EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
January 21, 2004 by and between LMIC, Inc., a Delaware corporation (the
"Company"), and each purchaser identified on the signature pages hereto (each, a
"Purchaser" and collectively, the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended, the
Company desires to issue and sell to each Purchaser, and each Purchaser,
severally and not jointly, desires to purchase from the Company, certain
securities of the Company as more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each of the
Purchasers agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated:
"Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed
under Rule 144. With respect to a Purchaser, any investment fund or
managed account that is managed on a discretionary basis by the same
investment manager as such Purchaser will be deemed to be an Affiliate of
such Purchaser.
"Bankruptcy Event" means any of the following events: (a) the
Company or any Subsidiary commences a case or other proceeding under any
bankruptcy, reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction relating to the Company or any Subsidiary thereof; (b) there
is commenced against the Company or any Subsidiary any such case or
proceeding that is not dismissed within 60 days after commencement; (c)
the Company or any Subsidiary is adjudicated insolvent or bankrupt or any
order of relief or other order approving any such case or proceeding is
entered; (d) the Company or any Subsidiary suffers any appointment of any
custodian or the like for it or any substantial part of its property that
is not discharged or stayed within 60 days; (e) the Company or any
Subsidiary makes a general assignment for the benefit of creditors; (f)
the Company or any Subsidiary fails to pay, or states that it is unable to
pay or is unable to pay, its debts generally as they become due; (g) the
Company or any Subsidiary calls a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts; or (h)
the Company or any Subsidiary, by any act or failure to act, expressly
indicates its consent to, approval of or acquiescence in any of the
foregoing or takes any corporate or other action for the purpose of
effecting any of the foregoing.
"Business Day" means any day other than Saturday, Sunday or other
day on which commercial banks in the City of New York are authorized or
required by law to remain closed.
"Change of Control" means the occurrence of any of the following in
one or a series of related transactions: (i) an acquisition after the date
hereof by an individual or legal entity or "group" (as described in Rule
13d-5(b)(1) under the Exchange Act) of more than one-third of the voting
rights or equity interests in the Company; (ii) a replacement of more than
one-third of the members of the Company's board of directors that is not
approved by those individuals who are members of the board of directors on
the date hereof (or other directors previously approved by such
individuals); (iii) a merger or consolidation of the Company or any
Subsidiary or a sale of more than one-third of the assets of the Company
in one or a series of related transactions, unless following such
transaction or series of transactions, the holders of the Company's
securities prior to the first such transaction continue to hold at least
50.1% of the voting rights and equity interests in of the surviving entity
or acquirer of such assets; (iv) a recapitalization, reorganization or
other transaction involving the Company or any Subsidiary that constitutes
or results in a transfer of more than one-third of the voting rights or
equity interests in the Company; (v) consummation of a "Rule 13e-3
transaction" as defined in Rule 13e-3 under the Exchange Act with respect
to the Company, or (vi) the execution by the Company or its controlling
stockholders of an agreement providing for or reasonably likely to result
in any of the foregoing events.
"Closing" means the closing of the purchase and sale of the Shares
and the Warrants pursuant to Section 2.1.
"Closing Date" means the date of the Closing.
"Closing Price" means, for any date, the price determined by the
first of the following clauses that applies: (a) if the Common Stock is
then listed or quoted on an Eligible Market or any other national
securities exchange, the closing price per share of the Common Stock for
such date (or the nearest preceding date) on the primary Eligible Market
or exchange on which the Common Stock is then listed or quoted; (b) if
prices for the Common Stock are then quoted on the OTC Bulletin Board, the
closing price per share of the Common Stock for such date (or the nearest
preceding date) so quoted; (c) if prices for the Common Stock are then
reported in the "Pink Sheets" published by the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent closing bid price per
share of the Common Stock so reported; or (d) in all other cases, the fair
market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the then-majority-in-interest of the
Purchasers and the Company.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value
$0.001 per share.
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"Common Stock Equivalents" means, collectively, Options and
Convertible Securities.
"Company Counsel" means Xxxxxxx Xxxxxxxxx LLP.
"Convertible Securities" means any stock or securities (other than
Options) convertible into or exercisable or exchangeable for Common Stock.
"Effective Date" means the date that the Registration Statement is
first declared effective by the Commission.
"Eligible Market" means any of the New York Stock Exchange, the
American Stock Exchange, the Nasdaq National Market, the Nasdaq Small Cap
Market or the OTC Bulletin Board or any successor to any of the foregoing.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Stock" means the issuance of Common Stock (A) upon
exercise or conversion of any Options or other securities described in
Schedule 3.1(f) (provided that such exercise or conversion occurs in
accordance with the terms thereof, without amendment or modification, and
that the applicable exercise or conversion price or ratio is described in
such schedule), (B) in connection with any grant of options to employees,
officers, directors or consultants of the Company pursuant to a stock
option plan duly adopted by the Company's board of directors or in respect
of the issuance of Common Stock upon exercise of any such options, (C)
pursuant to a bona fide firm commitment underwritten public offering with
a nationally recognized underwriter (excluding any equity line) at a per
share offering price equal to at least the market price and in an
aggregate offering amount greater than $25,000,000, (D) pursuant to any
bona fide strategic transaction or investment, the primary purpose of
which is not to raise capital, (E) pursuant to any fixed, convertible,
premium investment to be made in the Company by Omicron Capital within
three (3) months from the date hereof (the "Omicron Financing") or (F) in
connection with any bona fide loan transaction with a commercial bank or
other similar commercial lender.
"Filing Date" means no later than 45 days following the Closing
Date.
"Lien" means any lien, charge, claim, security interest, encumbrance
or right of first refusal.
"Losses" means any and all losses, claims, damages, liabilities,
settlement costs and expenses, including, without limitation, costs of
preparation and reasonable attorneys' fees.
"Options" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
"Person" means any individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or any court or other federal, state, local or other
governmental authority or other entity of any kind.
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"Post-Effective Amendment" means a post-effective amendment to the
Registration Statement.
"Post-Effective Amendment Filing Deadline" means the 10th Trading
Day after the Registration Statement ceases to be effective pursuant to
applicable securities laws due to the passage of time or the occurrence of
an event requiring the Company to file a Post-Effective Amendment.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A promulgated
under the Securities Act), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of
the Registrable Securities covered by the Registration Statement, and all
other amendments and supplements to the Prospectus, including
post-effective amendments, and all material incorporated by reference or
deemed to be incorporated by reference in such Prospectus.
"Registrable Securities" means any Common Stock (including
Underlying Shares) issued or issuable pursuant to the Transaction
Documents, together with any securities issued or issuable upon any stock
split, dividend or other distribution, recapitalization or similar event
with respect to the foregoing.
"Registration Statement" means each registration statement required
to be filed under Article VI, including (in each case) the Prospectus,
amendments and supplements to such registration statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto, and
all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
"Required Effectiveness Date" means 135 days following the Closing
Date.
"Rule 144," "Rule 415," and "Rule 424" means Rule 144, Rule 415 and
Rule 424, respectively, promulgated by the Commission pursuant to the
Securities Act, as such Rules may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities" means the Shares, the Warrants and the Underlying
Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the aggregate number of shares of Common Stock, which
are being issued and sold to the Purchasers at the Closing.
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"Subsidiary" means any subsidiary, as defined in Rule 1-02(x) of
Regulation S-X promulgated by the Commission, of the Company.
"Trading Day" means (a) any day on which the Common Stock is listed
or quoted and traded on its primary Trading Market (or any successor
thereto) or (b) if trading does not occur on any Trading Market (or any
successor thereto), any Business Day.
"Trading Market" means the OTC Bulletin Board or any other Eligible
Market on which the Common Stock is then listed or quoted.
"Transaction Documents" means this Agreement, the Warrants, the
Transfer Agent Instructions and any other documents or agreements executed
in connection with the transactions contemplated hereunder.
"Transfer Agent" means Continental Stock Transfer & Trust Company,
or any other transfer agent selected by the Company.
