LOAN AND SECURITIES PURCHASE AGREEMENT
EXHIBIT
10.1
This
Loan
and Securities Purchase Agreement (this “Agreement”) is dated
as of January 15, 2008 between Industrial Enterprises of America, Inc., a
Nevada
corporation (the “Company”), and
each
purchaser identified on the signature pages hereto (each, including its
successors and assigns, 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 “Securities Act”), and
Rule 506 promulgated thereunder, the Company desires to issue and sell to
each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company, securities of the Company as more fully described in this
Agreement.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration, the receipt and adequacy of
which
are hereby acknowledged, the Company and each Purchaser agree as
follows:
DEFINITIONS
Definitions. In
addition to the terms defined elsewhere in this Agreement: (a) capitalized
terms
that are not otherwise defined herein have the meanings given to such terms
in
the Notes (as defined herein), and (b) the following terms have the meanings
set
forth in this Section 1.1:
“Action”
shall
have
the meaning ascribed to such term in Section 3.1(j).
“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 405 under the Securities Act. 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.
“Board
of Directors”
means the board of directors of the Company.
“Business
Day” means
any day except any Saturday, any Sunday, any day which is a federal legal
holiday in the United States or any day on which banking institutions in
the
State of New York are authorized or required by law or other governmental
action
to close.
“Closing(s)”
means
the
closing(s) of the purchase and sale of the Securities pursuant to Section
2.1
and any reference to “Closing” or “Closings” shall be construed to include the
First Closing and the Second Closing unless only one such closing is expressly
referred to.
“Closing
Dates” means,
collectively, the First Closing Date and the Second Closing Date.
“Commission”
means
the
Securities and Exchange Commission.
“Common
Stock” means
the common stock of the Company, par value $0.001 per share, and any other
class
of securities into which such securities may hereafter be reclassified or
changed into.
“Common
Stock
Equivalents” means any securities of the Company or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive,
Common
Stock.
“Common
Stock
Transaction” means the transactions contemplated by that certain Common
Stock Purchase Agreement dated on or about the date hereof between Brandywine
Consults, Inc. and the Purchasers, whereby the Purchasers are purchasing
an
aggregate of 500,000 shares of Common Stock of the Company from Brandywine
Consultants, Inc..
“Company
Counsel”
means Holland & Knight LLP, outside counsel to the Company, with offices
located at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇.
“Disclosure
Schedules”
shall have the meaning ascribed to such term in Section 3.1.
“Effective
Date” means
the date that the initial Registration Statement filed by the Company pursuant
to Section 4.16 hereof is first declared effective by the
Commission.
“Evaluation
Date”
shall have the meaning ascribed to such term in Section 3.1(r).
“Exchange
Act” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Exempt
Issuance”
means the issuance of (a) shares of Common Stock or options to employees,
officers or directors of the Company pursuant to any stock or option plan
duly
adopted for such purpose by a majority of the non-employee members of the
Board
of Directors or a majority of the members of a committee of non-employee
directors established for such purpose, (b) securities upon the exercise
or
exchange of or conversion of any Securities issued hereunder and/or other
securities exercisable or exchangeable for or convertible into shares of
Common
Stock issued and outstanding on the date of this Agreement, provided that
such
securities have not been amended since the date of this Agreement to increase
the number of such securities or to decrease the exercise, exchange
or
conversion
price of such securities, and (c) securities issued pursuant to acquisitions
or
strategic transactions approved by a majority of the disinterested directors
of
the Company, provided that any such issuance shall only be to a Person which
is,
itself or through its subsidiaries, an operating company in a business
synergistic with the business of the Company and in which the Company receives
benefits in addition to the investment of funds, but shall not include a
transaction in which the Company is issuing securities primarily for the
purpose
of raising capital or to an entity whose primary business is investing in
securities.
“First
Closing” shall
have the meaning set forth in Section 2.1.
“First
Closing Date”
means the Trading Day when all of the Transaction Documents have been
executed
and delivered by the applicable parties thereto, and all conditions precedent
to
(i) the Purchasers’ obligations to pay the Subscription Amount as to the First
Closing and (ii) the Company’s obligations to deliver the Securities deliverable
at the First Closing have been satisfied or waived.
“FWS”
means
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP with offices located at ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇.
“GAAP”
shall
have the
meaning ascribed to such term in Section 3.1(h).
“Indebtedness”
shall
have the meaning ascribed to such term in Section 3.1(aa).
“Intellectual
Property
Rights” shall have the meaning ascribed to such term in Section
3.1(o).
“Legend
Removal Date”
shall have the meaning ascribed to such term in Section 4.1(c).
“Liens”
means
a lien,
charge, security interest, encumbrance, right of first refusal, preemptive
right
or other restriction.
“Material
Adverse
Effect” shall have the meaning assigned to such term in Section
3.1(b).
“Material
Permits”
shall have the meaning ascribed to such term in Section 3.1(m).
“Maximum
Rate” shall
have the meaning ascribed to such term in Section 5.17.
“Mortgage”
means
the
Open-End Mortgage and Security Agreement made by Pitt Penn Oil Company, LLC
in
favor of the Purchasers, in the form of Exhibit E attached
hereto.
“Notes”
means
the 10%
Senior Secured Promissory Notes due, subject to the terms therein, 6 months
from
their date of issuance, issued by the Company to the Purchasers hereunder,
in
the form of Exhibit
A attached hereto.
“Person”
means
an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“Proceeding”
means
an
action, claim, suit, investigation or proceeding (including, without limitation,
an informal investigation or partial proceeding, such as a deposition), whether
commenced or threatened.
“Purchaser
Party”
shall have the meaning ascribed to such term in Section 4.10.
“Registration
Statement” means a registration statement meeting the requirements set
forth in Section 4.16 and covering the resale of the Shares and Warrant Shares
by each Purchaser as provided herein.
“Required
Approvals”
shall have the meaning ascribed to such term in Section 3.1(e).
“Required
Minimum”
means, as of any date, the maximum aggregate number of shares of Common
Stock
then issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Warrant Shares issuable upon exercise in full of
all
Warrants, ignoring any exercise limits set forth therein.
“Rule
144” means Rule
144 promulgated by the Commission pursuant to the Securities Act, as such
Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.
“SEC
Reports” shall
have the meaning ascribed to such term in Section 3.1(h).
“Second
Closing” shall
have the meaning set forth in Section 2.1.
“Second
Closing Date”
means the Trading Day when all of the Transaction Documents have been
executed
and delivered by the applicable parties thereto, and all conditions precedent
to
(i) the Purchasers’ obligations to pay the Subscription Amount as to the Second
Closing and (ii) the Company’s obligations to deliver the Securities deliverable
at the Second Closing have been satisfied or waived.
“Securities”
means
the
Shares, Notes, the Warrants, and the Warrant Shares.
“Securities
Act” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Security
Documents”
shall mean the Subsidiary Guarantees, the Mortgage, and any other
documents and
filing required thereunder in order to grant the Purchasers a first priority
security interest in the real property as described in the
Mortgage.
“Shareholder
Approval”
means such approval as may be required by the applicable rules and
regulations
of the Nasdaq Stock Market (or any successor entity) from the shareholders
of
the Company with respect to the transactions contemplated by the Transaction
Documents, including the issuance of all of the Shares and Warrant Shares
in
excess of 19.99% of the issued and outstanding Common Stock on the Closing
Date
“Shares”
means
the
shares of Common Stock issued or issuable to each Purchaser pursuant to this
Agreement.
“Short
Sales” means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
Act (but shall not be deemed to include the location and/or reservation of
borrowable shares of Common Stock).
“Subscription
Amount”
means, as to each Purchaser,
the
aggregate amount to be paid
for Notes, Shares and Warrants purchased hereunder as specified below such
Purchaser’s name on the signature page of this Agreement and next to the heading
“Subscription Amount,” in United States dollars and in immediately available
funds.
“Subsidiary”
means
any
subsidiary of the Company as set forth on Schedule 3.1(a) and
shall, where applicable, include any direct or indirect subsidiary of the
Company formed or acquired after the date hereof.
