EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of May
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9, 2005, is by and between CITADEL SECURITY SOFTWARE INC., a Delaware
corporation (the "Company"), and each of the entities whose names appear on the
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signature pages hereof. Such entities are each referred to herein as an
"Investor" and, collectively, as the "Investors".
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A. The Company wishes to sell to each Investor, and each Investor
wishes to purchase, on the terms and subject to the conditions set forth in this
Agreement, (A) shares (the "Preferred Shares") of the Company's Series B
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Convertible Preferred Stock (the "Preferred Stock") having the rights and
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privileges set forth in the form of Certificate of Designation attached hereto
as Exhibit A (the "Certificate of Designation" or "Certificate"), (B) one or
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more Warrant in the form attached hereto as Exhibit B (each, a "Warrant" and,
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collectively, the "Warrants").
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B. The Preferred Stock will be convertible into shares of the
Company's common stock, par value $0.01 per share (the "Common Stock") at the
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Conversion Price (as defined below) and such shares are referred to herein as
the "Conversion Shares". Each Warrant issued to an Investor will entitle such
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Investor to purchase a number of shares of Common Stock equal to (i) the
purchase price paid by such Investor for the Preferred Shares and Warrant being
purchased by such Investor divided by (ii) the Conversion Price times (iii)
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forty percent (40%). The Warrants will have an exercise price equal to $1.75
per share (subject to adjustment as provided therein) and will expire on the
tenth (10th) anniversary of the issuance thereof. The shares of Common Stock
into which the Warrants are exercisable are referred to herein as the "Warrant
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Shares". The Preferred Shares, the Conversion Shares, the Warrants and the
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Warrant Shares are collectively referred to herein as the "Securities".
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C. The Company has agreed to effect the registration of the
Conversion Shares and the Warrant Shares under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Rights Agreement in
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the form attached hereto as Exhibit C (the "Registration Rights Agreement").
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D. The sale of the Preferred Shares and the Warrants by the Company
to the Investors will be effected in reliance upon the exemption from securities
registration afforded by the provisions of Regulation D ("Regulation D"), as
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promulgated by the Commission (as defined below) under the Securities Act.
In consideration of the mutual promises made herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and each Investor hereby agree as follows:
1. PURCHASE AND SALE OFPREFERRED SHARES AND WARRANTS.
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1.1 Initial Closing. Upon the terms and subject to the satisfaction or
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waiver of the conditions set forth herein, the Company agrees to sell and each
Investor agrees to purchase for the Purchase Price (as defined below) (i) the
number of Preferred Shares set forth below such Investor's name on the signature
pages hereof (each, an "Initial Preferred Share" and, together with the other
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Preferred Shares issued and sold at the Initial Closing (as defined below), the
"Initial Preferred Shares") and (ii) a Warrant to purchase the number of Warrant
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Shares indicated on the signature page hereof (an "Initial Warrant" and,
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together with the other Warrants issued and sold at the Initial Closing, the
"Initial Warrants"). The closing of the purchase and sale of the Initial
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Preferred Shares and Initial Warrants (the "Initial Closing") will be deemed to
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occur at the offices of ▇▇▇▇▇ & Stachenfeld LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇, when (A) this Agreement and the other Initial Transaction
Documents (as defined below) have been executed and delivered by the Company
and, to the extent applicable, by each Investor, (B) each of the conditions to
the Initial Closing described in Sections 5.1 and 5.2 hereof has been satisfied
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or waived by the Company or each Investor, as appropriate, and (C) each Investor
shall have delivered the Purchase Price payable by it to the Company by wire
transfer of immediately available funds against physical delivery of duly
executed certificates representing the Initial Preferred Shares and Initial
Warrant being purchased by such Investor. The date on which the Initial Closing
occurs is referred to herein as the "Initial Closing Date".
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1.2 Put Option Closing. In the event that each Put Option Milestone (as
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defined below) is achieved on each Business Day occurring during the period
beginning on (and including) the Approval Date (as defined below) and ending on
(and including) the tenth (10th) Business Day following the later of (a) the
Approval Date and (b) the First Registration Deadline as defined in the
Registration Rights Agreement (such tenth Business day, the "Put Option Closing
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Date"), the Company shall have the right, upon the terms and subject to the
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satisfaction or waiver of the conditions set forth herein, to require each
Satellite Entity (as defined below) to purchase for the Purchase Price, (i) up
to such Satellite Entity's pro rata share (based on the number of Initial
Preferred Shares purchased by each Satellite Entity) of a number of Preferred
Shares having an aggregate Stated Value equal to the Put Option Aggregate Stated
Value (as defined below) (subject to adjustment for stock splits, dividends and
similar events) (each, a "Put Option Preferred Share" and, together with the
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other Preferred Shares issued and sold at the Put Option Closing, the "Put
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Option Preferred Shares"), and (ii) a Warrant (a "Put Option Warrant" and,
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together with the other Warrants issued and sold at the Put Option Closing, the
"Put Option Warrants"). In order to exercise such right, the Company must
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deliver written notice thereof to each Satellite Entity (a "Put Option Closing
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Notice") on or before the seventh (7th) Business Day following the Approval Date
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(the "Put Option Closing Notice Deadline").
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The closing of the purchase and sale of the Put Option Preferred Shares and
the Put Option Warrants (the "Put Option Closing") will occur at the offices of
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▇▇▇▇▇ & Stachenfeld, LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, on the
Put Option Closing Date, provided that each of the conditions to the Put Option
Closing described in Sections 5.3 and 5.4 hereof has been satisfied or waived by
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the Company or each Satellite Entity, as appropriate. The Put Option Closing
will be deemed to occur, subject to the terms and conditions set forth in this
Agreement, when (A) each of the Put Option Transaction Documents (as defined
below) has been executed and delivered
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by the Company and, to the extent applicable, by each Satellite Entity, and (B)
each Satellite Entity has delivered the Purchase Price payable by it to the
Company by wire transfer of immediately available funds against physical
delivery of duly executed certificates representing the Put Option Preferred
Shares and Put Option Warrant being purchased by such Satellite Entity. If the
Company has not delivered the Put Option Closing Notice by the Put Option
Closing Notice Deadline, or if the Put Option Closing has not occurred due to a
failure by the Company to reach the Put Option Milestones or satisfy the other
conditions to a Satellite Entity's obligation to purchase Put Option Preferred
Shares and a Put Option Warrant, the Company shall, within 5 business days
following the Put Option Closing Notice Deadline, and without any further
payment or consideration owing to it, issue and deliver to each Satellite Entity
a warrant substantially in the form of the Warrants, exercisable into the number
of shares of Common Stock that would have been subject to the Put Option
Warrants had they been issued (without regard to any restriction on such
conversion), with an exercise price equal to $1.75 (subject to adjustment as
specified therein).
Each of the Initial Closing and the Put Option Closing are hereinafter
referred to as a "Closing". The Initial Preferred Shares and the Put Option
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Preferred Shares are collectively referred to herein as the "Preferred Shares";
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the Initial Preferred Stock and the Put Option Preferred Stock is collectively
referred to herein as the "Preferred Stock"; and the Initial Warrants and the
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Put Option Warrants are collectively referred to herein as the "Warrants".
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1.3 Certain Definitions. When used herein, the following terms shall have
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the respective meanings indicated:
"Affiliate" means, as to any Person (the "subject Person"),
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any other Person (a) that directly or indirectly through one or more
intermediaries controls or is controlled by, or is under direct or indirect
common control with, the subject Person, (b) that directly or indirectly
beneficially owns or holds ten percent (10%) or more of any class of voting
equity of the subject Person, or (c) ten percent (10%) or more of the voting
equity of which is directly or indirectly beneficially owned or held by the
subject Person. For the purposes of this definition, "control" when used with
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respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, through representation on such Person's board of directors or other
management committee or group, by contract or otherwise.
"Approval Date" means the date on which Stockholder Approval
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has been obtained.
"Board of Directors" means the Company's board of directors.
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"Business Day" means any day other than a Saturday, a Sunday
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or a day on which the New York Stock Exchange or commercial banks located in New
York City are authorized or permitted by law to close.
"Cap Amount" means 19.99% of the number of shares of Common
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Stock outstanding on the Closing Date (subject to adjustment upon a stock split,
stock dividend or similar event).
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"Certificate of Designation" has the meaning specified in
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the preamble to this Agreement.
"Closing Date" means each of the Initial Closing Date and
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the Put Option Closing Date.
"Commission" means the United States Securities and Exchange
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Commission.
"Common Stock" means the common stock, par value $0.01 per
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share, of the Company.
"Conversion Price" means $1.55 (subject to adjustment as set
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forth in the Certificate).
"Debt" means, as to any Person at any time: (a) all
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indebtedness, liabilities and obligations of such Person for borrowed money; (b)
all indebtedness, liabilities and obligations of such Person to pay the deferred
purchase price of Property or services, except trade accounts payable of such
Person arising in the ordinary course of business that are not past due by more
than 60 days; (c) all capital lease obligations of such Person; (d) all
indebtedness, liabilities and obligations of others guaranteed by such Person;
(e) all indebtedness, liabilities and obligations secured by a Lien existing on
Property owned by such Person, whether or not the indebtedness, liabilities or
obligations secured thereby have been assumed by such Person or are non-recourse
to such Person; (f) all reimbursement obligations of such Person (whether
contingent or otherwise) in respect of letters of credit, bankers' acceptances,
surety or other bonds and similar instruments; and (g) all indebtedness,
liabilities and obligations of such Person to redeem or retire shares of capital
stock of such Person.
"Environmental Law" means any federal, state, provincial,
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local or foreign law, statute, code or ordinance, principle of common law, rule
or regulation, as well as any Permit, order, decree, judgment or injunction
issued, promulgated, approved or entered thereunder, relating to pollution or
the protection, cleanup or restoration of the environment or natural resources,
or to the public health or safety, or otherwise governing the generation, use,
handling, collection, treatment, storage, transportation, recovery, recycling,
discharge or disposal of hazardous materials.
"ERISA" means the Employee Retirement Income Security Act of
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1974, as amended, and the regulations and published interpretations thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as
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amended (or any successor act), and the rules and regulations thereunder.
"Excluded Security" means (i) the Securities; (ii) shares of
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Common Stock issuable upon conversion of the Series A Preferred Stock; (iii)
shares of Common Stock issuable or issued to employees, consultants or directors
from time to time upon the exercise of options,
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in such case granted or to be granted in the discretion of the Board of
Directors pursuant to one or more stock option plans or agreements or restricted
stock plans or agreements in effect as of the Closing Date and up to an
additional 500,000 shares of Common Stock issuable or issued to employees,
directors, consultants or lenders from time to time as shares or upon the
exercise of options or warrants, which may be granted in the discretion of the
Board of Directors pursuant to one or more agreements, stock option plans or
agreements or restricted stock plans or agreements approved by the independent
directors of the Board of Directors after the Closing Date; (iv) shares of
Common Stock issued in connection with any stock split, stock dividend or
recapitalization of the Company; and (v) shares of Common Stock issued in
connection with the acquisition by the Company of any corporation or other
entity as long as a fairness opinion with respect to such acquisition is
rendered by an investment bank of national recognition.
"Execution Date" means the date of this Agreement.
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"First Registration Statement" has the meaning set forth in
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the Registration Rights Agreement.
"Floor Price" means $1.26, subject to adjustment in the
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event of a stock split, stock dividend or similar event.
"GAAP" means generally accepted accounting principles,
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applied on a consistent basis, as set forth in (i) opinions of the Accounting
Principles Board of the American Institute of Certified Public Accountants, (ii)
statements of the Financial Accounting Standards Board and (iii) interpretations
of the Commission and the Staff of the Commission. Accounting principles are
applied on a "consistent basis" when the accounting principles applied in a
current period are comparable in all material respects to those accounting
principles applied in a preceding period.
"Governmental Authority" means any nation or government, any
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state, provincial or political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, including without limitation any stock exchange,
securities market or self-regulatory organization.