"Transfer Agent Instructions" means the Irrevocable Transfer Agent
Instructions, in the form of Exhibit D, executed by the Company and
delivered to and acknowledged in writing by the Transfer Agent.
"Underlying Shares" means the shares of Common Stock issuable upon
exercise of the Warrants or any other securities issued in exchange for or
in respect of such shares.
"Warrants" means, collectively, the Common Stock purchase warrants
issued and sold under this Agreement, in the form of Exhibit A, and any
warrants issued upon exercise of such warrants.
ARTICLE II
PURCHASE AND SALE
2.1 Closing. Subject to the terms and conditions set forth in this
Agreement, at the Closing the Company shall issue and sell to each Purchaser,
and each Purchaser shall, severally and not jointly, purchase from the Company,
such number of Shares and a Warrant to purchase such number of Underlying
Shares, each as indicated below such Purchaser's name on the signature page of
this Agreement, for an aggregate purchase price for such Purchaser as indicated
below such Purchaser's name on the signature page of this Agreement. The Closing
shall take place at the offices of Proskauer Rose LLP immediately following the
execution hereof, or at such other location or time as the parties may agree.
2.2 Closing Deliveries.
(a) At the Closing, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) one or more stock certificates, free and clear of all
restrictive and other legends (except as expressly provided in
Section 4.1(b) hereof), evidencing the number of Shares indicated
below such Purchaser's name on the signature page of this Agreement,
registered in the name of such Purchaser;
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(ii) a Warrant, registered in the name of such Purchaser,
pursuant to which such Purchaser shall have the right to acquire the
number of Underlying Shares indicated below such Purchaser's name on
the signature page of this Agreement, on the terms set forth
therein;
(iii) a legal opinion of Company Counsel, in the form of
Exhibit B, executed by such counsel and delivered to the Purchasers;
and
(iv) duly executed Transfer Agent Instructions acknowledged by
the Transfer Agent.
(b) At the Closing, each Purchaser shall deliver or cause to be
delivered to the Company the purchase price indicated below such
Purchaser's name on the signature page of this Agreement, in United States
dollars and in immediately available funds, by wire transfer to an account
designated in writing by the Company for such purpose.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company hereby
represents and warrants to each of the Purchasers as follows:
(a) Subsidiaries. The Company has no direct or indirect Subsidiaries
other than those listed in Schedule 3.1(a). Except as disclosed in
Schedule 3.1(a), the Company owns, directly or indirectly, all of the
capital stock or comparable equity interests of each Subsidiary free and
clear of any Lien, and all the issued and outstanding shares of capital
stock or comparable equity interests of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar
rights.
(b) Organization and Qualification. Each of the Company and the
Subsidiaries is an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the requisite power and authority to
own and use its properties and assets and to carry on its business as
currently conducted. Neither the Company nor any Subsidiary is in material
violation of any of the provisions of its respective certificate or
articles of incorporation, bylaws or other organizational or charter
documents. Each of the Company and the Subsidiaries is duly qualified to
do business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where
the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, (i) materially adversely
affect the legality, validity or enforceability of any Transaction
Document, (ii) have or result in a material adverse effect on the results
of operations, assets, business or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole, or (iii) materially
adversely impair the Company's ability to perform fully on a timely basis
its obligations under any of the Transaction Documents (any of (i), (ii)
or (iii), a "Material Adverse Effect").
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(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary action on the part of
the Company and no further consent or action is required by the Company,
its Board of Directors or its stockholders. Each of the Transaction
Documents has been (or upon delivery will be) duly executed by the Company
and is, or when delivered in accordance with the terms hereof, will
constitute, the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, subject to: (i) the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting the enforcement
of creditors' rights generally; (ii) general equitable principles (whether
considered in a proceeding in equity or at law); and (iii) an implied
covenant of good faith and fair dealing.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company
of the transactions contemplated hereby and thereby do not and will not
(i) conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would
become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of
time or both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, except to the extent that such conflict, default or termination
right could not reasonably be expected to have a Material Adverse Effect,
or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations and the rules
and regulations of any self-regulatory organization to which the Company
or its securities are subject), or by which any property or asset of the
Company or a Subsidiary is bound or affected.
(e) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable,
free and clear of all Liens and shall not be subject to preemptive rights
or similar rights of stockholders. The Company has reserved from its duly
authorized capital stock the maximum number of shares of Common Stock
issuable upon exercise of the Warrants.
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(f) Capitalization. The number of shares and type of all authorized,
issued and outstanding capital stock, options and other securities of the
Company (whether or not presently convertible into or exercisable or
exchangeable for shares of capital stock of the Company) is set forth in
Schedule 3.1(f). All outstanding shares of capital stock are duly
authorized, validly issued, fully paid and nonassessable and have been
issued in compliance with all applicable securities laws. Except as
disclosed in Schedule 3.1(f), there are no outstanding options, warrants,
script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible
into or exercisable or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. There are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement
providing rights to security holders) and the issue and sale of the
Securities will not obligate the Company to issue shares of Common Stock
or other securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such securities. To
the knowledge of the Company, except as specifically disclosed in Schedule
3.1(f), no Person or group of related Persons beneficially owns (as
determined pursuant to Rule 13d-3 under the Exchange Act), or has the
right to acquire, by agreement with or by obligation binding upon the
Company, beneficial ownership of in excess of 5% of the outstanding Common
Stock, ignoring for such purposes any limitation on the number of shares
of Common Stock that may be owned at any single time.
(g) SEC Reports; Financial Statements. The Company has filed all
reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, since
July 17, 2003 (or such shorter period as the Company was required by law
to file such material) (the foregoing materials being collectively
referred to herein as the "SEC Reports" and, together with this Agreement
and the Schedules to this Agreement, the "Disclosure Materials") on a
timely basis or has received a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such
extension. The Company has delivered to the Purchasers true, correct and
complete copies of all SEC Reports filed within the ten (10) days
preceding the date hereof. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities
Act and the Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and none of the SEC Reports, when filed, contained
any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. The financial statements of the Company
included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
during the periods involved ("GAAP"), except as may be otherwise specified
in such financial statements or the notes thereto, and fairly present in
all material respects the financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the results
of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial year-end audit
adjustments. All material agreements to which the Company or any
Subsidiary is a party or to which the property or assets of the Company or
any Subsidiary are subject are included as part of or specifically
identified in the SEC Reports.
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(h) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports (the "Financial Statement
Date"), except as specifically disclosed in the SEC Reports, (i) there has
been no event, occurrence or development that, individually or in the
aggregate, has had or that could result in a Material Adverse Effect, (ii)
the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred pursuant to
arrangements in existence on the Financial Statement Date or incurred in
the ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or required to be disclosed in filings made
with the Commission, (iii) the Company has not altered its method of
accounting or the identity of its auditors, (iv) the Company has not
declared or made any dividend or distribution of cash or other property to
its stockholders or purchased, redeemed or made any agreements to purchase
or redeem any shares of its capital stock, and (v) the Company has not
issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans.
(i) Absence of Litigation. Except as set forth in Schedule 3.1(i),
there is no Proceeding against or affecting the Company or any of its
Subsidiaries that could, individually or in the aggregate, have a Material
Adverse Effect.
(j) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or
any Subsidiary received notice of a claim that it is in default under or
that it is in violation of, any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any
of its properties is bound (whether or not such default or violation has
been waived), (ii) is in violation of any order of any court, arbitrator
or governmental body, or (iii) is or has been in violation of any statute,
rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws relating to taxes,
environmental protection, occupational health and safety, product quality
and safety and employment and labor matters, except in each case as could
not, individually or in the aggregate, have or result in a Material
Adverse Effect.
(k) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material
to the business of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for Liens as do not materially affect the value
of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries.
Any real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable
leases of which the Company and the Subsidiaries are in material
compliance.