“Subsidiary
Guarantee”
means the Subsidiary Guarantee, dated the date hereof, by each Subsidiary
in
favor of the Purchasers, in the form of Exhibit B attached
hereto.
“Trading
Day” means a
day on which the New York Stock Exchange is open for trading.
“Trading
Market” means
the following markets or exchanges on which the Common Stock is listed or
quoted
for trading on the date in question: the American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
the
New York Stock Exchange or the OTC Bulletin Board.
“Transaction
Documents” means this Agreement, the Notes, the Warrants,
the Security Documents- (including without limitation the
Subsidiary Guarantee and the Mortgage), all exhibits and schedules thereto
and
hereto and
any
other
documents or agreements executed in connection with the transactions
contemplated hereunder.
“Transfer
Agent” means
Computershare, the current transfer agent of the Company with a mailing address
of ▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇, and a fax number of ▇▇▇ ▇▇▇-▇▇▇▇,
and any successor transfer agent of the Company.
“VWAP”
means,
for any
date, the price determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a Trading Market, the
daily
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed
or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m.
New York City time to 4:02 p.m. New York City time); (b) if the OTC
Bulletin Board is not a Trading Market, the volume weighted average price
of the
Common Stock for such date (or the nearest preceding date) on the OTC Bulletin
Board; (c) if the Common Stock is not then listed or quoted on the OTC Bulletin
Board and if prices for the Common Stock are then reported in the “Pink Sheets”
published by Pink Sheets, LLC (or a similar organization or agency succeeding
to
its functions of reporting prices), the most recent 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 Purchasers of a majority in interest of the Securities
then
outstanding and reasonably acceptable to the Company, the fees and expenses
of
which shall be paid by the Company.
“Warrants”
means,
collectively, the Common Stock purchase warrants delivered to the Purchasers
at
the Closing in accordance with Section 2.2(a) hereof, which Warrants shall
be
exercisable immediately and have a term of exercise equal to five years,
in the
form of Exhibit C
attached hereto.
“Warrant
Shares” means
the shares of Common Stock issuable upon exercise of the Warrants.
PURCHASE
AND SALE
Closing. On
each Closing Date, upon the terms and subject to the conditions set forth
herein, the Company agrees to sell, and each Purchaser, severally and not
jointly, agrees to purchase, up to $1,500,000 of the Notes, it being understood
that, and as more fully described below, each Purchaser shall indicate on
its
signature page the aggregate Subscription Amount to be purchased hereunder
by
such Purchaser, and such Purchaser shall purchase Notes equal to 50% of the
aggregate Subscription Amount on the First Closing Date and purchase
Notes equal to the remaining 50% of the Subscription Amount on the
Second Closing Date, subject to the conditions set forth herein. Each Purchaser shall
deliver to the Company, via wire transfer or a certified check, immediately
available funds equal to its Subscription Amount as to the
applicable
Closing,
and the Company shall deliver to each Purchaser its respective Note, Shares,
and
a Warrant, as determined pursuant to Section 2.2(a), and the Company and
each
Purchaser shall deliver the other items set forth in Section 2.2 deliverable
at
the applicable Closing. Upon satisfaction of the conditions set forth
in Sections 2.2 and 2.3, the Closings shall occur at the offices of FWS or
such
other location as the parties shall mutually agree.
(a) First
Closing. The First Closing shall be for $750,000 of the
aggregate Subscription Amount by all Purchasers hereunder and shall occur
on, or
as soon as reasonably practicable following, the date hereof.
(b) Second
Closing. The Second Closing shall be for $750,000 of the
aggregate Subscription Amount subscribed for by all Purchasers hereunder
and
shall occur within 5 Business Days of the date which is the latest of (i)
the
date the Company files its Annual Report for the year ended June 30, 2007
with
the Commission, (ii) the date the Company files its Quarterly Report for
the
quarter ended September 30, 2007 with the Commission and (iii) the date the
Company is otherwise current in its reporting obligations under the Exchange
Act
(and indicated compliance with such reporting obligations on the cover page
of
its most recent period report filed with the Commission), and in any event
on or
before March 15, 2008.
Deliveries
.
(a) On
or
before each Closing Date (except as noted), the Company shall deliver or
cause
to be delivered to each Purchaser the following:
(i) as
to the
First Closing, this Agreement duly executed by the Company;
(ii) a
legal
opinion of Company Counsel, in substantially the form of Exhibit D attached
hereto;
(iii) as
to the
First Closing, a Note with a principal amount equal to such Purchaser’s
Subscription Amount for the First Closing as set forth on its signature page
hereto, registered in the name of such Purchaser;
(iv) as
to the
Second Closing, a Note with a principal amount equal to such Purchaser’s
Subscription Amount for the Second Closing as set forth on its signature
page
hereto, registered in the name of such Purchaser;
(v) as
to the
First Closing, a Warrant registered in the name of such Purchaser to purchase
up
to such Purchaser’s pro-rata share of 75,000 shares of Common Stock, with an
exercise price equal to $_____1, subject to adjustment therein, it being
understood that Warrants to purchase a total
1
110% of
the closing price of the Common Stock on the Trading Day immediately prior
to
the date hereof.
of
75,000
shares shall be issued at the First Closing;
(vi) a
certificate of the Secretary of the Company, dated as of the Closing Date,
(w)
certifying the resolutions adopted unanimously by the Board of Directors
of the
Company approving the transactions contemplated by this Agreement and the
other
Transaction Documents and the issuance of the Securities, (x) certifying
the
current versions of the certificate or articles of incorporation, as amended
and
by-laws of the Company and its Subsidiaries, (y) certifying as to the signatures
and authority of persons signing the Transaction Documents and related documents
on behalf of the Company and its Subsidiaries and (z) confirming that the
representations and warranties of the Company contained herein are accurate
in
all material respects when made and on the applicable Closing Date;
(vii) as
to the
First Closing, a certificate, evidencing a number of Shares equal to such
Purchaser’s pro-rata portion of 2,000,000 shares of Common Stock (based on such
Purchaser’s Subscription Amount hereunder and the aggregate Subscription Amount
of all Purchasers hereunder), registered in the name of such Purchaser, it
being
understood that all 2,000,000 shares shall be issued at the First
Closing;
(viii) as
to the
Second Closing, the Mortgage, along with all of the other Security Documents,
duly executed by the parties thereto and acknowledged where applicable;
and
(ix) as
to the
First Closing, the Subsidiary Guarantees, duly executed by the parties thereto
and acknowledged where applicable.
(b) On
each
Closing Date (except as noted), each Purchaser shall deliver or cause to
be
delivered to the Company the following:
as
to the
First Closing, this Agreement duly executed by such Purchaser; and
such
Purchaser’s Subscription Amount for the applicable Closing by wire transfer to
the account as specified in writing by the Company.
Closing
Conditions.
(a) The
obligations of the Company hereunder in connection with each Closing
are subject to the following conditions being met:
the
accuracy in all material respects on the applicable Closing Date of the
representations and warranties of the Purchasers contained herein;
all
obligations, covenants and agreements of each Purchaser required to be performed
at or prior to the applicable Closing Date shall
have
been
performed;
the
respective Subscription Amounts for the First and Second Closing shall be
$750,000, for an aggregate Subscription Amount of
$1,500,000; and
the
delivery by each Purchaser of the items set forth in Section 2.2(b) of this
Agreement.
