EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
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LV ADMINISTRATIVE SERVICES, INC.,
AS ADMINISTRATIVE AND COLLATERAL AGENT
THE PURCHASERS
FROM TIME TO TIME PARTY HERETO
AND
RETAIL PRO, INC.
DATED: FEBRUARY 29, 2008
TABLE OF CONTENTS
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1. Agreement to Sell and Purchase...........................................................................1
2. Fees and Warrant.........................................................................................1
3. Closing, Delivery and Payment............................................................................2
3.1 Closing.........................................................................................2
3.2 Delivery........................................................................................2
4. Representations and Warranties of the Company............................................................2
4.1 Organization, Good Standing and Qualification...................................................3
4.2 Subsidiaries....................................................................................4
4.3 Capitalization; Voting Rights...................................................................4
4.4 Authorization; Binding Obligations..............................................................5
4.5 Liabilities; Solvency...........................................................................5
4.6 Agreements; Action..............................................................................6
4.7 Obligations to Related Parties..................................................................7
4.8 Changes.........................................................................................8
4.9 Title to Properties and Assets; Liens, Etc......................................................9
4.10 Intellectual Property..........................................................................10
4.11 Compliance with Other Instruments..............................................................11
4.12 Litigation.....................................................................................11
4.13 Tax Returns and Payments.......................................................................12
4.14 Employees......................................................................................12
4.15 Registration Rights and Voting Rights..........................................................13
4.16 Compliance with Laws; Permits..................................................................13
4.17 Environmental and Safety Laws..................................................................13
4.18 Valid Offering.................................................................................14
4.19 Full Disclosure................................................................................14
4.20 Insurance......................................................................................15
4.21 SEC Reports....................................................................................15
4.22 Listing........................................................................................15
4.23 No Integrated Offering.........................................................................15
4.24 Stop Transfer..................................................................................15
4.25 Dilution.......................................................................................16
4.26 Patriot Act....................................................................................16
4.27 ERISA..........................................................................................16
5. Representations and Warranties of each Purchaser........................................................17
5.1 No Shorting....................................................................................17
5.2 Requisite Power and Authority..................................................................17
5.3 Investment Representations.....................................................................17
5.4 The Purchaser Bears Economic Risk..............................................................18
5.5 Acquisition for Own Account....................................................................18
5.6 The Purchaser Can Protect Its Interest.........................................................18
5.7 Accredited Investor............................................................................18
5.8 Legends........................................................................................18
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TABLE OF CONTENTS
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6. Covenants of the Company................................................................................19
6.1 Stop-Orders....................................................................................19
6.2 Listing........................................................................................19
6.3 Market Regulations.............................................................................20
6.4 Reporting Requirements.........................................................................20
6.5 Use of Funds...................................................................................21
6.6 Access to Facilities...........................................................................21
6.7 Taxes..........................................................................................22
6.8 Insurance......................................................................................24
6.9 Intellectual Property..........................................................................24
6.10 Properties.....................................................................................25
6.11 Confidentiality................................................................................25
6.12 Required Approvals.............................................................................26
6.13 Reissuance of Securities.......................................................................27
6.14 Opinion........................................................................................28
6.15 Margin Stock...................................................................................28
6.16 FIRPTA.........................................................................................28
6.17 Financing Right of First Refusal...............................................................28
6.18 Authorization and Reservation of Shares........................................................29
6.19 Investor Relations/Public Relations............................................................29
7. Covenants of the Purchasers.............................................................................29
7.1 Confidentiality................................................................................29
7.2 Non-Public Information.........................................................................29
7.3 Limitation on Acquisition of Common Stock of the Company.......................................29
8. Covenants of the Company and the Purchasers Regarding Indemnification...................................30
8.1 Company Indemnification........................................................................30
8.2 Purchaser Indemnification......................................................................30
10. Registration Rights.....................................................................................30
10.2 Offering Restrictions..........................................................................30
11. Miscellaneous...........................................................................................31
11.1 Governing Law, Jurisdiction and Waiver of Jury Trial...........................................31
11.2 Severability...................................................................................32
11.3 Survival.......................................................................................32
11.4 Successors.....................................................................................32
11.5 Entire Agreement; Maximum Interest.............................................................33
11.6 Amendment and Waiver...........................................................................34
11.7 Delays or Omissions............................................................................34
11.8 Notices........................................................................................34
11.9 Attorneys' Fees................................................................................36
11.10 Titles and Subtitles...........................................................................36
11.11 Signatures; Counterparts.......................................................................36
11.12 Broker's Fees..................................................................................36
11.13 Construction...................................................................................36
11.14 Agency.........................................................................................36
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LIST OF EXHIBITS
Form of Term Note.........................................................................................Exhibit A
Form of Warrant...........................................................................................Exhibit B
Form of Opinion...........................................................................................Exhibit C
Form of Escrow Agreement..................................................................................Exhibit D
Form of Compliance Certificate............................................................................Exhibit E
LIST OF INFORMATION REQUIRED TO BE INCLUDED IN THE SUPPLEMENTAL SCHEDULE
Schedule 1 Purchaser Commitments
Schedule 2 Warrant Holders and Warrant Shares
Schedule 4.2 Subsidiaries
Schedule 4.3 Capitalization
Schedule 4.6 Extraordinary Agreements
Schedule 4.7 Obligations to Related Parties
Schedule 4.9 Title to Properties; Liens
Schedule 4.10 IP Registration
Schedule 4.12 Litigation
Schedule 4.13 Taxes
Schedule 4.14 Employees
Schedule 4.15 Registration and Voting Rights
Schedule 4.21 SEC Reports
Schedule 6.12(e) Indebtedness
Schedule 11.12 Brokers
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of February 29, 2008, among Retail Pro, Inc., a Delaware
corporation (f/k/a Island Pacific, Inc.) (the "COMPANY"), the purchasers from
time to time a party hereto (each a "PURCHASER" and collectively, the
"PURCHASERS"), LV Administrative Services, Inc., a Delaware corporation, as
administrative and collateral agent for each Purchaser, (the "AGENT" and
together with the Purchasers, the "CREDITOR PARTIES").
RECITALS
WHEREAS, the Company has authorized the sale to each Purchaser of a
Secured Term Note in the form of EXHIBIT A hereto in the principal amount set
forth opposite such Purchaser's name on SCHEDULE 1 hereto (each as amended,
restated, modified and/or supplemented from time to time, a "NOTE" and,
collectively, the "NOTES");
WHEREAS, the Company wishes to issue to each Purchaser a warrant in the
form of EXHIBIT B hereto (each as amended, restated, modified and/or
supplemented from time to time, a "WARRANT" and, collectively the "Warrants") to
purchase up to the number of shares of the Company's common stock, $0.0001 par
value per share (the "COMMON STOCK"), set forth opposite such Purchaser's name
on SCHEDULE 2 (subject to adjustment as set forth therein) in connection with
such Purchaser's purchase of the applicable Note;
WHEREAS, each Purchaser desires to purchase the applicable Note and
Warrant on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the applicable Note and
Warrant to each Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, representations, warranties and covenants hereinafter set forth
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions
set forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company shall sell to each Purchaser, and each Purchaser shall purchase from the
Company, the applicable Note. The sale of the Notes on the Closing Date shall be
known as the "OFFERING." The Notes will mature on the Maturity Date (as defined
in the Note). Collectively, the Notes and Warrants and Common Stock issuable
upon exercise of the Warrants are referred to as the "Securities."
2. FEES AND WARRANT. On the Closing Date:
(a) The Company will issue and deliver to each
Purchaser a Warrant to purchase up to the number of shares of Common
Stock set forth opposite its name on SCHEDULE 2 (subject to adjustment
as set forth therein) in connection with the Offering pursuant to
Section 1 hereof. All the representations, covenants, warranties,
undertakings, and indemnification, and other rights made or granted to
or for the benefit of each Creditor Party by the Company are hereby
also made and granted for the benefit of the holder of the related
Warrant and shares of the Common Stock issuable upon exercise of such
Warrant (the "WARRANT SHARES"); provided however, that except as may be
expressly provided herein all such representations and warranties are
made as of the Closing Date and the Company makes no undertaking to
advise the Purchaser of any changes to the representations and
warranties after the Closing Date.
(b) Subject to the terms of Section 2(c) below, the
Company shall pay (i) to Valens Capital Management, LLC, the investment
manager of the Purchasers ("VCM"), a non-refundable payment in an
amount equal to $37,500; (ii) to the Purchasers, pro rata in accordance
with their respective investments as set forth on Schedule 1 hereto, a
non-refundable payment in an amount equal to one percent (1.00%) of the
aggregate principal amount of the Notes; and (iii) to the Purchasers,
pro rata in accordance with their respective investments as set forth
on Schedule 1 hereto, an advance prepayment discount deposit equal to
one percent (1.00%) of the aggregate principal amount of the Notes.
Each of the foregoing payments in clauses (i) and (ii) shall be deemed
fully earned on the Closing Date and shall not be subject to (iii)
rebate or (iv) proration (other than as set forth in this Section
2(b)(ii) and 2(b)(iii)) for any reason.
(c) The payments and the expenses referred to in the
preceding clause (b) (net of deposits previously paid by the Company)
shall be paid at closing out of funds held pursuant to the Escrow
Agreement (as defined below) and a disbursement letter (the
"DISBURSEMENT LETTER").
3. CLOSING, DELIVERY AND PAYMENT.
3.1 CLOSING. Subject to the terms and conditions herein, the
closing of the transactions contemplated hereby (the "CLOSING"), shall take
place on the date hereof, at such time or place as the Company and the Agent may
mutually agree (such date is hereinafter referred to as the "CLOSING DATE").