(l) Certain Fees. Except for the fees to Ashenden Finance and
described in Schedule 3.1(l), all of which are payable to registered
broker-dealers, no brokerage or finder's fees or commissions are or will
be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with
respect to the transactions contemplated by this Agreement, and the
Company has not taken any action that would cause any Purchaser to be
liable for any such fees or commissions.
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(m) Private Placement. Neither the Company nor any Person acting on
the Company's behalf has sold or offered to sell or solicited any offer to
buy the Securities by means of any form of general solicitation or
advertising. Neither the Company nor any of its Affiliates nor any Person
acting on the Company's behalf has, directly or indirectly, at any time
within the past six months, made any offer or sale of any security or
solicitation of any offer to buy any security under circumstances that
would eliminate the availability of the exemption from registration under
Regulation D under the Securities Act in connection with the offer and
sale of the Securities as contemplated hereby. The Company is not, and is
not an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Company is not a United
States real property holding corporation within the meaning of the Foreign
Investment in Real Property Tax Act of 1980.
(n) Form SB-2 Eligibility. The Company is eligible to register its
Common Stock for resale by the Purchasers using Form SB-2 promulgated
under the Securities Act.
(o) Listing and Maintenance Requirements. The Company has not, since
July 17, 2003, received notice (written or oral) from any Trading Market
on which the Common Stock is or has been listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance requirements.
(p) Registration Rights. Except as described in Schedule 3.1(p), the
Company has not granted or agreed to grant to any Person any rights
(including "piggy-back" registration rights) to have any securities of the
Company registered with the Commission or any other governmental authority
that have not been satisfied.
(q) Application of Takeover Protections. There is no control share
acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under
the Company's charter documents that is or could become applicable to any
of the Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction
Documents, including, without limitation, as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the
Securities.
(r) Disclosure. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Purchasers or their
agents or counsel with any information that constitutes or might
constitute material, nonpublic information. The Company understands and
confirms that each of the Purchasers will rely on the foregoing
representations in effecting transactions in securities of the Company.
All disclosure provided to the Purchasers regarding the Company, its
business and the transactions contemplated hereby, including the Schedules
to this Agreement, furnished by or on behalf of the Company are true and
correct and do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or information exists
with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions,
which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so
publicly announced or disclosed. The Company acknowledges and agrees that
no Purchaser makes or has made any representations or warranties with
respect to the transactions contemplated hereby other than those
specifically set forth in Section 3.2.
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(s) Acknowledgment Regarding Purchasers' Purchase of Securities. The
Company acknowledges and agrees that each of the Purchasers is acting
solely in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or
fiduciary of the Company or, to the best of its knowledge, any other
Purchaser (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any Purchaser
or any of their respective representatives or agents in connection with
this Agreement and the transactions contemplated hereby is merely
incidental to such Purchaser's purchase of the Securities. The Company
further represents to each Purchaser that the Company's decision to enter
into this Agreement has been based solely on the independent evaluation of
the transactions contemplated hereby by the Company and its
representatives.
(t) Patents and Trademarks. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses
and other similar rights that are necessary or material for use in
connection with their respective businesses as described in the SEC
Reports and which the failure to so have could have a Material Adverse
Effect (collectively, the "Intellectual Property Rights"). Neither the
Company nor any Subsidiary has received a written notice that the
Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. To the knowledge of
the Company, all such Intellectual Property Rights are enforceable and
there is no existing infringement by another Person of any of the
Intellectual Property Rights.
(u) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which the Company and the Subsidiaries are engaged. Neither the Company
nor any Subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.
(v) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not, individually
or in the aggregate, have or result in a Material Adverse Effect
("Material Permits"), and neither the Company nor any Subsidiary has
received any notice of proceedings relating to the revocation or
modification of any Material Permit.
11
(w) Transactions With Affiliates and Employees. Except as set forth
in SEC Reports, none of the officers or directors of the Company and, to
the knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary
(other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal property to
or from, or otherwise requiring payments to or from any officer, director
or such employee or, to the knowledge of the Company, any entity in which
any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
(x) Solvency. Following consummation of the transactions
contemplated hereby, based on the financial condition of the Company as of
the Closing Date, (i) the Company's fair saleable value of its assets
exceeds the amount that will be required to be paid on or in respect of
the Company's existing debts and other liabilities (including known
contingent liabilities) as they mature and (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
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected
capital requirements and capital availability thereof, after taking into
account all anticipated uses of the cash, would be sufficient to pay all
amounts on or in respect of its debt when such amounts are required to be
paid. The Company does not intend to incur debts beyond its ability to pay
such debts as they mature (taking into account the timing and amounts of
cash to be payable on or in respect of its debt).
(y) Going Concern. Following consummation of the transactions
contemplated hereby, the Company and the Subsidiaries have no knowledge
(after taking into account the proceeds received by the Company from the
sale of the Securities) that the Company's independent public accountants,
will issue an audit letter containing a "going concern" opinion in
connection with the Company's quarterly report on Form 10-Q pursuant to
Section 13 or 15(d) under the Exchange Act for the period ended September
30, 2003 or otherwise.
(z) Internal Accounting Controls. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, as to itself only and for no other Purchaser, represents and warrants to
the Company as follows:
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(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder. The purchase by such
Purchaser of the Shares and the Warrants hereunder has been duly
authorized by all necessary action on the part of such Purchaser. This
Agreement has been duly executed and delivered by such Purchaser and
constitutes the valid and binding obligation of such Purchaser,
enforceable against it in accordance with its terms.
(b) Investment Intent. Such Purchaser is acquiring the Securities as
principal for its own account for investment purposes only and not with a
view to or for distributing or reselling such Securities or any part
thereof, without prejudice, however, to such Purchaser's right, subject to
the provisions of this Agreement, at all times to sell or otherwise
dispose of all or any part of such Securities pursuant to an effective
registration statement under the Securities Act or under an exemption from
such registration and in compliance with applicable federal and state
securities laws. Nothing contained herein shall be deemed a representation
or warranty by such Purchaser to hold Securities for any period of time.
(c) Purchaser Status. At the time such Purchaser was offered the
Shares and the Warrants, it was, and at the date hereof it is, an
"accredited investor" as defined in Rule 501(a) under the Securities Act,
as evidenced by such Purchaser's completion of the Statement of Accredited
Investor attached hereto as Exhibit E.
(d) Experience of such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and is able to afford a complete loss of such investment.
(e) General Solicitation. Such Purchaser is not purchasing the
Shares or Warrants as a result of any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Company Information. Such Purchaser has had an opportunity to
discuss the Company's business, management and financial affairs with
directors, officers and management of the Company and has had the
opportunity to review the Company's operations and facilities. Such
Purchaser has also had the opportunity to ask questions of and receive
answers from, the Company and its management regarding the terms and
conditions of this investment.
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(g) Residence. If such Purchaser is an individual, then such
Purchaser resides in the state or province identified in the address of
such Purchaser set forth on the signature page hereto; if such Purchaser
is a partnership, corporation, limited liability company or other entity,
then the office or offices of such Purchaser in which its investment
decision was made is located at the address or addresses of such Purchaser
set forth on the signature page hereto.
(h) Certain Fees. Except for the fees to Ashenden, all of which are
payable to registered broker-dealers, Purchasers have no brokerage or
finder's fees or commissions which are or will be payable by any Purchaser
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement that would cause the Company to be liable
for any such fees or commissions.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) Securities may only be disposed of pursuant to an effective
registration statement under the Securities Act or pursuant to an
available exemption from the registration requirements of the Securities
Act, and in compliance with any applicable state securities laws. In
connection with any transfer of Securities other than pursuant to an
effective registration statement or to the Company or pursuant to Rule
144(k), except as otherwise set forth herein, the Company may require the
transferor to provide to the Company an opinion of counsel selected by the
transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration under the Securities Act. Notwithstanding the
foregoing, the Company hereby consents to and agrees to register on the
books of the Company and with its Transfer Agent, without any such legal
opinion, any transfer of Securities by a Purchaser to an Affiliate of such
Purchaser, provided that the transferee certifies to the Company that it
is an "accredited investor" as defined in Rule 501(a) under the Securities
Act.
