Exhibit 4.1
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STOCK AND WARRANT PURCHASE AGREEMENT
Parlex Corporation
Xxx Xxxxxx Xxxxx
Xxxxxxx, XX 00000
Ladies & Gentlemen:
The undersigned, _________________________________(the "Investor"),
hereby confirms its agreement with you as follows:
1. This Stock and Warrant Purchase Agreement (the "Purchase Agreement")
is made as of _______ __, 2004 between Parlex Corporation, a Massachusetts
corporation (the "Company"), and the Investor.
2. The Company has authorized the sale and issuance of up to 125,000
shares (the "Preferred Shares") of convertible preferred stock of the
Company, $1.00 par value per share (the "Preferred Stock"), and warrants to
purchase up to 625,000 shares (the "Warrant Shares") of common stock of the
Company, $0.10 par value per share (the "Common Stock") at an exercise price
per share of $8.00 (the "Warrants") to certain investors in a private
placement (the "Offering").
3. The Company and the Investor agree that the Investor will purchase
from the Company and the Company will issue and sell to the Investor
___________ Preferred Shares and a Warrant to purchase _____________ Warrant
Shares (a "Unit"), for a purchase price of $80.00 per Unit, or an aggregate
purchase price of $_______________, pursuant to the Terms and Conditions for
Purchase of Preferred Shares and Warrants attached hereto as Annex I and
incorporated herein by reference as if fully set forth herein (the "Terms
and Conditions"). This Purchase Agreement, together with the Terms and
Conditions which are incorporated herein by reference as if fully set forth
herein, may hereinafter be referred to as the "Agreement." Unless otherwise
requested by the Investor, the Warrant and certificates representing the
Preferred Shares purchased by the Investor will be registered in the
Investor's name and address as set forth below. The Warrant shall have the
rights, preferences, privileges and restrictions as set forth in the form of
Warrant attached hereto as Exhibit B. Similarly, the Preferred Shares shall
have the rights, preferences and restrictions set forth in the Certificate
of Designation attached hereto as Exhibit C.
4. The Investor represents that, except as set forth below, (a) it has
had no position, office or other material relationship within the past three
years with the Company or persons known to it to be affiliates of the
Company, (b) neither it, nor any group of which it is a member or to which
it is related, beneficially owns (including the right to acquire or vote)
any securities of the Company and (c) it has no direct or indirect
affiliation or association with any NASD member as of the date hereof.
Exceptions:
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(If no exceptions, write "none." If left blank,
response will be deemed to be "none.")
Please confirm that the foregoing correctly sets forth the agreement
between us by signing in the space provided below for that purpose. By
executing this Agreement, you acknowledge that the Company may use the
information in paragraph 4 above and the name and address information below
in preparation of the Registration Statement (as defined in Annex 1).
AGREED AND ACCEPTED:
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Parlex Corporation Investor: ___________________________
By: _________________________________
_____________________________ Print Name: _________________________
By: Xxxxxxxx X. Xxxxxxx
Title: Chief Financial Officer Title: ______________________________
Address: ____________________________
_____________________________________
Tax ID No.: _________________________
Contact name: _______________________
Telephone: __________________________
Facsimile: __________________________
Name in which shares should be
registered (if different):
_____________________________________
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ANNEX I
TERMS AND CONDITIONS FOR PURCHASE OF SHARES AND WARRANTS
1. Authorization and Sale of the Preferred Shares and Warrants.
Subject to these Terms and Conditions, the Company has authorized the sale
of up to 125,000 Preferred Shares and Warrants to purchase up to 625,000
Warrant Shares. The Company reserves the right to increase or decrease this
number. The Company has, or on or before the First Closing will have,
designated the terms of the Preferred Stock by filing a Certificate of
Designation in substantially the form set forth in Exhibit C with the
Secretary of State of the Commonwealth of Massachusetts.
2. Agreement to Sell and Purchase the Preferred Shares and
Warrants; Subscription Date.
2.1 At the First Closing (as defined below), the Company will
sell to the Investor, and the Investor will purchase from the Company,
upon the terms and conditions hereinafter set forth, the number of
Preferred Shares and a Warrant to purchase the number of Warrant
Shares each as set forth in Section 3 of the Purchase Agreement to
which these Terms and Conditions are attached at the purchase price
set forth thereon.
2.2 The Company may enter into the same form of Purchase
Agreement, including these Terms and Conditions, with certain other
investors (the "Other Investors") and expects to complete sales of
Preferred Shares and Warrants to them. (The Investor and the Other
Investors are hereinafter sometimes collectively referred to as the
"Investors," and the Purchase Agreement to which these Terms and
Conditions are attached and the Purchase Agreements (including
attached Terms and Conditions) executed by the Other Investors are
hereinafter sometimes collectively referred to as the "Agreements.")
The Company may accept executed Agreements from Investors for the
purchase of Preferred Shares and Warrants during this period
concluding upon the date on which the Company has executed Agreements
with Investors for the purchase of Preferred Shares and Warrants, and
has notified Xxxxxxx & Company, Inc., in its capacity as placement
agent for this transaction in writing to such effect (the "First
Subscription Date"). The first Closing for such sales shall occur
promptly after the occurrence of the First Subscription Date (the
"First Closing"). Simultaneously, the Company shall offer Preferred
Shares and Warrants to the holders of the Company's 7.0% Convertible
Notes (the "Note Holders") in accordance with the right of first
refusal contained in a Securities Purchase Agreement dated as of July
28, 2003 by and among the Company and the Note Holders (the "Note
Purchase Agreement"). To the extent any Preferred Shares or Warrants
are not issued to Note Holders pursuant to such right of first
refusal, the Company may, but shall not be required to, offer and sell
such Preferred Shares and Warrants to the Investors, on a pro rata
basis based on the Preferred Shares held by such Investor. Each
additional closing of any such sales shall be referred to as a
"Closing", and collectively with the First Closing, the "Closings."
3. Delivery of the Preferred Shares and Warrants at Closings; Over-
Allotment Option.
3.1 The Closings shall occur at the offices of the Company's
counsel. At the Closings, the Company shall deliver to the Investor a
Warrant representing the number of Warrant Shares and one or more
stock certificates representing the number of Preferred Shares, in
each case as is set forth in Section 3 of the Purchase Agreement, each
such certificate to be registered in the name of the Investor or, if
so indicated on the signature page of the Purchase Agreement, in the
name of a nominee designated by the Investor. The Company's obligation
to issue the Preferred Shares and the Warrant to the Investor shall be
subject to the following conditions, any one or more of which may be
waived by the Company: (a) receipt by the Company of a certified or
official bank check or wire transfer of funds in the full amount of
the purchase price for the Preferred Shares and the Warrant being
purchased hereunder as set forth in Section 3 of the Purchase
Agreement; (b) completion of the purchases and sales under the
Agreements with the Other Investors; and (c) the accuracy of the
representations and warranties made by the Investors and the
fulfillment of those undertakings of the Investors to be fulfilled
prior to the applicable Closing. The Investor's obligation to purchase
the Preferred Shares and the Warrant shall be subject to the following
conditions, any one or more of which may be waived by the Investor:
(a) the representations and warranties of the Company set forth herein
shall be true and correct as of the applicable Closing in all material
respects (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true
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and correct as of such date) and (b) the Investor shall have received
such documents as such Investor shall reasonably have requested,
including, a standard opinion of Company Counsel as to the matters set
forth in Section 4.2 and as to exemption from the registration
requirements of the Securities Act of 1933, as amended (the
"Securities Act"), at each applicable Closing.