(b) The
respective obligations of the Purchasers hereunder in connection with each
Closing (except as noted) are subject to the following conditions being
met:
(i) the
accuracy in all material respects when made and on the applicable Closing
Date
of the representations and warranties of the Company contained
herein;
(ii) all
obligations, covenants and agreements of the Company required to be performed
at
or prior to the applicable Closing Date shall have been performed;
(iii) the
aggregate Subscription Amounts for the First and Second Closing shall be
$1,500,000;
(iv) the
delivery by the Company of the items set forth in Section 2.2(a) of this
Agreement;
(v) as
to the
Second Closing only, evidence of the filing of the Mortgage in the office
of the
Recorder of Deeds of Allegheny County, Commonwealth of
Pennsylvania;
(vi) as
to the
First Closing only, the Common Stock Transaction shall have been
consummated;
(vii) as
to the
Second Closing only, the Company shall be current in its reporting obligations
under the Exchange Act (and indicated compliance with such reporting obligations
on the cover page of its most recent period report filed with the
Commission);
(viii) as
to the
Second Closing only, such Closing shall occur on or before March 15,
2008;
(ix) there
shall have been no Material Adverse Effect with respect to the Company since
the
date hereof; and
(x) from
the
date hereof to the applicable Closing Date, trading in the Common Stock shall
not have been suspended by the Commission or the Company’s principal
Trading Market (except for any suspension of
trading
of limited duration agreed to by the Company, which suspension shall be
terminated prior to the applicable Closing), and, at any time prior to the
applicable Closing Date, trading in securities generally as reported by
Bloomberg L.P. shall not have been suspended or limited, or minimum prices
shall
not have been established on securities whose trades are reported by such
service, or on any Trading Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities nor shall
there have occurred any material outbreak or escalation of hostilities or
other
national or international calamity of such magnitude in its effect on, or
any
material adverse change in, any financial market which, in each case, in
the
reasonable judgment of each Purchaser, makes it impracticable or inadvisable
to
purchase the Securities at the applicable Closing.
REPRESENTATIONS
AND WARRANTIES
1.2 Representations
and Warranties of the Company.
Except
as
set forth under the corresponding section of the disclosure schedules delivered
to the Purchasers concurrently herewith (the “Disclosure Schedules”) which
Disclosure Schedules shall be deemed a part hereof, the Company hereby makes
the
representations and warranties set forth below to each PurchaserExcept as
set forth in the Disclosure Schedules, which Disclosure Schedules shall be
deemed a part hereof and shall qualify any representation or otherwise made
herein to the extent of the disclosure contained in the corresponding section
of
the Disclosure Schedules, the Company hereby makes the following representations
and warranties to each Purchaser:
Subsidiaries. All
of the direct and indirect subsidiaries of the Company are set forth on Schedule
3.1(a). The Company owns, directly or indirectly, all of the
capital stock or other equity interests of each Subsidiary free and clear
of any
Liens, and all of the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and free
of
preemptive and similar rights to subscribe for or purchase
securities.
Organization
and
Qualification. The Company and each of the Subsidiaries is an
entity duly incorporated or otherwise 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 violation or
default 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 conduct 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
have or reasonably be expected to result in (i) a material adverse effect
on the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material
respect
on a timely basis its obligations under any Transaction Document (any of
(i),
(ii) or (iii), a “Material Adverse
Effect”) and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification.
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 action is required
by
the Company, the Board of Directors or the Company’s stockholders in connection
therewith other than in connection with the Required Approvals. Each
Transaction Document has been (or upon delivery will have been) duly executed
by
the Company and, when delivered in accordance with the terms hereof and thereof,
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions
may be
limited by applicable law.
No
Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company
of the
other transactions contemplated hereby and thereby do not and will not: (i)
conflict with or violate any provision of the Company’s or any Subsidiary’s
certificate or articles of incorporation, bylaws or other organizational
or
charter documents, or (ii) conflict with, or constitute a default (or an
event
that with notice or lapse of time or both would become a default) under,
result
in the creation of any Lien upon any of the properties or assets of the Company
or any Subsidiary, 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, or (iii) subject to the Required Approvals,
conflict with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal
and
state securities laws and regulations), or by which any property or asset
of the
Company or a Subsidiary is bound or affected; except in the case of each
of
clauses (ii) and (iii), such as could not have or reasonably be expected
to
result in a Material Adverse Effect.
Filings,
Consents and
Approvals. The Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing
or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than
(i) filings required pursuant to Section 4.6, (ii) the filing with the
Commission of the Registration Statement, (iii) the notice and/or application(s)
to each applicable Trading Market for the issuance and sale of the Securities
and the listing of the Shares and Warrant Shares for trading thereon in the
time
and manner required thereby, and (iv) the filing of Form D with the Commission
and such filings as are required to be made under applicable state securities
laws (collectively, the “Required
Approvals”).
Issuance
of the
Securities. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear
of
all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents. The Shares and Warrant Shares, when
issued in accordance with the terms of the Transaction Documents, will be
validly issued, fully paid and nonassessable, free and clear of all Liens
imposed by the Company other than restrictions on transfer provided for in
the
Transaction Documents. The Company has reserved from its duly
authorized capital stock a number of shares of Common Stock for issuance
of the
Shares and Warrant Shares at least equal to the Required Minimum on the date
hereof.
Capitalization. The
capitalization of the Company is as set forth on Schedule 3.1(g),
which Schedule
3.1(g) shall also include the number of shares of Common Stock owned
beneficially, and of record, by Affiliates of the Company as of the date
hereof.
The Company has not issued any capital stock since its most recently filed periodic
report
under the Exchange Act, other than pursuant to the exercise of employee
stock options under the Company’s stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company’s employee stock purchase
plans and pursuant to the conversion or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic report under
the
Exchange Act. No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. Except as a
result of the purchase and sale of the Securities, there are no outstanding
options, warrants, scrip 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
Common Stock Equivalents. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities
to any
Person (other than 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 any of such securities. All of
the
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. No further approval or authorization of any
stockholder, the Board of Directors or others is required for the issuance
and
sale of the Securities. There are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company’s capital
stock to which the Company is a party or, to the knowledge of the Company,
between or among any of the Company’s stockholders.
SEC
Reports; Financial
Statements. Except as set forth on Schedule
3.1(h), the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required
by
law or regulation to file such material) (the foregoing materials, including
the
exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the “SEC Reports”) on a
timely basis or has received a valid extension of such time of filing and
has
filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and the
Exchange Act, as applicable, 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 except that unaudited financial statements may not contain all
footnotes required by GAAP, 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.
Material
Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed
in
a subsequent SEC Report filed prior to the date hereof, (i) there has been
no
event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent
with
past practice and (B)
liabilities
not required to be reflected in the Company’s financial statements pursuant to
GAAP or disclosed in filings made with the Commission, (iii) the Company
has not
altered its method of accounting, (iv) the Company has not declared or made
any
dividend or distribution of cash or other property to its 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. The Company does not have pending before the Commission any
request for confidential treatment of information. Except for the
issuance of the Securities contemplated by this Agreement or as set forth
on
Schedule
3.1(i), no event, liability or development has occurred or exists with
respect to the Company or its Subsidiaries or their respective business,
properties, operations or financial condition, that would be required to
be
disclosed by the Company under applicable securities laws at the time this
representation is made or deemed made that has not been publicly disclosed
at
least one Trading Day prior to the date that this representation is
made.
Litigation. There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting
the
Company, any Subsidiary or any of their respective properties before or by
any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which
(i)
adversely affects or challenges the legality, validity or enforceability
of any
of the Transaction Documents or the Securities or (ii) could, if there were
an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any Action involving
a claim of violation of or liability under federal or state securities laws
or a
claim of breach of fiduciary duty. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or former
director or officer of the Company. The Commission has not issued any
stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange Act or
the
Securities Act.
Labor
Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees
of
the Company which could reasonably be expected to result in a Material Adverse
Effect. None of the Company’s or its Subsidiaries’ employees is a
member of a union that relates to such employee’s relationship with the Company
or such Subsidiary, and neither the Company nor any of its Subsidiaries is
a
party to a collective bargaining agreement, and the Company and its Subsidiaries
believe that their relationships with their employees are good. No
executive officer, to the knowledge of the Company, is, or is now expected
to
be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive
covenant in favor of any third party, and
the
continued employment of each such executive officer does not subject the
Company
or any of its Subsidiaries to any liability with respect to any of the foregoing
matters. The Company and its Subsidiaries are in compliance with all
U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
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 applicable to its business
and all such laws that affect the environment, except in each case as could
not
have or reasonably be expected to result in a Material Adverse
Effect.
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 reasonably be expected to 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.
Title
to
Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them 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 and Liens for the payment
of
federal, state or other taxes, the payment of which is neither delinquent
nor
subject to penalties. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases with which the Company and the Subsidiaries
are in compliance.