(b) The Purchasers agree to the imprinting, so long as is required
by this Section 4.1(b), of the following legend on any certificate
evidencing Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE EXERCISABLE HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. NOTWITHSTANDING
THE FOREGOING, THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT
SECURED BY SUCH SECURITIES.
14
(c) Certificates evidencing Securities shall not be required to
contain such legend or any other legend (i) while a Registration Statement
covering the resale of such Securities is effective under the Securities
Act, or (ii) following any valid sale of such Securities pursuant to Rule
144 so long as Purchaser has completed and filed Form 144 with the
Commission and provided evidence satisfactory to the Company of compliance
with Rule 144, or (iii) if such Securities are eligible for sale under
Rule 144(k) and Purchaser is not, and has not been during the 90 days
preceding such sale, an Affiliate of the Company, or (iv) if such legend
is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the Staff
of the Commission). The Company shall cause its counsel to issue the legal
opinion included in the Transfer Agent Instructions to the Transfer Agent
on the Effective Date. Following the Effective Date or at such earlier
time as a legend is no longer required for certain Securities, the Company
will use reasonable efforts to, but in no event later than five Trading
Days following the delivery by a Purchaser to the Company or the Transfer
Agent of a legended certificate representing such Securities, deliver or
cause to be delivered to such Purchaser a certificate representing such
Securities that is free from all restrictive and other legends. The
Company may not make any notation on its records or give instructions to
any transfer agent of the Company that enlarge the restrictions on
transfer set forth in this Section.
(d) The Company acknowledges and agrees that a Purchaser may from
time to time pledge or grant a security interest in some or all of the
Securities in connection with a bona fide margin agreement or other loan
or financing arrangement secured by the Securities and, if required under
the terms of such agreement, loan or arrangement, such Purchaser may
transfer pledged or secured Securities to the pledgees or secured parties.
Such a pledge or transfer would not be subject to approval of the Company
and no legal opinion of the pledgee, secured party or pledgor shall be
required in connection therewith. Further, no notice shall be required of
such pledge. At the appropriate Purchaser's expense, the Company will
execute and deliver such reasonable documentation as a pledgee or secured
party of Securities may reasonably request in connection with a pledge or
transfer of the Securities, including the preparation and filing of any
required prospectus supplement under Rule 424(b)(3) of the Securities Act
or other applicable provision of the Securities Act to appropriately amend
the list of selling stockholders thereunder.
4.2 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. Not more often
than once every 90 days, upon the request of any Purchaser, the Company shall
deliver to such Purchaser a written certification of a duly authorized officer
as to whether it has complied with the preceding sentence. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to such laws, it will prepare and furnish to the Purchasers and make
publicly available in accordance with paragraph (c) of Rule 144 such information
as is required for the Purchasers to sell the Securities under Rule 144. The
Company further covenants that it will take such further action as any holder of
Securities may reasonably request to satisfy the provisions of Rule 144
applicable to the issuer of securities relating to transactions for the sale of
securities pursuant to Rule 144.
15
4.3 Integration. The Company shall not, and shall use its best efforts to
ensure that no Affiliate of the Company shall, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers.
4.4 Reservation and Listing of Securities. The Company shall maintain a
reserve from its duly authorized shares of Common Stock for issuance pursuant to
the Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents. In the event that at any
time the then authorized shares of Common Stock are insufficient for the Company
to satisfy its obligations in full under the Transaction Documents, the Company
shall promptly take such actions as may be required to increase the number of
authorized shares. Following the Effective Date, the Company shall in the time
and manner required by its Trading Market, prepare and file with such Trading
Market an additional shares listing application covering the number of shares of
Common Stock issuable under the Transaction Documents and shall take all steps
necessary to cause such shares of Common Stock to be approved for listing on its
Trading Market as soon as possible.
4.5 Subsequent Placements.
(a) Other than with respect to the Omicron Financing, from the date
hereof until the Effective Date (the "Blockout Period"), the Company will
not, directly or indirectly, offer, sell, grant any option to purchase, or
otherwise dispose of (or announce any offer, sale, grant or any option to
purchase or other disposition of) any of its or the Subsidiaries' equity
or equity equivalent securities, including without limitation any debt,
preferred stock or other instrument or security that is, at any time
during its life and under any circumstances, convertible into or
exchangeable or exercisable for Common Stock or Common Stock Equivalents
(any such offer, sale, grant, disposition or announcement being referred
to as a "Subsequent Placement").
(b) The Blockout Period set forth in the preceding paragraph (a)
shall be extended for the number of Trading Days during such period in
which (i) trading in the Common Stock is suspended by any Trading Market,
(ii) the Registration Statement is not effective, or (iii) the prospectus
included in the Registration Statement may not be used by the Purchasers
for the resale of Registrable Securities thereunder.
(c) From the end of the Blockout Period until the 18th month
anniversary thereof, the Company will not, directly or indirectly, effect
any Subsequent Placement unless the Company shall have first complied with
this Section 4.5(c).
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(i) The Company shall deliver to each Purchaser a written
notice (the "Offer") of any proposed or intended issuance or sale or
exchange of the securities being offered (the "Offered Securities")
in a Subsequent Placement, which Offer shall (w) identify and
describe the Offered Securities, (x) describe the price and other
terms upon which they are to be issued, sold or exchanged, and the
number or amount of the Offered Securities to be issued, sold or
exchanged, (y) identify the Persons or entities (if known) to which
or with which the Offered Securities are to be offered, issued, sold
or exchanged and (z) offer to issue and sell to or exchange with
each Purchaser a pro rata portion of the Offered Securities equal to
(A) the aggregate purchase price paid by each Purchaser divided by
(B) the sum of (i) the aggregate principal amount of the debentures
issued pursuant to the Omicron Financing and converted into Common
Stock prior to the date of the Subsequent Placement and (ii) the
aggregate principal amount paid by the Purchasers for all of the
Shares purchased hereunder (the "Basic Amount"), and with respect to
each Purchaser that elects to purchase its Basic Amount, any
additional portion of the Offered Securities attributable to the
Basic Amounts of other Purchasers as such Purchaser shall indicate
it will purchase or acquire should the other Purchasers subscribe
for less than their Basic Amounts (the "Undersubscription Amount").
(ii) To accept an Offer, in whole or in part, a Purchaser must
deliver a written notice to the Company prior to the end of the ten
(10) Trading Day period of the Offer, setting forth the portion of
the Purchaser's Basic Amount that such Purchaser elects to purchase
and, if such Purchaser shall elect to purchase all of its Basic
Amount, the Undersubscription Amount, if any, that such Purchaser
elects to purchase (in either case, the "Notice of Acceptance"). If
the Basic Amounts subscribed for by all Purchasers are less than the
total of all of the Basic Amounts, then each Purchaser who has set
forth an Undersubcription Amount in its Notice of Acceptance shall
be entitled to purchase, in addition to the Basic Amounts subscribed
for, the Undersubscription Amount it has subscribed for; provided,
however, that if the Undersubscription Amounts subscribed for exceed
the difference between the total of all the Basic Amounts and the
Basic Amounts subscribed for (the "Available Undersubscription
Amount"), each Purchaser who has subscribed for any
Undersubscription Amount shall be entitled to purchase that portion
of the Available Undersubscription Amount as the Basic Amount of
such Purchaser bears to the total Basic Amounts of all Purchasers
that have subscribed for Undersubscription Amounts, subject to
rounding by the Board of Directors to the extent its deems
reasonably necessary.
