Stock on the date
such
Securities
are submitted to the Transfer Agent) delivered for removal of the restrictive
legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20
per
Trading Day 5 Trading Days after such damages have begun to accrue) for each
Trading Day after the second Trading Day following the Legend Removal Date
until
such certificate is delivered without a legend. Nothing herein shall limit
Purchaser’s right to pursue actual damages for the Company’s failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and Purchaser shall have the right to pursue all remedies available
to it at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief.
19
(e) Purchaser
agrees that the removal of the restrictive legend from certificates representing
Securities as set forth in this Section 4.1 is predicated upon the Company’s
reliance that Purchaser will sell any Securities
pursuant
to either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom, and
that
if Securities are sold pursuant to a registration statement, they will be sold
in compliance with the plan of distribution set forth therein and upon
compliance with the prospectus delivery requirement.
4.2 Acknowledgment
of Dilution.
The
Company acknowledges that the issuance of the Securities may result in dilution
of the outstanding shares of Common Stock, which dilution may be substantial.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Warrant
Shares pursuant to the Transaction Documents, are unconditional and absolute
and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may
have
against Purchaser and regardless of the dilutive effect that such issuance
may
have on the ownership of the other stockholders of the Company.
4.3 Furnishing
of Information.
As
long as Purchaser owns Securities, the Company covenants to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act. As long as Purchaser owns Securities, if the
Company is not required to file reports pursuant to the Exchange Act, it will
prepare and furnish to Purchaser and make publicly available in accordance
with
Rule 144(c) such information as is required for Purchaser to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as Purchaser may reasonably request, to the extent required from time
to
time to enable Purchaser to sell such Securities without registration under
the
Securities Act within the requirements of the exemption provided by Rule
144.
4.4 Integration.
The
Company shall not, and shall use its best efforts to ensure that no Affiliate
of
the Company shall, sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section
2
of the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to Purchaser or that would be integrated
with
the offer and sale of the Securities for purposes of the rules and regulations
of any Trading Market.
4.5 Reservation
and Listing of Conversion Shares.
(a) The
Company shall maintain a reserve from its duly authorized shares of Common
Stock
for issuance pursuant to the Transaction Documents in such amount as may be
required to fulfill its obligations in full under the Transaction Documents.
(b) The
Company shall (i) in the time and manner required by each Trading Market,
prepare and file with such Trading Market an additional shares listing
application covering all of the shares of Common Stock issued or issuable under
the Transaction Documents, (ii) take all steps necessary to cause such
shares of Common Stock to be approved for listing on each Trading Market as
soon
as possible thereafter, (iii) provide to Purchaser evidence of such listing,
and
(iv) maintain the listing of such Common Stock on each such Trading
Market.
20
(c) In
the
case of a breach by the Company of Section 4.5(a), in addition to the other
remedies available to Purchaser, Purchaser shall have the right to require
the
Company to either: (i) use its best efforts to obtain the required shareholder
approval necessary to permit the issuance of such shares of Common Stock as
soon
as is possible, but in any event not later than the seventy-fifth
(75th)
day
after such notice, or (ii) within five Trading Days after delivery of a written
notice, pay cash to Purchaser, as liquidated damages and not as a penalty,
in an
amount equal to the number of shares of Common Stock not issuable by the Company
multiplied by one hundred fifteen percent (115%) of the average VWAP over the
ten (10) Trading Days immediately prior to the date of such notice or, if
greater, the ten (10) Trading Days immediately prior to the date of payment
(the
“Cash Amount”). If Purchaser elects the first option under the preceding
sentence and the Company fails to obtain the required shareholder approval
on or
prior to the seventy-fifth (75th)
day
after such notice, then within three Trading Days after such seventy-fifth
(75th)
day,
the Company shall pay the Cash Amount to such Purchaser, as liquidated damages
and not as a penalty.
4.6 Exercise
Procedures.
The
form of Notice of Exercise included in the Warrant sets forth the totality
of
the procedures required of Purchaser in order to exercise the Warrant other
than
the payment for Warrant Shares. No additional legal opinion or other information
or instructions shall be required of Purchaser to exercise the Warrant. The
Company shall honor exercises of the Warrant and shall deliver Warrant Shares
in
accordance with the terms, conditions and time periods set forth in the
Transaction Documents.
4.7 Securities
Laws Disclosure; Publicity.