"Governmental Requirement" means any law, statute, code,
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ordinance, order, rule, regulation, judgment, decree, injunction, franchise,
license or other directive or requirement of any federal, state, county,
municipal, parish, provincial or other Governmental Authority or any department,
commission, board, court, agency or any other instrumentality of any of them.
"Initial Closing" and "Initial Closing Date" have the
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respective meanings specified in Section 1.1 hereof.
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"Initial Effective Date" has the meaning set forth in the
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Registration Rights Agreement.
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"Initial Transaction Documents" means (i) this Agreement,
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(ii) the Initial Warrants, (iii) the Registration Rights Agreement, and (iv) all
other agreements, documents and other instruments executed and delivered by or
on behalf of the Company or any of its officers at the Initial Closing.
"Intellectual Property" means any U.S. or foreign patents,
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patent rights, patent applications, trademarks, trade names, service marks,
brand names, logos and other trade designations (including unregistered names
and marks), trademark and service ▇▇▇▇ registrations and applications,
copyrights and copyright registrations and applications, inventions, invention
disclosures, protected formulae, formulations, processes, methods, trade
secrets, computer software, computer programs and source codes, manufacturing
research and similar technical information, engineering know-how, customer and
supplier information, assembly and test data drawings or royalty rights.
"Investor" has the meaning specified in the preamble to this
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Agreement and shall be deemed to include any accounts over which an Investor has
investment discretion.
"Key Person" means each of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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and ▇▇▇▇ ▇▇▇▇▇▇▇.
"Lien" means, with respect to any Property, any mortgage or
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mortgages, pledge, hypothecation, assignment, deposit arrangement, security
interest, tax lien, financing statement, pledge, charge, or other lien, charge,
easement, encumbrance, preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever on or with respect to
such Property (including, without limitation, any conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing).
"Material Adverse Effect" means an effect that is material
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and adverse to (i) the consolidated business, operations, properties, financial
condition, prospects or results of operations of the Company and its
Subsidiaries taken as a whole or (ii) the transactions contemplated by the
Certificate, this Agreement or the other Transaction Documents or (iii) the
Company's ability to perform its obligations under the Certificate, this
Agreement and the other Transaction Documents.
"Material Contracts" means, as to the Company, any agreement
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required pursuant to Item 601 of Regulation S-B or Item 601 of Regulation S-K,
as applicable, under the Securities Act to be filed as an exhibit to any report,
schedule, registration statement or definitive proxy statement filed or required
to be filed by the Company with the Commission under the Exchange Act or any
rule or regulation promulgated thereunder, and any and all amendments,
modifications, supplements, renewals or restatements thereof, including without
limitation any such agreements (and amendments, modifications, supplements,
renewals and restatements thereof) existing on the date hereof that will be
required to be so filed as an exhibit to the Registration Statement.
"NASD" means the National Association of Securities Dealers,
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Inc.
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"Outstanding Registrable Securities" means, at any time, all
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Registrable Securities that at such time are either issued and outstanding or
issuable upon conversion of the Preferred Stock or exercise of the Warrants
(without regard to any limitation on such conversion or exercise).
"Pari Passu Securities" means any securities ranking by
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their terms pari passu with the Preferred Stock in respect of payment of
dividends, redemption or distribution upon liquidation.
"Pension Plan" means an employee benefit plan (as defined in
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ERISA) maintained by the Company for employees of the Company or any of its
Affiliates.
"Permitted Debt" means the following:
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(a) Debt that is outstanding on the Execution Date and
disclosed on Schedule 3.5 hereto, and any replacement of such debt, consisting
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of revolving working capital credit facilities obtained from commercial lending
institutions on commercially reasonable terms and secured only by the Company's
and/or its Subsidiaries' accounts receivable and/or inventory; provided,
however, that in no event shall outstanding Debt exceed Debt that outstanding on
the Execution Date and disclosed on Schedule 3.5 hereto;
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(b) Debt consisting of capitalized lease obligations
and purchase money indebtedness incurred in connection with acquisition of
capital assets and obligations under sale-leaseback or similar arrangements
provided in each case that such obligations are not secured by Liens on any
assets of the Company or its Subsidiaries other than the assets so leased; and
(c) Debt assumed or incurred in connection with the
acquisition by the Company or its Subsidiaries of all or substantially all of
the capital stock or other equity interests in, or all or substantially all of
the assets (constituting a business unit) of, any Person; provided, that the
total amount of Debt assumed or incurred in connection with any such acquisition
shall not exceed the product of four (4) times the amount of the acquired
entity's or business unit's total earnings before interest, taxes, depreciation
and amortization (as determined in accordance with GAAP) for the twelve (12)
full calendar months immediately prior to such acquisition.
"Permitted Liens" means the following:
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(a) encumbrances consisting of easements, rights-of-way,
zoning restrictions or other restrictions on the use of real property or
imperfections to title that do not (individually or in the aggregate)
materially impair the ability of the Company or any of its Subsidiaries to
use such Property in its businesses, and none of which is violated in any
material respect by existing or proposed structures or land use;
(b) Liens for taxes, assessments or other governmental
charges that are not delinquent or which are being contested in good faith
by appropriate proceedings,
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which proceedings have the effect of preventing the forfeiture or sale of
the Property subject to such Liens, and for which adequate reserves (as
determined in accordance with GAAP) have been established;
(c) Liens of mechanics, materialmen, warehousemen,
carriers, landlords or other similar statutory Liens securing obligations
that are not yet due and are incurred in the ordinary course of business or
which are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the
Property subject to such Liens, for which adequate reserves (as determined
in accordance with GAAP) have been established;
(d) any interest or title of a lessor under any capitalized
lease obligation provided that such Liens do not extend to any property or
assets which is not leased property subject to such capitalized lease
obligation;
(e) purchase money Liens to finance property or assets of
the Company or any Subsidiary of the Company acquired in the ordinary
course of business; provided, however, that (A) the related purchase money
Debt shall not exceed the cost of such property or assets (including the
cost of design, development, improvement, production, acquisition,
construction, installation and integration) and shall not be secured by any
property or assets of the Company or any Subsidiary of the Company other
than the property and assets so acquired or constructed (and any
improvements) and (B) the Lien securing such purchase money Debt shall be
created within ten (10) days of such acquisition, construction or
improvement;
(f) Liens upon specific items of inventory or other goods
and proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(g) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual, or warranty requirements
of the Company or any of its subsidiaries, including rights of offset and
set off; and
(h) Liens existing on the Execution Date and disclosed on
Schedule 3.5 hereto.
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"Person" means any individual, corporation, trust,
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association, company, partnership, joint venture, limited liability company,
joint stock company, Governmental Authority or other entity.
"Preferred Stock Termination Date" means the first date on
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which there are no Preferred Shares outstanding.
"Principal Market" means the principal exchange or market on
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which the Common Stock is listed or traded.
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"Property" means property and/or assets of all kinds,
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whether real, personal or mixed, tangible or intangible (including, without
limitation, all rights relating thereto).
"Pro Rata Share" means, with respect to an Investor, the
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ratio determined by dividing (i) the number of Preferred Shares purchased
hereunder by such Investor by (ii) the aggregate number of Preferred Shares
purchased hereunder by all of the Investors.
"Purchase Price" means, with respect to the Preferred Shares
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and Warrant being purchase by an Investor at a Closing, the Stated Value of the
Preferred Shares being purchased by such Investor at such Closing.
"Put Option Aggregate Stated Value" means $11,000,000 minus
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the Stated Value of the Initial Preferred Shares.
"Put Option Milestones" means each of the following:
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(a) the Company has obtained Stockholder Approval;
(b) the First Registration Statement has been declared
effective and is available to the Investors for resales of Conversion Shares and
Warrant Shares; and
(c) the Closing Bid Price (as defined in the Certificate)
is not less than $1.30 (subject to adjustment for stock splits, stock dividends
and similar events).
"Put Option Closing" and "Put Option Closing Date" have the
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respective meanings specified in Section 1.2 hereof.
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"Put Option Transaction Documents" means (i) the Put Option
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Warrants, and (ii) all other agreements, documents and other instruments
executed and delivered by or on behalf of the Company or any of its officers at
the Put Option Closing.
"Registrable Securities" means the Conversion Shares and the
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Warrant Shares, any other shares of Common Stock issuable pursuant to the terms
of the Certificate of Designation or the Warrants, and any shares of capital
stock issued or issuable from time to time (with any adjustments) in replacement
of, in exchange for or otherwise in respect of the Conversion Shares or the
Warrant Shares; provided, however, that "Registrable Securities" shall not
include any such shares that have been sold to the public pursuant to the
Registration Statement or Rule 144.
"Rule 144" means Rule 144 under the Securities Act, or any
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successor provision.
"Satellite Entity" means an Investor whose assets are
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managed by Satellite Asset Management L.P. or one of more of its Affiliates.
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"SEC Documents" has the meaning specified in Section 3.4
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hereof.
"Second Effective Date" has the meaning set forth in the
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Registration Rights Agreement.
"Second Registration Statement" has the meaning set forth in
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the Registration Rights Agreement.
"Securities" has the meaning specified in the preamble to
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this Agreement.
"Senior Securities" means (i) any Debt issued or assumed by
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the Company and (ii) any securities of the Company which by their terms have a
preference over the Preferred Stock in respect of payment of dividends,
redemption or distribution upon liquidation.
"Series A Preferred Stock" means the Company's currently
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outstanding Series A 5% Convertible Preferred Stock.
"Stated Value" means $1,000, subject to proportionate
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adjustment in the event of a stock split or similar event.
"Stockholder Approval" means the affirmative vote of a
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majority (or such other number as may be required by any Governmental
Requirement) of the holders of such number of votes cast at a duly convened
meeting (or pursuant to a written consent) of the Company's stockholders
approving (i) the issuance of Conversion Shares or Warrant Shares in excess of
the Cap Amount as may be required under the applicable listing requirements of
the Nasdaq Stock Market, (ii) the issuance of shares of Common Stock pursuant to
the Series A Preferred Stock and the related warrants in excess of 19.99% of the
number of shares of Common Stock outstanding on the date on which the Series A
Preferred Stock and the related warrants were first issued (subject to
adjustment upon a stock split, stock dividend or similar event) as may be
required under the applicable listing requirements of the Nasdaq Stock Market,
(iii) the authorization of at least 50,000,000 additional shares of Common Stock
for issuance and (iv) an amendment to the Certificate of Designation for the
Series A Preferred Stock for the sole purpose of reducing the conversion price
of the Series A Preferred Stock to $3.00 (subject to adjustment as provided
therein).
"Subsequent Issuance" means the issuance, sale, exchange, or
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agreement or obligation to issue, sell or exchange or reserve, or agreement to
or set aside for issuance, sale or exchange, (1) shares of Common Stock, (2) any
other equity security of the Company or any of its Subsidiaries, including
without limitation shares of preferred stock, (3) any other security of the
Company or any of its Subsidiaries which by its terms is convertible into or
exchangeable or exercisable for any equity security of the Company or any of its
Subsidiaries, or (4) any option, warrant or other right to subscribe for,
purchase or otherwise acquire any such security described in the foregoing
clauses (1) through (3); provided, however, that the issuance or sale, or
agreement to issue or sell, an Excluded Security shall not constitute a
Subsequent Issuance.
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"Subsidiary" means, with respect to the Company, any
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corporation or other entity (other than an entity having no material operations
or business during the twelve month period immediately preceding the Execution
Date) of which at least a majority of the outstanding shares of stock or other
ownership interests having by the terms thereof ordinary voting power to elect a
majority of the board of directors (or Persons performing similar functions) of
such corporation or entity (regardless of whether, in the case of a corporation,
stock of any other class or classes of such corporation shall or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned or controlled by the Company and/or one or more of
its Affiliates.
"Termination Date" means the first date on which there are
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no Preferred Shares or Warrants outstanding.
"Trading Day" means any day on which the Common Stock is
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purchased and sold on the Principal Market.