(iii) The Company shall have ten (10) Trading Days from the
expiration of the period set forth in Section 4.5(c)(ii) above (the
"Subsequent Placement Closing Period") to issue, sell or exchange
all or any part of such Offered Securities as to which a Notice of
Acceptance has not been given by the Purchasers (the "Refused
Securities"), but only to the offerees described in the Offer (if so
described therein) and only upon terms and conditions (including,
without limitation, unit prices and interest rates) that are not
more favorable to the acquiring Person or Persons or less favorable
to the Company than those set forth in the Offer. However, if the
stock appreciates by more than 15% during the Subsequent Placement
Closing Period (or such shorter period from the expiration of the
period set forth in Section 4.5(c)(ii) above through the date the
Company sets to issue, sell or exchange all or any portion of the
Refused Securities), then the Purchasers will have 1 Trading Day to
elect to issue a Notice of Acceptance in accordance with Section
4.5(c)(ii) above relating to the Refused Securities. The Company and
the Purchasers agree that the Subsequent Placement Closing Period
shall be extended until the expiration of the 1 Trading Day period
in the immediately preceding sentence.
17
(iv) In the event the Company shall propose to sell less than
all the Refused Securities (any such sale to be in the manner and on
the terms specified in Section 4.5(c)(iii) above), then each
Purchaser may, at its sole option and in its sole discretion, reduce
the number or amount of the Offered Securities specified in its
Notice of Acceptance to an amount that shall be not less than the
number or amount of the Offered Securities that the Purchaser
elected to purchase pursuant to Section 4.5(c)(ii) above multiplied
by a fraction, (i) the numerator of which shall be the number or
amount of Offered Securities the Company actually proposes to issue,
sell or exchange (including Offered Securities to be issued or sold
to Purchasers pursuant to Section 4.5(c)(ii) above prior to such
reduction) and (ii) the denominator of which shall be the original
amount of the Offered Securities. In the event that any Purchaser so
elects to reduce the number or amount of Offered Securities
specified in its Notice of Acceptance, the Company may not issue,
sell or exchange more than the reduced number or amount of the
Offered Securities unless and until such securities have again been
offered to the Purchasers in accordance with Section 4.5(c)(i)
above.
(v) Upon the closing of the issuance, sale or exchange of all
or less than all of the Refused Securities, the Purchasers shall
acquire from the Company, and the Company shall issue to the
Purchasers, the number or amount of Offered Securities specified in
the Notices of Acceptance, as reduced pursuant to Section 4.5(c)(iv)
above if the Purchasers have so elected, upon the terms and
conditions specified in the Offer. The purchase by the Purchasers of
any Offered Securities is subject in all cases to the preparation,
execution and delivery by the Company and the Purchasers of a
purchase agreement relating to such Offered Securities reasonably
satisfactory in form and substance to the Purchasers and their
respective counsel.
(vi) Any Offered Securities not acquired by the Purchasers or
other Persons in accordance with Section 4.5(c)(iii) above may not
be issued, sold or exchanged until they are again offered to the
Purchasers under the procedures specified in this Agreement.
(d) The restrictions contained in paragraphs (a) and (c) of this
Section shall not apply to Excluded Stock.
4.6 Securities Laws Disclosure; Publicity. The Company shall, on the
Closing Date, issue a press release acceptable to the Purchasers disclosing all
material terms of the transactions contemplated hereby. On the Closing Date, the
Company shall file a Current Report on Form 8-K with the Commission (the "8-K
Filing") describing the terms of the transactions contemplated by the
Transaction Documents and including as exhibits to such Current Report on Form
8-K this Agreement and the form of Warrants, in the form required by the
Exchange Act. Thereafter, the Company shall timely file any filings and notices
required by the Commission or applicable law with respect to the transactions
contemplated hereby and provide copies thereof to the Purchasers promptly after
filing. Except with respect to the 8-K Filing and the press release referenced
above (a copy of which will be provided to the Purchasers for their review as
early as practicable prior to its filing), the Company shall, at least two
Trading Days prior to the filing or dissemination of any disclosure required by
this paragraph, provide a copy thereof to the Purchasers for their review. The
Company and the Purchasers shall consult with each other in issuing any press
releases or otherwise making public statements or filings and other
communications with the Commission or any regulatory agency or Trading Market
with respect to the transactions contemplated hereby, and neither party shall
issue any such press release or otherwise make any such public statement, filing
or other communication without the prior consent of the other, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement, filing or
other communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the Commission or any regulatory agency or Trading
Market, without the prior written consent of such Purchaser, except to the
extent such disclosure (but not any disclosure as to the controlling Persons
thereof) is required by law or Trading Market regulations, in which case the
Company shall provide the Purchasers with prior notice of such disclosure. The
Company shall not, and shall cause each of its Subsidiaries and its and each of
their respective officers, directors, employees and agents not to, provide any
Purchaser with any material nonpublic information regarding the Company or any
of its Subsidiaries from and after the filing of the 8-K Filing without the
express written consent of such Purchaser. Purchasers hereby consent to
disclosure of their name in the "Selling Stockholder" section of the
Registration Statement. Neither the Company nor any Purchaser shall issue any
press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Purchaser, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) each Purchaser shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release). Each press
release disseminated since July 17, 2003 did not at the time of release contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
18
4.7 Use of Proceeds. Except as set forth on Schedule 4.7, the Company
shall use the net proceeds from the sale of the Securities hereunder for working
capital purposes and not for the satisfaction of any portion of the Company's
debt (other than payment of trade payables and accrued expenses in the ordinary
course of the Company's business and consistent with prior practices), to redeem
any Company equity or equity-equivalent securities or to settle any outstanding
litigation.
4.8 Reimbursement. If any Purchaser or any of its Affiliates or any
officer, director, partner, controlling Person, employee or agent of a Purchaser
or any of its Affiliates (a "Related Person") becomes involved in any capacity
in any Proceeding brought by or against any Person in connection with or as a
result of the transactions contemplated by the Transaction Documents, the
Company will indemnify and hold harmless such Purchaser or Related Person for
its reasonable legal and other expenses (including the costs of any
investigation, preparation and travel) and for any Losses incurred in connection
therewith, as such expenses or Losses are incurred, excluding only Losses that
result directly from such Purchaser's or Related Person's misrepresentation,
gross negligence or willful misconduct. In addition, the Company shall indemnify
and hold harmless each Purchaser and Related Person from and against any and all
Losses, as incurred, arising out of or relating to any breach by the Company of
any of the representations, warranties or covenants made by the Company in this
Agreement or any other Transaction Document, or any allegation by a third party
that, if true, would constitute such a breach. The conduct of any Proceedings
for which indemnification is available under this paragraph shall be governed by
Section 6.4(c) below. The indemnification obligations of the Company under this
paragraph shall be in addition to any liability that the Company may otherwise
have and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Purchasers and any such
Related Persons. The Company also agrees that neither the Purchasers nor any
Related Persons shall have any liability to the Company or any Person asserting
claims on behalf of or in right of the Company in connection with or as a result
of the transactions contemplated by the Transaction Documents, except to the
extent that any Losses incurred by the Company result from the
misrepresentation, gross negligence, willful misconduct or breach of any
Transaction Document of or by the applicable Purchaser or Related Person in
connection with such transactions. If the Company breaches its obligations under
any Transaction Document, then, in addition to any other liabilities the Company
may have under any Transaction Document or applicable law, the Company shall pay
or reimburse the Purchasers on demand for all costs of collection and
enforcement (including reasonable attorneys fees and expenses). Without limiting
the generality of the foregoing, the Company specifically agrees to reimburse
the Purchasers on demand for all costs of enforcing the indemnification
obligations in this paragraph.
4.9 Fundamental Changes. In addition to any other rights provided by law
or set forth herein, from and after the date of this Agreement and until the
Effective Date, the Company shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of a majority of the
Purchasers:
(a) merge with any other business entity which results in a Change
of Control;
(b) sell a substantial portion of assets not in the ordinary course
of business;
(c) increase the authorized number of shares of any class or series
of capital stock of the Company;
(d) amend the company's charter or by-laws;
19
(e) purchase, redeem (other than pursuant to equity incentive
agreements with non-officer employees giving the Company the right to
repurchase shares upon the termination of services) or set aside any sums
for the purchase or redemption of, or declare or pay any dividend
(including a dividend payable in stock of the Company) or make any other
distribution with respect to, any shares of capital stock or any other
securities that are convertible into or exercisable for such stock;
(f) increase the number of shares issuable pursuant to any stock
option or other equity incentive plan;
(g) change the nature of the Company's business to any business
which is fundamentally distinct and separate from the business currently
conducted by the Company; or
(h) cause or permit any subsidiary of the Company directly or
indirectly to take any actions described in clauses (a) through (g) above,
other than issuing securities to the Company.