3.2 DELIVERY. Pursuant to the Escrow Agreement, at the Closing
on the Closing Date, the Company will deliver to each Purchaser, among other
things, the applicable Note and Warrant and such Purchaser will deliver to the
Company, among other things, the amounts set forth opposite its name in the
Disbursement Letter by certified funds or wire transfer.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Creditor Party: that on the date hereof, and
except as may be set forth herein, all representations, warranties and covenants
made by the Company in connection with the Secured Convertible Term Note issued
by the Company to Laurus Master Fund, Ltd, ("Laurus") dated as of June 15, 2005
(as amended, modified and/or supplemented from time to time, ("Term Note") are
true, correct and complete except as qualified or limited in any manner by the
information set forth in the Company's Form 10-K for the year ended March 31,
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2007 and other reports filed with the Securities Exchange Commission ("SEC")
under the Securities Act of 1933, as amended, and the Securities Exchange Act of
1934 ("Exchange Act"), including pursuant to Section 13(a) or 15(d) thereof
("Exchange Act Filings"). Within thirty (30) days following the Closing Date,
the Company shall make such specific representations and warranties as to matter
omitted herein (reference to title of omitted matter) as are required , and
provide a disclosure schedule thereto or hereto, all as in effect as of the
Closing Date ("Supplemental Schedule"). The Company may address a matter in the
Supplemental Schedule even though no cross reference is made to the Supplemental
Schedule in the body of the representations set forth in this Article 4:
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company
and except as may be set forth in the Supplemental Schedule each of its
Subsidiaries is a corporation, partnership or limited liability company, as the
case may be, duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. The Company and except as may be set
forth in the Supplemental Schedule and each of its Subsidiaries has the
corporate, limited liability company or partnership, as the case may be, power
and authority to own and operate its properties and assets and, insofar as it is
or shall be a party thereto, to (1) execute and deliver (i) this Agreement, (ii)
the Notes and the Warrants to be issued in connection with this Agreement, (iii)
the Master Security Agreement dated as of the date hereof among the Company,
certain Subsidiaries of the Company and the Agent (as amended, restated,
modified and/or supplemented from time to time, the "MASTER SECURITY
AGREEMENT"), [(iv) the Subsidiary Guaranty dated as of the date hereof made by
certain Subsidiaries of the Company (as amended, restated, modified and/or
supplemented from time to time, the "SUBSIDIARY GUARANTY"), (vi) the Stock
Pledge Agreement dated as of the date hereof among the Company, certain
Subsidiaries of the Company and the Purchaser (as amended, restated, modified
and/or or supplemented from time to time, the "STOCK PLEDGE AGREEMENT")], (vii)
the Funds Escrow Agreement dated as of the date hereof among the Company, the
Purchasers and the escrow agent referred to therein, substantially in the form
of EXHIBIT D hereto (as amended, restated, modified and/or supplemented from
time to time, the "ESCROW AGREEMENT") and (viii) all other documents,
instruments and agreements entered into in connection with the transactions
contemplated hereby and thereby (the preceding clauses (ii) through (viii),
collectively, the "RELATED AGREEMENTS"); (2) issue and sell the Notes; (3) issue
and sell the Warrants and the Warrant Shares; and (4) carry out the provisions
of this Agreement and the Related Agreements and to carry on its business as
presently conducted. Each of the Company and each of its Subsidiaries is duly
qualified and is authorized to do business and is in good standing as a foreign
corporation, partnership or limited liability company, as the case may be, in
all jurisdictions in which the nature or location of its activities and of its
properties (both owned and leased) makes such qualification necessary, except
for those jurisdictions in which failure to do so has not, or could not
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the business, assets, liabilities, condition (financial or
otherwise), properties, operations or prospects of the Company and its
Subsidiaries, taken individually and as a whole (a "MATERIAL ADVERSE EFFECT").
4.2 SUBSIDIARIES. Each direct and indirect Subsidiary of the
Company, the direct owner of such Subsidiary and its percentage ownership
thereof, is set forth on Supplemental SCHEDULE 4.2. For the purpose of this
Agreement, a "SUBSIDIARY" of any person or entity means (i) a corporation or
other entity whose shares of stock or other ownership interests having ordinary
voting power (other than stock or other ownership interests having such power
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only by reason of the happening of a contingency) to elect a majority of the
directors of such corporation, or other persons or entities performing similar
functions for such person or entity, are owned, directly or indirectly, by such
person or entity or (ii) a corporation or other entity in which such person or
entity owns, directly or indirectly, more than 50% of the equity interests at
such time.
4.3 CAPITALIZATION; VOTING RIGHTS.
(a) The authorized capital stock of the Company, as
of the date hereof consists of shares, of which are 250,000,000 shares
of Common Stock, par value $0.0001 per share, 60,509,964 shares of
which are issued and outstanding , and 5,000,000 are shares of Series A
Convertible Preferred stock, par value $0.0001 per share of which
141,000 shares of Series A Convertible Preferred stock are issued and
outstanding, and 2,571,233 are shares of Series B Convertible Preferred
stock, par value $0.0001 per share of which 2,571,232 shares of Series
B Convertible Preferred stock are issued and outstanding The
authorized, issued and outstanding capital stock of each Subsidiary of
the Company is set forth on Supplemental SCHEDULE 4.3.
(b) Except as set forth in Section 4.1 or as may be
disclosed in the Supplemental SCHEDULE , other than: (i) the shares
reserved for issuance under the Company's stock option plans; and (ii)
shares which may be granted pursuant to this Agreement and the Related
Agreements, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first
refusal), proxy or stockholder agreements, or arrangements or
agreements of any kind for the purchase or acquisition from the Company
of any of its securities. Except as disclosed in the Supplemental
Schedule, neither the offer, issuance or sale of any of the Notes or
the Warrants, or the issuance of any of Warrant Shares, nor the
consummation of any transaction contemplated hereby will result in a
change in the price or number of any securities of the Company
outstanding, under anti-dilution or other similar provisions contained
in or affecting any such securities.
(c) All issued and outstanding shares of the
Company's Common Stock: (i) have been duly authorized and validly
issued and are fully paid and non-assessable; and (ii) were issued in
compliance with all applicable state and federal laws concerning the
issuance of securities.
(d) The rights, preferences, privileges and
restrictions of the shares of the Common Stock are as stated in the
Company's Certificate of Incorporation (the "CHARTER"). The Warrant
Shares have been duly and validly reserved for issuance. When issued in
compliance with the provisions of this Agreement and the Company's
Charter, the Securities will be validly issued, fully paid and
non-assessable, and will be free of any liens or encumbrances;
provided, however, that the Securities may be subject to restrictions
on transfer under state and/or federal securities laws as set forth
herein or as otherwise required by such laws at the time a transfer is
proposed.
4.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate,
partnership or limited liability company, as the case may be, action on the part
of the Company and each of its Subsidiaries (including their respective officers
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and directors) necessary for the authorization of this Agreement and the Related
Agreements, the performance of all obligations of the Company and its
Subsidiaries hereunder and under the other Related Agreements at the Closing
and, the authorization, sale, issuance and delivery of the Notes and Warrants
has been taken or will be taken prior to the Closing. This Agreement and the
Related Agreements, when executed and delivered and to the extent it is a party
thereto, will be valid and binding obligations of the Company and each of its
Subsidiaries, enforceable against each such person or entity in accordance with
their terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; and
(b) general principles of equity that restrict the
availability of equitable or legal remedies.
The sale of the Notes are not and will not be subject to any preemptive rights
or rights of first refusal that have not been properly waived or complied with.
The issuance of the Warrants and the subsequent exercise of the Warrants for
Warrant Shares are not and will not be subject to any preemptive rights or
rights of first refusal that have not been properly waived or complied with.
4.5 LIABILITIES; SOLVENCY.
(a) Neither the Company nor any of its Subsidiaries
has any liabilities, except current liabilities incurred in the
ordinary course of business and liabilities disclosed in any of the
Company's filings under the Exchange Act made prior to the date of this
Agreement (collectively, the "EXCHANGE ACT FILINGS"), copies of which
are available to the Agent.
(b) Both before and after giving effect to (a) the
transactions contemplated hereby that are to be consummated on the
Closing Date, (b) the disbursement of the proceeds of, or the
assumption of the liability in respect of, the Notes pursuant to the
instructions or agreement of the Company and (c) the payment and
accrual of all transaction costs in connection with the foregoing, the
Company and except as may be set forth in the Supplemental Schedule
each Subsidiary of the Company, is and will be, Solvent. For purposes
of this Section 4.5(b), "Solvent" means, with respect to any Person (as
hereinafter defined) on a particular date, that on such date (a) the
fair value of the property of such Person is greater than the total
amount of liabilities, including contingent liabilities, of such
Person; (b) the present fair salable value of the assets of such Person
is not less than the amount that will be required to pay the probable
liability of such Person on its debts as they become absolute and
matured; (c) such Person does not intend to, and does not believe that
it will, incur debts or liabilities beyond such Person's ability to pay
as such debts and liabilities mature; and (d) such Person is not
engaged in a business or transaction, and is not about to engage in a
business or transaction, for which such Person's property would
constitute and unreasonably small capital. The amount of contingent
liabilities (such as litigation, guaranties and pension plan
liabilities) at any time shall be computed as the amount that, in light
of all the facts and circumstances existing at the time, represents the
amount that can reasonably be expected to become an actual or matured
liability.
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4.6 AGREEMENTS; ACTION. Except as set forth on the
Supplemental SCHEDULE or as disclosed in any Exchange Act Filings:
(a) there are no agreements, understandings,
instruments, contracts, proposed transactions, judgments, orders, writs
or decrees to which the Company or any of its Subsidiaries is a party
or by which it is bound which may involve: (i) obligations (contingent
or otherwise) of, or payments to, the Company or any of its
Subsidiaries in excess of $50,000 (other than obligations of, or
payments to, the Company or any of its Subsidiaries arising from
purchase or sale agreements entered into in the ordinary course of
business); or (ii) the transfer or license of any patent, copyright,
trade secret or other proprietary right to or from the Company or any
of its Subsidiaries (other than licenses arising from the purchase of
"off the shelf" or other standard products); or (iii) provisions
restricting the development, manufacture or distribution of the
Company's or any of its Subsidiaries products or services; or (iv)
indemnification by the Company or any of its Subsidiaries with respect
to infringements of proprietary rights.
(b) Since March 31, 2007 and except as may be set
forth in the Exchange Act Filings or the Supplemental Schedule (the
"BALANCE SHEET DATE"), neither the Company nor any of its Subsidiaries
has: (i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital
stock; (ii) incurred any indebtedness for money borrowed or any other
liabilities (other than ordinary course obligations) individually in
excess of $50,000 or, in the case of indebtedness and/or liabilities
individually less than $50,000, in excess of $100,000 in the aggregate;
(iii) made any loans or advances to any person or entity not in excess,
individually or in the aggregate, of $100,000, other than ordinary
course advances for travel expenses; or (iv) sold, exchanged or
otherwise disposed of any of its assets or rights, other than the sale
of its inventory in the ordinary course of business.
(c) For the purposes of subsections (a) and (b)
above, all indebtedness, liabilities, agreements, understandings,
instruments, contracts and proposed transactions involving the same
person or entity (including persons or entities the Company or any
Subsidiary of the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
(d) The Company maintains disclosure controls and
procedures ("DISCLOSURE Controls") designed to ensure that information
required to be disclosed by the Company in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized, and
reported, within the time periods specified in the rules and forms of
the SEC.
(e) The Company makes and keep books, records, and
accounts, that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the Company's assets. The Company
maintains internal control over financial reporting ("FINANCIAL
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REPORTING CONTROLS") designed by, or under the supervision of, the
Company's principal executive and principal financial officers, and
effected by the Company's board of directors, management, and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles ("GAAP"), including that:
(i) transactions are executed in accordance
with management's general or specific authorization;
(ii) unauthorized acquisition, use, or
disposition of the Company's assets that could have a material
effect on the financial statements are prevented or timely
detected;
(iii) transactions are recorded as necessary
to permit preparation of financial statements in accordance
with GAAP, and that the Company's receipts and expenditures
are being made only in accordance with authorizations of the
Company's management and board of directors;
(iv) transactions are recorded as necessary
to maintain accountability for assets; and
(v) the recorded accountability for assets
is compared with the existing assets at reasonable intervals,
and appropriate action is taken with respect to any
differences.
(f) There is no weakness in any of the Company's
Disclosure Controls or Financial Reporting Controls that is required to
be disclosed in any of the Exchange Act Filings, except as so
disclosed.