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, trade secrets, inventions, copyrights,
licenses and
other
intellectual property rights and similar rights 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 notice (written or otherwise) that any of 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. The Company and
its Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties, except
where
failure to do so could not, individually or in the aggregate, reasonably
be
expected to have a Material Adverse Effect.
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, including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription Amount. 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.
Transactions
with Affiliates
and Employees. Except as set forth in the SEC Reports, none of
the officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company is 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, in each case in
excess
of $60,000 other than for (i) payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the Company
and
(iii) other employee benefits, including stock option agreements under any
stock
option plan of the Company.
▇▇▇▇▇▇▇▇-▇▇▇▇▇;
Internal
Accounting Controls. The Company is in material compliance
with all provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 which are applicable
to it
as of the each Closing Date. 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
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in
accordance
with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action
is taken with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and procedures
to ensure that information required to be disclosed by the Company in the
reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission’s
rules and forms. The Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and procedures as of the end
of the period covered by the Company’s most recently filed periodic report under
the Exchange Act (such date, the “Evaluation
Date”). The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of
the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no
changes in the Company’s internal control over financial reporting (as such term
is defined in the Exchange Act) that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.
Certain
Fees. No brokerage or finder’s fees or commissions are or will
be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect
to
the transactions contemplated by the Transaction Documents. The
Purchasers shall have no obligation with respect to any fees or with respect
to
any claims made by or on behalf of other Persons for fees of a type contemplated
in this Section that may be due in connection with the transactions contemplated
by the Transaction Documents.
Private
Placement. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, no registration
under
the Securities Act is required for the offer and sale of the Securities by
the
Company to the Purchasers as contemplated hereby. The issuance and sale of
the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.
Investment
Company.
The Company is not, and is not an Affiliate of, and immediately after receipt
of
payment for the Securities, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as
amended. The Company shall conduct its business in a manner so that
it will not become subject to the Investment Company Act of 1940, as
amended.
Registration
Rights. Other than each of the Purchasers, no Person has any
right to cause the Company to effect the registration under the Securities
Act
of any securities of the Company.
Listing
and Maintenance
Requirements. The Common Stock is registered pursuant to
Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no
action
designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act nor
has
the Company received any notification that the Commission is contemplating
terminating such registration. The Company has not, in the 12 months
preceding the date hereof, received notice from any Trading Market on which
the
Common Stock is or has been listed or quoted to the effect that the Company
is
not in compliance with the listing or maintenance requirements of such Trading
Market. The Company is, and has no reason to believe that it will not in
the
foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.
Application
of Takeover
Protections. The Company and the Board of Directors have taken
all necessary action, if any, in order to render inapplicable any control
share
acquisition, business combination, poison pill (including any distribution
under
a rights agreement) or other similar anti-takeover provision under the Company’s
certificate of incorporation (or similar charter documents) or the laws of
its
state of incorporation that is or could become applicable to 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.
Disclosure. Except
with respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents, 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 it believes constitutes
or
might constitute material, nonpublic information. The Company
understands and confirms that the Purchasers will rely on the foregoing
representation in effecting transactions in securities of the
Company. All disclosure furnished by or on behalf of the Company to
the Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Disclosure Schedules to this Agreement,
is
true and correct and does not contain any untrue statement of a material
fact or
omit to state any material fact necessary in order to make the statements
made
therein, in light of the circumstances under which they were made, not
misleading. The press releases disseminated by the Company
during the twelve months preceding the date of this Agreement taken as a
whole
do not 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 were made
and
when made, not misleading. 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 hereof.
No
Integrated
Offering. Assuming the accuracy of the Purchasers’ representations and
warranties set forth in Section 3.2, neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers
to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes
of
(i) the Securities Act which would require the registration of any such
securities under the Securities Act, or (ii) any applicable shareholder approval
provisions of any Trading Market on which any of the securities of the Company
are listed or designated.
Solvency. Based
on the consolidated financial condition of the Company as of the applicable
Closing Date after giving effect to the receipt by the Company of the proceeds
from the sale of the Securities hereunder, (i) the fair saleable value of
the
Company’s assets exceeds the amount that will be required to be paid on or in
respect of the Company’s existing debts and other liabilities (including known
contingent liabilities) as they mature, (ii) the Company’s assets do not
constitute unreasonably small capital to carry on its business as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof, and
(iii)
the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into
account
all anticipated uses of the cash, would be sufficient to pay all amounts
on or
in respect of its liabilities when such amounts are required to be
paid. The Company does not intend to incur debts beyond its ability
to pay such debts as they mature (taking into account the timing and amounts
of
cash to be payable on or in respect of its debt). The Company has no
knowledge of any facts or circumstances which lead it to believe that it
will
file for reorganization or liquidation under the bankruptcy or reorganization
laws of any jurisdiction within one year from the applicable Closing
Date. Schedule 3.1(aa) sets
forth as of the date hereof all outstanding secured and unsecured Indebtedness
of the Company or any Subsidiary, or for which the Company or any Subsidiary
has
commitments. For the purposes of this Agreement, “Indebtedness”
means
(a) any liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in respect
of
indebtedness of others, whether or not the same are or should be reflected
in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value
of
any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.
Tax
Status.
Except for matters that would not, individually or in the aggregate,
have or
reasonably be expected to result in a Material Adverse Effect,
the
Company and each Subsidiary has filed all necessary federal, state and foreign
income and franchise tax returns and has paid or accrued all taxes shown
as due
thereon, and the Company has no knowledge of a tax deficiency which has been
asserted or threatened against the Company or any Subsidiary.
No
General
Solicitation. Neither the Company nor any person acting on behalf of the
Company has offered or sold any of the Securities by any form of general
solicitation or general advertising. The Company has offered the
Securities for sale only to the Purchasers and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.
Foreign
Corrupt
Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully
any
contribution made by the Company (or made by any person acting on its behalf
of
which the Company is aware) which is in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt Practices
Act of 1977, as amended.
Accountants. The
Company’s accounting firm is set forth on Schedule 3.1(ee) of
the Disclosure Schedule. To the knowledge and belief of the Company,
such accounting firm (i) is a registered public accounting firm as required
by
the Exchange Act and (ii) shall express its opinion with respect to the
financial statements to be included in the Company’s Annual Report for the year
ending March 31, 2008.
Seniority. Except
as set forth on Schedule 3.1(ff), as
of the applicable Closing Date, no Indebtedness or other claim against the
Company is senior to the Notes in right of payment, whether with respect
to
interest or upon liquidation or dissolution, or otherwise, other than
indebtedness secured by purchase money security interests (which is senior
only
as to underlying assets covered thereby) and capital lease obligations (which
is
senior only as to the property covered thereby).
No
Disagreements with
Accountants and Lawyers. There are no disagreements of any
kind presently existing, or reasonably anticipated by the Company to arise,
between the Company and the accountants and lawyers formerly or presently
employed by the Company and the Company is current with respect to any fees
owed
to its accountants and lawyers which could affect the Company’s ability to
perform any of its obligations under any of the Transaction
Documents.
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 the Transaction Documents
and the transactions contemplated thereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary
of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given
by any
Purchaser or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated thereby
is
merely incidental to the Purchasers’ purchase of the Securities. The
Company further represents to each Purchaser that the Company’s decision to
enter into this Agreement and the other Transaction Documents has been based
solely on the independent evaluation of the transactions contemplated hereby
by
the Company and its representatives.