ARTICLE V
CONDITIONS
5.1 Conditions Precedent to the Obligations of the Purchasers. The
obligation of each Purchaser to acquire Securities at the Closing is subject to
the satisfaction or waiver by such Purchaser, at or before the Closing, of each
of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained herein shall be true and correct in
all material respects as of the date when made and as of the Closing as
though made on and as of such date; and
(b) Performance. The Company and each other Purchaser shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied with by it at or prior to the
Closing, including the conditions set forth in Section 2.2(a).
5.2 Conditions Precedent to the Obligations of the Company. The obligation
of the Company to sell Securities at the Closing is subject to the satisfaction
or waiver by the Company, at or before the Closing, of each of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of the Purchasers contained herein shall be true and correct in
all material respects as of the date when made and as of the Closing Date
as though made on and as of such date; and
(b) Performance. The Purchasers shall have performed, satisfied and
complied in all material respects with all covenants, agreements and
conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Purchasers at or prior to the Closing.
(c) Receipt of Funds. The Company shall have received immediately
available funds payable to the Company from each Purchaser representing
such Purchaser's aggregate purchase price for the Shares and Warrants.
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ARTICLE VI
REGISTRATION RIGHTS
6.1 Shelf Registration
(a) As promptly as possible, and in any event on or prior to the
Filing Date, the Company shall prepare and file with the Commission a
"Shelf" Registration Statement covering the resale of all Registrable
Securities for an offering to be made on a continuous basis pursuant to
Rule 415. The Registration Statement shall be on Form SB-2 (except if the
Company is not then eligible to register for resale the Registrable
Securities on Form SB-2, in which case such registration shall be on
another appropriate form in accordance herewith as the Purchasers may
consent) and shall contain (except if otherwise directed by the
Purchasers) the "Plan of Distribution" attached hereto as Exhibit C.
(b) The Company shall use its commercially reasonably efforts to
cause the Registration Statement to be declared effective by the
Commission as promptly as possible after the filing thereof, but in any
event prior to the Required Effectiveness Date, and shall use its best
efforts to keep the Registration Statement continuously effective under
the Securities Act until the Registrable Securities can be sold pursuant
to Rule 144(k) or such earlier date when all Registrable Securities
covered by such Registration Statement have been sold (the "Effectiveness
Period").
(c) The Company shall notify each Purchaser in writing promptly (and
in any event within one Trading Day) after receiving notification from the
Commission that the Registration Statement has been declared effective.
(d) As promptly as possible, and in any event no later than the
Post-Effective Amendment Filing Deadline, the Company shall prepare and
file with the Commission a Post-Effective Amendment. The Company shall use
its best efforts to cause the Post-Effective Amendment to be declared
effective by the Commission as promptly as possible after the filing
thereof, but in any event prior to the 45th day after the Post-Effective
Amendment Filing Deadline. The Company shall notify each Purchaser in
writing promptly (and in any event within one Trading Day) after receiving
notification from the Commission that the Post-Effective Amendment has
been declared effective.
(e) Upon the occurrence of any Event (as defined below) and on every
monthly anniversary thereof until the applicable Event is cured, as
partial relief for the damages suffered therefrom by the Purchasers (which
remedy shall not be exclusive of any other remedies available under this
Agreement, at law or in equity), the Company shall pay to each Purchaser
an amount in cash, as liquidated damages and not as a penalty, equal to
.5% of the aggregate purchase price paid by such Purchaser hereunder for
the first month and 1% for each month thereafter. The payments to which a
Purchaser shall be entitled pursuant to this Section 6.1(d) are referred
to herein as "Event Payments". Any Event Payments payable pursuant to the
terms hereof shall apply on a pro-rata basis for any portion of a month
prior to the cure of an Event. In the event the Company fails to make
Event Payments in a timely manner, such Event Payments shall bear interest
at the rate of 1.5% per month (prorated for partial months) until paid in
full.
For such purposes, each of the following shall constitute an "Event":
(i) the Registration Statement is not filed on or prior to the
Filing Date or is not declared effective on or prior to the Required
Effectiveness Date; provided, however, that for the purposes of the
Event Payment under this Section 6.1(e) only, the Company shall have
an additional 15 days to cure the failure to declare the
Registration Statement effective on or prior to the Required
Effectiveness Date before such Event Payment is due to the
Purchasers under this Section 6.1(e);
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(ii) after the Effective Date, a Purchaser is not permitted to
sell Registrable Securities under the Registration Statement (or a
subsequent Registration Statement filed in replacement thereof) for
any reason for five or more Trading Days (whether or not
consecutive);
(iii) a Post-Effective Amendment is not filed on or prior to
the Post-Effective Amendment Filing Deadline or is not declared
effective on or prior to the 15th Trading Day after the
Post-Effective Amendment Filing Deadline;
(iv) after the Effective Date, any Registrable Securities
covered by such Registration Statement are not listed on an Eligible
Market;
(v) the Common Stock is not listed or quoted, or is suspended
from trading, on an Eligible Market for a period of five Trading
Days (which need not be consecutive Trading Days);
(vi) the Company fails for any reason to deliver a certificate
evidencing any Securities to a Purchaser within ten (10) Trading
Days after delivery of such certificate is required pursuant to any
Transaction Document or the exercise rights of the Purchasers
pursuant to the Transaction Documents are otherwise suspended for
any reason; or
(vii) the Company fails to have available a sufficient number
of authorized but unissued and otherwise unreserved shares of Common
Stock available to issue Underlying Shares upon any exercise of the
Warrants for more than 3 Trading Days or, at any time following the
Effective Date, any Shares or Underlying Shares are not listed on an
Eligible Market.
(f) The Company shall not, prior to the Effective Date of the
Registration Statement, prepare and file with the Commission a
registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity
securities.
6.2 Registration Procedures. In connection with the Company's registration
obligations hereunder, the Company shall:
(a) Not less than three Trading Days prior to the filing of a
Registration Statement or any related Prospectus or any amendment or
supplement thereto (including any document that would be incorporated or
deemed to be incorporated therein by reference), the Company shall (i)
furnish to each Purchaser and any counsel designated by any Purchaser
(each, a "Purchaser Counsel", and Vertical Ventures, LLC has initially
designated Proskauer Rose LLP) copies of all such documents proposed to be
filed, which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such
Purchasers and each Purchaser Counsel, and (ii) cause its officers and
directors, counsel and independent certified public accountants to respond
to such inquiries as shall be necessary, in the reasonable opinion of each
Purchaser Counsel, to conduct a reasonable investigation within the
meaning of the Securities Act. The Company shall not file a Registration
Statement or any such Prospectus or any amendments or supplements thereto
to which Purchasers holding a majority of the Registrable Securities shall
reasonably object.
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(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to each Registration Statement and
the Prospectus used in connection therewith as may be necessary to keep
the Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and file
with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement, and as so supplemented
or amended to be filed pursuant to Rule 424; (iii) respond as promptly as
reasonably possible, and in any event within ten days, to any comments
received from the Commission with respect to the Registration Statement or
any amendment thereto and as promptly as reasonably possible provide the
Purchasers true and complete copies of all correspondence from and to the
Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all Registrable Securities
covered by the Registration Statement during the applicable period in
accordance with the intended methods of disposition by the Purchasers
thereof set forth in the Registration Statement as so amended or in such
Prospectus as so supplemented.