3.2 The Company grants to the Investor the option (the
"Option") to purchase from the Company that number of Preferred Shares
and Warrants which is equal to twenty percent (20%) of the number of
Preferred Shares and Warrants, respectively, acquired by the Investor
pursuant to this Purchase Agreement at a purchase price of $80.00 per
Unit. The number of Preferred Shares and Warrants shall be adjusted
appropriately to the nearest whole number to avoid fractional shares.
The Option may be exercised at any time (but not more than once) in
whole or in part, on or before the date that is 180 days following the
date of the First Closing, upon written or telecopied notice (the
"Option Notice") by the Investor to the Company setting forth the
aggregate number of Preferred Shares and Warrants as to which the
Investor is exercising the Option. Upon receipt of the Option Notice,
the Company shall notify the Investor of the time at which
certificates for the Preferred Shares and Warrants shall be delivered
to and paid for by the Investor (the "Option Closing"), which time of
delivery shall be referred to as the "Option Closing Date." The Option
Closing shall occur at the offices of the Company's counsel. At the
Option Closing, the Company shall deliver to the Investor a Warrant
representing the number of Warrant Shares and one or more stock
certificates representing the number of Preferred Shares, in each case
as is set forth in the Option Notice, each such certificate to be
registered in the name of the Investor or, if so indicated on the
Option Notice, in the name of a nominee designated by the Investor.
The Option Closing Date shall be determined by the Company, but shall
not be earlier than two (2) nor later than ten (10) full business days
after delivery of the Option Notice, unless otherwise agreed to by the
Company and the Investor.
The Company's obligation to issue the Preferred Shares and the Warrant
to the Investor on the Option Closing Date shall be subject to the following
conditions, any one or more of which may be waived by the Company: (a)
receipt by the Company of a certified or official bank check or wire
transfer of funds in the full amount of the purchase price for the Preferred
Shares and the Warrant being purchased hereunder as set forth in the Option
Notice; and (b) the accuracy of the representations and warranties made by
the Investors and the fulfillment of those undertakings of the Investors to
be fulfilled prior to the applicable Closing. The Investor's obligation at
the Option Closing to purchase the Preferred Shares and the Warrant on the
Option Closing Date shall be subject to the following conditions, any one or
more of which may be waived by the Investor: (a) the representations and
warranties of the Company set forth herein shall be true and correct as of
the Option Closing in all material respects (except for representations and
warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date), and (b) the Investor
shall have received such documents as such Investor shall reasonably have
requested, including, a standard opinion of Company Counsel as to the
matters set forth in Section 4.2 of this Purchase Agreement and as to
exemption from the registration requirements of the Securities Act of 1933,
as amended (the "Securities Act").
4. Representations, Warranties and Covenants of the Company. The
Company hereby represents and warrants to, and covenants with, the Investor,
as follows:
4.1 Organization. The Company is duly organized and validly
existing in good standing under the laws of the jurisdiction of its
organization. Each of the Company and its Subsidiaries (as defined in
Rule 405 under the Securities Act) has full power and authority to
own, operate and occupy its properties and to conduct its business as
presently conducted and as described in the documents filed by the
Company under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), since the end of its most recently completed fiscal
year through the date hereof, including, without limitation, its most
recent report on Form 10-K (the "Exchange Act Documents") and is
registered or qualified to do business and in good standing in each
jurisdiction in which the nature of the business conducted by it or
the location of the properties owned or leased by it requires such
qualification and where the failure to be so qualified would have a
material adverse effect upon the condition (financial or otherwise),
earnings, business or business prospects, properties or operations of
the Company and its Subsidiaries, considered as one enterprise (a
"Material Adverse Effect"), and no proceeding has been instituted in
any such jurisdiction, revoking, limiting or curtailing, or seeking to
revoke, limit or curtail, such power and authority or qualification.
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4.2 Due Authorization and Valid Issuance. The Company has all
requisite power and authority to execute, deliver and perform its
obligations under the Agreements and the Warrants, and the Agreements
and the Warrants have been duly authorized and validly executed and
delivered by the Company and constitute legal, valid and binding
agreements of the Company enforceable against the Company in
accordance with their terms, except as rights to indemnity and
contribution may be limited by state or federal securities laws or the
public policy underlying such laws, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' and contracting
parties' rights generally and except as enforceability may be subject
to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). The
Preferred Shares and the Warrant being purchased by the Investor
hereunder and the Conversion Shares and Warrant Shares issuable
pursuant to the Warrant will, upon issuance and payment therefor
pursuant to the terms hereof and thereof, be duly authorized, validly
issued, fully-paid and nonassessable.
4.3 Non-Contravention. The execution and delivery of the
Agreements and the Warrants, the issuance and sale of the Preferred
Shares and the Warrants under the Agreements and the Warrant Shares
under the Warrant, the fulfillment of the terms of the Agreements and
the Warrants and the consummation of the transactions contemplated
thereby will not (A) conflict with or constitute a violation of, or
default (with the passage of time or otherwise) under, (i) any
material bond, debenture, note or other evidence of indebtedness,
lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument for which a waiver has
not been received and to which the Company or any Subsidiary is a
party or by which it or any of its Subsidiaries or their respective
properties are bound, (ii) the charter, by-laws or other
organizational documents of the Company or any Subsidiary, or
(iii) any law, administrative regulation, ordinance or order of any
court or governmental agency, arbitration panel or authority
applicable to the Company or any Subsidiary or their respective
properties, except in the case of clauses (i) and (iii) for any such
conflicts, violations or defaults which are not reasonably likely to
have a Material Adverse Effect or (B) result in the creation or
imposition of any lien, encumbrance, claim, security interest or
restriction whatsoever upon any of the material properties or assets
of the Company or any Subsidiary or an acceleration of indebtedness
pursuant to any obligation, agreement or condition contained in any
material bond, debenture, note or any other evidence of indebtedness
or any material indenture, mortgage, deed of trust or any other
agreement or instrument to which the Company or any Subsidiary is a
party or by which any of them is bound or to which any of the material
property or assets of the Company or any Subsidiary is subject. No
consent, approval, authorization or other order of, or registration,
qualification or filing with, any regulatory body, administrative
agency, or other governmental body in the United States or any other
person is required for the execution and delivery of the Agreements
and the Warrants, and the valid issuance and sale of the Preferred
Shares and Warrants to be sold pursuant to the Agreements, and the
valid issuance of the Warrant Shares under the Warrant, other than
such as have been made or obtained, and except for any post-closing
securities filings or notifications required to be made under federal
or state securities laws.