Acknowledgment
Regarding Purchasers’ Trading Activity. Notwithstanding anything
in
this Agreement or elsewhere herein to the contrary (except for Sections 3.2(f)
and 4.14 hereof), it is understood and acknowledged by the Company that (i)
none
of the Purchasers has been asked to agree by the Company, nor has any Purchaser
agreed, to desist from purchasing or selling, long and/or short, securities
of
the Company, or “derivative” securities based on securities issued by the
Company or to hold the Securities for any specified term, (ii) past or future
open market or other transactions by any Purchaser, specifically including,
without limitation, Short Sales or “derivative” transactions, before or after
the closing of this or future private placement transactions, may negatively
impact the market price of the Company’s publicly-traded securities, (iii) any
Purchaser, and counter-parties in “derivative” transactions to which any such
Purchaser is a party, directly or indirectly, may presently have a “short”
position in the Common Stock, and (iv) each Purchaser shall not be deemed
to
have any affiliation with or control over any arm’s length counter-party in any
“derivative” transaction. The Company further understands and
acknowledges that (a) one or more Purchasers may engage in hedging activities
at
various times during the period that the Securities are outstanding, including,
without limitation, during the periods that the value of the Shares and Warrant
Shares deliverable with respect to Securities are being determined and (b)
such
hedging activities (if any) could reduce the value of the existing stockholders'
equity interests in the Company at and after the time that the hedging
activities are being conducted. The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents.
Regulation
M
Compliance. The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed
to
cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the securities of the Company or (iii) paid
or
agreed to pay to any Person any compensation for soliciting another to purchase
any other securities of the Company, other than, in the case of clauses (ii)
and
(iii), compensation paid to the Company’s placement agent in connection with
the
placement
of the Securities.
Representations
and
Warranties of the Purchasers. Each Purchaser, for
itself and for no other Purchaser hereby, represents and warrants as of the
date
hereof and as of the Closing Date to the Company as follows:
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 full right, 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 execution and delivery of the Transaction Documents and performance by
such
Purchaser of the transactions contemplated by the Transaction Documents have
been duly authorized by all necessary corporate or similar action on the
part of
such Purchaser. Each Transaction Document to which it is a party has
been duly executed by such Purchaser, and when delivered by such Purchaser
in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
Own
Account. Such Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law and is acquiring the Securities as principal
for its own account and not with a view to or for distributing or reselling
such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing
any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or understandings
with
any other persons to distribute or regarding the distribution of such Securities
(this representation and warranty not limiting such Purchaser’s right to sell
the Securities pursuant to the Registration Statement or otherwise in compliance
with applicable federal and state securities laws) in violation of the
Securities Act or any applicable state securities law. Such Purchaser
is acquiring the Securities hereunder in the ordinary course of its
business.
Purchaser
Status. At the time such Purchaser was offered the Securities,
it was, and at the date hereof it is, and on each date on which it exercises
any
Warrants it will be either: (i) an “accredited investor” as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii)
a
“qualified institutional buyer” as defined in Rule 144A(a) under the Securities
Act. Such Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.
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, at the present time,
is
able to afford a complete loss of such investment.
General
Solicitation. Such Purchaser is not purchasing the Securities
as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar
media
or broadcast over television or radio or presented at any seminar or any
other
general solicitation or general advertisement.
Short
Sales
and Confidentiality Prior To The Date Hereof. Other than consummating
the
transactions contemplated hereunder, such Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any purchases or sales, including
Short Sales, of the securities of the Company during the period commencing
from the time that such Purchaser first received a term sheet (written
or
oral) from the Company or any other Person representing the Company setting
forth the material terms of the transactions contemplated hereunder until
the
date hereof (“Discussion
Time”). Notwithstanding
the
foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle
whereby separate portfolio managers manage separate portions of such Purchaser's
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Purchaser's assets, the representation set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that made
the
investment decision to purchase the Securities covered by this
Agreement. Other than to other Persons party to this Agreement, such
Purchaser has maintained the confidentiality of all disclosures made to it
in
connection with this transaction (including the existence and terms of this
transaction).
OTHER
AGREEMENTS OF THE PARTIES
Transfer
Restrictions.
The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other
than pursuant to an effective registration statement or Rule 144, to the
Company
or to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in Section 4.1(b), the Company may require the transferor thereof to provide
to
the Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall
be
reasonably satisfactory to the Company, to the effect that such transfer
does
not
require
registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the rights
of
a Purchaser under this Agreement.
The
Purchasers agree to the imprinting, so long as is required by this Section
4.1,
of a legend on any of the Shares, Warrants and Warrant Shares in the following
form:
[NEITHER]
THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE]
HAS
[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 AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
OR
OTHER LOAN SECURED BY SUCH SECURITIES.
The
Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer
or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and, if required under the terms of such 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 legal counsel of the pledgee, secured
party or pledgor shall be required in connection therewith. Further,
no notice shall be required of such pledge. At 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, if
the
Securities are subject to registration pursuant to this Agreement, the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Stockholders
thereunder.
Certificates
evidencing the Shares and Warrant Shares shall not contain any legend (including
the legend set forth in Section 4.1(b) hereof): (i) while a registration
statement (including the Registration Statement) covering the resale of such
security is effective under the Securities Act, or (ii) following any sale
of
such Shares or Warrant Shares pursuant to Rule 144, or (iii) if such Shares
or
Warrant Shares are eligible for sale under Rule 144(k), or (iv) if such legend
is not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue a legal opinion
to the
Transfer Agent promptly after the Effective Date if required by the Transfer
Agent to effect the removal of the legend hereunder. If all or any
portion of a Warrant is exercised (as applicable) at a time when there is
an
effective registration statement to cover the resale of the Warrant Shares,
or
if such Shares or Warrant Shares may be sold under Rule 144(k) or if such
legend
is not otherwise required under applicable requirements of the Securities
Act
(including judicial interpretations and pronouncements issued by the staff
of
the Commission) then such Shares or Warrant Shares shall be issued free of
all
legends. The Company agrees that following the Effective Date or at
such time as such legend is no longer required under this Section 4.1(c),
it
will, no later than three Trading Days following the delivery by a Purchaser
to
the Company or the Transfer Agent of a certificate representing the Shares
or
Warrant Shares, as applicable, issued with a restrictive legend (such third
Trading Day, the “Legend Removal
Date”), deliver or cause to be delivered to such Purchaser a certificate
representing such shares that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on transfer
set
forth in this Section. Certificates for Shares or Warrant Shares
subject to legend removal hereunder shall be transmitted by the Transfer
Agent
to the Purchaser by crediting the account of the Purchaser’s prime broker with
the Depository Trust Company System as directed by such Purchaser.
In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty,
for
each $1,000 of Shares or Warrant Shares (based on the VWAP of the Common
Stock
on the date such Securities are submitted to the Transfer Agent) delivered
for
removal of the restrictive legend and subject to Section 4.1(c), $10 per
Trading
Day (increasing to $20 per Trading Day 5 Trading Days after such damages
have
begun to accrue) for each Trading Day after the Legend Removal Date until
such
certificate is delivered without a legend. Nothing herein shall limit
such Purchaser’s right to pursue actual damages for the Company’s failure to
deliver certificates representing any Securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree
of
specific performance and/or injunctive relief.
Each
Purchaser, severally and not jointly with the other Purchasers, agrees that
such
Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if Securities are sold
pursuant to a Registration Statement, they will be sold in compliance with
the
plan of distribution set forth therein, and acknowledges that the removal
of the
restrictive legend from certificates representing Securities as set forth
in
this Section 4.1 is predicated upon the Company’s reliance upon this
understanding.
Acknowledgment
of
Dilution. The Company acknowledges that the issuance of the
Securities may result in dilution of the outstanding shares of Common Stock,
which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligations
under the Transaction Documents, including without limitation its obligation
to
issue the Shares and Warrant Shares pursuant to the Transaction Documents,
are
unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim the Company may have against any Purchaser and regardless of
the
dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.
Furnishing
of
Information. Until the time that no 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 even if the
Company is not then subject to the reporting requirements of the Exchange
Act. As long as any Purchaser owns Securities, if the
Company is not required to file reports pursuant to the Exchange Act, it
will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) 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
the extent required from time to time to enable such Person to sell such
Securities without registration under the Securities Act within the requirements
of the exemption provided by Rule 144.
Integration. The
Company shall not 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 to
the
Purchasers in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market.
Exercise
Procedures. The form of Notice of Exercise included in the
Warrants sets forth the totality of the procedures required of the Purchasers
in
order to exercise the Warrants. No additional legal opinion or other
information or instructions shall be required of the Purchasers to exercise
their Warrants. The Company shall honor exercises of the Warrants and
shall deliver Warrant Shares in accordance with the terms, conditions and
time
periods set forth in the Transaction Documents.