"Transaction Documents" means the Initial Transaction
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Documents and the Put Option Transaction Documents.
1.4 Other Definitional Provisions. All definitions contained in this
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Agreement are equally applicable to the singular and plural forms of the terms
defined. The words "hereof", "herein" and "hereunder" and words of similar
import referring to this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement.
2. REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR.
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Each Investor (with respect to itself only) hereby represents and warrants
to the Company and agrees with the Company that, as of the Execution Date:
2.1 Authorization; Enforceability. Such Investor is duly and validly
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organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization with the requisite corporate
power and authority to purchase the Preferred Shares and Warrant being purchased
by it hereunder and to execute and deliver this Agreement and the other
Transaction Documents to which it is a party. This Agreement constitutes, and
upon execution and delivery thereof, each other Transaction Document to which
such Investor is a party will constitute, such Investor's valid and legally
binding obligation, enforceable in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws of general application relating to or affecting
the enforcement of creditors' rights generally and (ii) general principles of
equity.
2.2 Accredited Investor. Such Investor is an "accredited investor" as
--------------------
that term is defined in Rule 501 of Regulation D; (ii) is acquiring the
Preferred Shares and Warrants solely for its own account, and not with a present
view to the public resale or distribution of all or any part thereof, except
pursuant to sales that are registered under, or are exempt from the registration
requirements of, the Securities Act; provided, however, that, in making such
representation, such Investor does not agree to hold the Securities for any
minimum or specific term and reserves the right to sell, transfer or otherwise
dispose of the Securities at any time in accordance with the
11
provisions of this Agreement and with Federal and state securities laws
applicable to such sale, transfer or disposition.
2.3 Information. The Company has, prior to the Execution Date, provided
-----------
such Investor with information regarding the business, operations and financial
condition of the Company, and has, prior to the Execution Date, granted to such
Investor the opportunity to ask questions of and receive satisfactory answers
from representatives of the Company, its officers, directors, employees and
agents concerning the Company and materials relating to the terms and conditions
of the purchase and sale of the Preferred Shares and Warrants hereunder, and
based thereon believes it can make an informed decision with respect to its
investment in the Securities. Neither such information nor any other
investigation conducted by such Investor or its representatives shall modify,
amend or otherwise affect such Investor's right to rely on the Company's
representations and warranties contained in this Agreement.
2.4 Limitations on Disposition. Such Investor acknowledges that, except
----------------------------
as provided in the Registration Rights Agreement, the Securities have not been
and are not being registered under the Securities Act and may not be transferred
or resold without registration under the Securities Act or unless pursuant to an
exemption therefrom.
2.5 Legend. Such Investor understands that the certificates representing
------
the Securities may bear at issuance a restrictive legend in substantially the
following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any state, and may not be
offered or sold unless a registration statement under the Securities
Act and applicable state securities laws shall have become effective
with regard thereto, or an exemption from registration under the
Securities Act and applicable state securities laws is available in
connection with such offer or sale. Notwithstanding the foregoing but
subject to compliance with the requirements of the Securities Act and
applicable state securities laws, these securities and the securities
issuable upon exercise hereof (i) may be pledged or hypothecated in
connection with a bona fide margin account or other loan secured by
such securities and (ii) may be transferred or assigned to an
affiliate of the holder hereof."
Notwithstanding the foregoing, it is agreed that, as long as (A) the
resale or transfer (including without limitation a pledge) of any of the
Securities is registered pursuant to an effective registration statement and the
holder represents in writing to the Company that such Securities have been or
will be sold pursuant to such registration statement and in compliance with the
prospectus delivery requirements under the Securities Act, (B) such Securities
have been sold pursuant to Rule 144, subject to receipt by the Company of
customary documentation in connection therewith, or (C) such Securities are
eligible for resale under Rule 144(k) or any successor provision and the holder
thereof represents in writing to the Company that it is eligible to use such
rule for public resales of such Securities, the certificates representing such
Securities shall be issued without any legend or other restrictive language and,
with respect to Securities upon which such legend is stamped, the Company shall
issue new certificates without such legend to the holder upon request.
12
2.6 Reliance on Exemptions. Such Investor understands that the Securities
----------------------
are being offered and sold to it in reliance upon specific exemptions from the
registration requirements of federal and state securities laws and that the
Company is relying upon the truth and accuracy of the representations and
warranties of such Investor set forth in this Section 2 in order to determine
---------
the availability of such exemptions and the eligibility of such Investor to
acquire the Securities.
2.7 Non-Affiliate Status; Common Stock Ownership. Such Investor is not an
--------------------------------------------
Affiliate of the Company or of any other Investor and is not acting in
association or concert with any other Person with regard to its purchase of
Preferred Shares and Warrants or otherwise in respect of the Company. Such
Investor's investment in the Securities is not for the purpose of acquiring,
directly or indirectly, control of, and it has no intent to acquire or exercise
control of, the Company or to influence the decisions or policies of the Board
of Directors.
2.8 General Solicitation. Such Investor is not purchasing the Preferred
---------------------
Shares and Warrants as a result of any advertisement, article, notice or other
communication regarding the Preferred Shares and Warrants published in any
newspaper, magazine or similar media or broadcast over television or radio or
presented at any seminar.
2.9 Independent Investment Decision. Such Investor has independently
---------------------------------
evaluated the merits of its decision to purchase the Preferred Shares and
Warrants pursuant to this Agreement, such decision has been independently made
by such Investor and such Investor confirms that it has relied on the advice of
its own business and/or legal counsel and not on the advice of any other
Investor's business and/or legal counsel, or the Company's legal counsel, in
making such decision.
2.10 Fees. Such Investor is not obligated to pay any compensation or other
----
fee, cost or related expenditure to any underwriter, broker, agent or other
representative in connection with the transactions contemplated hereby.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
---------------------------------------------------
represents and warrants to each Investor as of the Execution Date (except that
to the extent that any representation or warranty relates to a particular date,
the Company hereby makes such representation or warranty as of that particular
date), and agrees with such Investor, as follows and acknowledges that such
Investor is relying on the representations, acknowledgments and agreements made
by the Company in this Article 3 and elsewhere in this Agreement in making
investing, trading and other decisions concerning the Company's securities:
3.1 Organization, Good Standing and Qualification. Each of the Company
------------------------------------------------
and each of its Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and has all requisite power and authority to carry on its business as now
conducted, except as described on Schedule 3.1. Each of the Company and each of
------------
its Subsidiaries is duly qualified to transact business and is in good standing
in each jurisdiction in which it conducts business except as described on
Schedule 3.1 or where the failure so to qualify has not had or would not
-------------
reasonably be expected to have a Material Adverse Effect.
13
3.2 Authorization; Consents. The Company has the requisite corporate
------------------------
power and authority to adopt and file the Certificate of Designation and perform
its obligations thereunder, to enter into and perform its obligations under this
Agreement and the other Transaction Documents, including without limitation its
obligations to issue and sell the Preferred Shares and Warrants to such Investor
in accordance with the terms thereof and to issue Conversion Shares and Warrant
Shares upon conversion of the Preferred Shares or exercise of the Warrants, as
the case may be. All corporate action on the part of the Company by its
officers, directors and stockholders necessary for the authorization, execution
and delivery of, and the performance by the Company of its obligations under,
the Certificate of Designation, this Agreement and the other Transaction
Documents has been taken, and, except as described on Schedule 3.2, no further
------------
consent or authorization of the Company, its Board of Directors, stockholders,
any Governmental Authority or organization (other than such approval as may be
required under the Securities Act and applicable state securities laws in
respect of the Registration Rights Agreement), or any other person or entity is
required (pursuant to any rule of the Nasdaq SmallCap Market or otherwise). The
Board of Directors has determined, at a duly convened meeting or pursuant to a
unanimous written consent, that the issuance and sale of the Securities, and the
consummation of the transactions contemplated by the Certificate of Designation,
this Agreement and the other Transaction Documents (including without limitation
the issuance of the Conversion Shares and the Warrant Shares), are in the best
interests of the Company.
3.3 Due Execution; Enforceability. This Agreement has been and, at or
-------------------------------
prior to each Closing, each other Transaction Document executed and/or delivered
thereat will be, duly executed and delivered by the Company. Each Transaction
Document constitutes (or as of the Closing at which such Transaction Document is
delivered, will constitute) the valid and legally binding obligation of the
Company, enforceable against it in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency, fraudulent transfer, moratorium,
reorganization or other similar laws of general application relating to or
affecting the enforcement of creditors' rights generally and (ii) general
principles of equity.
3.4 SEC Documents; Agreements; Financial Statements; Other Information.
---------------------------------------------------------------------
3.4.1 The Company is subject to the reporting requirements of the
Exchange Act and has filed with the Commission all reports, schedules,
registration statements and definitive proxy statements that the Company was
required to file with the Commission on or after December 31, 2003
(collectively, the "SEC Documents"). Other than the transactions effected
--------------
hereby, the Company is not aware of any event occurring or expected to occur on
or prior to the Closing Date that would require the filing of, or with respect
to which the Company intends to file, a Current Report on Form 8-K after the
Closing. Each SEC Document, as of the date of the filing thereof with the
Commission, complied in all material respects with the requirements of the
Securities Act or Exchange Act, as applicable, and the rules and regulations
promulgated thereunder and, as of the date of such filing (or if amended or
superseded by a filing prior to the Execution Date, then on the date of such
amending or superseding filing). All documents required to be filed as exhibits
to the SEC Documents have been filed as required.
3.4.2 No SEC Document (including all exhibits and schedules
thereto and documents incorporated by reference therein) filed by the Company
contained an untrue statement
14
of 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.
3.4.3 The financial statements attached as Schedule 3.4 hereto (x)
------------
have been prepared in accordance with GAAP consistently applied at the times and
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and (y) fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end adjustments). Except as disclosed on
Schedule 3.4 hereto, the Company has no liabilities, contingent or otherwise,
-------------
other than liabilities incurred in the ordinary course of business which, under
GAAP, are not required to be reflected in the Company's financial statements and
which, individually or in the aggregate, are not material to the consolidated
business or financial condition of the Company and its Subsidiaries taken as a
whole.
3.5 Capitalization; Debt Schedule. The capitalization of the Company as
-------------------------------
of the date hereof, including its authorized capital stock, the number of shares
issued and outstanding, the number of shares issuable and reserved for issuance
pursuant to the Company's stock option plans and agreements, the number of
shares issuable and reserved for issuance pursuant to securities (other than the
Preferred Shares and Warrants) exercisable for, or convertible into or
exchangeable for any shares of Common Stock and the number of shares initially
to be reserved for issuance upon conversion of the Preferred Shares and
exercise of the Warrants is set forth on Schedule 3.5 hereto. All outstanding
------------
shares of capital stock of the Company have been validly issued, fully paid and
nonassessable and, except as set forth on Schedule 3.5 hereto, all shares of
------------
capital stock and other ownership interests issued by any Subsidiary have been
validly issued, fully paid and nonassessable, free and clear of all Liens other
than Permitted Liens. All outstanding shares of capital stock of the Company
were issued, sold and delivered in full compliance with all applicable Federal
and state securities laws. No shares of the capital stock of the Company are
subject to preemptive rights or any other similar rights of security holders of
the Company or any Liens created by or through the Company. Except as set forth
on Schedule 3.5, there are no outstanding options, warrants, scrip, rights to
-------------
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exercisable or exchangeable for, any
shares of capital stock of the Company, or arrangements by which the Company is
or may become bound to issue additional shares of capital stock (or other
ownership interests) of the Company or any of its Subsidiaries (whether pursuant
to anti-dilution, "reset" or other similar provisions). Except as disclosed on
Schedule 3.5 hereto, the Company or a Subsidiary of the Company owns all of the
-------------
capital stock of each Subsidiary of the Company. Except as described on
Schedule 3.5 hereto, neither the Company nor any of its Subsidiaries has any
-------------
material Debt outstanding as of the date hereof.