Within
the time prescribed by law, the Company shall file a Current Report on Form
8-K
with the Commission (the “Form 8-K Filing”) describing the terms of the
transactions contemplated by the Transaction Documents and including as exhibits
to such Form 8-K Filing each of the Transaction Documents, in the form required
by the Exchange Act. Thereafter, the Company shall timely file any filings
and
notices required by the Commission or applicable law with respect to the
transactions contemplated hereby and provide copies thereof to Purchaser
promptly after filing. The Company shall, at least two (2) Trading Days prior
to
the filing or dissemination of any disclosure required by this paragraph,
provide a copy thereof to Purchaser for its review. The Company and Purchaser
shall consult with each other in issuing any press releases or otherwise making
public statements or filings and other communications with the Commission or
any
regulatory agency or Trading Market with respect to the transactions
contemplated hereby, and neither party shall issue any such press release or
otherwise make any such public statement, filing or other communication without
the prior consent of the other, except if such disclosure is required by law,
in
which case the disclosing party shall promptly provide the other party with
prior notice of such public statement, filing or other communication.
Notwithstanding the foregoing, the Company shall not publicly disclose the
name
of Purchaser or any of its Affiliates, or include the name of Purchaser or
any
of its Affiliates in any filing with the Commission or any regulatory agency
or
Trading Market, without the prior written consent of Purchaser, except to the
extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide Purchaser with prior notice of such
disclosure. The Company shall not, and shall cause each of its officers,
directors, employees and agents not to, provide Purchaser or any of its
Affiliates with any material nonpublic information regarding the Company from
and after the filing of the Form 8-K Filing without the express written consent
of Purchaser. In the event of a breach of the foregoing covenant by the Company
or any of its or officers, directors, employees and agents, in
21
addition
to any other remedy provided herein or in the Transaction Documents, Purchaser
shall have the right to require the Company to make a public disclosure, in
the
form of a press release, public advertisement or otherwise, of such material
nonpublic information. Neither Purchaser nor any of its Affiliates shall have
any liability to the Company or any of its officers, directors, employees,
shareholders or agents for any such disclosure. Subject to the foregoing,
neither the Company nor Purchaser shall issue any press releases or any other
public statements with respect to the transactions contemplated hereby.
4.8 Shareholder
Rights Plan.
No
claim
will be made or enforced by the Company or, with the consent of the Company,
any
other Person, that Purchaser is an “Acquiring Person” under any control share
acquisition, business combination, poison pill (including any distribution
under
a rights agreement) or similar anti-takeover plan or arrangement in effect
or
hereafter adopted by the Company, or that Purchaser could be deemed to trigger
the provisions of any such plan or arrangement, by virtue of receiving the
Securities under the Transaction Documents or under any other agreement between
the Company and the Purchaser.
4.9 [INTENTIONALLY
DELETED.]
4.10 No
Impairment.
At
all
times after the date hereof, the Company will not take or permit any action,
or
cause or permit any Affiliate to take or permit any action that impairs or
adversely affects the rights of Purchaser under the Transaction
Documents.
4.11 Indemnification
of Purchaser.
Subject
to the provisions of this Section 4.11, the Company will indemnify and hold
Purchaser and its directors, officers, Affiliates, shareholders, members,
partners, employees and agents (and any other Persons with a functionally
equivalent role of a Person holding such titles notwithstanding a lack of such
title or any other title) (each, a “Purchaser Party”) harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs
and
reasonable attorneys’ fees and costs of investigation that any such Purchaser
Party may suffer or incur as a result of or relating to (a) any breach of any
of
the representations, warranties, covenants or agreements made by the Company
in
this Agreement or in the other Transaction Documents, or (b) any Proceeding
instituted against any Purchaser Party in connection with or as a result of
the
transactions contemplated by the Transaction Documents (unless such Proceeding
is based upon a breach of Purchaser’s representations, warranties or covenants
under the Transaction Documents or any conduct by Purchaser which constitutes
fraud, gross negligence, willful misconduct, or malfeasance). If any Proceeding
shall be brought against any Purchaser Party in respect of which indemnity
may
be sought pursuant to this Agreement, such Purchaser Party shall promptly notify
the Company in writing, and the Company shall have the right to assume the
defense thereof with counsel of its own choosing reasonably acceptable to the
Purchaser Party. Any Purchaser Party shall have the right to employ separate
counsel in any such Proceeding and participate in the defense thereof, but
the
fees and expenses of such counsel shall be at the expense of such Purchaser
Party except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel, or
(iii)
in such Proceeding there is, in the reasonable opinion of such separate counsel,
a material conflict on any material issue between the position of the Company
and the position of such Purchaser Party, in which case the Company shall be
responsible for the reasonable fees
22
and
expenses of no more than one such separate counsel for all Purchaser Parties.
The Company will not be liable to any Purchaser Party under this Agreement
(i)
for any settlement by a Purchaser Party effected without the Company’s prior
written consent, which shall not be unreasonably withheld or delayed; or (ii)
to
the extent, but only to the extent that a loss, claim, damage or liability
is
attributable to any Purchaser Party’s breach of any of the representations,
warranties, covenants or agreements made by such Purchaser Party in this
Agreement or in the other Transaction Documents.