Securities
Laws Disclosure;
Publicity. The Company shall, by 8:30 a.m. (New York City
time) on the Trading Day following the date hereof, issue a Current Report
on
Form 8-K disclosing the material terms of the transactions contemplated hereby
and attaching the Transaction Documents as exhibits thereto. The
Company and each Purchaser shall consult with each other in issuing any other
press releases with respect to the transactions contemplated hereby, and
neither
the Company nor any Purchaser shall issue any such press release or otherwise
make any such public statement without the prior consent of the Company,
with
respect to any press release of any Purchaser, or without the prior consent
of
each Purchaser, with respect to any press release of the Company, which consent
shall not unreasonably be withheld or delayed, 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 or
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 (i) as
required by federal securities law in connection with (A) any registration
statement contemplated hereby and (B) the filing of final Transaction Documents
(including signature pages thereto) with the Commission and (ii) to the extent
such disclosure is required by law or Trading Market regulations, in which
case
the Company shall provide the Purchasers with prior notice of such disclosure
permitted under this clause (ii).
Shareholder
Rights
Plan. No claim will be made or enforced by the Company or,
with the consent of the Company, any other Person, that any Purchaser is
an
“Acquiring Person” under any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or similar
anti-takeover plan or arrangement in effect or hereafter adopted by the Company,
or that any Purchaser could be deemed to trigger the provisions of any such
plan
or arrangement, by virtue of receiving Securities under the Transaction
Documents or under any other agreement between the Company and the
Purchasers.
Non-Public
Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents,
the
Company covenants and agrees that neither it nor any other Person acting
on its
behalf will provide any Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Purchaser shall have executed a written agreement regarding
the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
covenant in effecting transactions in securities of the Company.
Use
of
Proceeds. Except as set forth on Schedule
4.9 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes, including, but not limited to, repayment
of existing bridge loans, and funding production, and shall not use such
proceeds for (a) the satisfaction of any portion of the Company’s debt (other
than payment of trade payables in the ordinary course of the Company’s business
and prior practices), (b) the redemption of any Common Stock or Common Stock
Equivalents or (c) the settlement of any outstanding litigation.
Indemnification
of
Purchasers. Subject to the provisions of this Section
4.10, the Company will indemnify and hold each Purchaser and its directors,
officers, shareholders, members, partners, employees and agents (and any
other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities
Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding
a
lack of such title or any other title) of such controlling person (each,
a
“Purchaser
Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur
as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement
or in
the other Transaction Documents or (b) any action instituted against a Purchaser
in any capacity, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser’s representations,
warranties or covenants under the Transaction Documents or any agreements
or
understandings such Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser
Party in respect of which indemnity may be sought pursuant to this Agreement,
such Purchaser Party shall promptly notify the Company in writing, and the
Company shall have the right to assume the defense thereof with counsel of
its
own choosing reasonably acceptable to the Purchaser Party. Any
Purchaser Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses
of such
counsel shall be at the expense of such Purchaser Party except to the extent
that (i) the employment thereof has been specifically authorized by the Company
in writing, (ii) the Company has failed after a reasonable period of time
to
assume such defense and to employ counsel or (iii) in such action there is,
in
the reasonable opinion of such separate counsel, a material conflict on any
material issue between the position of the Company and the position of such
Purchaser Party, in which case the Company shall be responsible for the
reasonable fees and expenses of no more than one such separate
counsel. The Company will not be liable to any Purchaser Party under
this Agreement (i) for any settlement by a Purchaser Party effected without
the
Company’s prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party’s breach of any of
the representations, warranties, covenants or agreements made by such Purchaser
Party in this Agreement or in the other Transaction Documents.
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.
If,
on
any date, the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock is less than the Required Minimum on such date, then
the
Board of Directors shall use commercially reasonable efforts to amend the
Company’s certificate or articles of incorporation to increase the number of
authorized but unissued shares of Common Stock to at least the Required Minimum
at such time, as soon as possible and in any event not later than the 75th
day
after such date. In addition, the Company shall hold a special meeting of
shareholders (which may also be at the annual meeting of shareholders) at
the
earliest practical date after the date the number of shares of Common Stock
issuable pursuant to this Agreement on a fully converted or exercised basis
(ignoring for such purposes any exercise limitations therein) exceeds 15%
of the
issued and outstanding shares of Common Stock on the First Closing Date for
the
purpose of obtaining Shareholder Approval, with the recommendation of the
Company’s Board of Directors that such proposal be approved, and the Company
shall solicit proxies from its shareholders in connection therewith in the
same
manner as all other management proposals in such proxy statement and all
management-appointed proxyholders shall vote their proxies in favor of such
proposal. If the Company does not obtain Shareholder Approval at the
first meeting, the Company shall call a meeting every four months thereafter
to
seek Shareholder Approval until the earlier of the date Shareholder Approval
is
obtained or the date the Warrants are no longer outstanding.
The
Company shall, if applicable: (i) in the time and manner required by the
principal Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Required Minimum on the date of such application,
(ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing on such Trading Market as soon as possible thereafter,
(iii) provide to the Purchasers evidence of such listing, and (iv) maintain
the
listing of such Common Stock on any date at least equal to the Required Minimum
on such date on such Trading Market or another Trading Market.
Subsequent
Equity
Sales.
From
the
date hereof until such time as no Purchaser holds any of the Securities,
the
Company shall be prohibited from effecting or entering into an agreement
to
effect any Subsequent Financing involving a Variable Rate Transaction. “Variable Rate
Transaction” means a transaction in which the Company issues or sells (i)
any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common
Stock either (A) at a conversion, exercise or exchange rate or other price
that
is based upon and/or varies with the trading prices of or quotations for
the
shares of Common Stock at any time after the initial issuance of such debt
or
equity securities, or (B) with a conversion, exercise or exchange price that
is
subject
to being reset at some future date after the initial issuance of such debt
or
equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market
for
the Common Stock or (ii) enters into any agreement, including, but not limited
to, an equity line of credit, whereby the Company may sell securities at
a
future determined price.
Unless
Shareholder Approval has been obtained and deemed effective, neither the
Company
nor any Subsidiary shall make any issuance whatsoever of Common Stock or
Common
Stock Equivalents which would cause any adjustment of the exercise price
of the
Warrants to the extent the holders of the Warrants would not be permitted,
pursuant to Section 2(d)(ii) of the Warrants to exercise their respective
Warrants in full, ignoring for such purposes the exercise limitations
therein. Any Purchaser shall be entitled to obtain injunctive relief
against the Company to preclude any such issuance, which remedy shall be
in
addition to any right to collect damages
Equal
Treatment of
Purchasers. No consideration shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of
any
of the Transaction Documents unless the same consideration is also offered
to
all of the parties to the Transaction Documents. Further, the Company shall
not
make any payment of principal or interest on the Notes in amounts which are
disproportionate to the respective principal amounts outstanding on the Notes
at
any applicable time. For clarification purposes, this provision
constitutes a separate right granted to each Purchaser by the Company and
negotiated separately by each Purchaser, and is intended for the Company
to
treat the Purchasers as a class and shall not in any way be construed as
the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.
Short
Sales and
Confidentiality After The Date Hereof. Each Purchaser, severally and not
jointly with the other Purchasers, covenants that neither it nor any Affiliate
acting on its behalf or pursuant to any understanding with it will execute
any
Short Sales during the period commencing at the Discussion Time and ending
at
the time that the transactions contemplated by this Agreement are first publicly
announced as described in Section 4.6. Each Purchaser, severally and not
jointly with the other Purchasers, covenants that until such time as the
transactions contemplated by this Agreement are publicly disclosed by the
Company as described in Section 4.6, such Purchaser will maintain the
confidentiality of the existence and terms of this transaction and the
information included in the Disclosure Schedules. Each Purchaser severally
and not jointly with any other Purchaser understands and acknowledges, and
agrees, to act in a manner that will not violate the positions of the Commission
as set forth in Item 65, Section A, of the Manual of Publicly Available
Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance. Notwithstanding the foregoing,
no
Purchaser makes any representation, warranty or covenant hereby that it will
not
engage in Short Sales in the securities of the Company after the time that
the
transactions contemplated by this Agreement are first publicly announced
as
described in Section 4.6. Notwithstanding the foregoing, in the case of
a
Purchaser
that is a multi-managed investment vehicle whereby separate portfolio managers
manage separate portions of such Purchaser’s assets and the portfolio managers
have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser’s assets, the covenant set
forth above shall only apply with respect to the portion of assets managed
by
the portfolio manager that made the investment decision to purchase the
Securities covered by this Agreement.