3.6 Due Authorization; Valid Issuance. The shares of Preferred Stock are
----------------------------------
duly authorized and, when issued, sold and delivered in accordance with the
terms hereof, (i) will be duly and validly issued, free and clear of any Liens
imposed by or through the Company, (ii) assuming the accuracy of each Investor's
representations in this Agreement, will be issued, sold and delivered in
compliance with all applicable Federal and state securities laws and (iii) will
be entitled to all rights, preferences and privileges described in the
Certificate of Designation. The Warrants, the
15
Conversion Shares and the Warrant Shares are duly authorized and, when issued,
sold and delivered in accordance with the terms of this Agreement, the
Certificate or the Warrants, as the case may be, will be duly and validly
issued, fully paid and nonassessable, free and clear of any Liens imposed by or
through the Company and, assuming the accuracy of each Investor's
representations in this Agreement, will be issued, sold and delivered in
compliance with all applicable Federal and state securities laws.
3.7 No Conflict. Neither the Company nor any of its Subsidiaries is in
------------
violation of any provisions of its Certificate of Incorporation, Bylaws or any
other governing document. Neither the Company nor any of its Subsidiaries is in
violation of or in default (and no event has occurred which, with notice or
lapse of time or both, would constitute a default) under any provision of any
instrument or contract to which it is a party or by which it or any of its
Property is bound, or in violation of any provision of any Governmental
Requirement applicable to the Company or any of its Subsidiaries, except for any
violation or default that has not had or would not reasonably be expected to
have a Material Adverse Effect. The (i) execution, delivery and performance of
this Agreement and the other Transaction Documents, (ii) filing of and
performance of its obligations under the Certificate of Designation and (iii)
consummation of the transactions contemplated hereby and thereby (including
without limitation, the issuance of the Preferred Stock and the Warrants and the
reservation for issuance and issuance of the Conversion Shares and the Warrant
Shares) will not result in any violation of any provisions of the Company's or
any of its Subsidiary's Certificate of Incorporation, Bylaws or any other
governing document or in a default under any provision of any instrument or
contract to which it is a party or by which it or any of its Property is bound,
or in violation of any provision of any Governmental Requirement applicable to
the Company or any of its Subsidiaries or be in conflict with or constitute,
with or without the passage of time and giving of notice, either a default under
any such provision, instrument or contract or an event which results in the
creation of any Lien upon any assets of the Company or of any of its
Subsidiaries or, except as described on Schedule 3.7, the triggering of any
------------
preemptive or anti-dilution rights (including without limitation pursuant to any
"reset" or similar provisions) or rights of first refusal or first offer, or any
other rights that would allow or permit the holders of the Company's securities
or other Persons to purchase shares of Common Stock or other securities of the
Company (whether pursuant to a shareholder rights plan provision or otherwise).
The Company and its board of directors have taken all necessary action, if any,
in order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under its organizational documents or
the laws of the jurisdiction of its organization which is or could become
applicable to the Investors as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company's issuance of the
Securities or any other securities pursuant to the terms of this Agreement and
any and all of the Investors' ownership of the Securities or any such other
securities.
3.8 Financial Condition; Taxes; Litigation.
-----------------------------------------
3.8.1 Except as otherwise described on Schedule 3.8.1, since the
--------------
date of the most recent audited balance sheet included in the financial
statements attached as a Schedule 3.4 hereto, there has occurred no (i) material
------------
adverse change to the Company's business, operations, properties, financial
condition, or results of operations or (ii) change by the Company in its
accounting principles, policies and methods except as required by changes in
GAAP or applicable law.
16
3.8.2 Except as otherwise described on Schedule 3.8.2, the Company
--------------
and each of its Subsidiaries (i) have prepared in good faith and duly and timely
filed all tax returns required to be filed by it and such returns are complete
and accurate in all material respects and (ii) have paid all taxes required to
have been paid by it, except for taxes which it reasonably disputes in good
faith or the failure of which to pay has not had or would not reasonably be
expected to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries has any liability with respect to accrued taxes in excess of the
amounts that are described as accrued in the most recent financial statements
attached as Schedule 3.4 hereto.
-------------
3.8.3 Except as described on Schedule 3.8.3, neither the Company
--------------
nor any of its Subsidiaries is the subject of any pending or, to the Company's
knowledge, threatened inquiry, investigation or administrative or legal
proceeding by the Internal Revenue Service, the taxing authorities of any state
or local jurisdiction, the Commission, the NASD, any state securities commission
or other Governmental Authority.
3.8.4 Except as described on Schedule 3.8.4, there is no material
--------------
claim, litigation or administrative proceeding pending or, to the Company's
knowledge, threatened or contemplated, against the Company or any of its
Subsidiaries, or, to the Company's knowledge, against any officer, director or
employee of the Company or any such Subsidiary in connection with such person's
employment therewith. 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 Governmental Authority which has had or would
reasonably be expected to have a Material Adverse Effect.
3.9 Registration Statement. The Company is eligible to register the
-----------------------
Conversion Shares and Warrant Shares for resale in a secondary offering by each
Investor on a registration statement on Form S-3 under the Securities Act. To
the Company's knowledge, as of the date hereof and as of the Closing Date, there
exist no facts or circumstances (including without limitation any required
approvals or waivers of any circumstances that may delay or prevent the
obtaining of accountant's consents) that could reasonably be expected to
prohibit or delay the preparation, filing or effectiveness of such registration
statement.
3.10 Acknowledgement of Dilution. The Company acknowledges that the
-----------------------------
issuance of the Conversion Shares upon conversion of the Preferred Shares and
issuance of Warrant Shares upon exercise of the Warrants may result in dilution
of the outstanding shares of Common Stock, which dilution may be substantial
under certain market conditions. The Company further acknowledges that its
obligation to issue Conversion Shares and Warrant Shares in accordance with the
terms of the Certificate of Designation and Warrants, respectively, is
unconditional regardless of the effect of any such dilution. The Company further
acknowledges that each Investor may enter into short sales and engage in other
hedging activity with respect to the Preferred Shares, the Conversion Shares,
the Warrants and the Warrant Shares and, assuming such activity complies in all
material respects with applicable Governmental Requirements, the Company hereby
waives any claim against any Investor alleging that such activity constitutes a
breach of such Investor's contractual, legal or other obligations.
17
3.11 Intellectual Property. Except as set forth in Schedule 3.11:
--------------------- -------------
(a) Except for Permitted Liens, the Company and/or its Subsidiaries
own, free and clear of claims or rights of any other Person, with full right to
use, sell, license, sublicense, dispose of, and bring actions for infringement
of, or has acquired licenses or other rights to use, all Intellectual Property
necessary for the conduct of its business as presently conducted (other than
with respect to "off-the-shelf" software which is generally commercially
available and open source software which may be subject to one or more "general
public" licenses). All works that are used or incorporated into the Company's
or its Subsidiaries' services, products or services or products actively under
development and which is proprietary to the Company or its Subsidiaries was
developed by or for the Company or its Subsidiaries by the current or former
employees, consultants or independent contractors of the Company or its
Subsidiaries or purchased by the Company or its Subsidiaries and are owned by
the Company or its Subsidiaries, free and clear of claims and rights of any
other Person, other than Permitted Liens.
(b) The business of the Company and its Subsidiaries as presently
conducted and the production, marketing, licensing, use and servicing of any
products or services of the Company and its Subsidiaries do not, to the
Company's knowledge, infringe or conflict with any patent, trademark, copyright,
or trade secret rights of any third parties or any other Intellectual Property
of any third parties. Neither the Company nor any of its Subsidiaries has
received written notice from any third party asserting that any Intellectual
Property owned or licensed by the Company or its Subsidiaries, or which the
Company or its Subsidiaries otherwise has the right to use, is invalid or
unenforceable by the Company or its Subsidiaries, as the case may be, and, to
the Company's knowledge, there is no valid basis for any such claim (whether or
not pending or threatened).
(c) No claim is pending or, to the Company's knowledge, threatened
against the Company or any of its Subsidiaries nor has the Company or any of its
Subsidiaries received any written notice or other written claim from any Person
asserting that any of the Company's or its Subsidiaries' present or contemplated
activities infringe or may infringe in any material respect any Intellectual
Property of such Person, and the Company is not aware of any infringement by any
other Person of any material rights of the Company or any of its Subsidiaries
under any Intellectual Property Rights.
(d) All unexpired and in force licenses or other agreements under
which the Company or any of its Subsidiaries is granted Intellectual Property
(excluding licenses to use "off-the-shelf" software utilized in the Company's or
its Subsidiaries' internal operations and which is generally commercially
available) are listed in Schedule 3.11. All such licenses or other agreements
-------------
are in full force and effect and, to the Company's knowledge, there is no
material default by any party thereto. The Company has no reason to believe
that the licensors under such licenses and other agreements do not have and did
not have all requisite power and authority to grant the rights to the
Intellectual Property purported to be granted thereby.
(e) All unexpired licenses or other agreements under which the
Company or any of its Subsidiaries has granted rights to Intellectual Property
to others (including all end-user agreements) are in full force and effect,
there has been no material default by the Company or its
18
Subsidiaries thereunder and, to the Company's knowledge, there is no material
default by any other party thereto.
(f) Each of the Company and its Subsidiaries have taken all steps
required in accordance with commercially reasonable business practice to
establish and preserve its respective ownership in its owned Intellectual
Property and to keep confidential all material technical information developed
by or belonging to the Company or its Subsidiaries which has not been patented
or copyrighted. To the Company's knowledge, neither the Company nor any of its
Subsidiaries is making unlawful use of any Intellectual Property of any other
Person, including, without limitation, any former employer of any past or
present employees of the Company or any of its Subsidiaries. Neither the
Company nor any of its Subsidiaries, nor, to the Company's knowledge, any of
their respective employees or consultants, has any agreements or arrangements
with former employers of such employees or consultants relating to any
Intellectual Property of such employers, which materially interfere or conflict
with the performance of such employee's or consultant's duties for the Company
or its Subsidiaries or result in any former employers of such employees and
consultants having any rights in, or claims on, the Company's or its
Subsidiaries' Intellectual Property. To the Company's knowledge, the activities
of the Company's and its Subsidiaries' employees and consultants do not violate
any agreements or arrangements which any such employees have with former
employers. Each current employee, independent contractor or consultant of the
Company and its Subsidiaries has executed agreements regarding confidentiality,
proprietary information and assignment of inventions and copyrights to the
Company or its Subsidiaries (as the case may be), and neither the Company nor
any of its Subsidiaries has received written notice that any employee,
consultant or independent contractor is in violation of any agreement or in
breach of any agreement or arrangement with former or present employers relating
to proprietary information or assignment of inventions. Each employee listed in
Schedule 3.11 has executed a non-competition agreement. Without limiting the
--------------
foregoing: (i) the Company and each of its Subsidiaries have taken reasonable
security measures to guard against unauthorized disclosure or use of any of its
Intellectual Property; and (ii) the Company has no reason to believe that any
Person (including, without limitation, any former employee or consultant of the
Company or its Subsidiaries) has unauthorized possession of any of its
Intellectual Property, or any part thereof, or that any Person has obtained
unauthorized access to any of its Intellectual Property. The consummation of
the transactions contemplated by the Certificate, this Agreement and the other
Transaction Documents will not materially alter or impair, individually or in
the aggregate, any of such rights of the Company or its Subsidiaries. The
Company and its Subsidiaries each has complied in all material respects with its
obligations pursuant to all agreements relating to Intellectual Property rights
that are the subject of licenses granted by third parties, except for any
non-compliance that has not had or would not reasonably be expected to have a
Material Adverse Effect.
3.12 Registration Rights. Except as described on Schedule 3.12 hereto, the
-------------------- -------------
Company has not granted or agreed to grant to any person or entity any rights
(including "piggy-back" registration rights) to have any securities of the
Company registered with the Commission or any other governmental authority which
has not been satisfied in full prior to the date hereof.