4.4 Capitalization. The capitalization of the Company as of
March 31, 2004 is as set forth in the most recent applicable Exchange
Act Documents, increased as set forth in the next sentence. The
Company has not issued any capital stock since that date other than
pursuant to (i) employee benefit plans disclosed in the Exchange Act
Documents, or (ii) outstanding warrants, options or other securities
disclosed in the Exchange Act Documents. The Preferred Shares and the
Warrants to be sold pursuant to the Agreements, and the Conversion
Shares and the Warrant Shares, have been duly authorized, and when
issued and paid for in accordance with the terms of the Agreements and
the Warrants, as the case may be, will be duly and validly issued,
fully paid and nonassessable. The outstanding shares of capital stock
of the Company have been duly and validly issued and are fully paid
and nonassessable, have been issued in compliance with all federal and
state securities laws, and were not issued in violation of any
preemptive rights or similar rights to subscribe for or purchase
securities. The Preferred Shares, when issued and paid for in
accordance with the terms of the Agreements, shall have the rights,
terms and privileges as set forth in the Certificate of Designation
attached as Exhibit C hereto. Except as set forth in or contemplated
by the Exchange Act Documents, there are no outstanding rights
(including, without limitation, preemptive rights), warrants or
options to acquire, or instruments convertible into or exchangeable
for, any unissued shares of capital stock or other equity interest in
the Company or any Subsidiary, or any contract, commitment, agreement,
understanding or arrangement of any kind to which the Company is a
party or of which the Company has knowledge and relating to the
issuance or sale of any capital stock of the Company or any
Subsidiary, any such convertible or exchangeable securities or any
such rights, warrants or options. Without limiting the foregoing, no
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preemptive right, co-sale right, right of first refusal, registration
right, or other similar right that has not been effectively waived or
complied with as of the Closings exists with respect to the Preferred
Shares, the Warrants or the Warrant Shares or the issuance and sale
thereof. No further approval or authorization of any stockholder, the
Board of Directors of the Company or others is required for the
issuance and sale of the Preferred Shares, the Warrants and the
Warrant Shares. The Company owns the entire equity interest in each of
its Subsidiaries, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest, other than as
described in the Exchange Act Documents. Except as disclosed in the
Exchange Act Documents, there are no stockholders agreements, voting
agreements or other similar agreements with respect to the Common
Stock to which the Company is a party or, to the knowledge of the
Company, between or among any of the Company's stockholders.
4.5 Legal Proceedings. There is no material legal or
governmental proceeding pending or, to the knowledge of the Company,
threatened to which the Company or any Subsidiary is or may be a party
or of which the business or property of the Company or any Subsidiary
is subject that is not disclosed in the Exchange Act Documents.
4.6 No Violations. Neither the Company nor any Subsidiary is
in violation of its charter, bylaws, or other organizational document,
or in violation of any law, administrative regulation, ordinance or
order of any court or governmental agency, arbitration panel or
authority applicable to the Company or any Subsidiary, which
violation, individually or in the aggregate, would have a Material
Adverse Effect, or is in default (and there exists no condition which,
with the passage of time or otherwise, would constitute a default) in
any material respect in the performance of any bond, debenture, note
or any other evidence of indebtedness in any indenture, mortgage, deed
of trust or any other material agreement or instrument to which the
Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound or by which the properties of the Company or any
Subsidiary are bound, which would have a Material Adverse Effect.
4.7 Governmental Permits, Etc. With the exception of the
matters which are dealt with separately in Sections 4.1, 4.12, 4.13,
and 4.14, each of the Company and its Subsidiaries has all necessary
franchises, licenses, certificates and other authorizations from any
foreign, federal, state or local government or governmental agency,
department, or body that are currently necessary for the operation of
the business of the Company and its Subsidiaries as currently
conducted and as described in the Exchange Act Documents except where
the failure to currently possess would not have a Material Adverse
Effect.
4.8 Intellectual Property. Except as specifically disclosed in
the Exchange Act Documents (i) each of the Company and its
Subsidiaries owns or possesses sufficient rights to use all material
patents, patent rights, trademarks, copyrights, licenses, inventions,
trade secrets, trade names and know-how (collectively, "Intellectual
Property") described or referred to in the Exchange Act Documents as
owned or possessed by it or that are necessary for the conduct of its
business as now conducted or as proposed to be conducted as described
in the Exchange Act Documents except where the failure to currently
own or possess would not have a Material Adverse Effect, (ii) neither
the Company nor any of its Subsidiaries is infringing, or has received
any notice of, or has any knowledge of, any asserted infringement by
the Company or any of its Subsidiaries of, any rights of a third party
with respect to any Intellectual Property that, individually or in the
aggregate, would have a Material Adverse Effect and (iii) neither the
Company nor any of its Subsidiaries has received any notice of, or has
any knowledge of, infringement by a third party with respect to any
Intellectual Property rights of the Company or of any Subsidiary that,
individually or in the aggregate, would have a Material Adverse
Effect.
4.9 Financial Statements. The financial statements of the
Company and the related notes contained in the Exchange Act Documents
present fairly, in accordance with generally accepted accounting
principles, the financial position of the Company and its Subsidiaries
as of the dates indicated, and the results of its operations and cash
flows for the periods therein specified consistent with the books and
records of the Company and its Subsidiaries except that the unaudited
interim financial statements were or are subject to normal and
recurring year-end adjustments which are not expected to be material
in amount. Such financial statements (including the related notes)
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods
therein specified, except as may be disclosed in the notes to such
financial statements, or in the case of unaudited statements, as may
be permitted by the Securities and Exchange Commission (the "SEC") on
Form 10-Q under the Exchange Act and except as disclosed in the
Exchange
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Act Documents. The other financial information contained in the
Exchange Act Documents has been prepared on a basis consistent with
the financial statements of the Company.
4.10 No Material Adverse Change. Except as disclosed in the
Exchange Act Documents, since March 31, 2004, there has not been
(i) any material adverse change in the financial condition or earnings
of the Company and its Subsidiaries considered as one enterprise,
(ii) any material adverse event affecting the Company or its
Subsidiaries, (iii) any obligation, direct or contingent, that is
material to the Company and its Subsidiaries considered as one
enterprise, incurred by the Company, except obligations incurred in
the ordinary course of business, (iv) any dividend or distribution of
any kind declared, paid or made on the capital stock of the Company or
any of its Subsidiaries, or (v) any loss or damage (whether or not
insured) to the physical property of the Company or any of its
Subsidiaries which has been sustained which has a Material Adverse
Effect.
4.11 Disclosure. The representations and warranties of the
Company contained in this Section 4 as of the date hereof and as of
each applicable Closing, do not contain any untrue statement of a
material fact or omit 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. Except with
respect to the material terms and conditions of the transaction
contemplated by the Agreements, which shall be publicly disclosed by
the Company pursuant to Section 15(b) hereof, the Company confirms
that neither it nor any person acting on its behalf has provided
Investor with any information that the Company believes constitutes
material, non-public information. The Company understands and confirms
that Investor will rely on the foregoing representations in effecting
transactions in the securities of the Company.
4.12 Nasdaq Compliance. The Company's Common Stock is
registered pursuant to Section 12(g) of the Exchange Act and is listed
on The Nasdaq Stock Market, Inc. National Market (the "Nasdaq National
Market"), and the Company has taken no action designed to, or likely
to have the effect of, terminating the registration of the Common
Stock under the Exchange Act or de-listing the Common Stock from the
Nasdaq National Market, nor has the Company received any notification
that the SEC or the National Association of Securities Dealers, Inc.
("NASD") is contemplating terminating such registration or listing.
4.13 Reporting Status. The Company has filed in a timely manner
all documents that the Company was required to file under the Exchange
Act during the 12 months preceding the date of this Agreement.
Pursuant to General Instruction I.B.3 of Form S-3, the Company is
eligible to use Form S-3 to register the Common Stock underlying the
Preferred Shares and the Warrant Shares to be offered for the account
of the Investors. The following documents complied in all material
respects with the SEC's requirements as of their respective filing
dates, and the information contained therein as of the date thereof
did not contain an untrue statement of a material fact or omit 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:
(a) the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2003; the Company's quarterly Reports
on Form 10-Q for the periods ended September 28, 2003 and
December 28, 2003, respectively; the Company's Proxy Statement
dated October 28, 2003 in connection with its Annual Meeting of
Stockholders; and
(b) all other documents, if any, filed by the Company
with the SEC since June 30, 2003 pursuant to the reporting
requirements of the Exchange Act.