Form
D; Blue Sky
Filings. The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a
copy
thereof, promptly upon request of any Purchaser. The Company shall take such
action as the Company shall reasonably determine is necessary in order to
obtain
an exemption for, or to qualify the Securities for, sale to the Purchasers
at
the Closings under applicable securities or “Blue Sky” laws of the states of the
United States, and shall provide evidence of such actions promptly upon request
of any Purchaser.
Registration
Rights.
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(a)
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Piggy-Back
Registration Rights. If, at any time, the Company shall determine
to proceed with the preparation and filing of a Registration Statement,
in
connection with the proposed offer and sale of any of its securities
by it
or any of its security holders (other than a registration statement
on
Form ▇-▇, ▇-▇ or other similar limited purpose form), the Company
will give written notice of its determination to the
Purchasers. Upon receipt of a written request from the
Purchasers within thirty calendar days after receipt of any such
notice
from the Company, the Company will, except as herein provided,
cause all
the Shares and Warrant Shares issued or issuable to the Purchasers,
to the
extent requested by the Purchasers, to be included in such Registration
Statement, all to the extent required to permit the sale or other
disposition by the Purchasers of such shares of Common
Stock. The obligation of the Company under this
Section 4.19(a) shall be unlimited as to the number of Registration
Statements to which it applies.
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(b)
Registration
Procedures. In the case of each registration effected by the
Company pursuant to Section 4.16 hereof, the Company will keep the Purchaser
advised, in writing, as to the initiation of each registration and as to
the
completion thereof. At its expense, the Company will:
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i.
|
Keep
such registration effective until the earlier of (i) 24 months
and (ii)
all Registrable Securities covered by such Registration Statement
have
been sold or may be sold without volume restrictions pursuant to
Rule
144(k) as determined by the counsel to the Company pursuant to
a written
opinion letter to such effect, addressed and acceptable to the
Company’s
transfer agent and the affected Holders (the “Effectiveness
Period”); provided,
however,
that
(i) such Effectiveness Period shall be extended for a period of
time equal
to the period Purchaser refrains from selling any shares of Common
Stock
included in such registration at the request of an underwriter
of
securities of the Company or at the request of
the
|
Company
or a Trading Market, and (ii) in the case of any registration of securities
on
Form S-3 or comparable successor form which are intended to be offered on
a
continuous or delayed basis, such Effectiveness Period shall be extended,
if
necessary, to keep the Registration Statement effective until all securities
are
sold, provided that applicable rules and regulations under the Securities
Act
governing the obligation to file a post-effective amendment permit, in lieu
of
filing a post-effective amendment which (x) includes any prospectus required
by
Section 10(a)(3) of the Securities Act or (y) reflects facts or events
representing a material or fundamental change in the information set forth
in
the Registration Statement, the incorporation by reference of information
required to be included in (x) and (y) hereof to be contained in periodic
reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the
Registration Statement;
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ii.
|
Prepare
and file with the Commission such amendments and supplements to
such
Registration Statement and the prospectus used in connection with
such
Registration Statement as may be necessary to comply with the provisions
of the Securities Act with respect to a disposition of all securities
covered by such Registration
Statement;
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iii.
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Furnish
to each Purchaser and its legal counsel (i) promptly after the
same is
prepared and publicly distributed, filed with the Commission or
received
by the Company, one copy of the Registration Statement and any
amendment
thereto, each preliminary prospectus and prospectus and each amendment
or
supplement thereto in both electronic and print format, and (ii)
such
number of copies of a prospectus, including a preliminary prospectus,
and
all amendments and supplements thereto, and such other documents
as each
Purchaser may reasonably request in order to facilitate the disposition
of
the shares of Common Stock owned by such
Purchaser;
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iv.
|
Notify
each Purchaser at any time when a prospectus relating thereto is
required
to be delivered under the Securities Act, of the happening of any
event as
a result of which the prospectus included in such Registration
Statement,
as then in effect, includes an untrue statement of a material fact
or
omits to state a material fact required to be stated therein or
necessary
to make the statements therein not misleading or incomplete in
light of
the circumstances then existing, and at the request of such Purchaser,
prepare and furnish to it a reasonable number of copies of a supplement
to
or an amendment of such prospectus as may be necessary so that,
as
thereafter delivered to such Purchaser, such prospectus shall not
include
an untrue statement of a material
fact
|
or
omit
to state a material fact required to be stated therein or necessary to make
the
statements therein not misleading or incomplete in light of the circumstances
then existing;
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v.
|
Use
its best efforts to prevent the issuance of any stop order or other
suspension of effectiveness of a Registration Statement, and, if
such an
order is issued, to obtain the withdrawal of such order at the
earliest
possible moment and to notify each Purchaser (or, in the event
of an
underwritten offering, the managing underwriters) of the issuance
of such
order and the resolution thereof;
|
|
vi.
|
Cause
all such shares of Common Stock to be listed or included for quotation
on
a Trading Market on which the Common Stock is then listed, traded
or
included for quotation;
|
|
vii.
|
Provide
a transfer agent and registrar for all such shares of Common Stock
and
CUSIP number for all such shares of Common Stock, in each case
not later
than the effective date of such
registration;
|
|
viii.
|
Make
available for inspection by the Purchasers, any underwriter participating
in any disposition pursuant to such Registration Statement and
any
attorney or accountant retained by the Purchasers or underwriter,
all
financial and other records, pertinent corporate documents and
properties
of the Company and cause the Company's officers and directors to
supply
all information reasonably requested by Purchaser, any underwriter,
attorney or accountant in connection with such Registration
Statement;
|
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ix.
|
Furnish
to each Purchaser or its counsel a copy of all documents filed
with and
all correspondence from or to the Commission in connection with
any such
registration;
|
|
x.
|
Otherwise
use its best efforts to comply with all applicable rules and regulations
of the Commission;
|
|
xi.
|
In
connection with any underwritten offering pursuant to a Registration
Statement, enter into any underwriting agreement reasonably necessary
to
effect the offer and sale of securities, provided such underwriting
agreement contains customary underwriting provisions and provided,
further, that if the managing underwriter so requests, the underwriting
agreement will contain customary indemnification and contribution
provisions;
|
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xii.
|
Hold
in confidence and not make any disclosure of information concerning
each
Purchaser provided to the Company unless (i) disclosure of such
information is necessary to comply with federal or state securities
laws,
(ii) the disclosure of such information
is
|
necessary
to avoid or correct a misstatement or omission in any Registration Statement,
(iii) the release of such information is ordered pursuant to a subpoena or
other
order from a court or governmental body of competent jurisdiction or (iv)
such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement; and, upon learning
that
disclosure of such information concerning the Purchaser is sought in or by
a
court or governmental body of competent jurisdiction or through other means,
give prompt notice to Purchaser and, at its expense, undertake appropriate
action to prevent disclosure of, or to obtain a protective order for, such
information; and
|
xiii.
|
Take
all other reasonable actions
necessary to expedite and facilitate disposition by each Purchaser
of the
shares of Common Stock pursuant to the Registration
Statement.
|
4.17
Additional
Shares. In the event that the Company is not current in its
reporting obligations under the Exchange Act for any reason on or before
March
1, 2008 (and indicated compliance with such reporting obligations on the
cover
page of its most recent period report filed with the Commission), the Company
shall issue each Purchaser, on March 2, 2008, a certificate, evidencing a
number
of Shares equal to such Purchaser’s pro-rata portion of 1,500,000 shares of
Common Stock (based on such Purchaser’s Subscription Amount hereunder and the
aggregate Subscription Amount of all Purchasers hereunder).