3.13 Solicitation; Other Issuances of Securities. Neither the Company nor
--------------------------------------------
any of its Subsidiaries or Affiliates, nor any person acting on its or their
behalf, (i) has engaged in any form of
19
general solicitation or general advertising (within the meaning of Regulation D)
in connection with the offer or sale of the Securities, or (ii) has, directly or
indirectly, made any offers or sales of any security or the right to purchase
any security, or solicited any offers to buy any security or any such right,
under circumstances that would require registration of the Securities under the
Securities Act.
3.14 Fees. Except as set forth on Schedule 3.14, the Company is not
---- --------------
obligated to pay any compensation or other fee, cost or related expenditure to
any underwriter, broker, agent or other representative in connection with the
transactions contemplated hereby. The Company will indemnify and hold harmless
each Investor from and against any claim by any person or entity alleging that,
as a result of any agreement or arrangement between such Person and the Company,
such Investor is obligated to pay any such compensation, fee, cost or related
expenditure in connection with the transactions contemplated hereby.
3.15 Foreign Corrupt Practices. Neither the Company, any of its
---------------------------
Subsidiaries nor, to the Company's knowledge, any director, officer, agent,
employee or other person acting on behalf of the Company or any Subsidiary, has
(i) used any corporate funds for any unlawful contribution, gift, entertainment
or other unlawful expenses relating to political activity, (ii) made any direct
or indirect unlawful payment to any foreign or domestic government official or
employee (including without limitation any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment), or (iii) violated any provision of
the Foreign Corrupt Practices Act of 1977, as amended.
3.16 Key Persons; Officers and Directors. Set forth on Schedule 3.16 is a
----------------------------------- -------------
list of each of the Company's officers and directors. Each of the Company's Key
Persons is currently serving in the capacity described on Schedule 3.16. The
-------------
Company has no knowledge of any fact or circumstance (including without
limitation (i) the terms of any agreement to which such person is a party or any
litigation in which such person is or may become involved and (ii) any illness
or medical condition that could reasonably be expected to result in the
disability or incapacity of such person) that would limit or prevent any such
person from serving in such capacity on a full-time basis in the foreseeable
future, or of any intention on the part of any such person to limit or terminate
his or her employment with the Company. Except as set forth on Schedule 3.16,
-------------
no Key Person has borrowed money pursuant to a currently outstanding loan that
is secured by Common Stock or any right or option to receive Common Stock.
3.17 Employee Matters. There is no strike, labor dispute or union
-----------------
organization activities pending or, to the knowledge of the Company, threatened
between it and its employees (or between any of its Subsidiaries and such
Subsidiary's employees). No employees of the Company belong to any union or
collective bargaining unit. The Company has complied in all material respects
with all applicable federal and state equal opportunity and other laws related
to employment.
3.18 Environment. To the Company's knowledge, neither the Company nor any
-----------
of its Subsidiaries has any current liability under any Environmental Law, nor,
to the knowledge of the Company, do any factors exist that are reasonably likely
to give rise to any such liability that, individually or in the aggregate, has
had or would reasonably be expected to have a Material Adverse Effect. To the
Company's knowledge, neither the Company nor any of its Subsidiaries has
violated any Environmental Law applicable to it now or previously in effect,
other than such
20
violations or infringements that, individually or in the aggregate, have not had
and would not reasonably be expected to have a Material Adverse Effect.
3.19 ERISA. Except as described on Schedule 3.19, neither the Company nor
----- -------------
any of its Subsidiaries maintains or contributes to, or has any obligation
under, any Pension Plan. The Company and each of its Subsidiaries is in
compliance in all material respects with the presently applicable provisions of
ERISA and the United States Internal Revenue Code of 1986, as amended, except
for matters that, individually or in the aggregate, have not had, and would not
reasonably be expected to have, a Material Adverse Effect.
3.20 Insurance. The Company maintains insurance for itself and its
---------
Subsidiaries in such amounts and covering such losses and risks as the Company
believes to be reasonably prudent in relation to the businesses in which the
Company and its Subsidiaries are engaged. No notice of cancellation has been
received for any of such policies and the Company reasonably believes that is in
compliance with all of the terms and conditions thereof. The Company has no
reason to believe that it will not be able to renew any existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue doing business as currently
conducted without a significant increase in cost, other than normal increases in
the industry. Without limiting the generality of the foregoing, the Company
maintains Director's and Officer's insurance in an amount not less than $2
million for each covered occurrence and in the aggregate.
3.21 Property. Except as described on Schedule 3.21, the Company and its
-------- -------------
Subsidiaries have good and marketable title to all personal Property and good
and marketable title in fee simple to all real property owned by them which,
individually or in the aggregate, is material to the business of the Company and
its Subsidiaries, in each such case free and clear of all Liens except for
Permitted Liens. Any Property held under lease by the Company or its
Subsidiaries is held by them under valid, subsisting and enforceable leases with
such exceptions as are not material and do not interfere with the use made or
proposed to be made of such Property by the Company and its Subsidiaries.
3.22 Regulatory Permits. The Company and its Subsidiaries possess all
-------------------
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses other than where the failure to possess such certificates,
authorizations or permits, individually or in the aggregate, has not had and
would not reasonably be expected to have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries has received any notice or otherwise become
aware of any proceedings, inquiries or investigations relating to the revocation
or modification of any such certificate, authorization or permit.
3.23 Exchange Act Registration; Listing. The Company is subject to the
-------------------------------------
reporting requirements of Section 15(d) of the Exchange Act and is quoted on the
Nasdaq SmallCap Market. The Company currently meets the continuing eligibility
requirements for quotation on the Nasdaq SmallCap Market and has not received
any notice from Nasdaq, the NASD or any other Person that it may not currently
satisfy such requirements or that such continued quotation of the Company's
Common Stock on the Nasdaq SmallCap Market is in any way threatened. The
Company has taken no action designed to, or which, to the knowledge of the
Company, may
21
have the effect of, terminating the Company's reporting obligations under the
Exchange Act or, except as otherwise described on Schedule 3.23, the removal of
-------------
the Common Stock from the Nasdaq SmallCap Market.
3.24 Investment Company Status. The Company is not, and immediately after
-------------------------
receipt of the Purchase Price for the Securities issued under this Agreement
will not be, an "investment company" or an entity "controlled" by an "investment
------------------ ---------- ----------
company" within the meaning of the Investment Company Act of 1940, as amended
-------
(the "Investment Company Act"), and the Company shall conduct its business in a
----------------------
manner so that it will not become subject to the Investment Company Act.
3.25 Transfer Taxes. No stock transfer or other taxes (other than income
---------------
taxes) are required to be paid in connection with the issuance and sale of any
of the Securities, other than such taxes for which the Company has established
appropriate reserves and intends to pay in full on or before each Closing.
3.26 ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act; Internal Controls and Procedures. The Company is
----------------------------------------------------
in compliance in all material respects with all applicable requirements of the
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof, except for
instances of noncompliance that would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. The Company
maintains internal accounting controls, policies and procedures, and such books
and records as are reasonably designed to provide reasonable assurance that (i)
all transactions to which the Company or any Subsidiary is a party or by which
its properties are bound are effected by a duly authorized employee or agent of
the Company, supervised by and acting within the scope of the authority granted
by the Company's senior management; (ii) the recorded accounting of the
Company's consolidated assets is compared with existing assets at regular
intervals; and (iii) all transactions to which the Company or any Subsidiary is
a party, or by which its properties are bound, are recorded (and such records
maintained) in accordance with all Government Requirements and as may be
necessary or appropriate to ensure that the financial statements of the Company
are prepared in accordance with GAAP, except, in any individual case or in the
aggregate, has not had, and would not reasonably be expected to have, a Material
Adverse Effect.
3.27 Embargoed Person. None of the funds or other assets of the Company or
----------------
its Subsidiaries constitutes property of, or is beneficially owned, directly or
indirectly, by, any person subject to trade restrictions under United States
law, including, but not limited to, the International Emergency Economic Powers
Act, 50 U.S.C. Sec. 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App.
1 et seq., and any Executive Orders or regulations promulgated under any such
United States laws (each, an "Embargoed Person"), with the result that the
-----------------
investments evidenced by the Securities are or would be in violation of law. No
Embargoed Person has any interest of any nature whatsoever in the Company or any
of its Subsidiaries with the result that the investments evidenced by the
Securities are or would be in violation of law. None of the funds or other
assets of the Company has been derived from any unlawful activity with the
result that the investments evidenced by the Securities are or would be in
violation of law.
22
3.28 Solvency. (i) The fair saleable value of the Company's assets exceeds
--------
the amount that will be required to be paid on or in respect of the Company's
existing Debt as such Debt matures or is otherwise payable; (ii) the Company's
assets do not constitute unreasonably small capital to carry on its business for
the current fiscal year as now conducted and as proposed to be conducted taking
into account the current and projected capital requirements of the business
conducted by the Company and projected capital availability; and (iii) the
current cash flow of the Company, together with the proceeds the Company would
receive upon liquidation of its assets, after taking into account all
anticipated uses of such amounts, would be sufficient to pay all Debt when such
Debt is required to be paid. The Company does not intend to incur Debt beyond
its ability to pay such Debt as it matures. The Company has no knowledge of any
facts or circumstances which lead it to believe that it will be required to file
for reorganization or liquidation under the bankruptcy or reorganization laws of
any jurisdiction, and has no present intention to so file.
3.29 Transactions with Interested Person. Except as set forth in Schedule
----------------------------------- --------
3.29, no officer, director or employee of the Company or any of its Subsidiaries
----
is or has taken any steps to become a party to any transaction with the Company
or any Subsidiary (other than for services as employees, officers and directors)
that could reasonably be considered material to the Company or such individual,
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
3.30 Customers; Suppliers. The relationships of the Company and its
---------------------
Subsidiaries with their respective customers and suppliers are maintained on
commercially reasonable terms. Since December 31, 2004, no customer or supplier
of the Company or its Subsidiaries has canceled, materially modified, or
otherwise terminated its relationship with the Company or its Subsidiaries or
decreased materially its usage or purchase or supply of the services or products
of the Company or its Subsidiaries, except for such modifications and
terminations which, individually and in the aggregate, have not had, and cannot
reasonably be expected to have, a Material Adverse Effect, nor does any customer
or supplier have, to the Company's knowledge, any plan or intention to do any of
the foregoing. The Company has no reason to believe that any of its or its
Subsidiaries' suppliers will experience a manufacturing disruption, a failure to
dedicate adequate resources to the production, assembly or testing of the
Company's or its Subsidiaries' products, or financial instability, or that any
such supplier will be unable to successfully transition its manufacturing
capabilities to the future needs of the Company and its Subsidiaries.
3.31 Full Disclosure. No written statement, information, report,
-----------------
representation or warranty made by the Company in this Agreement or any other
Transaction Document or furnished to such Investor by or on behalf of the
Company or any of its Subsidiaries in connection with each Closing or such
Investor's due diligence investigation of the Company contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the statements herein or therein, in light of the circumstances in which
made, not
23
misleading. Neither the Company nor any Person acting on its behalf or at its
direction has provided such Investor with any information that, following the
issuance of the press release in accordance with Section 4.1(c) hereof, will
--------------
constitute material non-public information. Following the issuance of the press
release and filing of the Current Report on Form 8-K in accordance with Section
-------
4.1(c) hereof, to the Company's knowledge, such Investor will not possess any
------
material non-public information concerning the Company. The Company acknowledges
that such Investor is relying on the representations, acknowledgements and
agreements made by the Company in this Section 3.31 and elsewhere in this
------------
Agreement in making trading and other decisions concerning the Company's
securities.
3.32 No Other Agreements. The Company has not, directly or indirectly,
---------------------
entered into any agreement with or granted any right to any Investor relating to
the terms or conditions of the transactions contemplated by the Certificate of
Designation or the Transaction Documents except as expressly set forth therein.