(c) Notify the Purchasers of Registrable Securities to be sold and
each Purchaser Counsel as promptly as reasonably possible, and (if
requested by any such Person) confirm such notice in writing no later than
one Trading Day thereafter, of any of the following events: (i) the
Commission notifies the Company whether there will be a "review" of any
Registration Statement; (ii) the Commission comments in writing on any
Registration Statement (in which case the Company shall deliver to each
Purchaser a copy of such comments and of all written responses thereto);
(iii) any Registration Statement or any post-effective amendment is
declared effective; (iv) the Commission or any other Federal or state
governmental authority requests any amendment or supplement to any
Registration Statement or Prospectus or requests additional information
related thereto; (v) the Commission issues any stop order suspending the
effectiveness of any Registration Statement or initiates any Proceedings
for that purpose; (vi) the Company receives notice of any suspension of
the qualification or exemption from qualification of any Registrable
Securities for sale in any jurisdiction, or the initiation or threat of
any Proceeding for such purpose; or (vii) the financial statements
included in any Registration Statement become ineligible for inclusion
therein or any statement made in any Registration Statement or Prospectus
or any document incorporated or deemed to be incorporated therein by
reference is untrue in any material respect or any revision to a
Registration Statement, Prospectus or other document is required so that
it will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading.
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(d) Use its best efforts to avoid the issuance of or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of any
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for
sale in any jurisdiction, at the earliest practicable moment.
(e) Furnish to each Purchaser and each Purchaser Counsel, without
charge, at least one conformed copy of each Registration Statement and
each amendment thereto, including financial statements and schedules, all
documents incorporated therein by reference, and all exhibits to the
extent requested by such Person promptly after the filing of such
documents with the Commission.
(f) Promptly deliver to each Purchaser and each Purchaser Counsel,
without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement
thereto as such Persons may reasonably request. The Company hereby
consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Purchasers in connection with the valid
offering and sale of the Registrable Securities covered by such Prospectus
and any amendment or supplement thereto.
(g) (i) In the time and manner required by each Trading Market,
prepare and file with such Trading Market an additional shares listing
application covering all of the Registrable Securities; (ii) take all
steps necessary to cause such Registrable Securities to be approved for
listing on each Trading Market as soon as possible thereafter; (iii)
provide to the Purchasers evidence of such listing; and (iv) maintain the
listing of such Registrable Securities on each such Trading Market or
another Eligible Market.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling
Purchasers and each applicable Purchaser Counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or blue sky laws of such jurisdictions within the United States
as any Purchaser requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness
Period and to do any and all other acts or things necessary or advisable
to enable the disposition in such jurisdictions of the Registrable
Securities covered by a Registration Statement; provided, however, that
the Company shall not be obligated to file any general consent to service
of process or to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any
jurisdiction in which it is not otherwise subject.
(i) Cooperate with the Purchasers to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be delivered to a transferee pursuant to a Registration
Statement, which certificates shall be free, to the extent permitted by
this Agreement and applicable securities laws, of all restrictive legends,
and to enable such Registrable Securities to be in such reasonable
denominations and registered in such names as any such Purchasers may
request.
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(j) Upon the occurrence of any event described in Section
6.2(c)(vii), as promptly as reasonably possible, prepare a supplement or
amendment, including a post-effective amendment, to the Registration
Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, and file
any other required document so that, as thereafter delivered, neither the
Registration Statement nor such Prospectus will contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(k) Cooperate with any reasonable due diligence investigation
undertaken by the Purchasers in connection with the sale of Registrable
Securities, including without limitation by making available any documents
and information; provided that the Company will not deliver or make
available to any Purchaser material, nonpublic information unless such
Purchaser specifically requests in advance to receive material, nonpublic
information in writing and signs a confidentiality, non-disclosure and
indemnification agreement with respect to all such non-public information.
(l) If Holders of a majority of the Registrable Securities being
offered pursuant to a Registration Statement select underwriters for the
offering, the Company shall enter into and perform its obligations under
an underwriting agreement, in usual and customary form, including, without
limitation, by providing customary legal opinions, comfort letters and
indemnification and contribution obligations.
(m) Comply with all applicable rules and regulations of the
Commission.
6.3 Registration Expenses. The Company shall pay (or reimburse the
Purchasers for) all fees and expenses incident to the performance of or
compliance with this Agreement by the Company, including without limitation (a)
all registration and filing fees and expenses, including without limitation
those related to filings with the Commission, any Trading Market and in
connection with applicable state securities or Blue Sky laws, (b) printing
expenses (including without limitation expenses of printing certificates for
Registrable Securities and of printing prospectuses requested by the
Purchasers), (c) messenger, telephone and delivery expenses, (d) fees and
disbursements of counsel for the Company and up to $10,000 in the aggregate for
the Purchaser Counsels, (e) fees and expenses of all other Persons retained by
the Company in connection with the consummation of the transactions contemplated
by this Agreement, and (f) all listing fees to be paid by the Company to the
Trading Market.
6.4 Indemnification
(a) Indemnification by the Company. The Company shall indemnify and
hold harmless each Purchaser, the officers, directors, partners, members,
agents, investment advisors and employees of each of them, each Person who
controls any such Purchaser (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) and the officers,
directors, partners, members, agents and employees of each such
controlling Person, to the fullest extent permitted by applicable law,
from and against any and all Losses, as incurred, arising out of or
relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of any Prospectus or form of
prospectus or supplement thereto, in the light of the circumstances under
which they were made) not misleading, except to the extent, but only to
the extent, that (i) such untrue statements, alleged untrue statements,
omissions or alleged omissions are based solely upon information regarding
such Purchaser furnished in writing to the Company by such Purchaser
expressly for use therein, or to the extent that such information relates
to such Purchaser or such Purchaser's proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing
by such Purchaser expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement
thereto or (ii) in the case of an occurrence of an event of the type
specified in Section 6.2(c)(v)-(vii), the use by such Purchaser of an
outdated or defective Prospectus after the Company has notified such
Purchaser in writing that the Prospectus is outdated or defective and
prior to the receipt by such Purchaser of the Advice contemplated in
Section 6.5. The Company shall notify the Purchasers promptly of the
institution, threat or assertion of any Proceeding of which the Company is
aware in connection with the transactions contemplated by this Agreement.
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(b) Indemnification by Purchasers. Each Purchaser shall, severally
and not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company
(within the meaning of Section 15 of the Securities Act and Section 20 of
the Exchange Act), and the directors, officers, agents or employees of
such controlling Persons, to the fullest extent permitted by applicable
law, from and against all Losses (as determined by a court of competent
jurisdiction in a final judgment not subject to appeal or review) arising
solely out of any untrue statement of a material fact contained in the
Registration Statement, any Prospectus, or any form of prospectus, or in
any amendment or supplement thereto, or arising solely out of failure to
comply with all prospectus delivery requirements upon a re-sale of any
Securities or any omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of
the circumstances under which they were made) not misleading to the
extent, but only to the extent, that such untrue statement or omission is
contained in any information so furnished in writing by such Purchaser to
the Company specifically for inclusion in such Registration Statement or
such Prospectus or to the extent that (i) such untrue statements or
omissions are based solely upon information regarding such Purchaser
furnished in writing to the Company by such Purchaser expressly for use
therein, or to the extent that such information relates to such Purchaser
or such Purchaser's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such
Purchaser expressly for use in the Registration Statement, such Prospectus
or such form of Prospectus or in any amendment or supplement thereto or
(ii) in the case of an occurrence of an event of the type specified in
Section 6.2(c)(v)-(vii), the use by such Purchaser of an outdated or
defective Prospectus after the Company has notified such Purchaser in
writing that the Prospectus is outdated or defective and prior to the
receipt by such Purchaser of the Advice contemplated in Section 6.5. In no
event shall the liability of any selling Purchaser hereunder be greater in
amount than the dollar amount of the net proceeds received by such
Purchaser upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party shall promptly notify the
Person from whom indemnity is sought (the "Indemnifying Party") in
writing, and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the failure of any
Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except
(and only) to the extent that it shall be finally determined by a court of
competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
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An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the
reasonable fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (i) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (ii) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or
(iii) the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable fees
and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten Trading
Days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section
6.4(a) or (b) is unavailable to an Indemnified Party (by reasons other
than the specified exclusions to indemnification), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to
the amount paid or payable by such Indemnified Party as a result of such
Losses, in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as
any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference
to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or
alleged omission of a material fact, has been taken or made by, or relates
to information supplied by, such Indemnifying Party or Indemnified Party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or omission. The
amount paid or payable by a party as a result of any Losses shall be
deemed to include, subject to the limitations set forth in Section 6.4(c),
any reasonable attorneys' or other reasonable fees or expenses incurred by
such party in connection with any Proceeding to the extent such party
would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party
in accordance with its terms.