4.14 Listing. The Company shall comply with all requirements of
the National Association of Securities Dealers, Inc. with respect to
the issuance of the Preferred Shares, the Warrant and the Warrant
Shares, and the listing thereof of the Conversion Shares and Warrant
Shares on the Nasdaq National Market.
4.15 No Manipulation of Stock. The Company has not taken and
will not, in violation of applicable law, take, any action designed to
or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Preferred Shares or the Warrant
Shares.
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4.16 Company not an "Investment Company". The Company has been
advised of the rules and requirements under the Investment Company Act
of 1940, as amended (the "Investment Company Act"). The Company is
not, and immediately after receipt of payment for the Preferred Shares
and the Warrants will not be, an "investment company" or an entity
"controlled" by an "investment company" within the meaning of the
Investment Company Act and shall conduct its business in a manner so
that it will not become subject to the Investment Company Act.
4.17 Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf
of the Company, has (i) directly or indirectly, used any corrupt funds
for unlawful contributions, gifts, entertainment or other unlawful
expenses related to foreign or domestic political activity, (ii) made
any unlawful payment to foreign or domestic government officials or
employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose fully any contribution
made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt
Practices Act of 1977, as amended.
4.18 Accountants. To the Company's knowledge, Deloitte & Touche
LLP, who the Company expects will express their opinion with respect
to the financial statements to be incorporated by reference from the
Company's Annual Report on Form 10-K for the year ended June 30, 2003
and the Company's Quarterly Reports on Form 10-Q for the quarters
ended September 28, 2003, December 28, 2003, and March 31, 2004 into
the Registration Statement (as defined below) and the prospectus which
forms a part thereof, are independent accountants as required by the
Securities Act and the rules and regulations promulgated thereunder.
4.19 Contracts. The contracts described in the Exchange Act
Documents that are material to the Company are in full force and
effect on the date hereof, and neither the Company nor, to the
Company's knowledge, any other party to such contracts is in breach of
or default under any of such contracts which would have a Material
Adverse Effect.
4.20 Taxes. The Company has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued
all taxes shown as due thereon, and the Company has no knowledge of a
tax deficiency which has been or might be asserted or threatened
against it which would have a Material Adverse Effect.
4.21 Transfer Taxes. At the time of each applicable Closing,
all stock transfer or other taxes (other than income taxes) which are
required to be paid in connection with the sale and transfer of the
Preferred Shares and the Warrants to be sold to the Investor hereunder
will be, or will have been, fully paid or provided for by the Company
and all laws imposing such taxes will be or will have been fully
complied with. Upon the issuance of the Common Stock upon conversion
of the Preferred Shares or Warrant Shares all stock transfer or other
taxes (other than income taxes) which are required to be paid in
connection therewith will be, or will have been, fully paid or
provided for by the Company and all laws imposing such taxes will be
or will have been fully complied with.
4.22 Environmental Matters. Except as disclosed in the Exchange
Act Documents and except as would not, singly or in the aggregate have
a Material Adverse Effect, (A) the Company is in compliance with all
applicable Environmental Laws, (B) the Company has all permits,
authorizations and approvals required under any applicable
Environmental Laws and is in compliance with the requirements of such
permits, authorizations and approvals, (C) there are no pending or, to
the knowledge of the Company, threatened Environmental Claims against
the Company and (D) under applicable law, to the Company's knowledge,
there are no circumstances with respect to any property or operations
of the Company that are reasonably likely to form the basis of an
Environmental Claim against the Company.
For purposes of this Agreement, the following terms shall have the
following meanings: "Environmental Law" means any United States (or other
applicable jurisdiction's) federal, state, local or municipal statute, law,
rule, regulation, ordinance, code, policy or rule of common law and any
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to the
environment, health, safety or any chemical, material or substance, exposure
to which is prohibited, limited or
8
regulated by any governmental authority. "Environmental Claims" means any
and all administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violation,
investigations or proceedings relating in any way to any Environmental Law.
4.23 Private Offering. Assuming the correctness of the
representations and warranties of the Investors set forth in Section 5
hereof, the offer and sale of Preferred Shares and the Warrants
hereunder is and, upon conversion of the Preferred Shares and exercise
of the Warrants, the issuance of the Conversion Shares and the Warrant
Shares will be exempt from registration under the Securities Act. The
Company has not distributed and will not distribute any offering
material in connection with this Offering and sale of the Preferred
Shares and the Warrants other than the documents of which this
Agreement is a part or the Exchange Act Documents. The Company has not
in the past nor will it hereafter take any action independent of the
placement agent to sell, offer for sale or solicit offers to buy any
securities of the Company which would bring the offer, issuance or
sale of the Preferred Shares and the Warrants as contemplated by this
Agreement, or the issuance of Common Stock upon conversion of the
Preferred Shares or the Warrant Shares, within the provisions of
Section 5 of the Securities Act, unless such offer, issuance or sale
was or shall be within the exemptions of Section 3 or Section 4 of the
Securities Act.
4.24 Disclosure Controls and Procedures; Internal Controls. The
Company's certifying officers are responsible for establishing
disclosure controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the Company and they have (a) designed such
disclosure controls and procedures to ensure that material information
relating to the Company, including its Subsidiaries, is made known to
the certifying officers by others within those entities, particularly
during the period in which the Form 10-K or Form 10-Q, as the case may
be, is being prepared; (b) evaluated the effectiveness of the
Company's disclosure controls and procedures as of a date within
ninety (90) days prior to the filing date of the Form 10-K or Form
10-Q, as the case may be (such date, the "Evaluation Date"); and (c)
presented in the Form 10-K or Form 10-Q, as the case may be, the
conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of
the Evaluation Date. Since the Evaluation Date, there have been no
significant changes in the Company's internal controls (as such term
is used in Item 307(b) of Regulation S-K under the Exchange Act) or,
to the Company's knowledge, in other factors that could significantly
affect the Company's internal controls.
5. Representations, Warranties and Covenants of the Investor.
5.1 The Investor represents and warrants to, and covenants
with, the Company that: (i) the Investor is an "accredited investor"
as defined in Regulation D under the Securities Act and the Investor
is also knowledgeable, sophisticated and experienced in financial
matters and in making, and is qualified to make decisions with respect
to investments in shares presenting an investment decision like that
involved in the purchase of the Preferred Shares and the Warrant,
including investments in securities issued by the Company and
investments in comparable companies, and has requested, received,
reviewed and considered all information it deemed relevant in making
an informed decision to purchase the Preferred Shares and the Warrant;
(ii) the Investor is acquiring the Warrant to purchase the number of
Warrant Shares and the number of Preferred Shares set forth in
Section 3 of the Purchase Agreement in the ordinary course of its
business and for its own account for investment only and with no
present intention of distributing any of such Preferred Shares,
Warrant, Conversion Shares or Warrant Shares; (iii) the Investor does
not have any arrangement or understanding with any other persons
regarding the distribution of such Preferred Shares, Warrant,
Conversion Shares or Warrant Shares; (iv) the Investor will not,
directly or indirectly, offer, sell, pledge, transfer or otherwise
dispose of (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of) any of Preferred Shares, Warrant,
Conversion Shares or Warrant Shares except in compliance with the
Securities Act, applicable state securities laws and the respective
rules and regulations promulgated thereunder; (v) the Investor has
answered all questions on the Investor Questionnaire for use in
preparation of the Registration Statement and the answers thereto are
true, correct and complete as of the date hereof and will be true,
correct and complete as of the Closing; (vi) the Investor will notify
the Company immediately of any change in any of such information until
such time as the Investor has sold all of its Preferred Shares,
Conversion Shares and Warrant Shares or until the Company is no
longer required to keep the Registration Statement effective; and
(vii) the Investor has, in connection with its decision to purchase
the number of Preferred Shares and the Warrant to purchase the number
of Warrant Shares, each as set forth in Section 3 of the Purchase
Agreement, relied only upon the Exchange Act Documents and the
representations and warranties of the Company
9
contained herein. The Investor understands that its acquisition of the
Preferred Shares and the Warrant has not been registered under the
Securities Act or registered or qualified under any state securities
law in reliance on specific exemptions therefrom, which exemptions may
depend upon, among other things, the bona fide nature of the
Investor's investment intent as expressed herein. Subject to
compliance with the Securities Act, applicable securities laws and the
respective rules and regulations promulgated thereunder, nothing
contained herein shall be deemed a representation or warranty by such
Investor to hold the Preferred Shares for any period of time. Investor
has completed or caused to be completed and delivered to the Company
the Investor Questionnaire, which questionnaire is true, correct and
complete in all material respects.