Purchaser’s rights to indemnification set forth herein shall not be deemed
waived or otherwise effected by any investigation made, or any knowledge
acquired, by Purchaser.
4.12 Blue
Sky Filings.
The
Company shall take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for, or to qualify the Securities
for,
sale to Purchaser at the Closing under applicable securities or “Blue Sky” laws
of the states of the United States, and shall provide evidence of such actions
promptly upon request of Purchaser.
4.13 Piggy-Back
Registrations.
If
at any time there is not an effective registration statement covering all of
the
Registrable Securities and the Company shall determine to prepare and file
with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to
be
issued solely in connection with any acquisition of any entity or business
or
equity securities issuable in connection with the stock option or other employee
benefit plans, then the Company shall send to Purchaser a written notice of
such
determination and, if within fifteen (15) days after the date of such notice,
Purchaser shall so request in writing, subject to customary lead underwriter
cutbacks, the Company shall include in such registration statement all or any
part of such Registrable Securities Purchaser requests to be registered;
provided,
however,
that
the Company shall not be required to register any Registrable Securities
pursuant to this Section 4.13 that are eligible for resale pursuant to Rule
144
or that are the subject of a then effective registration statement. All fees
and
expenses of the registration and sale shall be borne by the Company whether
or
not any Registrable Securities are sold pursuant to a registration statement,
provided that the Company shall not be responsible for broker or similar
commissions of Purchaser. The Company shall also indemnify Purchaser pursuant
to
customary terms.
ARTICLE
V
MISCELLANEOUS
5.1 Fees
and Expenses.
Except
as
expressly set forth in the Transaction Documents to the contrary, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to
the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all stamp taxes and other taxes and duties levied in
connection with the delivery of the Securities to Purchaser.
5.2 Entire
Agreement.
The
Transaction Documents, together with the exhibits and schedules thereto, contain
the entire understanding of the parties with respect to the subject
23
matter
hereof and supersede all prior and contemporaneous agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and
schedules.
However,
the parties acknowledge and agree that the Transaction Documents do
not
supersede that certain Securities Purchase Agreement (including the definitive
exhibits and schedules thereto) by and between the parties hereto dated December
22, 2006, which shall survive pursuant to the terms thereof. At or after the
Closing, and without further consideration, the Company will execute and deliver
to Purchaser such further documents as may be reasonably requested in order
to
give practical effect to the intention of the parties under the Transaction
Documents.
5.3 Notices.
Any
and
all notices or other communications or deliveries required or permitted to
be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile prior
to
5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after
the date of transmission, if such notice or communication is delivered via
facsimile on a day that is not a Trading Day or later than 5:30 p.m. (New York
City time) on any Trading Day, (c) the 2nd
Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom
such
notice is required to be given. The facsimile number and address for such
notices and communications shall be as set forth on the signature pages attached
hereto with respect to the Company, and as set forth in writing with respect
to
Purchaser.
5.4 Amendments;
Waivers.
No
provision of this Agreement may be waived or amended except in a written
instrument signed, in the case of an amendment, by the Company and Purchaser
or,
in the case of a waiver, by the party against whom enforcement of any such
waived provision is sought. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be
a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of any party to exercise any right hereunder in any manner
impair the exercise of any such right.
5.5 Headings.
The
headings herein are for convenience of reference only, do not constitute a
part
of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.
5.6 Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of Purchaser. Purchaser may assign any or all of its rights under this
Agreement to any Person to whom Purchaser assigns or transfers any Securities,
as applicable, provided that (i) such transferee agrees in writing to be bound,
with respect to the transferred Securities, by the provisions of the Transaction
Documents that apply to “Purchaser,” (ii) such transferee is an “accredited
investor” as defined in Rule 501(a) under the Securities Act or a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities Act, or
(iii) such transfer does not violate any representation or warranty made in
this
Agreement by Purchaser.
24
5.7 No
Third-Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
successors and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, except as otherwise set
forth
in Section 4.11.
5.8 Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and enforced
in
accordance with the internal laws of the State of New York, without regard
to
the principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively
in
the state and federal courts sitting in Albany, New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in Albany, New York for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such Proceeding is improper or is an
inconvenient venue for such Proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address
in
effect for notices to it under this Agreement and agrees that such service
shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any other manner permitted by law. The parties hereto hereby irrevocably
waive to the fullest extent permitted by applicable law any and all right to
a
trial by jury in any Proceeding arising out of or relating to any of the
Transaction Documents or the transactions contemplated thereby. If
either
party shall commence an action or proceeding to enforce any provisions of the
Transaction Documents, then the prevailing party in such action or proceeding
shall be reimbursed by the other party for its reasonable attorneys’ fees and
other reasonable costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.
5.9 Survival.
The
representations, warranties, agreements and covenants contained herein shall
survive the Closing and the delivery of the Securities, provided that the
representations and warranties shall only survive for the applicable statute
of
limitations.