4. COVENANTS OF THE COMPANY AND EACH INVESTOR.
------------------------------------------------
4.1 The Company agrees with each Investor that the Company will:
(a) file a Form D with the Commission and any applicable state
securities department with respect to the Securities issued at each Closing as
and when required under Regulation D and provide a copy of each such Form D to
such Investor promptly after such filing;
(b) take such action as the Company reasonably determines upon
the advice of counsel is necessary to qualify the Securities for sale under
applicable state or "blue-sky" laws or obtain an exemption therefrom, and shall
provide evidence of any such action to such Investor at each Closing;
(c) (i) on or prior to 8:30 a.m. (eastern time) on the Business
Day immediately following the Execution Date, issue a press release disclosing
the material terms of the Certificate, this Agreement and the other Transaction
Documents and the transactions contemplated hereby and thereby and (ii) on or
prior to 5:00 p.m. (eastern time) on the Business Day immediately following the
Execution Date, file with the Commission a Current Report on Form 8-K disclosing
the material terms of this Agreement, the Certificate of Designation and the
other Transaction Documents and the transactions contemplated hereby and
thereby, including as exhibits this Agreement, the Certificate of Designation,
Registration Rights Agreement and form of Warrant; provided, however, that each
Investor named therein shall have a reasonable opportunity to review and comment
on any such press release or Current Report on Form 8-K prior to the issuance or
filing thereof. Thereafter, the Company shall timely file any filings and
notices required by the Commission or applicable law with respect to the
transactions contemplated hereby; and
(d) (i) on or prior to 8:30 a.m. (eastern time) on the Business
Day immediately following the Put Option Closing Date, issue a press release
disclosing the occurrence of the Put Option Closing and material terms thereof
and (ii) on or prior to 5:00 p.m. (eastern time) on the Business Day immediately
following the Put Option Closing Date, file with the Commission a Current Report
on Current Report on Form 8-K disclosing the material terms of the Put Option
24
Closing; provided, however, that each Investor named therein shall have a
reasonable opportunity to review and comment on any such press release or
Current Report on Form 8-K prior to the issuance or filing thereof. Thereafter,
the Company shall timely file any filings and notices required by the Commission
or applicable law with respect to the transactions contemplated hereby.
4.2 The Company agrees that it will, during the period beginning on the
Execution Date and ending on the Termination Date:
(a) maintain its corporate existence in good standing;
(b) maintain, keep and preserve all of its Properties necessary
in the proper conduct of its businesses in good repair, working order and
condition (ordinary wear and tear excepted) and make all necessary repairs,
renewals and replacements and improvements thereto, except where the failure to
do so would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(c) pay or discharge before becoming delinquent (A) all taxes,
levies, assessments and governmental charges imposed on it or its income or
profits or any of its Property and (B) all lawful claims for labor, material and
supplies, which, if unpaid, might become a Lien upon any of its Property, except
where the failure to do so would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect; provided, however,
that the Company shall not be required to pay or discharge any tax, levy,
assessment or governmental charge, or claim for labor, material or supplies,
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings being diligently pursued and for which adequate reserves
have been established under GAAP;
(d) comply in all material respects with all Governmental
Requirements applicable to the operation of its business, including without
limitation the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 and all applicable rules and
regulations promulgated by the SEC thereunder;
(e) comply with all agreements, documents and instruments
binding on it or affecting its Properties or business, including, without
limitation, all Material Contracts, except for instances of noncompliance that
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
(f) provide each Investor with copies of all materials sent to
its stockholders, in each such case at the same time as such materials are
delivered to such stockholders;
(g) timely file with the Commission 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;
(h) until the first to occur of (x) the Initial Effective Date
(or if Put Option Closing occurs, the Second Effective Date) and (y) the first
date upon which the Securities
25
are eligible for resale to the public by Investors without restriction under
Rule 144, enter into and maintain written agreements with Key Persons
restricting them from selling shares of Common Stock, other than in connection
with any 10b-5(1) trading plans in effect as of the Execution Date and disclosed
to each Investor in writing; and
(i) use commercially reasonable efforts to maintain adequate
insurance coverage (including Director's and Officer's insurance in an amount
not less than $2 million for each covered occurrence and in the aggregate) for
the Company and each Subsidiary.
4.3 Reservation of Common Stock. The Company shall, on the Initial
------------------------------
Closing Date have authorized and reserved for issuance pursuant to the Initial
Preferred Shares and the Initial Warrants (the "Reserved Amount"), free from any
---------------
preemptive rights, a number of shares of Common Stock at least equal to one
hundred percent (100%) of the number of shares of Common Stock issuable upon (A)
conversion of the Initial Preferred Stock in full at the Conversion Price then
in effect and (B) exercise of the Initial Warrants in full at the Exercise Price
then in effect, in each such case without regard to any limitation or
restriction on such conversion or exercise that may be set forth in the
Certificate of Designation or the Warrants. On and after the Approval Date, the
Reserved Amount shall be equal to two hundred percent (200%) of the maximum
number of shares of Common Stock issuable upon (A) conversion of the outstanding
Initial Preferred Shares and, if issued, the Put Option Preferred Shares in full
at the Conversion Price then in effect and (B) exercise of the outstanding
Initial Warrants and, if issued, the Put Option Warrants in full at the Exercise
Price then in effect, in each such case without regard to any limitation or
restriction on such conversion or exercise that may be set forth in the
Certificate of Designation or the Warrants. In the event that, as a result of
an adjustment to the Conversion Price of the Preferred Stock or the Exercise
Price for the Warrants (pursuant to anti-dilution adjustments or otherwise)
after the Approval Date, the Reserved Amount is less than one hundred and fifty
percent (150%) of the number of shares of Common Stock then issuable upon
conversion of all of the Preferred Stock and exercise of all of the Warrants
then outstanding (without regard to any limitation or restriction on such
conversion or exercise that may be set forth in the Preferred Stock or the
Warrants), the Company shall take action (including without limitation seeking
stockholder approval for the authorization or reservation of additional shares
of Common Stock) as soon as practicable (but in no event later than the tenth
(10th) business day or, in the event that stockholder approval is required, the
sixtieth (60th) day following such date) to increase the Reserved Amount to no
less than two hundred percent (200%) of the number of shares of Common Stock
into which such outstanding Preferred Stock are then convertible and such
outstanding Warrants are exercisable. The Company shall not reduce the number
of shares reserved for issuance hereunder without the written consent of the
holders of seventy-five percent (75%) of the Outstanding Registrable Securities
at such time. The initial Reserved Amount shall be allocated among the Investors
based on each Investor's Pro Rata Share. Each increase in the Reserved Amount
shall be allocated pro rata among the Investors based on the amount of
Outstanding Registrable Securities held by each Investor at the time of such
increase . In the event that an Investor shall sell or otherwise transfer any of
such Investor's Preferred Stock or Warrant, each transferee shall be allocated a
pro rata portion of such transferor's Reserved Amount. Any portion of the
Reserved Amount which remains allocated to any person or entity which does not
hold any Preferred Stock shall be reallocated to the remaining Investors based
on the amount of Outstanding Registrable Securities at the time of such
increase.
26
4.4 Use of Proceeds. The Company shall use the proceeds from the sale of
----------------
the Securities for general corporate purposes only, in the ordinary course of
its business and consistent with past practice; provided, however, that the
Company may not use such proceeds to repurchase or redeem any securities issued
by the Company or any Subsidiary or to repay any loan made to or incurred by any
Affiliate of the Company.
4.5 Limitation on Debt and Liens. During the period beginning on the
--------------------------------
Execution Date and ending on the Preferred Stock Termination Date, the Company
shall refrain, and shall ensure that each of its Subsidiaries refrains, (a) from
incurring any Debt (including without limitation by issuing any Debt
securities), other than Permitted Debt, or increasing the amount of any existing
line of credit or other Debt facility beyond the amount outstanding on the date
hereof, and (b) from granting, establishing or maintaining any Lien on any of
its assets, including without limitation any pledge of securities owned or held
by it (including without limitation any securities issued by any such
Subsidiary), other than Permitted Liens.
4.6 Issuance Limitation.
--------------------
(a) During the period beginning on the Execution Date and ending on the
Approval Date, the Company shall not effect a Subsequent Issuance at a price per
share of Common Stock that is less than the Floor Price then in effect.
(b) During the period beginning on the Execution Date and ending on the
latest to occur of (i) the ninetieth (90th) day following the Initial Closing
Date, (ii) the thirtieth (30th) day following the Initial Effective Date, (iii)
the ninetieth (90th) day following the Put Option Closing Date (if the Put
Option Closing occurs), and (iv) the thirtieth (30th) day following the Second
Effective Date (if the Put Option Closing occurs), the Company shall not effect
a Subsequent Issuance.
4.7 Certain Transactions. During the period beginning on the Execution
---------------------
Date and ending on the Preferred Stock Termination Date, and except as may be
expressly permitted or required by the Certificate or the Transaction Documents
and the Debt that is outstanding on the Execution Date and specifically
disclosed on Schedule 3.5 hereto, the Company shall not, nor will it permit any
------------
of its Subsidiaries to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of the Company or any Subsidiary of the Company (a) to pay dividends or make any
other distribution to the Company or any Subsidiary of the Company in respect of
capital stock or with respect to any other interest or participation in, or
measured by, its profits, or (b) to pay any amounts that are or become payable
under the Certificate or any of the Transaction Documents.
4.8 Transactions with Affiliates. The Company agrees that, during the
------------------------------
period beginning on the Execution Date and ending on the Preferred Stock
Termination Date, any transaction or arrangement between it or any of its
Subsidiaries and any Affiliate or employee of the Company or any of its
Subsidiaries shall be effected only on an arms' length basis and shall be
approved by the Board of Directors, including a majority of the Company's
directors not having an interest in such transaction.
27
4.9 Use of Investor Name. Except as may be required by applicable law
-----------------------
and/or this Agreement, the Company shall not use, directly or indirectly, any
Investor's name or the name of any of its Affiliates in any advertisement,
announcement, press release or other similar communication unless it has
received the prior written consent of such Investor for the specific use
contemplated or as otherwise required by applicable law or regulation.
4.10 Company's Instructions to Transfer Agent. On or prior to each Closing
----------------------------------------
Date, the Company shall execute and deliver irrevocable written instructions to
the transfer agent for its Common Stock (the "Transfer Agent"), and provide each
--------------
Investor with a copy thereof, directing the Transfer Agent (i) to issue
certificates representing Conversion Shares upon conversion of the Preferred
Shares and receipt of a valid Conversion Notice (as defined in the Certificate)
from an Investor, in the amount specified in such Conversion Notice, in the name
of such Investor or its nominee, (ii) to issue certificates representing Warrant
Shares upon exercise of the Warrants and (iii) to deliver such certificates to
such Investor no later than the close of business on the third (3rd) business
day following the related Conversion Date (as defined in the Certificate) or
Exercise Date (as defined in the Warrant), as the case may be. Such
certificates may bear legends pursuant to applicable provisions of this
Agreement or applicable law. The Company shall instruct the transfer agent
that, in lieu of delivering physical certificates representing shares of Common
Stock to an Investor upon conversion of the Preferred Shares, or exercise of the
Warrants, and as long as the Transfer Agent is a participant in the Depository
Trust Company ("DTC") Fast Automated Securities Transfer program ("FAST") and
---
the Conversion Shares are eligible to be delivered through the FAST system, and
such Investor has not informed the Company that it wishes to receive physical
certificates therefor, and no restrictive legend is required to appear on any
physical certificate if issued, the transfer agent may effect delivery of
Conversion Shares or Warrant Shares, as the case may be, by crediting the
account of such Investor or its nominee at DTC for the number of shares for
which delivery is required hereunder within the time frame specified above for
delivery of certificates. The Company represents to and agrees with each
Investor that it will not give any instruction to the Transfer Agent that will
conflict with the foregoing instruction or otherwise restrict such Investor's
right to convert the Preferred Shares or to receive Conversion Shares in
accordance with the terms of the Certificate or to exercise the Warrant or to
receive Warrant Shares upon exercise of the Warrants. In the event that the
Company's relationship with the Transfer Agent should be terminated for any
reason, the Company shall use its best efforts to cause the Transfer Agent to
continue acting as transfer agent pursuant to the terms hereof until such time
that a successor transfer agent is appointed by the Company and receives the
instructions described above.