5.2 The Investor acknowledges, represents and agrees that no
action has been or will be taken in any jurisdiction outside the
United States by the Company that would permit an offering of the
Preferred Shares, Warrant, Conversion Shares or Warrant Shares or
possession or distribution of offering materials in connection with
the issue of the Preferred Shares, Warrant, Conversion Shares or
Warrant Shares in any jurisdiction outside the United States where
legal action by the Company for that purpose is required. Each
Investor outside the United States will comply with all applicable
laws and regulations in each foreign jurisdiction in which it
purchases, offers, sells or delivers the Preferred Shares, the
Warrant, Conversion Shares or Warrant Shares or has in its possession
or distributes any offering material, in all cases at its own expense.
5.3 The Investor hereby covenants with the Company not to make
any sale of the Conversion Shares or Warrant Shares without complying
with the provisions of this Agreement and without causing the
prospectus delivery requirement under the Securities Act to be
satisfied, and the Investor acknowledges that the certificates
evidencing the Preferred Shares and Warrant Shares will be imprinted
with a legend that prohibits their transfer except in accordance
therewith. The Investor acknowledges that there may occasionally be
times when the Company determines that it must suspend the use of the
Prospectus forming a part of the Registration Statement, as set forth
in Section 7.2(c).
5.4 The Investor further represents and warrants to, and
covenants with, the Company that (i) the Investor has full right,
power, authority and capacity to enter into this Agreement and to
consummate the transactions contemplated hereby and has taken all
necessary action to authorize the execution, delivery and performance
of this Agreement, and (ii) this Agreement constitutes a valid and
binding obligation of the Investor enforceable against the Investor in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' and contracting parties' rights
generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and except as the
indemnification agreements of the Investors herein may be legally
unenforceable.
5.5 Investor will not use any of the restricted Preferred
Shares or the Warrant acquired pursuant to this Agreement, or the
Conversion Shares or the Warrant Shares acquired pursuant to the
Warrant, to cover any short position in the Common Stock of the
Company if doing so would be in violation of applicable securities
laws.
5.6 The Investor understands that nothing in the Exchange Act
Documents, this Agreement or any other materials presented to the
Investor in connection with the purchase and sale of the Preferred
Shares and the Warrant constitutes legal, tax or investment advice.
The Investor has consulted such legal, tax and investment advisors as
it, in its sole discretion, has deemed necessary or appropriate in
connection with its purchase of the Preferred Shares and the Warrant.
5.7 Neither the Investor, nor any of its principal owners,
partners, members, directors or officers, if any, is included on:
(i) the Office of Foreign Assets Control list of foreign nations,
organizations and individuals subject to economic and trade sanctions,
based on U.S. foreign policy and national security goals; or
(ii) Executive Order 13224, which set forth a list of individuals and
groups with whom U.S. persons are prohibited from doing business
because such persons have been identified as terrorists or persons who
support terrorism.
5.8 The Investor acknowledges and agrees that, notwithstanding
any other provision herein contained, it has been informed that
pursuant to currently existing registration rights agreements with
certain
10
persons not affiliated with the Company, a total of 56,500 additional
shares of Common Stock may be included in the Registration Statement
contemplated by Section 7.1 hereof. Investor hereby expressly consents
to the inclusion of such additional shares in the Registration
Statement if such persons exercise its or their rights thereto;
provided, however, that the shares of Common Stock of such persons so
to be included in the Registration Statement shall be excluded and
withdrawn from such Registration Statement if their inclusion would
have the effect of delaying or preventing the declaration of
effectiveness of the Registration Statement.
5.9 The Company acknowledges and agrees that Investor does not
make or has not made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set
forth in Sections 5 and 16(a) of this Agreement, or in the Investor
Questionnaire.
6. Survival of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement, all
covenants, agreements, representations and warranties made by the Company
and the Investor herein shall survive the execution of this Agreement, the
delivery to the Investor of the Preferred Shares and the Warrant being
purchased and the payment therefor.
7. Registration of the Conversion Shares and Warrant Shares;
Compliance with the Securities Act.
7.1 Registration Procedures and Other Matters. The Company
shall:
(a) subject to receipt of necessary information from the
Investors after prompt request from the Company to the Investors
to provide such information, prepare and file with the SEC,
within 30 days after the First Closing, a registration statement
on Form S-3 (the "Registration Statement") to enable the resale
of the Conversion Shares and the Warrant Shares by the Investors
from time to time through the automated quotation system of the
Nasdaq National Market or in privately-negotiated transactions;
(b) use its best efforts, subject to receipt of
necessary information from the Investors after prompt request
from the Company to the Investors to provide such information,
to cause the Registration Statement to become effective within
60 days after the Registration Statement is filed by the Company
such efforts to include, without limiting the generality of the
foregoing, preparing and filing with the SEC in such 60-day
period any financial statements that are required to be filed
prior to the effectiveness of such Registration Statement;
(c) use its best efforts to prepare and file with the
SEC such amendments and supplements to the Registration
Statement and the Prospectus used in connection therewith as may
be necessary to keep the Registration Statement current,
effective and free from any material misstatement or omission to
state a material fact for a period not exceeding, with respect
to the Conversion Shares purchased hereunder and Warrant Shares
purchased under the Warrant, the earlier of (i) the second
anniversary of the dated of the final Closing, (ii) the date on
which the Investor may sell all Conversion Shares and Warrant
Shares then held by the Investor without restriction by the
volume limitations of Rule 144(e) of the Securities Act, or
(iii) such time as all Conversion Shares purchased by such
Investor in this Offering and Warrant Shares issuable pursuant
to the Warrant have been sold pursuant to a registration
statement;
(d) furnish to the Investor with respect to the
Conversion Shares and Warrant Shares registered under the
Registration Statement such number of copies of the Registration
Statement, Prospectuses and Preliminary Prospectuses in
conformity with the requirements of the Securities Act and such
other documents as the Investor may reasonably request, in order
to facilitate the public sale or other disposition of all or any
of the Preferred Shares or Warrant Shares by the Investor;
provided, however, that the obligation of the Company to deliver
copies of Prospectuses or Preliminary Prospectuses to the
Investor shall be subject to the receipt by the Company of
reasonable assurances from the Investor that the Investor will
comply with the applicable provisions of the Securities Act and
of such other securities or blue sky laws as may be applicable
in connection with any use of such Prospectuses or Preliminary
Prospectuses;
(e) file documents required of the Company for normal
blue sky clearance in states specified in writing by the
Investor and use its best efforts to maintain such blue sky
qualifications during the period
11
the Company is required to maintain the effectiveness of the
Registration Statement pursuant to Section 7.1(c); provided,
however, that the Company shall not be required to qualify to do
business or consent to service of process in any jurisdiction in
which it is not now so qualified or has not so consented;
(f) bear all expenses in connection with the procedures
in paragraph (a) through (e) of this Section 7.1 and the
registration of the Conversion Shares and Warrant Shares
pursuant to the Registration Statement, other than fees and
expenses, if any, of counsel or other advisors to the Investor
or underwriting discounts, brokerage fees and commissions
incurred by the Investor; and
(g) advise the Investor, promptly after it shall receive
notice or obtain knowledge of the issuance of any stop order by
the SEC delaying or suspending the effectiveness of the
Registration Statement or of the initiation or threat of any
proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain
its withdrawal at the earliest possible moment if such stop
order should be issued.