MISCELLANEOUS
Termination.
This Agreement may be terminated by any Purchaser, as to such Purchaser’s
obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers, by written notice to the other
parties, if the First Closing has not been consummated on or before January
___,
2008; provided,
however,
that
such termination will not affect the right of any party to ▇▇▇ for any breach
by
the other party (or parties).
Fees
and
Expenses. At the First Closing, the Company has agreed to
reimburse Black Nickel Vision Fund, LLC the non-accountable sum of $20,000,
for
its legal fees and to reimburse it for all other disbursements and expenses
in
connection with the transactions contemplated hereby, $5,000 of which has
been
paid prior to First Closing. The Company shall deliver to each
Purchaser, prior to each Closing, a completed and executed copy of the Closing
Statement attached hereto as Annex
A. 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 delivery
of
any Securities to the Purchasers.
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.
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 set forth
on
the signature pages attached hereto prior to 5:30 p.m. (New York City time)
on a
Trading Day, (b) the next Trading Day after the date of transmission, if
such
notice or communication is delivered via facsimile at the facsimile number
set
forth on the signature pages attached hereto on a day that is not a Trading
Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the
second
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 address for such notices and
communications shall be as set forth on the signature pages attached
hereto.
Amendments;
Waivers. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed,
in the
case of an amendment, by the Company and the Purchasers of at least 67% in
interest of the Securities still held by Purchasers or, in the case of a
waiver,
by the party against whom enforcement of any such waived provision is
sought. No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of
any
other provision, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair
the
exercise of any such right.
Headings. 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.
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 each Purchaser
(other
than by merger). Any Purchaser may assign any or all of its rights
under this Agreement to any Person to whom such Purchaser assigns or transfers
any Securities, provided that such transferee agrees in writing to be bound,
with respect to the transferred Securities, by the provisions of the Transaction
Documents that apply to the “Purchasers.”
No
Third-Party
Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns
and is
not for the
benefit
of, nor may any provision hereof be enforced by, any other Person, except
as
otherwise set forth in Section 4.10.
Governing
Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed
by
and construed and enforced in accordance with the internal laws of the State
of
New York, without regard to the principles of conflicts of law thereof, unless
otherwise expressly set forth in any such Transaction Document. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement
and
any other Transaction Documents (whether brought against a party hereto or
its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in
the
City of New York. Each party hereby irrevocably submits 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 hereunder
or
in connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or is an inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such 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 other manner permitted
by
law. If either party shall commence an action or proceeding to
enforce any provisions of the Transaction Documents, then the prevailing
party
in such action or proceeding shall be reimbursed by the other party for its
reasonable attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or
proceeding.
Survival. The
representations and warranties shall survive the Closings and the delivery
of
the Securities for the applicable statute of limitations.
Execution. This
Agreement may be executed in two or more counterparts, all of which when
taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered
to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing
(or
on whose behalf such signature is executed) with the same force and effect
as if
such facsimile or “.pdf” signature page were an original thereof.
Severability.
If any
term, provision, covenant or restriction of this Agreement is held by a court
of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth
herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated,
and
the
parties hereto shall use their commercially reasonable efforts to find and
employ an alternative means to achieve the same or substantially the same
result
as that contemplated by such term, provision, covenant or restriction. It
is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid, illegal,
void or unenforceable.
Rescission
and Withdrawal
Right. Notwithstanding anything to the contrary contained in
(and without limiting any similar provisions of) any of the other Transaction
Documents, whenever 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; provided, however,
in the case
of a rescission of an exercise of a Warrant, the Purchaser shall be required
to
return any shares of Common Stock delivered in connection with any such
rescinded exercise notice.
Replacement
of
Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or
cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor,
a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.
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 contained in the Transaction Documents and hereby agrees to waive
and not to assert in any action for specific performance of any such obligation
the defense that a remedy at law would be adequate.
Payment
Set Aside. To
the extent that the Company makes a payment or payments to any Purchaser
pursuant to any Transaction Document or a Purchaser enforces or exercises
its
rights 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,
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.
Usury. To
the extent it may lawfully do so, the Company hereby agrees not to insist
upon
or plead or in any manner whatsoever claim, and will resist any and all efforts
to be compelled to take the benefit or advantage of, usury laws wherever
enacted, now or at any time hereafter in force, in connection with any claim,
action or proceeding that may be brought by any Purchaser in order to enforce
any right or remedy under any Transaction Document. Notwithstanding
any provision to the contrary contained in any Transaction Document, it is
expressly agreed and provided that the total liability of the Company under
the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and,
without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in
the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if
the maximum contract rate of interest allowed by law and applicable to the
Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract
rate
of interest allowed by law will be the Maximum Rate applicable to the
Transaction Documents from the effective date forward, unless such application
is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company
to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser’s election.
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 or non-performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or
in any other 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 Documents. 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. Each Purchaser
has been represented by its own separate legal counsel in their review and
negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel
have
chosen to communicate with the Company through FWS. FWS does not
represent all of the Purchasers but only Black Nickel Vision Fund, LLC. The
Company has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because
it was
required or requested to do so by the Purchasers.
Liquidated
Damages. The Company’s obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents
is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated
damages
and other amounts have been paid notwithstanding the fact that the instrument
or
security pursuant to which such partial liquidated damages or other amounts
are
due and payable shall have been canceled.
Saturdays,
Sundays,
Holidays,
etc.
If the last or appointed day for the taking of any action or the expiration
of
any right required or granted herein shall not be a Business Day, then such
action may be taken or such right may be exercised on the next succeeding
Business Day.
Construction.
The
parties agree that each of them and/or their respective counsel has reviewed
and
had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto.
Waiver
of Jury
Trial. In any action, suit or proceeding in any jurisdiction
brought by any party against any other party, the parties each knowingly
and
intentionally, to the greatest extent permitted by applicable law, hereby
absolutely, unconditionally, irrevocably and expressly waives forever trial
by
jury.
(Signature
Pages Follow)
IN
WITNESS WHEREOF, the parties hereto have caused this Loan and Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
|
|
Address
for Notice:
▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
|
|
By:__________________________________________
Name:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title:
|
Fax:
|
|
With
a copy to (which shall not constitute notice):
|
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOR PURCHASER FOLLOWS]
[PURCHASER
SIGNATURE PAGES TO IEAM SECURITIES PURCHASE AGREEMENT]
IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the
date
first indicated above.
Name
of
Purchaser: ________________________________________________________
Signature
of Authorized Signatory of
Purchaser: __________________________________
Name
of
Authorized Signatory:
____________________________________________________
Title
of
Authorized Signatory:
_____________________________________________________
Email
Address of Purchaser:
________________________________________________
Facsimile
Number of Purchaser:
________________________________________________
Address
for Notice of Purchaser:
Address
for Delivery of Securities for Purchaser (if not same as address for
notice):
First
Closing Subscription Amount: _____________
Second
Closing Subscription Amount: _____________
Shares:
_________________________
Warrant
Shares: _________________
EIN
Number: [PROVIDE
THIS UNDER SEPARATE COVER]
[SIGNATURE
PAGES CONTINUE]
Annex
A
CLOSING
STATEMENT
Pursuant
to the attached Securities Purchase Agreement, dated as of the date hereto,
the
purchasers shall purchase up to $1,500,000 of Notes, Shares and Warrants
from
Industrial Enterprises of America, Inc. (the “Company”). All
funds will be disbursed in accordance with this Closing Statement.
|
Disbursement
Date:
|
January
___, 2008 First Closing
|
|
I. PURCHASE
PRICE
|
||
|
Gross
Proceeds to be Received
|
$750,000
|
|
|
II. DISBURSEMENTS
|
||
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
& ▇▇▇▇▇ LLP
|
$
$15,000
|
|
|
$
|
||
|
$
|
||
|
$
|
||
|
$
|
||
|
Total
Amount Disbursed:
|
$
15,000
|
|
|
WIRE
INSTRUCTIONS:
|
||
|
To: Bank
Or Lending Institution
xxxxxxxxxxx
xxxxxxxxxxx
xxxxxxxxxxx
|
||