4.7 OBLIGATIONS TO RELATED PARTIES. Except as set forth on the
Supplemental Schedule, there are no obligations of the Company or any of its
Subsidiaries to officers, directors, stockholders or employees of the Company or
any of its Subsidiaries other than:
(a) for payment of salary for services rendered and
for bonus payments;
(b) reimbursement for reasonable expenses incurred on
behalf of the Company and its Subsidiaries;
(c) for other standard employee benefits made
generally available to all employees (including stock option agreements
outstanding under any stock option plan approved by the Board of
Directors of the Company and each Subsidiary of the Company, as
applicable); and
(d) obligations listed in the Company's and each of
its Subsidiary's financial statements or disclosed in any of the
Company's Exchange Act Filings.
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Except as described above or set forth on the Supplemental Schedule , none of
the officers, directors or, to the best of the Company's knowledge, key
employees or stockholders of the Company or any of its Subsidiaries or any
members of their immediate families, are indebted to the Company or any of its
Subsidiaries, individually or in the aggregate, in excess of $50,000 or have any
direct or indirect ownership interest in any firm or corporation with which the
Company or any of its Subsidiaries is affiliated or with which the Company or
any of its Subsidiaries has a business relationship, or any firm or corporation
which competes with the Company or any of its Subsidiaries, other than passive
investments in publicly traded companies (representing less than one percent
(1%) of such company) which may compete with the Company or any of its
Subsidiaries. Except as described above, no officer, director or stockholder of
the Company or any of its Subsidiaries, or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
the Company or any of its Subsidiaries and no agreements, understandings or
proposed transactions are contemplated between the Company or any of its
Subsidiaries and any such person. Except as set forth on the Supplemental
Schedule, neither the Company nor any of its Subsidiaries is a guarantor or
indemnitor of any indebtedness of any other person or entity.
4.8 CHANGES. Since the Balance Sheet Date, except as disclosed
in any Exchange Act Filing or in any Schedule to this Agreement or to any of the
Related Agreements, including the Supplemental Schedule, there has not been:
(a) any change in the business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects
of the Company or any of its Subsidiaries, which individually or in the
aggregate has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(b) any resignation or termination of any officer,
key employee or group of employees of the Company or any of its
Subsidiaries;
(c) any material change, except in the ordinary
course of business, in the contingent obligations of the Company or any
of its Subsidiaries by way of guaranty, endorsement, indemnity,
warranty or otherwise;
(d) any damage, destruction or loss, whether or not
covered by insurance, which has had, or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect;
(e) any waiver by the Company or any of its
Subsidiaries of a valuable right or of a material debt owed to it;
(f) any direct or indirect loans made by the Company
or any of its Subsidiaries to any stockholder, employee, officer or
director of the Company or any of its Subsidiaries, other than advances
made in the ordinary course of business;
(g) any material change in any compensation
arrangement or agreement with any employee, officer, director or
stockholder of the Company or any of its Subsidiaries;
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(h) any declaration or payment of any dividend or
other distribution of the assets of the Company or any of its
Subsidiaries;
(i) any labor organization activity related to the
Company or any of its Subsidiaries;
(j) any debt, obligation or liability incurred,
assumed or guaranteed by the Company or any of its Subsidiaries, except
those for immaterial amounts and for current liabilities incurred in
the ordinary course of business;
(k) any sale, assignment, transfer, abandonment or
other disposition of any patents, trademarks, copyrights, trade secrets
or other intangible assets owned by the Company or any of its
Subsidiaries;
(l) any change in any material agreement to which the
Company or any of its Subsidiaries is a party or by which either the
Company or any of its Subsidiaries is bound which either individually
or in the aggregate has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(m) any other event or condition of any character
that, either individually or in the aggregate, has had, or could
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect; or
(n) any arrangement or commitment by the Company or
any of its Subsidiaries to do any of the acts described in subsection
(a) through (m) above.
4.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. Except as set
forth on the Supplemental Schedule, the Company and each of its Subsidiaries has
good and marketable title to its properties and assets, and good title to its
leasehold interests, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge (each for the foregoing, a "LIEN") , other than the
following (each a "PERMITTED ENCUMBRANCE"):
(a) those in favor of the Agent, for the ratable
benefit of the Creditor Parties;
(b) those resulting from taxes which have not yet
become delinquent;
(c) minor Liens which do not materially detract from
the value of the property subject thereto or materially impair the
operations of the Company or any of its Subsidiaries, so long as in
each such case, such Liens have no effect on the Lien priority of the
Agent, for the ratable benefit of the Creditor Parties, in such
property; and
(d) those that have otherwise arisen in the ordinary
course of business, so long as they have no effect on the Lien priority
of the Purchaser therein.
9
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Supplemental Schedule, the
Company and its Subsidiaries are in compliance with all material terms of each
lease to which it is a party or is otherwise bound.
4.10 INTELLECTUAL PROPERTY.
(a) The Company and each of its Subsidiaries owns or
possesses sufficient legal rights to use all patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes necessary for
its business as now conducted and, to the Company's knowledge, as
presently proposed to be conducted (the "INTELLECTUAL PROPERTY"). There
are no settlements or consents, covenants not to xxx, non-assertion
assurances, or releases to which the Company or any of its Subsidiaries
is bound which adversely affects its rights to own or use any
Intellectual Property.
(b) To the Company's knowledge, the conduct of the
Company's and each of its Subsidiaries' business as now conducted, and
as presently proposed to be conducted, does not (and will not) result
in any infringement or other violation of the rights of others.
(c) THE SUPPLEMENTAL SCHEDULE sets forth a true and
complete list of (i) all registrations and applications for
Intellectual Property owned by the Company and each of its Subsidiaries
filed or issued by any Intellectual Property registry and (ii) all
Intellectual Property licenses which are either material to the
business of the Company or relate to any material portion of the
Company's or any of its Subsidiaries' inventory, including licenses for
standard software having a replacement value of more than $50,000. None
of such Intellectual Property licenses are reasonably likely to be
construed as an assignment of the licensed Intellectual Property to the
Company or any of its Subsidiaries.
(d) There are no claims pending or, to the best of
the Company's knowledge, threatened and neither the Company nor any of
its Subsidiaries has received any other communications, alleging that,
the Company or any of its Subsidiaries has infringed, diluted,
misappropriated, or otherwise violated any Intellectual Property of any
other person or entity, nor is the Company or any of its Subsidiaries
aware of any basis therefore.
(e) The Company is not aware of any infringement
diluted, misappropriated, or other violation of its Intellectual
Property by any other person or entity.
(f) Neither the Company nor any of its Subsidiaries
utilizes any inventions, trade secrets or other Intellectual Property
of any of its employees, officers, or contractors) except for
inventions, trade secrets or other Intellectual Property that is owned
by the Company or any Subsidiary as a matter of law or have been
rightfully assigned to the Company or any of its Subsidiaries.
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4.11 COMPLIANCE WITH OTHER INSTRUMENTS. Neither the Company
nor any of its Subsidiaries is in violation or default of (x) any term of its
Charter or Bylaws, or (y) any provision of any indebtedness, mortgage,
indenture, contract, agreement or instrument to which it is party or by which it
is bound or of any judgment, decree, order or writ, which violation or default,
in the case of this clause (y), has had, or could reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect. The
execution, delivery and performance of and compliance with this Agreement and
the Related Agreements to which it is a party, and the issuance and sale of the
Notes by the Company and the other Securities by the Company each pursuant
hereto and thereto, will not, with or without the passage of time or giving of
notice, result in any such material violation, or be in conflict with or
constitute a default under any such term or provision, or result in the creation
of any Lien upon any of the properties or assets of the Company or any of its
Subsidiaries or the suspension, revocation, impairment, forfeiture or
non-renewal of any permit, license, authorization or approval applicable to the
Company, its business or operations or any of its assets or properties.
4.12 LITIGATION. Except as set forth on the Supplemental
Schedule, there is no action, suit, proceeding or investigation pending or, to
the Company's knowledge, currently threatened against the Company or any of its
Subsidiaries that prevents the Company or any of its Subsidiaries from entering
into this Agreement or the other Related Agreements, or from consummating the
transactions contemplated hereby or thereby, or which has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect or any change in the current equity ownership of the
Company or any of its Subsidiaries, nor is the Company aware that there is any
basis to assert any of the foregoing. Neither the Company nor any of its
Subsidiaries is a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. Except as may be set forth in the Supplemental Schedule, there
is no action, suit, proceeding or investigation by the Company or any of its
Subsidiaries currently pending or which the Company or any of its Subsidiaries
intends to initiate.
4.13 TAX RETURNS AND PAYMENTS. Except as may be set forth in
the Supplemental Schedule, the Company and each of its Subsidiaries has timely
filed all tax returns (federal, state and local) required to be filed by it. All
taxes shown to be due and payable on such returns, any assessments imposed, and
all other taxes due and payable by the Company or any of its Subsidiaries on or
before the Closing, have been paid or will be paid prior to the time they become
delinquent. Except as set forth on the Supplemental Schedule, neither the
Company nor any of its Subsidiaries has been advised:
(a) that any of its returns, federal, state or other,
have been or are being audited as of the date hereof; or
(b) of any adjustment, deficiency, assessment or
court decision in respect of its federal, state or other taxes.
The Company has no knowledge of any liability for any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
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4.14 EMPLOYEES. Except as set forth on the Supplemental
Schedule, neither the Company nor any of its Subsidiaries has any collective
bargaining agreements with any of its employees. There is no labor union
organizing activity pending or, to the Company's knowledge, threatened with
respect to the Company or any of its Subsidiaries. Except as disclosed in the
Exchange Act Filings or on the Supplemental Schedule , neither the Company nor
any of its Subsidiaries is a party to or bound by any currently effective
employment contract, deferred compensation arrangement, bonus plan, incentive
plan, profit sharing plan, retirement agreement or other employee compensation
plan or agreement. To the Company's knowledge, no employee of the Company or any
of its Subsidiaries, nor any consultant with whom the Company or any of its
Subsidiaries has contracted, is in violation of any term of any employment
contract, proprietary information agreement or any other agreement relating to
the right of any such individual to be employed by, or to contract with, the
Company or any of its Subsidiaries because of the nature of the business to be
conducted by the Company or any of its Subsidiaries; and to the Company's
knowledge the continued employment by the Company and its Subsidiaries of their
present employees, and the performance of the Company's and its Subsidiaries'
contracts with its independent contractors, will not result in any such
violation. Neither the Company nor any of its Subsidiaries is aware that any of
its employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency that would interfere with
their duties to the Company or any of its Subsidiaries. Neither the Company nor
any of its Subsidiaries has received any notice alleging that any such violation
has occurred. Except for employees who have a current effective employment
agreement with the Company or any of its Subsidiaries, no employee of the
Company or any of its Subsidiaries has been granted the right to continued
employment by the Company or any of its Subsidiaries or to any material
compensation following termination of employment with the Company or any of its
Subsidiaries. Except as set forth on the Supplemental Schedule , the Company is
not aware that any officer, key employee or group of employees intends to
terminate his, her or their employment with the Company or any of its
Subsidiaries, nor does the Company or any of its Subsidiaries have a present
intention to terminate the employment of any officer, key employee or group of
employees.
4.15 REGISTRATION RIGHTS AND VOTING RIGHTS. Except as set
forth on the Supplemental Schedule and except as disclosed in Exchange Act
Filings, neither the Company nor any of its Subsidiaries is presently under any
obligation, and neither the Company nor any of its Subsidiaries has granted any
rights, to register any of the Company's or its Subsidiaries' presently
outstanding securities or any of its securities that may hereafter be issued.