Notwithstanding anything to the contrary herein, the Registration
Statement shall cover only the Conversion Shares and the Warrant Shares. In
no event at any time before the Registration Statement becomes effective
with respect to the Conversion Shares and the Warrant Shares shall the
Company publicly announce or file any other registration statement, other
than registrations on Form S-8, or post-effective amendments to registration
statements already in existence on the date hereof, without the prior
written consent of a majority in interest of the Investors.
The Company understands that the Investor disclaims being an
underwriter, but the Investor being deemed an underwriter by the SEC shall
not relieve the Company of any obligations it has hereunder; provided,
however that if the Company receives notification from the SEC that the
Investor is deemed an underwriter, then the period by which the Company is
obligated to submit an acceleration request to the SEC shall be extended to
the earlier of (i) the 90th day after such SEC notification, or (ii) 120
days after the initial filing of the Registration Statement with the SEC.
7.2 Transfer of Conversion Shares and Warrant Shares After
Registration; Suspension.
(a) The Investor agrees that it will not effect any
disposition of the Conversion Shares or the Warrant Shares or
its right to purchase the Conversion Shares or the Warrant
Shares that would constitute a sale within the meaning of the
Securities Act except as contemplated in the Registration
Statement referred to in Section 7.1 and as described below or
as otherwise permitted by law, and agrees that it will promptly
notify the Company of any changes in the information set forth
in the Registration Statement regarding the Investor or its plan
of distribution.
(b) Except in the event that paragraph (c) below
applies, the Company shall (i) if deemed necessary by the
Company, prepare and file from time to time with the SEC a post-
effective amendment to the Registration Statement or a
supplement to the related Prospectus or a supplement or
amendment to any document incorporated therein by reference or
file any other required document so that such Registration
Statement will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading, and so that, as thereafter delivered to purchasers
of the Conversion Shares and Warrant Shares being sold
thereunder, such Prospectus will not contain an untrue statement
of a material fact or omit 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; (ii) provide the Investor copies of any documents
filed pursuant to Section 7.2(b)(i); and (iii) inform each
Investor that the Company has complied with its obligations in
Section 7.2(b)(i) (or that, if the Company has filed a post-
effective amendment to the Registration Statement which has not
yet been declared effective, the Company will notify the
Investor to that effect, will use its best efforts to secure the
effectiveness of such post-effective amendment as promptly as
possible and will promptly notify the Investor pursuant to
Section 7.2(b)(i) hereof when the amendment has become
effective).
12
(c) Subject to paragraph (d) below, in the event (i) of
any request by the SEC or any other federal or state
governmental authority during the period of effectiveness of the
Registration Statement for amendments or supplements to a
Registration Statement or related Prospectus or for additional
information; (ii) of the issuance by the SEC or any other
federal or state governmental authority of any stop order
suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose; (iii) of the
receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification
of any of the Conversion Shares or the Warrant Shares for sale
in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; or (iv) of any event or
circumstance which, upon the advice of its counsel, necessitates
the making of any changes in the Registration Statement or
Prospectus, or any document incorporated or deemed to be
incorporated therein by reference, so that, in the case of the
Registration Statement, it will not contain any untrue statement
of a material fact or any omission to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, and that in the case of the
Prospectus, it will not contain any untrue statement of a
material fact or any omission to state a material fact required
to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading; then the Company shall deliver a
certificate in writing to the Investor (the "Suspension Notice")
to the effect of the foregoing and, upon receipt of such
Suspension Notice, the Investor will refrain from selling any
Conversion Shares and Warrant Shares pursuant to the
Registration Statement (a "Suspension") until the Investor's
receipt of copies of a supplemented or amended Prospectus
prepared and filed by the Company, or until it is advised in
writing by the Company that the current Prospectus may be used,
and has received copies of any additional or supplemental
filings that are incorporated or deemed incorporated by
reference in any such Prospectus. In the event of any
Suspension, the Company will use its best efforts to cause the
use of the Prospectus so suspended to be resumed as soon as
reasonably practicable within 20 business days after the
delivery of a Suspension Notice to the Investor. In addition to
and without limiting any other remedies (including, without
limitation, at law or at equity) available to the Investor, the
Investor shall be entitled to specific performance in the event
that the Company fails to comply with the provisions of this
Section 7.2(c).
(d) Notwithstanding the foregoing paragraphs of this
Section 7.2, the Investor shall not be prohibited from selling
Conversion Shares or Warrant Shares under the Registration
Statement as a result of Suspensions on more than two occasions
of not more than 30 days each in any twelve month period,
unless, in the good faith judgment of the Company's Board of
Directors, upon the written opinion of counsel, the sale of
Preferred Shares and Warrant Shares under the Registration
Statement in reliance on this paragraph 7.2(d) would be
reasonably likely to cause a violation of the Securities Act or
the Exchange Act and result in liability to the Company.
(e) Provided that a Suspension is not then in effect,
the Investor may sell Conversion Shares and Warrant Shares under
the Registration Statement, provided that it arranges for
delivery of a current Prospectus to the transferee of such
Preferred Shares or Warrant Shares. Upon receipt of a request
therefor, the Company has agreed to provide an adequate number
of current Prospectuses to the Investor and to supply copies to
any other parties requiring such Prospectuses.
(f) In the event of a sale of Conversion Shares or
Warrant Shares by the Investor pursuant to the Registration
Statement, the Investor must also deliver to the Company's
transfer agent, with a copy to the Company, a Certificate of
Subsequent Sale substantially in the form attached hereto as
Exhibit A, so that the Conversion Shares and Warrant Shares may
be properly transferred.
7.3 Indemnification. For the purpose of this Section 7.3:
(i) the term "Selling Stockholder" shall include the
Investor and any affiliate of such Investor;
(ii) the term "Registration Statement" shall include the
Prospectus in the form first filed with the SEC pursuant to
Rule 424(b) of the Securities Act or filed as part of the
Registration Statement at the time of effectiveness if no
Rule 424(b) filing is required, exhibit, supplement or amendment
included in or relating to the Registration Statement referred
to in Section 7.1; and
13
(iii) the term "untrue statement" shall include any untrue
statement or alleged untrue statement, or any omission or
alleged omission to state in the Registration Statement a
material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under
which they were made, not misleading.