5.10 Execution.
This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile or “.pdf” signature page were an original thereof.
25
5.11 Severability.
If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal,
void, or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall
in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means
to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such
that
may be hereafter declared invalid, illegal, void or unenforceable.
5.12 Rescission
and Withdrawal Right.
Notwithstanding
anything to the contrary contained in (and without limiting any similar
provisions of) any of the other Transaction Documents, whenever Purchaser
exercises a right, election, demand, or option under a Transaction Document
and
the Company does not timely perform its related obligations within the periods
therein provided, then Purchaser may, prior to the performance of the Company’s
obligations, rescind or withdraw, in its sole discretion from time to time
upon
written notice to the Company, any relevant exercise (as contemplated in this
Section 5.12) in whole or in part without prejudice to its future actions and
rights; provided,
however,
in the
case of a rescission of an exercise of a Warrant, Purchaser shall be required
to
return any shares of Common Stock delivered in connection with any such
rescinded exercise notice.
5.13 Replacement
of Securities.
If
any certificate or instrument evidencing any Securities is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation thereof (in the case of mutilation),
or in lieu of and substitution therefor, a new certificate or instrument, but
only upon receipt of evidence reasonably satisfactory to the Company of such
loss, theft or destruction and upon provision of an indemnity reasonably
acceptable to the Company and the Transfer Agent. The applicant for a new
certificate or instrument under such circumstances shall also pay any reasonable
third-party costs (including customary indemnity) associated with the issuance
of such replacement Securities.
5.14 Remedies.
In
addition to being entitled to exercise all rights provided herein or granted
by
law, including recovery of damages, Purchaser
and the Company will be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
contained in the Transaction Documents and hereby agrees to waive and not to
assert in any Proceeding for specific performance of any such obligation the
defense that a remedy at law would be adequate.
5.15 Payment
Set Aside.
To
the extent that the Company makes a payment or payments to Purchaser pursuant
to
any Transaction Document or Purchaser enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement
or
exercise or any part thereof
26
are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any
law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.16 Usury.
To
the extent it may lawfully do so, the Company hereby agrees not to insist upon
or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage
of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by Purchaser
in order to enforce any right or remedy under any Transaction Document.
Notwithstanding any provision to the contrary contained in any Transaction
Document, it is expressly agreed and provided that the total liability of the
Company under the Transaction Documents for payments in the nature of interest
shall not exceed the maximum lawful rate authorized under applicable law (the
“Maximum Rate”), and, without limiting the foregoing, in no event shall any rate
of interest or default interest, or both of them, when aggregated with any
other
sums in the nature of interest that the Company may be obligated to pay under
the Transaction Documents exceed such Maximum Rate. It is agreed that if the
maximum contract rate of interest allowed by law and applicable to the
Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract
rate
of interest allowed by law will be the Maximum Rate applicable to the
Transaction Documents from the effective date forward, unless such application
is precluded by applicable law. If under any circumstances whatsoever, interest
in excess of the Maximum Rate is paid by the Company to Purchaser with respect
to indebtedness evidenced by the Transaction Documents, such excess shall be
applied by Purchaser to the unpaid principal balance of any such indebtedness
or
be refunded to the Company, the manner of handling such excess to be at
Purchaser’s election.
5.17 Liquidated
Damages.
The
Company’s obligations to pay any partial liquidated damages or other amounts
owing under the Transaction Documents is a continuing obligation of the Company
and shall not terminate until all unpaid partial liquidated damages and other
amounts have been paid notwithstanding the fact that the instrument or security
pursuant to which such partial liquidated damages or other amounts are due
and
payable shall have been canceled.
5.18 Construction.
The
parties agree that each of them and/or their respective counsel has reviewed
and
had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto.
[Remainder
of Page Intentionally Left Blank]
27
IN
WITNESS WHEREOF,
the
parties hereto have caused this Securities Purchase Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.
By:
/s/ Xxxxx X. Xxxxx
Title:
Chief Executive Officer
Address:
000 Xxxxxxxxx Xxxx.
Xxxxxx
X
& X
Xxxxxx,
XX 00000
Facsimile:
000-000-0000
With
a
copy to (which shall not constitute notice):
Xxxxxxx
Xxxxx Xxxxxxx & Ingersoll, LLP
0000
Xxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxxxxxx,
Xxxxxxxxxxxx 00000−7599
Attention:
Xxxxxx Xxxx
Facsimile:
000-000-0000
1
[Counterpart
signature page to that certain Securities Purchase Agreement by and between
Theater Xtreme Entertainment Group, Inc. and Xxxxxx Technology, LLC, dated
March
6, 2007.]
XXXXXX
TECHNOLOGY, LLC
By:
/s/
Title:
Authorized Representative
2
Exhibits and Schedules to the Securities Purchase Agreement have been intentionally omitted.