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The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6.4(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6.4(d), no Purchaser shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by such Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6.5 Dispositions. Each Purchaser agrees that it will comply with, and
indemnify and hold harmless all relevant Indemnified Parties in connection with
any failure of such Purchaser to comply with, prospectus delivery requirements
of the Securities Act as applicable to it in connection with sales of
Registrable Securities pursuant to the Registration Statement. Each Purchaser
further agrees that, upon receipt of a notice from the Company of the occurrence
of any event of the kind described in Sections 6.2(c)(v), (vi) or (vii), such
Purchaser will discontinue disposition of such Registrable Securities under the
Registration Statement until such Purchaser's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
Section 6.2(j), or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and, in either case,
has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement. The Company may provide appropriate stop orders to
enforce the provisions of this paragraph.
6.6 No Piggyback on Registrations. Except as set forth on Schedule 6.6
attached hereto, neither the Company nor any of its security holders (other than
the Purchasers in such capacity pursuant hereto) may include securities of the
Company in the Registration Statement other than the Registrable Securities, and
the Company shall not after the date hereof enter into any agreement providing
any such right to any of its security holders.
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6.7 Piggy-Back Registrations. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Purchaser written notice of
such determination and if, within fifteen days after receipt of such notice, any
such Purchaser shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
Purchaser requests to be registered.
ARTICLE VII
MISCELLANEOUS
7.1 Termination. This Agreement may be terminated by the Company or
Vertical Ventures, LLC by written notice to the other parties, if the Closing
has not been consummated by the third Trading Day following the date of this
Agreement; provided that no such termination will affect the right of any party
to xxx for any breach by the other party (or parties).
7.2 Fees and Expenses. At the Closing, the Company shall pay (i) to
Vertical Ventures, LLC an aggregate of $20,000 for their legal fees and expenses
incurred in connection with the preparation and negotiation of the Transaction
Documents, of which amount $10,000 has been previously paid by the Company to
Proskauer Rose LLP and (ii) to Ashenden Finance, a cash fee equal to five
percent (5%) of all money invested by any Purchaser who is not, as of the
Closing Date, an officer, director, employee, advisor or consultant to the
Company, or an Affiliate of any of the foregoing. In lieu of the foregoing
payment set forth in subsection (i) above, Vertical Ventures, LLC may retain
such amount at the Closing. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all Transfer
Agent fees, stamp taxes and other taxes and duties levied in connection with the
issuance of the Securities.
7.3 Entire Agreement. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules. At or
after the Closing, and without further consideration, the Company will execute
and deliver to the Purchasers such further documents as may be reasonably
requested in order to give practical effect to the intention of the parties
under the Transaction Documents. Notwithstanding anything to the contrary
herein, Securities may be assigned to any Person in connection with a bona fide
margin account or other loan or financing arrangement secured by such Company
Securities.
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7.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York City time) on a Trading
Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 6:30 p.m. (New
York City time) on any Trading Day, (c) the Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The addresses and facsimile numbers for such notices and communications are
those set forth on the signature pages hereof, or such other address or
facsimile number as may be designated in writing hereafter, in the same manner,
by such Person.
7.5 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each of the Purchasers or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right. Notwithstanding the foregoing,
a waiver or consent to depart from the provisions hereof with respect to a
matter that relates exclusively to the rights of Purchasers under Article VI and
that does not directly or indirectly affect the rights of other Purchasers may
be given by Purchasers holding at least a majority of the Registrable Securities
to which such waiver or consent relates.
7.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
7.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Any Purchaser may assign
its rights under this Agreement to any Person to whom such Purchaser assigns or
transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof that
apply to the "Purchasers." Notwithstanding anything to the contrary herein,
Securities may be assigned to any Person in connection with a bona fide margin
account or other loan or financing arrangement secured by such Securities.
7.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except that each Related Person is an intended third party
beneficiary of Section 4.8 and each Indemnified Party is an intended third party
beneficiary of Section 6.4 and (in each case) may enforce the provisions of such
Sections directly against the parties with obligations thereunder.
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7.9 Governing Law; Venue; Waiver Of Jury Trail. all questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by and construed and enforced in accordance with the laws of
the state of new york. THE COMPANY AND PURCHASERS Hereby Irrevocably Submit To
The Exclusive Jurisdiction Of The State And Federal Courts Sitting In The CITY
OF NEW YORK, BOROUGH OF MANHATTAN For The Adjudication Of Any Dispute BROUGHT BY
THE COMPANY OR ANY PURCHASER Hereunder, In Connection Herewith Or With Any
Transaction Contemplated Hereby Or Discussed Herein (Including With Respect To
The Enforcement Of Any Of The Transaction Documents), And Hereby Irrevocably
Waive, And Agree Not To Assert In Any Suit, Action Or ProceedinG BROUGHT BY THE
COMPANY OR ANY PURCHASER, Any Claim That It Is Not Personally Subject To The
Jurisdiction Of Any Such Court, OR That 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 Via Registered Or Certified Mail Or Overnight Delivery
(With Evidence Of Delivery) To Such Party At The Address In Effect For Notices
To It Under This Agreement And Agrees That Such Service Shall Constitute Good
And Sufficient Service Of Process And Notice Thereof. Nothing Contained Herein
Shall Be Deemed To Limit In Any Way Any Right To Serve Process In Any Manner
Permitted By Law. The Company AND PURCHASERS Hereby Waive All Rights To A Trial
By Jury.
7.10 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery and/or exercise of
the Securities, as applicable.
7.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
7.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
7.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
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7.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
7.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
7.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser hereunder or pursuant to the Warrants or any Purchaser
enforces or exercises its rights hereunder or thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company by a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
7.17 Adjustments in Share Numbers and Prices. In the event of any stock
split, subdivision, dividend or distribution payable in shares of Common Stock
(or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof, each
reference in any Transaction Document to a number of shares or a price per share
shall be amended to appropriately account for such event.
7.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document except to the extent such Purchasers
are Affiliates. The decision of each Purchaser to purchase Shares pursuant to
this Agreement has been made by such Purchaser independently of any other
Purchaser and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company or of the Subsidiary which may have been made or given
by any other Purchaser or by any agent or employee of any other Purchaser, and
no Purchaser or any of its agents or employees shall have any liability to any
other Purchaser (or any other Person) relating to or arising from any such
information, materials, statements or opinions. Nothing contained herein or in
any Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser acknowledges that no other Purchaser has acted as agent for such
Purchaser in connection with making its investment hereunder and that no other
Purchaser will be acting as agent of such Purchaser in connection with
monitoring its investment hereunder. Each Purchaser shall be entitled to
independently protect and enforce its rights, including without limitation the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose.
[Signature pages to follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
LMIC, INC.
By: /S/
-------------------------------------
Name: Xxxx X. Xxxxxxx
Title: President & CEO
Address for Notice:
0000 Xxxxxxxx Xxxxx Xxxx
Xxxxxxxxxx, XX 00000
Facsimile No.:
Telephone No.: (000) 000-0000
Attn:
With a copy to: Xxxxxxx Xxxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attn: Xxxxx X. Xxxxxxx, Esq.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
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