(a) The Company agrees to indemnify and hold
harmless each Selling Stockholder from and against any
losses, claims, damages or liabilities to which such
Selling Stockholder may become subject (under the
Securities Act or otherwise) insofar as such losses,
claims, damages or liabilities (or actions or proceedings
in respect thereof) arise out of, or are based upon
(i) any breach of the representations or warranties of the
Company contained herein or failure to comply with the
covenants and agreements of the Company contained herein,
(ii) any untrue statement of a material fact contained in
the Registration Statement as amended at the time of
effectiveness or any omission of a material fact required
to be stated therein or necessary to make the statements
therein not misleading, or (iii) any failure by the
Company to fulfill any undertaking included in the
Registration Statement as amended at the time of
effectiveness, and the Company will reimburse such Selling
Stockholder for any reasonable legal or other expenses
reasonably incurred in investigating, defending or
preparing to defend any such action, proceeding or claim,
or preparing to defend any such action, proceeding or
claim, provided, however, that the Company shall not be
liable in any such case to the extent that such loss,
claim, damage or liability arises out of, or is based
upon, an untrue statement made in such Registration
Statement or any omission of a material fact required to
be stated therein or necessary to make the statements
therein not misleading in reliance upon and in conformity
with written information furnished to the Company by or on
behalf of such Selling Stockholder specifically for use in
preparation of the Registration Statement or the failure
of such Selling Stockholder to comply with its covenants
and agreements contained in Section 7.2 hereof respecting
sale of the Conversion Shares or Warrant Shares or any
statement or omission in any Prospectus that is corrected
in any subsequent Prospectus that was delivered to the
Selling Stockholder prior to the pertinent sale or sales
by the Selling Stockholder. The Company shall reimburse
each Selling Stockholder for the amounts provided for
herein on demand as such expenses are incurred.
(b) The Investor agrees to indemnify and hold
harmless the Company (and each person, if any, who
controls the Company within the meaning of Section 15 of
the Securities Act, each officer of the Company who signs
the Registration Statement and each director of the
Company) from and against any losses, claims, damages or
liabilities to which the Company (or any such officer,
director or controlling person) may become subject (under
the Securities Act or otherwise), insofar as such losses,
claims, damages or liabilities (or actions or proceedings
in respect thereof) arise out of, or are based upon,
(i) any failure to comply with the covenants and
agreements contained in Section 7.2 hereof respecting sale
of the Conversion Shares and Warrant Shares, or (ii) any
untrue statement of a material fact contained in the
Registration Statement or any omission of a material fact
required to be stated therein or necessary to make the
statements therein not misleading if such untrue statement
or omission was made in reliance upon and in conformity
with written information furnished by or on behalf of the
Investor specifically for use in preparation of the
Registration Statement, and the Investor will reimburse
the Company (or such officer, director or controlling
person), as the case may be, for any legal or other
expenses reasonably incurred in investigating, defending
or preparing to defend any such action, proceeding or
claim; provided that the Investor's obligation to
indemnify the Company and such officers, directors, and
controlling persons shall be limited to the net amount
received by the Investor from the sale of the Conversion
Shares and Warrant Shares.
(c) Promptly after receipt by any indemnified
person of a notice of a claim or the beginning of any
action in respect of which indemnity is to be sought
against an indemnifying person pursuant to this
Section 7.3, such indemnified person shall notify the
indemnifying person in writing of such claim or of the
commencement of such action, but the omission to so notify
the indemnifying person will not relieve it from any
liability which it may have to any indemnified person
under this Section 7.3 (except to the extent that such
omission materially and adversely affects the indemnifying
person's ability to defend such action) or from any
liability otherwise than under this Section 7.3. Subject
to the provisions hereinafter stated, in case any such
action shall be brought against an indemnified person, the
indemnifying person shall be entitled to participate
therein, and, to the extent that it shall elect by written
notice delivered to the indemnified person promptly after
receiving the aforesaid notice from such indemnified
person, shall be entitled to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified
person. After notice from the indemnifying person to such
indemnified person of
14
its election to assume the defense thereof, such
indemnifying person shall not be liable to such
indemnified person for any legal expenses subsequently
incurred by such indemnified person in connection with the
defense thereof, provided, however, that if there exists
or shall exist a conflict of interest that would make it
inappropriate, in the opinion of counsel to the
indemnified person, for the same counsel to represent both
the indemnified person and such indemnifying person or any
affiliate or associate thereof, the indemnified person
shall be entitled to retain its own counsel at the expense
of such indemnifying person; provided, however, that no
indemnifying person shall be responsible for the fees and
expenses of more than one separate counsel (together with
appropriate local counsel) for all indemnified parties. In
no event shall any indemnifying person be liable in
respect of any amounts paid in settlement of any action
unless the indemnifying person shall have approved the
terms of such settlement; provided that such consent shall
not be unreasonably withheld or delayed. No indemnifying
person shall, without the prior written consent of the
indemnified person, effect any settlement of any pending
or threatened proceeding in respect of which any
indemnified person is or could have been a party and
indemnification could have been sought hereunder by such
indemnified person, unless such settlement includes an
unconditional release of such indemnified person from all
liability on claims that are the subject matter of such
proceeding.
(d) If the indemnification provided for in this
Section 7.3 is unavailable to or insufficient to hold
harmless an indemnified person under subsection (a) or (b)
above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof)
referred to therein, then each indemnifying person shall
contribute to the amount paid or payable by such
indemnified person as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in
such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and the Investor, as
well as any other Selling Shareholders under such
registration statement on the other in connection with the
statements or omissions or other matters which resulted in
such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable
considerations. The relative fault shall be determined by
reference to, among other things, in the case of an untrue
statement, whether the untrue statement relates to
information supplied by the Company on the one hand or an
Investor or other Selling Shareholder on the other and the
parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue
statement. The Company and the Investor agree that it
would not be just and equitable if contribution pursuant
to this subsection (d) were determined by pro rata
allocation (even if the Investor and other Selling
Shareholders were treated as one entity for such purpose)
or by any other method of allocation which does not take
into account the equitable considerations referred to
above in this subsection (d). The amount paid or payable
by an indemnified person as a result of the losses,
claims, damages or liabilities (or actions in respect
thereof) referred to above in this subsection (d) shall be
deemed to include any legal or other expenses reasonably
incurred by such indemnified person in connection with
investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), the
Investor shall not be required to contribute any amount in
excess of the amount by which the net amount received by
the Investor from the sale of the Conversion Shares and
Warrant Shares to which such loss relates exceeds the
amount of any damages which such Investor has otherwise
been required to pay by reason of such untrue statement.
No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall
be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The
Investor's obligations in this subsection to contribute
shall be in proportion to its Investor sale of the
Preferred Shares and Warrant Shares to which such loss
relates and shall not be joint with any other Selling
Shareholders.
(e) The parties to this Agreement hereby
acknowledge that they are sophisticated business persons
who were represented by counsel during the negotiations
regarding the provisions hereof including, without
limitation, the provisions of this Section 7.3, and are
fully informed regarding said provisions. They further
acknowledge that the provisions of this Section 7.3 fairly
allocate the risks in light of the ability of the parties
to investigate the Company and its business in order to
assure that adequate disclosure is made in the
Registration Statement as required by the Act and the
Exchange Act. The parties are advised that federal or
state public policy as interpreted by the courts in
certain jurisdictions may be contrary to certain of the
provisions of this Section 7.3, and the parties hereto
hereby expressly waive and relinquish any right or ability
to assert such public policy as a defense to a claim under
this Section 7.3 and further agree not to attempt to
assert any such defense.
7.4 Termination of Conditions and Obligations. The conditions
precedent imposed by Section 5 or this Section 7 upon the
transferability of the Preferred Shares, the Warrants, the Conversion
Shares and the Warrant Shares shall cease and terminate as to any
particular number of the Conversion Shares or Warrant
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Shares when such Common Stock underlying such Preferred Shares and
Warrant Shares shall have been effectively registered under the
Securities Act and sold or otherwise disposed of in accordance with
the intended method of disposition set forth in the Registration
Statement covering such Conversion Shares or Warrant Shares or at such
time as an opinion of counsel reasonably satisfactory to the Company
shall have been rendered to the effect that such conditions are not
necessary in order to comply with the Securities Act.