Except as set forth on the Supplemental Schedule and except as disclosed in
Exchange Act Filings, to the Company's knowledge, no stockholder of the Company
or any of its Subsidiaries has entered into any agreement with respect to the
voting of equity securities of the Company or any of its Subsidiaries.
4.16 COMPLIANCE WITH LAWS; PERMITS. Except as set forth on the
Supplemental Schedule, neither the Company nor any of its Subsidiaries is in
violation of any provision of the Xxxxxxxx-Xxxxx Act of 2002 or any SEC related
regulation or rule or any rule of the Principal Market (as hereafter defined)
promulgated thereunder or any other applicable statute, rule, regulation, order
or restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
12
properties which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No governmental
orders, permissions, consents, approvals or authorizations are required to be
obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of this Agreement or any other
Related Agreement and the issuance of any of the Securities, except such as have
been duly and validly obtained or filed, or with respect to any filings that
must be made after the Closing, as will be filed in a timely manner. The Company
and its Subsidiaries has all material franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
4.17 ENVIRONMENTAL AND SAFETY LAWS. There are no pending
actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending, or to the knowledge of Company threatened against the Company
or any of its Subsidiaries under Environmental Law. The Company and its
Subsidiaries (i) are and have been in full compliance with Environmental Law and
have no knowledge or any material expenditure that will be required to maintain
such compliance in the future; (ii) have not received any notice or claim
alleging that they are not in full compliance with or otherwise have liability
under Environmental Law; and (iii) have not knowledge of any facts or
circumstances that could reasonably be expected to form the basis of any such
claim. No Hazardous Materials are present or are used or have been used, stored,
or released by the Company or its Subsidiaries, or to their knowledge by any
other Person, at any property currently or formerly owned, leased or operated by
the Company or its Subsidiaries or disposed of at any other location by the
Company or its Subsidiaries except (i) in compliance with Environmental Law; and
(2) in quantities and under circumstances that would not require investigation
or remediation by the Company or its Subsidiaries. The Company and its
Subsidiaries have not assumed by contract or by operation of law the liabilities
arising under Environmental Law of any other Person. The Company and its
Subsidiaries have provided to the Agent all material report, audits and
assessments in their possession or control regarding the environmental condition
of any property currently or formerly owned or operated by the Company or any
Subsidiary. "ENVIRONMENTAL LAW" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to pollution or the environment , preservation or
reclamation of natural resources, the management, generation, use, handling,
treatment, transportation, storage, disposal or release or threatened release of
or exposure to Hazardous Materials, or occupational health and safety.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or other
political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government. "HAZARDOUS MATERIALS" means materials,
wastes or pollutants listed or defined as "hazardous substances", "hazardous
wastes" ,"toxic substances" or by words of similar import or any other substance
or waste otherwise regulated by applicable Environmental Law, including nuclear
materials and radioactive substances or wastes, petroleum or petroleum
distillates, asbestos or asbestos containing materials, polychlorinated
biphenyls, radon gas, infectious or medical wastes, and toxic mold. "PERSON"
means any individual, sole proprietorship, partnership, limited liability
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal or
otherwise, including any instrumentality, division, agency, body or department
thereof), and shall include such Person's successors and assigns.
13
4.18 VALID OFFERING. Assuming the accuracy of the
representations and warranties of the Purchasers contained in this Agreement,
the offer, sale and issuance of the Securities will be exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws.
4.19 FULL DISCLOSURE. The Company and each of its Subsidiaries
has provided the Purchasers with its Exchange Act Reports which contain all
information requested by the Purchasers in connection with the Purchasers'
decision to purchase the Notes and Warrants, including all information the
Company and its Subsidiaries believe is reasonably necessary to make such
investment decision. Neither this Agreement, the Related Agreements, the
exhibits and schedules hereto and thereto nor any other document including,
without limitation, the responses contained in any questionnaire provided to the
Company by the Agent, delivered by the Company or any of its Subsidiaries to
Purchasers or their attorneys or agents in connection herewith or therewith or
with the transactions contemplated hereby or thereby as qualified by the
Exchange Act Filings and the Supplemental Schedule contain any untrue statement
of a material fact nor omit to state a material fact necessary in order to make
the statements contained herein or therein, in light of the circumstances in
which they are made, not misleading.
4.20 INSURANCE. The Company and each of its Subsidiaries has
general commercial, product liability, fire and casualty insurance policies with
coverages which the Company and each of its Subsidiaries believe are customary
for companies similarly situated to the Company and its Subsidiaries in the same
or similar business.
4.21 SEC REPORTS. Except as set forth on the Supplemental
Schedule , the Company has filed all proxy statements, reports and other
documents required to be filed by it under the Exchange Act. The Company has
made available to the Agent copies of: (i) its Annual Reports on Form 10-KSB for
its fiscal years ended March 31, 2007 ; and (ii) all Quarterly Reports on Form
10-QSBfiled to date (which Form 10-Qs not having been filed identified on the
Supplemental Schedule), and the Form 8-K filings which it has made during the
fiscal year April 1, 2006] to date (collectively, the "SEC REPORTS"). Except as
set forth on the Supplemental Schedule , each SEC Report was, at the time of its
filing, in substantial compliance with the requirements of its respective form
and none of the SEC Reports, nor the financial statements (and the notes
thereto) included in the SEC Reports, as of their respective filing dates,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
4.22 LISTING. Except as set forth on the Supplemental
Schedule, the Common Stock is listed or quoted, as applicable, on a Principal
Market (as hereafter defined) and satisfies and at all times hereafter will
satisfy, all requirements for the continuation of such listing or quotation, as
applicable. Except as set forth on the Supplemental Schedule, the Company has
not received any notice that its Common Stock will be delisted from, or no
14
longer quoted on, as applicable, the Principal Market or that its Common Stock
does not meet all requirements for such listing or quotation, as applicable. For
purposes hereof, the term "PRINCIPAL MARKET" means the NASD Over The Counter
Bulletin Board, NASDAQ Capital Market, NASDAQ National Markets System, American
Stock Exchange, New York Stock Exchange or Pink Sheets (whichever of the
foregoing is at the time the principal trading exchange or market for the Common
Stock).
4.23 NO INTEGRATED OFFERING. Neither the Company, nor any of
its Subsidiaries or affiliates, nor any person acting on its or their behalf,
has directly or indirectly made any offers or sales of any security or solicited
any offers to buy any security under circumstances that would cause the offering
of the Securities pursuant to this Agreement or any of the Related Agreements to
be integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Company or any of its affiliates or
Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
4.24 STOP TRANSFER. The Securities are restricted securities
as of the date of this Agreement. Neither the Company nor any of its
Subsidiaries will issue any stop transfer order or other order impeding the sale
and delivery of any of the Securities at such time as the Securities are
registered for public sale or an exemption from registration is available,
except as required by state and federal securities laws.
4.25 DILUTION. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon exercise of the Warrants is
binding upon the Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other shareholders of the
Company.
4.26 PATRIOT ACT. The Company certifies that, to the best of
Company's knowledge, neither the Company nor any of its Subsidiaries has been
designated, nor is or shall be owned or controlled, by a "suspected terrorist"
as defined in Executive Order 13224. The Company hereby acknowledges that each
of the Creditor Parties seeks to comply with all applicable laws concerning
money laundering and related activities. In furtherance of those efforts, the
Company hereby represents, warrants and covenants that: (i) none of the cash or
property that the Company or any of its Subsidiaries will pay or will contribute
to any Creditor Party has been or shall be derived from, or related to, any
activity that is deemed criminal under United States law; and (ii) no
contribution or payment by the Company or any of its Subsidiaries to any
Creditor Party, to the extent that they are within the Company's and/or its
Subsidiaries' control shall cause any Creditor Party to be in violation of the
United States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. The Company shall promptly
15
notify the Agent if any of these representations, warranties or covenants ceases
to be true and accurate regarding the Company or any of its Subsidiaries. The
Company shall provide any Creditor Party all additional information regarding
the Company or any of its Subsidiaries that such Creditor Party deems necessary
or convenient to ensure compliance with all applicable laws concerning money
laundering and similar activities. The Company understands and agrees that if at
any time it is discovered that any of the foregoing representations, warranties
or covenants are incorrect, or if otherwise required by applicable law or
regulation related to money laundering or similar activities, the Creditor
Parties may undertake appropriate actions to ensure compliance with applicable
law or regulation, including but not limited to segregation and/or redemption of
any Purchaser's investment in the Company. The Company further understands that
the Creditor Parties may release confidential information about the Company and
its Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if such Creditor Party, in its sole discretion, determines that it
is in the best interests of such Creditor Party in light of relevant rules and
regulations under the laws set forth in subsection (ii) above.
4.27 ERISA. Based upon the Employee Retirement Income Security
Act of 1974 ("ERISA"), and the regulations and published interpretations
thereunder to the Company's knowledge: (i) neither the Company nor any of its
Subsidiaries has engaged in any Prohibited Transactions (as defined in Section
406 of ERISA and Section 4975 of the Internal Revenue Code of 1986, as amended
(the "Code")); (ii) each of the Company and each of its Subsidiaries has met all
applicable minimum funding requirements under Section 302 of ERISA in respect of
its plans; (iii) neither the Company nor any of its Subsidiaries has any
knowledge of any event or occurrence which would cause the Pension Benefit
Guaranty Corporation to institute proceedings under Title IV of ERISA to
terminate any employee benefit plan(s); (iv) neither the Company nor any of its
Subsidiaries has any fiduciary responsibility for investments with respect to
any plan existing for the benefit of persons other than the Company's or such
Subsidiary's employees; and (v) neither the Company nor any of its Subsidiaries
has withdrawn, completely or partially, from any multi-employer pension plan so
as to incur liability under the Multiemployer Pension Plan Amendments Act of
1980.
5. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER. Each Purchaser
hereby represents and warrants, severally and not jointly, to the Company as
follows (such representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement):
5.1 NO SHORTING. Neither such Purchaser nor any of its
affiliates and investment partners has, nor will cause any person or entity, to
directly engage in "short sales" of the Common Stock as long as any Note shall
be outstanding.
5.2 REQUISITE POWER AND AUTHORITY. Such Purchaser has all
necessary power and authority under all applicable provisions of law to execute
and deliver this Agreement and the Related Agreements and to carry out their
provisions. All corporate action on such Purchaser's part required for the
lawful execution and delivery of this Agreement and the Related Agreements have
been or will be effectively taken prior to the Closing. Upon their execution and
delivery, this Agreement and the Related Agreements will be valid and binding
obligations of such Purchaser, enforceable in accordance with their terms,
except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; and
16
(b) as limited by general principles of equity that
restrict the availability of equitable and legal remedies.
5.3 INVESTMENT REPRESENTATIONS. Such Purchaser understands
that the Securities are being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon such Purchaser's
representations contained in this Agreement, including, without limitation, that
such Purchaser is an "accredited investor" within the meaning of Regulation D
under the Securities Act. Such Purchaser confirms that it has received or has
had full access to all the information it considers necessary or appropriate to
make an informed investment decision with respect to the applicable Note and
Warrant to be purchased by it under this Agreement and the Warrant Shares
acquired by it upon the exercise of such Warrant, respectively. Such Purchaser
further confirms that it has had an opportunity to ask questions and receive
answers from the Company regarding the Company's and its Subsidiaries' business,
management and financial affairs and the terms and conditions of the Offering,
the Notes, the Warrants and the Securities and to obtain additional information
(to the extent the Company possessed such information or could acquire it
without unreasonable effort or expense) necessary to verify any information
furnished to such Purchaser or to which such Purchaser had access.