4.11 No Adverse Action. The Company and its Subsidiaries shall refrain,
-------------------
during the period beginning on the Execution Date and ending on the Termination
Date, from taking any action or entering into any arrangement which in any way
materially and adversely affects the provisions of the Certificate of
Designation, this Agreement or any other Transaction Document.
4.12 Limitations on Disposition. No Investor shall sell, transfer, assign
--------------------------
or dispose of any Securities, unless:
(a) there is then in effect an effective registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
28
(b) such Investor has notified the Company in writing of any such
disposition, received the Company's written consent (which consent shall not be
unreasonably withheld or delayed) to such disposition and furnished the Company
with an opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such Securities under the
Securities Act; provided, however, that no such consent or opinion of counsel
will be required (A) if the sale, transfer or assignment complies with federal
and state securities laws (and Investor certifies to such compliance) and is
made to an Affiliate of such Investor which is also an "accredited investor" as
that term is defined in Rule 501 of Regulation D, (B) if the sale, transfer or
assignment is made pursuant to Rule 144 and such Investor provides the Company
with evidence reasonably satisfactory to the Company that the proposed
transaction satisfies the requirements of Rule 144 or (C) in connection with a
bona fide pledge or hypothecation of any Securities under a margin arrangement
with a broker-dealer or other financial institution or the sale of any such
Securities by such broker-dealer or other financial institution following such
Investor's default under such margin arrangement.
4.13 Disclosure of Information. The Company agrees that it will not at any
-------------------------
time following the Execution Date disclose material non-public information to
any Investor without first obtaining such Investor's written consent to receive
such information. If the Company breaches its obligations under this Section
-------
4.13, it shall promptly, and no later than one Business Day following such
----
breach, make a public disclosure, in compliance with Regulation FD, of all such
material non-public information theretofore disclosed to such Investor.
4.14 Listing. The Company (i) shall use its best efforts to cause the
-------
Common Stock, including all of the Conversion Shares issuable upon conversion of
the Preferred Shares and all of the Warrant Shares issuable upon exercise of the
Warrants (without regard to any limitation on such conversion or exercise), to
be listed on the Nasdaq SmallCap Market, and (ii) use its best efforts to
maintain the designation and quotation, or listing, of the Common Stock on the
Nasdaq SmallCap Market, the Nasdaq National Market or the New York Stock
Exchange for a minimum of five (5) years following the later of (i) the Initial
Closing Date or (ii) the Put Option Closing Date (if the Put Option Closing
occurs).
4.15 Indemnification of Investors. The Company will indemnify and hold
------------------------------
each Investor and its directors, managers, officers, shareholders, members,
partners, employees and agents (each, an "Investor Party") harmless from any and
--------------
all losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs and
reasonable attorneys' fees and costs of investigation that any such Investor
Party may suffer or incur as a result of or relating to (a) any breach of any of
the representations, warranties, covenants or agreements made by the Company in
this Agreement or in the other Transaction Documents or (b) any action
instituted against an Investor, or any of them or their respective Affiliates,
by any stockholder of the Company who is not an Affiliate of such Investor, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach by such Investor of such Investor's
representations, warranties or covenants under the Transaction Documents or any
agreements or understandings such Investor may have with any such stockholder or
any violations by such Investor of state or federal securities laws or any
conduct by such Investor which constitutes
29
fraud, gross negligence, willful misconduct or malfeasance). If any action
shall be brought against any Investor Party in respect of which indemnity may be
sought pursuant to this Agreement, such Investor Party shall promptly notify the
Company in writing, and the Company shall have the right to assume the defense
thereof with counsel of its own choosing and to control any settlement of the
claim; provided, however, that the Company will not settle any claim unless it
first obtains the consent of the relevant Investor Parties, which consent shall
not be unreasonably withheld if such settlement (i) does not require the
Investor Parties to make any payment that is not indemnified under this
Agreement, (ii) does not impose any non-financial obligations on the Investor
Parties and (iii) does not require an acknowledgment of wrongdoing on the part
of the Investor Parties. Any Investor Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Investor
Party except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii)
in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material issue between the position of the Company and
the position of such Investor Party. The Company will not be liable to any
Investor Party under this Agreement (i) for any settlement by an Investor Party
effected without the Company's prior written consent, which shall not be
unreasonably withheld or delayed (it being agreed that it shall not be
unreasonable for the Company to withhold or delay such consent if the Company
(x) has acknowledged in writing its obligation to indemnify such Investor Party
with respect to such matter, (y) the Company has assumed and is actively and in
good faith pursuing the defense of such matter as herein provided, and (z)
provided to such Investor Party reasonably acceptable evidence that the Company
is able to comply with its indemnification obligations hereunder); or (ii) to
the extent, but only to the extent that a loss, claim, damage or liability is
attributable to such Investor Party's wrongful actions or omissions, or gross
negligence or to such Investor Party's breach of any of the representations,
warranties, covenants or agreements made by such Investor in this Agreement or
in the other Transaction Documents.
4.16 Stockholder Approval. The Company shall as promptly as reasonably
---------------------
practicable, and in any event not later than July 20, 2005 (subject to
reasonable delay based on regulatory review of the related proxy statement),
hold a meeting of its stockholders for the purpose of obtaining, and shall use
its best efforts to obtain, Stockholder Approval.
4.17 Breachof Representation. In the event that any representation or
------------------------
warranty made by the Company in this Agreement or any other Transaction Document
is untrue or incorrect in any material respect as of the date made and such
representation or warranty, if capable of being cured, is not cured within five
(5) Business Days following written notice thereof from any Investor, the
Company shall pay each Investor such Investor's Pro Rata Share of the amount of
$100,000 per occurrence (not to exceed $500,000 in the aggregate for all such
occurrences); provided that in the event the damages or dollar amount related to
such untrue or incorrect representation or warranty are quantifiable and less
than $100,000, the Company shall pay such lesser amount; and provided further,
that any such payment shall not impair any Investor's ability to seek actual
damages or injunctive relief pursuant to the terms of this Agreement.
5. CONDITIONS TO CLOSING.
-----------------------
30
5.1 Conditions to Investors' Obligations at the Initial Closing. Each
----------------------------------------------------------------
Investor's obligations to effect the Initial Closing, including without
limitation its obligation to purchase Initial Preferred Shares and an Initial
Warrant at the Initial Closing, are conditioned upon the fulfillment (or waiver
by such Investor in its sole and absolute discretion) of each of the following
events as of the Initial Closing Date, and the Company shall use commercially
reasonably efforts to cause each of such conditions to be satisfied:
5.1.1 the representations and warranties of the Company set
forth in this Agreement and in the other Initial
Transaction Documents shall be true and correct in all
material respects as of the Initial Closing Date as if
made on such date (except that to the extent that any
such representation or warranty relates to a particular
date, in which case such representation or warranty
shall be true and correct in all material respects as
of that particular date);
5.1.2 the Company shall have complied with or performed in
all material respects all of the agreements,
obligations and conditions set forth in the Certificate
of Designation, this Agreement or the other Initial
Transaction Documents that are required to be complied
with or performed by the Company on or before such
date;
5.1.3 the Company shall have filed the Certificate of
Designation with the Secretary of State of the State of
Delaware, and delivered to such Investor written
evidence of the acceptance of such filing;
5.1.4 the Initial Closing Date shall occur not later than May
9, 2005;
5.1.5 the Company shall have delivered to such Investor a
certificate, signed by the Chief Executive Officer and
Chief Financial Officer of the Company, certifying that
the conditions specified in this paragraph 5.1 have
been fulfilled (or waived in writing by such Investor)
as of the Initial Closing Date, it being understood
that such Investor may rely on such certificate as
though it were a representation and warranty of the
Company made herein;
5.1.6 the Company shall have delivered to such Investor a
certificate, signed by the Secretary or an Assistant
Secretary of the Company, attaching (i) the Certificate
of Incorporation and By-Laws of the Company, and (ii)
resolutions passed by its Board of Directors to
authorize the transactions contemplated hereby and by
the other Initial Transaction Documents, and certifying
that such documents are true and complete copies of the
originals and that such resolutions have not been
amended or superseded, it being understood that such
Investor may rely on such certificate as though it were
a representation and warranty of the Company made
herein;
31
5.1.7 the Company shall have delivered to such Investor an
opinion of counsel for the Company, dated as of the
Initial Closing Date, in form and substance reasonably
satisfactory to such Investor;
5.1.8 the Company shall have delivered to such Investor a
duly executed Initial Warrant and a certificate
representing the Initial Preferred Shares being
purchased by such Investor at the Initial Closing;
5.1.9 the Company shall have executed and delivered to such
Investor the Registration Rights Agreement;
5.1.10 the Company shall have obtained the written agreement
of each Key Person to refrain from selling shares of
Common Stock until the first to occur of (x) the
Initial Effective Date (or if Put Option Closing
occurs, the Second Effective Date) and (y) the first
date upon which all of the outstanding Securities are
eligible for resale to the public by Investors without
restriction under Rule 144;
5.1.11 there shall have occurred no material adverse change in
the Company's consolidated business or financial
condition since the date of the Company's most recent
audited financial statements attached as Schedule 3.4
------------
hereto (except as described on Schedule 3.8.1 hereto);
--------------
5.1.12 the Common Stock shall be quoted on the Nasdaq SmallCap
Market;
5.1.13 the Company shall have authorized and reserved for
issuance at least one hundred percent (100%) of the
aggregate number of shares of Common Stock issuable
upon conversion of all of the Initial Preferred Stock
and exercise of all of the Initial Warrants to be
issued at the Initial Closing (such number to be
determined using the Conversion Price and Exercise
Price in effect on the Initial Closing Date and without
regard to any restriction on the ability of an Investor
to convert Initial Preferred Stock or exercise the
Initial Warrants as of such date); and
5.1.14 there shall be no injunction, restraining order or
decree of any nature of any court or Government
Authority of competent jurisdiction that is in effect
that restrains or prohibits the consummation of the
transactions contemplated hereby or by the other
Initial Transaction Documents.
5.2 Conditions to Company's Obligations at the Initial Closing. The
-----------------------------------------------------------------
Company's obligations to effect the Initial Closing with each Investor are
conditioned upon the fulfillment (or
32
waiver by the Company in its sole and absolute discretion) of each of the
following events as of the Initial Closing Date:
5.2.1 the representations and warranties of such Investor set
forth in this Agreement and in the other Initial
Transaction Documents shall be true and correct in all
material respects as of such date as if made on such
date (except that to the extent that any such
representation or warranty relates to a particular
date, in which case such representation or warranty
shall be true and correct in all material respects as
of that particular date);
5.2.2 such Investor shall have complied with or performed all
of the agreements, obligations and conditions set forth
in this Agreement and in the other Initial Transaction
Documents that are required to be complied with or
performed by such Investor on or before the Initial
Closing Date;
5.2.3 there shall be no injunction, restraining order or
decree of any nature of any court or Government
Authority of competent jurisdiction that is in effect
that restrains or prohibits the consummation of the
transactions contemplated hereby or by the other
Initial Transaction Documents;
5.2.4 such Investor shall have executed each Initial
Transaction Document to which it is a party and shall
have delivered the same to the Company; and
5.2.5 such Investor shall have tendered to the Company the
Purchase Price for the Initial Preferred Shares and
Initial Warrants being purchased by it at the Initial
Closing.