7.5 Information Available. So long as the Registration
Statement is effective covering the resale of Preferred Shares and
Warrant Shares owned by the Investor, the Company will furnish to the
Investor:
(a) as soon as practicable after it is available, one
copy of (i) its Annual Report to Stockholders (which Annual
Report shall contain financial statements audited in accordance
with generally accepted accounting principles by a national firm
of certified public accountants), (ii) its Annual Report on Form
10-K and (iii) its Quarterly Reports on Form 10-Q (the
foregoing, in each case, excluding exhibits);
(b) upon the request of the Investor, all exhibits
excluded by the parenthetical to subparagraph (a) of this
Section 7.5 as filed with the SEC and all other information that
is made available to shareholders; and
(c) upon the reasonable request of the Investor, an
adequate number of copies of the Prospectuses to supply to any
other party requiring such Prospectuses; and upon the reasonable
request of the Investor, the President or the Chief Financial
Officer of the Company (or an appropriate designee thereof) will
meet with the Investor or a representative thereof at the
Company's headquarters to discuss all information relevant for
disclosure in the Registration Statement covering the Conversion
Shares and Warrant Shares and will otherwise cooperate with any
Investor conducting an investigation for the purpose of reducing
or eliminating such Investor's exposure to liability under the
Securities Act, including the reasonable production of
information at the Company's headquarters; provided, that the
Company shall not be required to disclose any confidential
information to or meet at its headquarters with any Investor
until and unless the Investor shall have entered into a
confidentiality agreement in form and substance reasonably
satisfactory to the Company with the Company with respect
thereto.
7.6 Delayed Effectiveness. The Company and Investor agree that
Investor will suffer damages if the Company fails to fulfill its
obligations pursuant to Section 7.1 and 7.2 hereof and that it would
not be possible to ascertain the extent of such damages with
precision. Accordingly, the Company hereby agrees to pay liquidated
damages ("Liquidated Damages") to Investor under the following
circumstances: (a) if the Registration Statement is not filed by the
Company on or prior to 30 days after the First Closing in accordance
with Section 7.1(a) (such an event, a "Filing Default"); (b) if the
Registration Statement is not declared effective by the SEC on or
prior to 90 days after the First Closing (such an event, an
"Effectiveness Default"); or (c) if the Registration Statement (after
its effectiveness date) ceases to be effective and available to
Investor for any continuous period that exceeds 30 days or for one or
more period that exceeds in the aggregate 60 days in any 12-month
period (such an event, a "Suspension Default" and together with a
Filing Default and an Effectiveness Default, a "Registration
Default"). In the event of a Registration Default, the Company shall
as Liquidated Damages pay to Investor, for each 30-day period of a
Registration Default, an amount in cash equal to 1% of the aggregate
purchase price paid by Investor pursuant to this Agreement; provided
that in no event shall the aggregate amount of cash to be paid as
Liquidated Damages pursuant to this Section 7.6 exceed 9% of the
aggregate purchase price paid by Investor. The Company shall pay the
Liquidated Damages as follows: (i) in connection with a Filing
Default, on the 31st day after the First Closing, and each 30th day
thereafter until the Registration Statement is filed with the SEC;
(ii) in connection with an Effectiveness Default, on the 91St day
after the First Closing, and each 30th day thereafter until the
Registration Statement is declared effective by the SEC; or (iii) in
connection with a Suspension Default, on either (x) the 31st
consecutive day of any Suspension or (y) the 61st day (in the
aggregate) of any Suspensions in any 12-month period, and each 30th
day thereafter until the Suspension is terminated in accordance with
Section 7.2. Notwithstanding the foregoing, all periods shall be
tolled during delays directly caused by the action or inaction of any
Investor, and the Company shall have no liability to any Investor in
respect of any such delay. The Liquidated Damages payable herein shall
apply on a pro rata basis for any portion of a 30-day period of a
Registration Default. The parties agree that the sole damages payable
for a violation of the terms of this Agreement with respect to which
Liquidated Damages are expressly provided shall be such Liquidated
Damages.
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8. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed (A) if within
the United States by first-class registered or certified airmail, or
nationally recognized overnight express courier, postage prepaid, or by
facsimile, or (B) if delivered from outside the United States, by
International Federal Express or facsimile, and shall be deemed given (i) if
delivered by first-class registered or certified mail, three business days
after so mailed, (ii) if delivered by nationally recognized overnight
carrier, one business day after so mailed, (iii) if delivered by
International Federal Express, two business days after so mailed, (iv) if
delivered by facsimile, upon electronic confirmation of receipt and shall be
delivered as addressed as follows:
(a) if to the Company, to:
Parlex Corporation
Xxx Xxxxxx Xxxxx
Xxxxxxx, XX 00000
Attn: Xxxxxxxx X. Xxxxxxx
(b) with a copy to:
Kutchin & Xxxx, P.C.
000 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx, Esq.
(c) if to the Investor, at its address on the signature page
of the Stock and Warrant Purchase Agreement, of which
these Terms and Conditions form a part, or at such other
address or addresses as may have been furnished to the
Company in writing.
9. Changes. This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and the Investor.
10. Headings. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed
to be part of this Agreement.
11. Severability. In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein
shall not in any way be affected or impaired thereby.
12. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the Commonwealth of
Massachusetts, without giving effect to the principles of conflicts of law.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument, and shall become
effective when one or more counterparts have been signed by each party
hereto and delivered to the other parties.
14. Rule 144. The Company covenants that it will timely file the
reports required to be filed by it under the Securities Act and the Exchange
Act and the rules and regulations adopted by the SEC thereunder (or, if the
Company is not required to file such reports, it will, upon the request of
any Investor holding Preferred Shares purchased hereunder or Warrant Shares
purchased under the Warrants made after the first anniversary of the First
Closing, make publicly available such information as necessary to permit
sales pursuant to Rule 144 under the Securities Act), and it will take such
further action as any such Investor may reasonably request, all to the
extent required from time to time to enable such Investor to sell the
Conversion Shares and Warrant Shares purchased hereunder without
registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule
may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the SEC. Upon the request of the Investor, the Company
will deliver to such holder a written statement as to whether it has
complied with such information and requirements.
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15. Confidential Information. (a) The Investor represents to the
Company that, at all times during the Company's offering of the Preferred
Shares and Warrants, the Investor has maintained in confidence all non-
public information regarding the Company received by the Investor from the
Company or its agents, and covenants that it will continue to maintain in
confidence such information until such information (a) becomes generally
publicly available other than through a violation of this provision by the
Investor or its agents or (b) is required to be disclosed in legal
proceedings (such as by deposition, interrogatory, request for documents,
subpoena, civil investigation demand, filing with any governmental authority
or similar process), provided, however, that before making any use or
disclosure in reliance on this subparagraph (b) the Investor shall give the
Company at least fifteen (15) days prior written notice (or such shorter
period as required by law) specifying the circumstances giving rise thereto
and will furnish only that portion of the non-public information which is
legally required and will exercise its best efforts to obtain reliable
assurance that confidential treatment will be accorded any non-public
information so furnished.
(b) The Company shall issue a press release disclosing the
material terms of the transactions contemplated hereby (including at
least the number of Preferred Shares and Warrants sold and proceeds
therefrom).
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