5.4 THE PURCHASER BEARS ECONOMIC RISK. Such Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests. Such Purchaser must bear the
economic risk of this investment until the Securities are sold pursuant to: (i)
an effective registration statement under the Securities Act; or (ii) an
exemption from registration is available with respect to such sale.
5.5 ACQUISITION FOR OWN ACCOUNT. Such Purchaser is acquiring
the applicable Note and Warrant and the Warrant Shares for such Purchaser's own
account for investment only, and not as a nominee or agent and not with a view
towards or for resale in connection with their distribution.
5.6 THE PURCHASER CAN PROTECT ITS INTEREST. Such Purchaser
represents that by reason of its, or of its management's, business and financial
experience, such Purchaser has the capacity to evaluate the merits and risks of
its investment in the applicable Note, the Warrant and the Securities and to
protect its own interests in connection with the transactions contemplated in
this Agreement and the Related Agreements. Further, such Purchaser is aware of
no publication of any advertisement in connection with the transactions
contemplated in the Agreement or the Related Agreements.
5.7 ACCREDITED INVESTOR. Such Purchaser represents that it is
an accredited investor within the meaning of Regulation D under the Securities
Act.
5.8 LEGENDS.
(a) The applicable Note shall bear substantially the
following legend:
17
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR (B) AN EXEMPTION FROM SUCH REGISTRATION."
(b) The applicable Warrant Shares, if not issued by
DWAC system (as hereinafter defined), shall bear a legend which shall
be in substantially the following form until such shares are covered by
an effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
SECURITIES ACT AND APPLICABLE STATE LAWS OR (B) AN EXEMPTION
FROM SUCH REGISTRATION."
(c) The applicable Warrant shall bear substantially the
following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF
COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR (B) AN EXEMPTION FROM SUCH REGISTRATION."
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with each
Creditor Party as follows:
6.1 STOP-ORDERS. The Company will, by written notice, advise
the Agent, promptly after it receives notice of issuance by the SEC, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
18
6.2 LISTING. The Company will maintain the listing or
quotation, as applicable, of its Common Stock on the Principal Market, and will
comply in all material respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers ("NASD") and such exchanges, as applicable.
6.3 MARKET REGULATIONS. The Company shall notify the SEC, NASD
and applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the applicable Securities to
each Purchaser and promptly provide copies thereof to such Purchaser.
6.4 REPORTING REQUIREMENTS. The Company will deliver, or cause
to be delivered, to the Agent each of the following, which shall be in form and
detail acceptable to the Agent:
(a) As soon as available, and in any event within
ninety (90) days after the end of each fiscal year of the Company, the
Company's and each of its Subsidiaries' audited financial statements
with a report of independent certified public accountants of recognized
standing selected by the Company and acceptable to the Agent (the
"ACCOUNTANTS"), which annual financial statements shall be without
qualification and shall include the Company's and each of its
Subsidiaries' balance sheet as at the end of such fiscal year and the
related statements of the Company's and each of its Subsidiaries'
income, retained earnings and cash flows for the fiscal year then
ended, prepared on a consolidating and consolidated basis to include
the Company, each Subsidiary of the Company and each of their
respective affiliates, all in reasonable detail and prepared in
accordance with GAAP, together with (i) if and when available, copies
of any management letters prepared by the Accountants; and (ii) a
certificate of the Company's President, Chief Executive Officer or
Chief Financial Officer stating that such financial statements have
been prepared in accordance with GAAP and whether or not such officer
has knowledge of the occurrence of any Event of Default (as defined in
each Note) and, if so, stating in reasonable detail the facts with
respect thereto;
(b) As soon as available and in any event within
forty five (45) days after the end of each fiscal quarter of the
Company, an unaudited/internal balance sheet and statements of income,
retained earnings and cash flows of the Company and each of its
Subsidiaries as at the end of and for such quarter and for the year to
date period then ended, prepared on a consolidating and consolidated
basis to include all the Company, each Subsidiary of the Company and
each of their respective affiliates, in reasonable detail and stating
in comparative form the figures for the corresponding date and periods
in the previous year, all prepared in accordance with GAAP, subject to
year-end adjustments and accompanied by a certificate of the Company's
President, Chief Executive Officer or Chief Financial Officer, stating
(i) that such financial statements have been prepared in accordance
with GAAP, subject to year-end audit adjustments, and (ii) whether or
not such officer has knowledge of the occurrence of any Event of
Default (as defined in each Note) not theretofore reported and remedied
and, if so, stating in reasonable detail the facts with respect
thereto;
19
(c) As soon as available and in any event within
fifteen (15) days after the end of each calendar month, an
unaudited/internal balance sheet and statements of income, retained
earnings and cash flows of the Company and its Subsidiaries as at the
end of and for such month and for the year to date period then ended,
prepared on a consolidating and consolidated basis to include the
Company, each Subsidiary of the Company and each of their respective
affiliates, in reasonable detail and stating in comparative form the
figures for the corresponding date and periods in the previous year,
all prepared in accordance with GAAP, subject to year-end adjustments
and accompanied by a certificate of the Company's President, Chief
Executive Officer or Chief Financial Officer, stating (i) that such
financial statements have been prepared in accordance with GAAP,
subject to year-end audit adjustments, and (ii) whether or not such
officer has knowledge of the occurrence of any Event of Default (as
defined in each Note) not theretofore reported and remedied and, if so,
stating in reasonable detail the facts with respect thereto;
(d) The Company shall timely file with the SEC all
reports required to be filed pursuant to the Exchange Act and refrain
from terminating its status as an issuer required by the Exchange Act
to file reports thereunder even if the Exchange Act or the rules or
regulations thereunder would permit such termination. Promptly after
(i) the filing thereof, copies of the Company's most recent
registration statements and annual, quarterly, monthly or other regular
reports which the Company files with the SEC, and (ii) the issuance
thereof, copies of such financial statements, reports and proxy
statements as the Company shall send to its stockholders;
(e) Together with each delivery of any financial
statement pursuant to Section 6.4(a), 6.4(b) or 6.4(c), a Compliance
Certificate, substantially in the form of EXHIBIT E hereto, duly
executed by the President, Chief Executive Officer or Chief Financial
Officer of the Company that, among other things, (i) states that such
financial statements have been prepared in accordance with GAAP,
subject to year-end audit adjustments, and (ii) states that no Event of
Default (as defined in each Note) is continuing as of the date of
delivery of such Compliance Certificate or, if an Event of Default is
continuing, states the nature thereof and the action that the Company
proposes to take with respect thereto; and
(f) The Company shall deliver, or cause the
applicable Subsidiary of the Company to deliver, such other information
as any Creditor Party shall reasonably request.
6.5 USE OF FUNDS. The Company shall use the proceeds of the
sale of the Notes and the Warrants for general working capital purposes only.
6.6 ACCESS TO FACILITIES. The Company and each of its
Subsidiaries will permit any representatives designated by the Agent (or any
successor of the Agent), upon reasonable notice and during normal business
hours, at such person's expense and accompanied by a representative of the
Company or any Subsidiary (provided that no such prior notice shall be required
to be given and no such representative of the Company or any Subsidiary shall be
required to accompany the Agent in the event the Agent believes such access is
necessary to preserve or protect the Collateral (as defined in the Master
Security Agreement) or following the occurrence and during the continuance of an
Event of Default (as defined in each Note)), to:
20
(a) visit and inspect any of the properties of the
Company or any of its Subsidiaries;
(b) examine the corporate and financial records of
the Company or any of its Subsidiaries (unless such examination is not
permitted by federal, state or local law or by contract) and make
copies thereof or extracts therefrom; and
(c) discuss the affairs, finances and accounts of the
Company or any of its Subsidiaries with the directors, officers and
independent accountants of the Company or any of its Subsidiaries.
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to any Creditor Party unless
such Creditor Party signs a confidentiality agreement and otherwise complies
with Regulation FD, under the federal securities laws.
6.7 TAXES.
(a) The Company and each of its Subsidiaries will
promptly pay and discharge, or cause to be paid and discharged, when
due and payable, all taxes, assessments and governmental charges or
levies imposed upon the income, profits, property or business of the
Company and its Subsidiaries; provided, however, that any such tax,
assessment, charge or levy need not be paid currently if (i) the
validity thereof shall currently and diligently be contested in good
faith by appropriate proceedings, (ii) such tax, assessment, charge or
levy shall have no effect on the lien priority of the Agent in any
property of the Company or any of its Subsidiaries and (iii) if the
Company and/or such Subsidiary shall have set aside on its books
adequate reserves with respect thereto in accordance with GAAP; and
provided, further, that the Company and its Subsidiaries will pay all
such taxes, assessments, charges or levies forthwith upon the
commencement of proceedings to foreclose any lien which may have
attached as security therefor.
(b) All payments made by the Company under this
Agreement or any Note shall be made free and clear of, and without
deduction or withholding for or on account of, any present or future
Taxes (as defined below) now or hereafter imposed, levied, collected,
withheld or assessed by any Governmental Authority, other than Excluded
Taxes (as defined below). If any Non-Excluded Taxes (as defined below)
or Other Taxes (as defined below) are required to be withheld from any
amounts payable to any Creditor Party under this Agreement or any Note,
the amounts so payable to such Creditor Party shall be increased to the
extent necessary to yield to such Creditor Party (after payment of all
Non-Excluded Taxes and Other Taxes, including those imposed on payments
made pursuant to this paragraph (b) of this Section 6.7 or any such
other amounts payable in this Agreement or any Note at the rates or in
the amounts specified herein or therein), an amount equal to the sum it
would have received had no such withholding or deductions been made
21
provided, however, that no Company shall be required to increase any
such amounts payable to any Creditor Party with respect to any
Non-Excluded Taxes that are directly attributable to such Creditor
Party's failure to comply with the requirements of paragraph (e) of
this Section 6.7.
(c) In addition, the Company shall pay any Other
Taxes to the relevant Governmental Authority in accordance with
applicable law.
(d) Whenever any Non-Excluded Taxes or Other Taxes
are payable by the Company, as promptly as possible thereafter the
Company shall send to the Agent for its own account or for the account
of the relevant Lender, as the case may be, a certified copy of an
original official receipt received by the Company showing payment
thereof (or such other evidence reasonably satisfactory to the Agent).
If the Company fails to pay any Non-Excluded Taxes or Other Taxes when
due to the appropriate taxing authority or fails to remit to the Agent
the required receipts or other required documentary evidence, the
Company shall indemnify the Creditor Parties for any incremental taxes,
interest or penalties that may become payable by any Creditor Party as
a result of any such failure.
(e) Each Purchaser (or its assignee) that is not a
"United States Person" as defined in Section 7701(a)(30) of the Code (a
"NON-U.S. PURCHASER") shall deliver to the Company and the Agent two
completed originals of an appropriate U.S. Internal Revenue Service
Form W-8, as applicable, or any subsequent versions thereof or
successors thereto, properly completed and duly executed by such
Non-U.S. Purchaser. Such forms shall be delivered by each Non-U.S.