5.3 Conditions to Investors' Obligations at the Put Option Closing. Each
----------------------------------------------------------------
Satellite Entity's obligations to effect the Put Option Closing, including
without limitation its obligation to purchase Put Option Preferred Shares and a
Put Option Warrant at the Put Option Closing, are conditioned upon the
fulfillment (or waiver by such Satellite Entity in its sole and absolute
discretion) of each of the following events as of the Put Option Closing Date,
and the Company shall use commercially reasonably efforts to cause each of such
conditions to be satisfied:
5.3.1 the representations and warranties of the Company set
forth in this Agreement and in the other Transaction
Documents shall be true and correct in all material
respects as of the Put Option Closing Date as if made
on such date (except that to the extent that any such
representation or warranty relates to a particular
date, in which case such representation or warranty
shall be true and correct in all material respects as
of that particular date);
33
5.3.2 the Company shall have complied with or performed in
all material respects all of the agreements,
obligations and conditions set forth in the Certificate
of Designation, this Agreement or the other Put Option
Transaction Documents that are required to be complied
with or performed by the Company on or before such
date;
5.3.3 the Put Option Closing Date shall occur not later than
ten Business Days after the First Registration Deadline
(as defined in the Registration Rights Agreement);
5.3.4 the Company shall have delivered to such Satellite
Entity a certificate, signed by the Chief Executive
Officer and Chief Financial Officer of the Company,
certifying that the conditions specified in this
paragraph 5.3 have been fulfilled (or waived in writing
by such Satellite Entity) as of the Put Option Closing
Date, it being understood that such Satellite Entity
may rely on such certificate as though it were a
representation and warranty of the Company made herein;
5.3.5 the Company shall have delivered to such Satellite
Entity an opinion of counsel for the Company, dated as
of the Put Option Closing Date, in form and substance
reasonably satisfactory to such Satellite Entity;
5.3.6 the Company shall have delivered to such Satellite
Entity a duly executed Put Option Warrant and a
certificate representing the Put Option Preferred
Shares being purchased by such Satellite Entity at the
Put Option Closing;
5.3.7 there shall have occurred no material adverse change in
the Company's consolidated business or financial
condition since the date of the Company's most recent
audited financial statements attached as Schedule 3.4
------------
hereto (except as described on Schedule 3.8.1 hereto);
--------------
5.3.8 the Common Stock shall be quoted on the Nasdaq SmallCap
Market; and
5.3.9 there shall be no injunction, restraining order or
decree of any nature of any court or Government
Authority of competent jurisdiction that is in effect
that restrains or prohibits the consummation of the
transactions contemplated hereby or by the other Put
Option Transaction Documents.
5.4 Conditions to Company's Obligations at the Put Option Closing. The
-----------------------------------------------------------------
Company's obligations to effect the Put Option Closing with each Satellite
Entity are conditioned upon the
34
fulfillment (or waiver by the Company in its sole and absolute discretion) of
each of the following events as of the Put Option Closing Date:
5.4.1 the representations and warranties of such Satellite
Entity set forth in this Agreement shall be true and
correct in all material respects as of such date as if
made on such date (except that to the extent that any
such representation or warranty relates to a particular
date, in which case such representation or warranty
shall be true and correct in all material respects as
of that particular date);
5.4.2 such Satellite Entity shall have complied with or
performed all of the agreements, obligations and
conditions set forth in this Agreement and in the other
Transaction Documents that are required to be complied
with or performed by such Satellite Entity on or before
the Put Option Closing Date;
5.4.3 there shall be no injunction, restraining order or
decree of any nature of any court or Government
Authority of competent jurisdiction that is in effect
that restrains or prohibits the consummation of the
transactions contemplated hereby or by the other Put
Option Transaction Documents; and
5.4.4 such Satellite Entity shall have tendered to the
Company the Purchase Price for the Put Option Preferred
Shares and Put Option Warrants being purchased by it at
the Put Option Closing.
6. MISCELLANEOUS.
-------------
6.1 Survival; Severability. The representations, warranties,
-----------------------
covenants and indemnities made by the parties herein, in the Certificate of
Designation and in the other Transaction Documents shall survive the Initial
Closing and the Put Option Closing notwithstanding any due diligence
investigation made by or on behalf of the party seeking to rely thereon. In the
event that any provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision; provided, that
in such case the parties shall negotiate in good faith to replace such provision
with a new provision which is not illegal, unenforceable or void, as long as
such new provision does not materially change the economic benefits of this
Agreement to the parties.
6.2 Successors and Assigns. The terms and conditions of this
------------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. Each Investor may assign its
rights and obligations hereunder, in connection with any private sale or
transfer of Preferred Shares or Warrants in accordance with the terms hereof, as
long
35
as, as a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
Agreement, in which case the term "Investor" shall be deemed to refer to such
--------
transferee as though such transferee were an original signatory hereto. The
Company may not assign its rights or obligations under this Agreement.
6.3 No Reliance. Each party acknowledges that (i) it has such
------------
knowledge in business and financial matters as to be fully capable of evaluating
this Agreement, the other Transaction Documents, and the transactions
contemplated hereby and thereby, (ii) it is not relying on any advice or
representation of any other party in connection with entering into this
Agreement, the other Transaction Documents, or such transactions (other than the
representations made in this Agreement or the other Transaction Documents),
(iii) it has not received from any party any assurance or guarantee as to the
merits (whether legal, regulatory, tax, financial or otherwise) of entering into
this Agreement or the other Transaction Documents or the performance of its
obligations hereunder and thereunder, and (iv) it has consulted with its own
legal, regulatory, tax, business, investment, financial and accounting advisors
to the extent that it has deemed necessary, and has entered into this Agreement
and the other Transaction Documents based on its own independent judgment and on
the advice of its advisors as it has deemed necessary, and not on any view
(whether written or oral) expressed by any party.
6.4 Independent Nature of Investors' Obligations and Rights. The
-----------------------------------------------------------
obligations of each Investor hereunder are several and not joint with the
obligations of the other Investors hereunder, and no Investor shall be
responsible in any way for the performance of the obligations of any other
investor hereunder. Nothing contained herein, in the Certificate of Designation
or in any other Transaction Document, and no action taken by any Investor
pursuant hereto or thereto, shall be deemed to constitute any Investors as a
partnership, an association, a joint venture or any other kind of entity, or a
"group" as described in Section 13(d) of the Exchange Act, or create a
presumption that any Investors are in any way acting in concert with respect to
such obligations or the transactions contemplated by this Agreement. Each
Investor has been represented by its own separate counsel in connection with the
transactions contemplated hereby, shall be entitled to protect and enforce its
rights, including without limitation rights arising out of this Agreement or the
other Transaction Documents, individually, and shall not be required to be join
any other Investor as an additional party in any proceeding for such purpose.
6.5 Injunctive Relief. The Company acknowledges and agrees that a
------------------
breach by it of its obligations hereunder may cause irreparable harm to each
Investor and that the remedy or remedies at law for any such breach will be
inadequate and agrees, in the event of any such breach, in addition to all other
available remedies, such Investor shall be entitled to seek an injunction
restraining any breach and requiring immediate and specific performance of such
obligations without the necessity of showing economic loss.
6.6 Governing Law; Jurisdiction. This Agreement shall be governed by
---------------------------
and construed under the laws of the State of New York applicable to contracts
made and to be performed entirely within the State of New York. Each party
hereby irrevocably submits to the non-exclusive jurisdiction of the state and
federal courts sitting in the City and County of New York for the adjudication
of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby (including without limitation any dispute under or with
respect to
36
the Certificate, the Preferred Shares or the Warrants), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding involving the
Investor or permitted assignee of the Investor, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
6.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument. This Agreement may be
executed and delivered by facsimile transmission.
6.8 Headings. The headings used in this Agreement are used for
--------
convenience only and are not to be considered in construing or interpreting this
Agreement.
6.9 Notices. Any notice, demand or request required or permitted to
-------
be given by the Company or the Investors pursuant to the terms of this Agreement
shall be in writing and shall be deemed delivered (i) when delivered personally
or by verifiable facsimile transmission (immediately followed by written
confirmation delivered according to another mechanism provided by this section),
unless such delivery is made on a day that is not a Business Day, in which case
such delivery will be deemed to be made on the next succeeding Business Day,
(ii) on the next Business Day after timely delivery to an overnight courier and
(iii) on the Business Day actually received if deposited in the U.S. mail
(certified or registered mail, return receipt requested, postage prepaid),
addressed as follows:
If to the Company:
Citadel Security Software Inc.
Two Lincoln Centre, Suite 1600
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Wood & ▇▇▇▇▇▇▇, LLP
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
37
and if to any Investor, to such address for such Investor as shall appear on the
signature page hereof executed by such Investor, or as shall be designated by
such Investor in writing to the Company in accordance with this Section 6.9.
-----------
6.10 Expenses. The Company and each Investor shall pay all costs and
--------
expenses that it incurs in connection with the negotiation, execution, delivery
and performance of this Agreement or the other Transaction Documents; provided,
however, that that, at the Initial Closing, the Company shall pay $55,000 in
immediately available funds to Satellite Asset Management, L.P. in connection
its due diligence investigation of the Company and the negotiation, preparation,
execution, delivery and performance of this Agreement, the other Transaction
Documents and the Certificate of Designation. Such amount may be netted out of
the Purchase Price payable by Satellite Asset Management, L.P. or its Affiliates
at the Initial Closing. If the Initial Closing does not occur due to a
determination by the Company that it does not wish to proceed with the
transactions contemplated hereby, or because the Company failed to satisfy the
conditions to an Investor's obligation to purchase Initial Preferred Shares and
an Initial Put Option Warrant, the Company shall pay $20,000 to Satellite Asset
Management, L.P. at the time that it makes such determination.
6.11 Entire Agreement; Amendments. This Agreement, the Certificate of
----------------------------
Designation and the other Transaction Documents constitute the entire agreement
between the parties with regard to the subject matter hereof and thereof,
superseding all prior agreements or understandings, whether written or oral,
between or among the parties. Except as expressly provided herein, neither this
Agreement nor any term hereof may be amended except pursuant to a written
instrument executed by the Company and the holders of at least two-thirds (2/3)
of the Outstanding Registrable Securities at such time, and no provision hereof
may be waived other than by a written instrument signed by the party against
whom enforcement of any such waiver is sought. Any waver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. Neither the Company nor any Person acting on its behalf shall, directly
or indirectly, pay or cause to be paid any consideration (immediate or
contingent), whether by way of interest, fee, payment for the redemption,
conversion or exercise of the Securities, or otherwise, to an Investor for or as
an inducement to, or in connection with the solicitation of, any amendment of
any of the terms of this Agreement, the Certificate of Designation or any of the
other Transaction Documents, unless such consideration is required to be paid to
all of the Investors bound by such amendment.
[Signature Pages to Follow]
38
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first-above written.
CITADEL SECURITY SOFTWARE INC.
By: __________________________
Name:
Title:
SATELLITE STRATEGIC FINANCE ASSOCIATES, LLC
By: Satellite Asset Management, L.P., its Manager
By: __________________________
Name:
Title:
ADDRESS:
c/o Satellite Asset Management, L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇ & Stachenfeld LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Number of Preferred Shares to be Purchased: _______________
Number of Warrant Shares Initially
Issuable Upon Exercise of Warrants:_______________
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first-above written.
CITADEL SECURITY SOFTWARE INC.
By: __________________________
Name:
Title:
SATELLITE STRATEGIC FINANCE PARTNERS, LTD.
By: Satellite Asset Management, L.P., its Manager
By: __________________________
Name:
Title:
ADDRESS:
c/o Satellite Asset Management, L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇ & Stachenfeld LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Number of Preferred Shares to be Purchased: _______________
Number of Warrant Shares Initially
Issuable Upon Exercise of Warrants:_______________
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first-above written.
CITADEL SECURITY SOFTWARE INC.
By: __________________________
Name:
Title:
___________________________________________
Investor Name
By: __________________________, its Manager
By: __________________________
Name:
Title:
ADDRESS:
________________________
________________________
Attn: _________________
Tel: _________________
Fax: _________________
With a copy to:
________________________
________________________
Attn: _________________
Tel: _________________
Fax: _________________
Number of Preferred Shares to be Purchased: _______________
Number of Warrant Shares Initially
Issuable Upon Exercise of Warrants:_______________