Purchaser on or before the date it becomes a party to this Agreement.
In addition, each Non-U.S. Purchaser shall deliver such forms promptly
upon the obsolescence or invalidity of any form previously delivered by
such Non-U.S. Purchaser. Each Non-U.S. Purchaser shall promptly notify
the Company at any time it determines that it is no longer in a
position to provide any previously delivered certificate to the Company
(or any other form of certification adopted by the U.S. taxing
authorities for such purpose). Notwithstanding any other provision of
this paragraph (e), a Non-U.S. Purchaser shall not be required to
deliver any form pursuant to this paragraph that such Non-U.S.
Purchaser is not legally able to deliver.
(f) The agreements in the preceding paragraphs (b),
(c), (d), (e) and this paragraph (f) shall survive the termination of
this Agreement and the payment of the Notes and all other amounts
payable hereunder or thereunder or under any other Related Agreement.
As used in this Section 6.7, the following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):
"EXCLUDED TAXES" means, with respect to any Creditor Party, taxes
imposed on or measured by its overall net income and franchise taxes imposed on
it in lieu of net income taxes, by the jurisdiction (or any political
subdivision thereof) under the laws of which such Creditor Party is incorporated
or organized or by the jurisdiction (or any political subdivision thereof) in
which the principal place of management or applicable lending office of such
Creditor Party is located.
22
"NON-EXCLUDED TAXES" means all Taxes other than (i) Excluded Taxes and
(ii) Other Taxes.
"OTHER TAXES" means any and all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement or any other Related Agreement.
"TAXES" means any and all present or future taxes, duties, levies,
imposts, deductions, assessments, fees, withholdings or similar charges, and all
liabilities with respect thereto.
6.8 INSURANCE. (i) The Company shall bear the full risk of
loss from any loss of any nature whatsoever with respect to the Collateral (as
defined in each of the Master Security Agreement, the Stock Pledge Agreement and
each other security agreement entered into by the Company and/or any of its
Subsidiaries for the benefit of the Creditor Parties) and the Company and each
of its Subsidiaries will, jointly and severally, bear the full risk of loss from
any loss of any nature whatsoever with respect to the assets pledged to the
Agent, for the ratable benefit of the Creditor Parties, as security for the
Obligations (as defined in the Master Security Agreement). Furthermore, the
Company will insure or cause the Collateral to be insured in the Agent's name as
an additional insured and lender loss payee, with an appropriate loss payable
endorsement in form and substance satisfactory to the Agent, against loss or
damage by fire, flood, sprinkler leakage, theft, burglary, pilferage, loss in
transit and other risks customarily insured against by companies in similar
business similarly situated as the Company and its Subsidiaries including but
not limited to workers compensation, public and product liability and business
interruption, and such other hazards as the Agent shall specify in amounts and
under insurance policies and bonds by insurers acceptable to the Agent and all
premiums thereon shall be paid by the Company and the policies delivered to the
Agent. If the Company or any of its Subsidiaries fails to obtain the insurance
and in such amounts of coverage as otherwise required pursuant to this Section
6.8, the Agent may procure such insurance and the cost thereof shall be promptly
reimbursed by the Company and shall constitute Obligations.
(ii) The Company's insurance coverage shall
not be impaired or invalidated by any act or neglect of the
Company or any of its Subsidiaries and the insurer will
provide the Agent with no less than thirty (30) days notice
prior of cancellation;
(iii) The Agent, in connection with its
status as a lender loss payee, will be assigned at all times
to a first lien position until such time as all the
Obligations have been indefeasibly satisfied in full.
6.9 INTELLECTUAL PROPERTY.
(a) The Company and each of its Subsidiaries shall
maintain in full force and effect its existence, rights and franchises
and all licenses and other rights to own or use Intellectual Property
including registrations and applications therefore, that are necessary
23
to the conduct of its business, as now conducted or as presently
proposed to be conducted, and shall not do any act or omit to do any
act whereby any of such Intellectual Property may lapse, or become
abandoned, dedicated to the public, or unenforceable, or the Lien
therein in favor of the Agent, for the ratable benefit of the Creditor
Parties, would be adversely affected,
(b) The Company shall report to the Agent (i) the
filing by the Company or any of its Subsidiaries of any application to
register a Copyright no later than ten (10) days after such filing
occurs (ii) the filing of any application to register any other
Intellectual Property with any other Intellectual Property registry,
and the issuance thereof, no later than thirty (30) days after such
filing or issuance occurs and, in each case, shall, simultaneously with
such report, deliver to the Agent fully-executed documents required to
acknowledge, confirm, register, record or perfect the Lien in such
Intellectual Property. In addition, the Company and its Subsidiaries
hereby authorize the Agent to modify this Agreement by amending the
Supplemental Schedule to include any registrations or applications for
Intellectual Property inadvertently omitted from such Schedule or
filed, registered, acquired by the Company or any of its Subsidiaries
after the date hereof and agree to cooperate with the Agent in
effecting any such amendment to include any new item of Intellectual
Property included in the Collateral.
(c) The Company shall, and shall cause each of its
Subsidiaries to, promptly upon the reasonable request of the Agent,
execute and deliver to the Agent any document or instrument required to
acknowledge, confirm, register, record, or perfect the Lien of the
Agent in any part of the Intellectual Property owned by the Company and
its Subsidiaries.
(d) The Company shall, and shall cause of each of its
Subsidiaries to, not sell, assign, transfer, license, grant any option,
or create or suffer to exist any Lien upon or with respect to
Intellectual Property, except for the Permitted Encumbrances.
6.10 PROPERTIES. The Company and each of its Subsidiaries will
keep its properties in good repair, working order and condition, reasonable wear
and tear excepted, and from time to time make all needful and proper repairs,
renewals, replacements, additions and improvements thereto; and each of the
Company and each of its Subsidiaries will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
6.11 CONFIDENTIALITY. The Company will not, and will not
permit any of its Subsidiaries to, disclose, and will not include in any public
announcement, the name of any Creditor Party, unless expressly agreed to by such
Creditor Party or unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
Notwithstanding the foregoing, (i) the Company may disclose any Creditor Party's
identity and the terms of this Agreement and the Related Agreements to its
current and prospective debt and equity financing sources, and (ii) the Company
(and each employee, representative, or other agent of the Company) may disclose
to any and all Persons, without limitation of any kind, the tax treatment and
any facts that may be relevant to the tax structure of the transactions
contemplated by this Agreement and the Related Agreements and the agreements
referred to therein; provided, however, that the Company (and no employee,
representative or other agent of the Company) disclose pursuant to this clause
(ii) any other information that is not relevant to understanding the tax
24
treatment or tax structure of such transactions (including the identity of any
party or any information that could lead another to determine the identity of
any party); and, provided, further, that the Company will not, and will not
permit any of its Subsidiaries to, disclose any information to the extent that
such disclosure could reasonably be expected to result in a violation of any
U.S. federal or state securities law or similar law of another jurisdiction.
Each Creditor Party shall be permitted to discuss, distribute or otherwise
transfer any non-public information of the Company and its Subsidiaries in such
Creditor Party's possession now or in the future to potential or actual (i)
direct or indirect investors in such Creditor Party and (ii) third party
assignees or transferees of all or a portion of the obligations of the Company
and/or any of its Subsidiaries hereunder and under the Related Agreements.
6.12 REQUIRED APPROVALS. (I) The Company, without the prior
written consent of the Agent, shall not, and shall not permit any of its
Subsidiaries to:
(a) (i) directly or indirectly declare or pay any
dividends, other than dividends paid to the Company or any of its
wholly-owned Subsidiaries or dividends otherwise permitted to be paid,
if any, on the Company's Series A Preferred Stock, , (ii) issue any
preferred stock that is mandatorily redeemable prior to the one year
anniversary of the Maturity Date (as defined in each Note) or (iii)
redeem any of its preferred stock or other equity interests;
(b) liquidate, dissolve or effect a material
reorganization (it being understood that in no event shall the Company
or any of its Subsidiaries dissolve, liquidate or merge with any other
person or entity (unless, in the case of such a merger, the Company or,
in the case of merger not involving the Company, such Subsidiary, as
applicable, is the surviving entity);
(c) become subject to (including, without limitation,
by way of amendment to or modification of) any agreement or instrument
which by its terms would (under any circumstances) restrict the
Company's or any of its Subsidiaries, right to perform the provisions
of this Agreement, any Related Agreement or any of the agreements
contemplated hereby or thereby;
(d) materially alter or change the scope of the
business of the Company and its Subsidiaries taken as a whole; or
(e) (i) create, incur, assume or suffer to exist any
indebtedness (exclusive of trade debt and debt incurred to finance the
purchase of equipment (not in excess of five percent (5%) of the fair
market value of the Company's and its Subsidiaries' assets)) whether
secured or unsecured other than (x) the Company's obligations owed to
each Purchaser, (y) indebtedness set forth on the Supplemental Schedule
25
AND attached hereto and made a part hereof and any refinancings or
replacements thereof on terms no less favorable to the Purchasers than
the indebtedness being refinanced or replaced, and (z) any indebtedness
incurred in connection with the purchase of assets (other than
equipment) in the ordinary course of business, or any refinancings or
replacements thereof on terms no less favorable to the Purchasers than
the indebtedness being refinanced or replaced, so long as any lien
relating thereto shall only encumber the fixed assets so purchased and
no other assets of the Company or any of its Subsidiaries; (ii) cancel
any indebtedness owing to it in excess of $50,000 in the aggregate
during any twelve (12) month period; (iii) assume, guarantee, endorse
or otherwise become directly or contingently liable in connection with
any obligations of any other person or entity, except the endorsement
of negotiable instruments by the Company or any Subsidiary thereof for
deposit or collection or similar transactions in the ordinary course of
business or guarantees of indebtedness otherwise permitted to be
outstanding pursuant to this clause (e); (iv) make any payment or
distribution in respect of any subordinated indebtedness of the Company
or its Subsidiaries in violation of any subordination or other
agreement made in favor of any Creditor Party; and (v) make any
optional payment or prepayment on or redemption (including, without
limitation, by making payments to a sinking fund or analogous fund) or
repurchase of any indebtedness for borrowed money other than
indebtedness pursuant to this Agreement; and
(II) The Company, without the prior written consent of the Agent, shall
not, and shall not permit any of its Subsidiaries to, create or acquire any
Subsidiary after the date hereof unless (i) such Subsidiary is a wholly-owned
Subsidiary of the Company and (ii) such Subsidiary becomes a party to (A) the
Master Security Agreement, the Stock Pledge Agreement and the Intellectual
Property Security Agreement (either by executing a counterpart thereof or an
assumption or joinder agreement in respect thereof); (B) a Subsidiary Guaranty
in favor of the Purchasers in form and substance satisfactory to the Agent and
(c) to the extent required by the Agent, satisfies each condition of this
Agreement and the Related Agreements as if such Subsidiary were a Subsidiary on
the Closing Date.
6.13 REISSUANCE OF SECURITIES. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.8 above at such time as:
(a) the holder thereof is permitted to dispose of
such Securities pursuant to Rule 144(k) under the Securities Act; or
(b) upon resale subject to an effective registration
statement after such Securities are registered under the Securities
Act.
The Company agrees to cooperate with the Purchasers in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the applicable Purchasers and broker,
if any.
6.14 OPINION. Within thirty (30) days of the Closing Date, the
Company will deliver to the Creditor Parties substantially in the form of
EXHIBIT C hereto an opinion acceptable to the Agent from the Company's external
legal counsel. The Company will provide, at the Company's expense, such other
legal opinions in the future as are deemed reasonably necessary by the Agent
(and acceptable to the Agent) in connection with the conversion of any Note and
exercise of the any Warrant.
26
6.15 MARGIN STOCK. The Company will not permit any of the
proceeds of the Notes or the Warrants to be used directly or indirectly to
"purchase" or "carry" "margin stock" or to repay indebtedness incurred to
"purchase" or "carry" "margin stock" within the respective meanings of each of
the quoted terms under Regulation U of the Board of Governors of the Federal
Reserve System as now and from time to time hereafter in effect.
6.16 FIRPTA. Neither the Company, nor any of its Subsidiaries,
is a "United States real property holding corporation" as such term is defined
in Section 897(c)(2) of the Code and Treasury Regulation Section 1.897-2
promulgated thereunder and neither the Company nor any of its Subsidiaries shall
at any time take any action or otherwise acquire any interest in any asset or
property to the extent the effect of which shall cause the Company and/or such
Subsidiary, as the case may be, to be a "United States real property holding
corporation" as such term is defined in Section 897(c)(2) of the Code and
Treasury Regulation Section 1.897-2 promulgated thereunder.
6.17 FINANCING RIGHT OF FIRST REFUSAL.
(a) The Company hereby grants to the Purchasers a
right of first refusal to provide any Additional Financing (as defined
below) to be issued by the Company and/or any of its Subsidiaries,
subject to the following terms and conditions. From and after the date
hereof, prior to the incurrence of any additional indebtedness and/or
the sale or issuance of any equity interests of the Company or any of
its Subsidiaries (an "ADDITIONAL FINANCING"), the Company and/or any
Subsidiary of the Company, as the case may be, shall notify the Agent
of its intention to enter into such Additional Financing. In connection
therewith, the Company and/or the applicable Subsidiary thereof shall
submit a term sheet (a "PROPOSED TERM SHEET") to the Agent setting
forth the terms, conditions and pricing of any such Additional
Financing (such financing to be negotiated on "arm's length" terms and
the terms thereof to be negotiated in good faith) proposed to be
entered into by the Company and/or such Subsidiary. The Agent shall
have the right, but not the obligation, to deliver its own proposed
term sheet (the "PURCHASER TERM SHEET") setting forth the terms and
conditions upon which the Purchasers would be willing to provide such
Additional Financing to the Company and/or such Subsidiary. The
Purchaser Term Sheet shall contain terms no less favorable to the
Company and/or such Subsidiary than those outlined in Proposed Term
Sheet. The Agent shall deliver such Purchaser Term Sheet within ten
(10) business days of receipt of each such Proposed Term Sheet. If the
provisions of the Purchaser Term Sheet are at least as favorable to the
Company and/or such Subsidiary, as the case may be, as the provisions
of the Proposed Term Sheet, the Company and/or such Subsidiary shall
enter into and consummate the Additional Financing transaction outlined
in the Purchaser Term Sheet.
27
(b) The Company will not, and will not permit its
Subsidiaries to, agree, directly or indirectly, to any restriction with
any person or entity which limits the ability of the Purchasers to
consummate an Additional Financing with the Company or any of its
Subsidiaries.
6.18 AUTHORIZATION AND RESERVATION OF SHARES. The Company
shall at all times have authorized and reserved a sufficient number of shares of
Common Stock to provide for the conversion of the Notes and exercise of the
Warrants.
7. COVENANTS OF THE PURCHASERS. Each Purchaser covenants and agrees
with the Company as follows:
7.1 CONFIDENTIALITY. No Purchaser will disclose, nor will it
include in any public announcement, the name of the Company, unless expressly
agreed to by the Company or unless and until such disclosure is required by law
or applicable regulation, and then only to the extent of such requirement. The
Supplemental Schedule may include confidential information of the Company and
Purchasers shall keep all such information confidential and not disclose any
such information, unless compelled by applicable law or regulation, without the
prior written consent of the Company or until such time as the Company publicly
discloses such information.
7.2 NON-PUBLIC INFORMATION. No Purchaser will effect any sales
in the shares of the Common Stock while in possession of material, non-public
information regarding the Company if such sales would violate applicable
securities law.
7.3 LIMITATION ON ACQUISITION OF COMMON STOCK OF THE COMPANY.
Notwithstanding anything to the contrary contained in this Agreement, any
Related Agreement or any document, instrument or agreement entered into in
connection with any other transactions entered into by a Purchaser and the
Company (and/or Subsidiaries or Affiliates of the Company), such Purchaser
(and/or Subsidiaries or Affiliates of such Purchaser) shall not acquire stock in
the Company (including, without limitation, pursuant to a contract to purchase,
by exercising an option or warrant, by converting any other security or
instrument, by acquiring or exercising any other right to acquire, shares of
stock or other security convertible into shares of stock in the Company, or
otherwise, and such contracts, options, warrants, conversion or other rights
shall not be enforceable or exercisable) to the extent such stock acquisition
would cause any interest (including any original issue discount) payable by the
Company to a Non-U.S. Purchaser not to qualify as "portfolio interest" within
the meaning of Section 871(h)(2) or Section 881(c)(2) of the Code, by reason of
Section 871(h)(3) or Section 881(c)(3)(B) of the Code, as applicable, taking
into account the constructive ownership rules under Section 871(h)(3)(C) of the
Code (the "STOCK ACQUISITION LIMITATION"). The Stock Acquisition Limitation
shall automatically become null and void with respect to a Purchaser, without
any notice to the Company, on and after the first date upon which such Purchaser
and each of its Affiliates which qualify as a Non-U.S. Purchaser no longer owns
any indebtedness (including, without limitation, principal, interest, fees and
charges) of the Company.
8. COVENANTS OF THE COMPANY AND THE PURCHASERS REGARDING
INDEMNIFICATION.
8.1 COMPANY INDEMNIFICATION. The Company agrees to indemnify,
hold harmless, reimburse and defend each Creditor Party, each of such Creditor
Party's officers, directors, agents, affiliates, control persons, and principal
28
shareholders, against all claims, costs, expenses, liabilities, obligations,
losses or damages (including reasonable legal fees) of any nature, incurred by
or imposed upon such Creditor Party which result, arise out of or are based
upon: (i) any misrepresentation by the Company or any of its Subsidiaries or
breach of any warranty by the Company or any of its Subsidiaries in this
Agreement, any other Related Agreement or in any exhibits or schedules attached
hereto or thereto; or (ii) any breach or default in performance by Company or
any of its Subsidiaries of any covenant or undertaking to be performed by
Company or any of its Subsidiaries hereunder, under any other Related Agreement
or any other agreement entered into by the Company and/or any of its
Subsidiaries and such Creditor Party relating hereto or thereto.
8.2 PURCHASER INDEMNIFICATION. Each Purchaser Party agrees to
indemnify, hold harmless, reimburse and defend the Company and each of the
Company's officers, directors, agents, affiliates, control persons and principal
shareholders, at all times against any claims, costs, expenses, liabilities,
obligations, losses or damages (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company which result, arise out of or are based
upon: (i) any misrepresentation by such Purchaser or breach of any warranty by
such Purchaser in this Agreement or in any exhibits or schedules attached hereto
or any Related Agreement; or (ii) any breach or default in performance by such
Purchaser of any covenant or undertaking to be performed by such Purchaser
hereunder, or any other agreement entered into by the Company and such Purchaser
relating hereto.
9. OFFERING RESTRICTIONS.
9.1 OFFERING RESTRICTIONS. Except as previously disclosed in
the SEC Reports or in the Exchange Act Filings, or stock or stock options
granted to employees or directors of the Company (these exceptions hereinafter
referred to as the "EXCEPTED ISSUANCES"), neither the Company nor any of its
Subsidiaries will, prior to the full repayment of the Notes (together with all
accrued and unpaid interest and fees related thereto), (x) enter into any equity
line of credit agreement or similar agreement or (y) issue, or enter into any
agreement to issue, any securities with a variable/floating conversion and/or
pricing feature which are or could be (by conversion or registration)
free-trading securities (i.e. common stock subject to a registration statement).
10. MISCELLANEOUS.
10.1 GOVERNING LAW, JURISDICTION AND WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT AND THE OTHER RELATED AGREEMENTS
SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS.
(b) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE
STATE AND/OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF
NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN THE COMPANY, ON THE ONE HAND, AND ANY
29
CREDITOR PARTY, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY
OF THE RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR ANY OF THE OTHER RELATED AGREEMENTS; PROVIDED, THAT
EACH CREDITOR PARTY AND THE COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM
THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE
COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT,
NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE ANY
CREDITOR PARTY FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY
OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE
COLLATERAL (AS DEFINED IN THE MASTER SECURITY AGREEMENT) OR ANY OTHER
SECURITY FOR THE OBLIGATIONS (AS DEFINED IN THE MASTER SECURITY
AGREEMENT), OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
ANY CREDITOR PARTY. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND THE COMPANY HEREBY WAIVES ANY OBJECTION THAT IT MAY
HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM
NON CONVENIENS. THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT
AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS
MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE COMPANY AT
THE ADDRESS SET FORTH IN SECTION 11.9 AND THAT SERVICE SO MADE SHALL BE
DEEMED COMPLETED UPON THE EARLIER OF THE COMPANY'S ACTUAL RECEIPT
THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
(c) THE PARTIES DESIRE THAT THEIR DISPUTES BE
RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM
AND/OR OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY
JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN ANY CREDITOR
PARTY AND/OR THE COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION
WITH THIS AGREEMENT, ANY OTHER RELATED AGREEMENT OR THE TRANSACTIONS
RELATED HERETO OR THERETO.
10.2 SEVERABILITY. Wherever possible each provision of this
Agreement and the Related Agreements shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this
Agreement or any Related Agreement shall be prohibited by or invalid or illegal
under applicable law such provision shall be ineffective to the extent of such
prohibition or invalidity or illegality, without invalidating the remainder of
such provision or the remaining provisions thereof which shall not in any way be
affected or impaired thereby.
30
10.3 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Creditor
Party and the closing of the transactions contemplated hereby to the extent
provided therein. All statements as to factual matters contained in any
certificate or other instrument delivered by or on behalf of the Company
pursuant hereto in connection with the transactions contemplated hereby shall be
deemed to be representations and warranties by the Company hereunder solely as
of the date of such certificate or instrument. All indemnities set forth herein
shall survive the execution, delivery and termination of this Agreement and the
Notes and the making and repayment of the obligations arising hereunder, under
the Notes and under the other Related Agreements.
10.4 SUCCESSORS.
(a) Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by
each person or entity which shall be a holder of the Securities from
time to time, other than the holders of Common Stock which has been
sold by any Purchaser pursuant to Rule 144 or an effective registration
statement. Each Purchaser may assign any or all of the Obligations to
any Person and, subject to acceptance and recordation thereof by the
Agent pursuant to Section 11.4(b) and receipt by the Agent of a copy of
the agreement or instrument pursuant to which such assignment is made
(each such agreement or instrument, an "Assignment Agreement"), any
such assignee shall succeed to all of such Purchaser's rights with
respect thereto; provided that no Purchaser shall be permitted to
assign its rights hereunder or under any Related Agreement to a direct
competitor of the Company unless an Event of Default (as defined in
each Note) has occurred and is continuing. Upon such assignment, such
Purchaser shall be released from all responsibility for the Collateral
(as defined in the Master Security Agreement, the Stock Pledge
Agreement and each other security agreement, mortgage, cash collateral
deposit letter, pledge and other agreements which are executed by the
Company or any of its Subsidiaries in favor of any Creditor Party) to
the extent same is assigned to any transferee. Each Purchaser may from
time to time sell or otherwise grant participations in any of the
Obligations (as defined in the Master Security Agreement) and the
holder of any such participation shall, subject to the terms of any
agreement between such Purchaser and such holder, be entitled to the
same benefits as such Purchaser with respect to any security for the
Obligations (as defined in the Master Security Agreement) in which such
holder is a participant. The Company agrees that each such holder may
exercise any and all rights of banker's lien, set-off and counterclaim
with respect to its participation in the Obligations (as defined in the
Master Security Agreement) as fully as though the Company were directly
indebted to such holder in the amount of such participation. The
Company may not assign any of its rights or obligations hereunder
without the prior written consent of the Agent. All of the terms,
conditions, promises, covenants, provisions and warranties of this
Agreement shall inure to the benefit of each of the undersigned, and
shall bind the representatives, successors and permitted assigns of the
Company.
31
(b) The Agent shall maintain, or cause to be
maintained, for this purpose only as agent of the Company, (i) a copy
of each Assignment Agreement delivered to it and (ii) a book entry
system, within the meaning of U.S. Treasury Regulation Sections
15f.103-1(c) and 1.871-14(c) (the "REGISTER"), in which it will
register the name and address of each Purchase and the name and address
of each assignee of each Purchaser under this Agreement, and the
principal amount of, and stated interest on, the Notes owing to each
such Purchaser and assignee pursuant to the terms hereof and each
Assignment Agreement. The right, title and interest of the Purchasers
and their assignees in and to such Notes shall be transferable only
upon notation of such transfer in the Register, and no assignment
thereof shall be effective until recorded therein. The Company and each
Creditor Party shall treat each Person whose name is recorded in the
Register as a Purchaser pursuant to the terms hereof as a Purchaser and
owner of an interest in the Obligations hereunder for all purposes of
this Agreement, notwithstanding notice to the contrary or any notation
of ownership or other writing or any Note. The Register shall be
available for inspection by the Company or any Purchaser, at any
reasonable time and from time to time, upon reasonable prior notice.
10.5 ENTIRE AGREEMENT; MAXIMUM INTEREST. This Agreement, the
Related Agreements, the exhibits and schedules hereto and thereto and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and no
party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein. Nothing contained in this Agreement, any Related
Agreement or in any document referred to herein or delivered in connection
herewith shall be deemed to establish or require the payment of a rate of
interest or other charges in excess of the maximum rate permitted by applicable
law. In the event that the rate of interest or dividends required to be paid or
other charges hereunder exceed the maximum rate permitted by such law, any
payments in excess of such maximum shall be credited against amounts owed by the
Company to the Purchasers and thus refunded to the Company.
10.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only
upon the written consent of the Company and the Agent.
(b) The obligations of the Company and the rights of
the Creditor Parties under this Agreement may be waived only with the
written consent of the Agent.
(c) The obligations of the Creditor Parties and the
rights of the Company under this Agreement may be waived only with the
written consent of the Company.
10.7 DELAYS OR OMISSIONS. It is agreed that no delay or
omission to exercise any right, power or remedy accruing to any party, upon any
breach, default or noncompliance by another party under this Agreement or the
Related Agreements, shall impair any such right, power or remedy, nor shall it
be construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
32
thereafter occurring. All remedies, either under this Agreement or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.
10.8 NOTICES. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given:
(a) upon personal delivery to the party to be
notified;
(b) when sent by confirmed facsimile if sent during
normal business hours of the recipient, if not, then on the next
business day;
(c) three (3) business days after having been sent by
registered or certified mail, return receipt requested, postage
prepaid; or
(d) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with
written verification of receipt.
All communications shall be sent as follows:
If to the Company, to: Retail Pro, Inc.
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xx Xxxxx, XX, 00000
Attention: Xxxxx Xxxxxxxxx, CEO
Facsimile No.: 000- 000-0000
with a copy to: Xxxxxxx Xxxx Seidenwurm & Xxxxx
000 X Xxxxxx, Xxxxx 0000
Xxx Xxxxx XX 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
Facsimile No.: 619-231-4755
If to the Agent, to: LV Administrative Services, Inc.
c/o Laurus Capital Management, LLC
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile No.: 000-000-0000
33
with a copy to: Loeb & Loeb, LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxx, Esq.
Facsimile No.: 000-000-0000
If to a Purchaser: To the address indicated under its
signature on the signature pages hereto
or at such other address as the Company or the applicable Creditor Party may
designate by written notice to the other parties hereto given in accordance
herewith.
10.9 ATTORNEYS' FEES. In the event that any suit or action is
instituted to enforce any provision in this Agreement or any Related Agreement,
the prevailing party in such dispute shall be entitled to recover from the
losing party all fees, costs and expenses of enforcing any right of such
prevailing party under or with respect to this Agreement and/or such Related
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
10.10 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
10.11 SIGNATURES; COUNTERPARTS. This Agreement may be executed
by facsimile or electronic signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
agreement.
10.12 BROKER'S FEES. Except as set forth on the SUPPLEMENTAL
SCHEDULE hereof, each party hereto represents and warrants that no agent,
broker, investment banker, person or firm acting on behalf of or under the
authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 10.12 being
untrue.
34
10.13 CONSTRUCTION. Each party acknowledges that its legal
counsel participated in the preparation of this Agreement and the Related
Agreements and, therefore, stipulates that the rule of construction that
ambiguities are to be resolved against the drafting party shall not be applied
in the interpretation of this Agreement or any Related Agreement to favor any
party against the other.
10.14 AGENCY. Each Purchaser has pursuant to an Administrative
and Collateral Agency Agreement designated and appointed the Agent as the
administrative and collateral agent of such Purchaser under this Agreement and
the Related Agreements.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
35
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
RETAIL PRO, INC. VALENS OFFSHORE SPV II, CORP.
By:_______________________________ By: ____________________________
Name: Name:
Title: Title:
AGENT:
LV ADMINISTRATIVE SERVICES, INC.,
as Agent
By:_______________________________
Name:
Title:
SIGNATURE PAGE TO
SECURITIES PURCHASE AGREEMENT
EXHIBIT A
FORM OF TERM NOTE
EXHIBIT B
FORM OF WARRANT
EXHIBIT C
FORM OF OPINION
1. The Company and each of its Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its formation and has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as it is now being conducted.
2. The Company and each of its Subsidiaries has the requisite corporate
power and authority to execute, deliver and perform its obligations under the
Agreement and the Related Agreements. All corporate action on the part of the
Company and each of its Subsidiaries and its officers, directors and
stockholders necessary has been taken for: (i) the authorization of the
Agreement and the Related Agreements and the performance of all obligations of
the Company and each of its Subsidiaries thereunder; and (ii) the authorization,
sale, issuance and delivery of the Securities pursuant to the Agreement and the
Related Agreements. The [Note Shares and the] Warrant Shares, when issued
pursuant to and in accordance with the terms of the Agreement and the Related
Agreements and upon delivery shall be validly issued and outstanding, fully paid
and non assessable.
3. The execution, delivery and performance by the Company and each of
its Subsidiaries of the Agreement and the Related Agreements (to which it is a
party) and the consummation of the transactions on its part contemplated by any
thereof, will not, with or without the giving of notice or the passage of time
or both:
(a) Violate the provisions of their respective Charter or
bylaws; or
(b) Violate any judgment, decree, order or award of any court
binding upon the Company or any of its Subsidiaries; or
(c) Violate any [insert jurisdictions in which counsel is
qualified] or federal law
4. The Agreement and the Related Agreements will constitute, valid and
legally binding obligations of the Company and each of its Subsidiaries (to the
extent such entity is a party thereto), and are enforceable against the Company
and each of its Subsidiaries party thereto in accordance with their respective
terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; and
(b) general principles of equity that restrict the
availability of equitable or legal remedies.
5. To such counsel's knowledge, the sale of each Note are not subject
to any preemptive rights or rights of first refusal that have not been properly
waived or complied with. To such counsel's knowledge, the sale of the Warrants
and the subsequent exercise of the Warrants for Warrant Shares are not subject
to any preemptive rights or, to such counsel's knowledge, rights of first
refusal that have not been properly waived or complied with.
6. Assuming the accuracy of the representations and warranties of each
Purchaser contained in the Agreement, the offer, sale and issuance of the
Securities on the Closing Date will be exempt from the registration requirements
of the Securities Act. To such counsel's knowledge, 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 and security under circumstances that would cause the offering of the
Securities pursuant to the Agreement or any Related Agreement to be integrated
with prior offerings by the Company for purposes of the Securities Act which
would prevent the Company from selling the Securities pursuant to Rule 506 under
the Securities Act, or any applicable exchange-related stockholder approval
provisions.
7. There is no action, suit, proceeding or investigation pending or, to
such counsel's knowledge, currently threatened against the Company or any of its
Subsidiaries that prevents the right of the Company or any of its Subsidiaries
to enter into this Agreement or any Related Agreement, or to consummate the
transactions contemplated thereby. To such counsel's knowledge, the Company is
not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality; nor is
there any action, suit, proceeding or investigation by the Company currently
pending or which the Company intends to initiate.
8. The terms and provisions of the Master Security Agreement [and the
Stock Pledge Agreement create a valid security interest in favor of the Agent,
in the respective rights, title and interests of the Company and its
Subsidiaries in and to the Collateral (as defined in each of the Master Security
Agreement and the Stock Pledge Agreement). Each UCC-1 Financing Statement naming
the Company or any Subsidiary thereof as debtor and the Agent as secured party
are in proper form for filing and assuming that such UCC-1 Financing Statements
have been filed with the Secretary of State of Delaware, the security interest
created under the Master Security Agreement will constitute a perfected security
interest under the Uniform Commercial Code in favor of the Agent in respect of
the Collateral that can be perfected by filing a financing statement. After
giving effect to the delivery to the Agent of the stock certificates
representing the ownership interests of each Subsidiary of the Company (together
with effective endorsements) and assuming the continued possession by the Agent
of such stock certificates in the State of New York, the security interest
created in favor of the Agent under the Stock Pledge Agreement constitutes a
valid and enforceable first perfected security interest in such ownership
interests (and the proceeds thereof) in favor of the Agent, subject to no other
security interest. No filings, registrations or recordings are required in order
to perfect (or maintain the perfection or priority of) the security interest
created under the Stock Pledge Agreement in respect of such ownership
interests].
EXHIBIT D
FORM OF ESCROW AGREEMENT
EXHIBIT E
FORM OF COMPLIANCE CERTIFICATE
[See Attached]
