EXHIBIT 4.9
SUBSCRIPTION AND
SECURITIES PURCHASE AGREEMENT
dated as of
April 1, 2002
by and between
Edge Technology Group, Inc.
as the Issuer,
and
The Several Purchasers Named in Schedule I
SUBSCRIPTION AND
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of April 1, 2002, between Edge Technology Group,
Inc. (the "Company") and the several purchasers named in the attached Schedule I
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(individually a "Purchaser" and collectively the "Purchasers").
R E C I T A L S:
WHEREAS, the Company wishes to issue and sell to the Purchasers, for a
purchase price of $1,000 per share, an aggregate of 4,500 preferred shares of
the aggregate 15,000 authorized but unissued Series A Preferred Stock, $0.01 par
value per share, of the Company (the "Preferred Shares" or "Preferred Stock");
and
WHEREAS, the Purchasers, severally, wish to purchase the Preferred
Shares on the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. DEFINITIONS
1.1 Definitions. The following terms, as used herein, have the
following meanings:
"Affiliate" means, with respect to any Person (the "Subject Person"),
(i) any other Person (a "Controlling Person") that directly, or indirectly
through one or more intermediaries, Controls the Subject Person or (ii) any
other Person (other than the Subject Person or a Consolidated Subsidiary of the
Subject Person) which is Controlled by or is under common Control with a
Controlling Person.
"Agreement" means this Subscription and Securities Purchase Agreement,
as amended, supplemented or otherwise modified from time to time in accordance
with its terms.
"Balance Sheet Date" has the meaning set forth in Section 3.7.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Closing Bid Price" shall mean for any security as of any date, the
lowest closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the
principal securities exchange or trading market where such security is listed or
traded or, if the foregoing does not apply, the lowest closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no lowest trading price is
reported for such security by Bloomberg, then the average of the bid prices of
any market makers for such securities as reported in the "Pink Sheets" by the
National Quotation Bureau, Inc. If the lowest closing bid price cannot be
calculated for such security on such date on any of the foregoing
bases, the lowest closing bid price of such security on such date shall be the
fair market value as mutually determined by Purchaser and the Company for which
the calculation of the closing bid price requires, and in the absence of such
mutual determination, as determined by the Board of Directors of the Company in
good faith.
"Closing" and "Closing Date" means the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means common stock, $.01 par value per share, of the
Company.
"Company" means Edge Technology Group, Inc., a Delaware corporation,
and its successors.
"Company Corporate Documents" means the articles of incorporation and
bylaws of the Company.
"Control" (including, with correlative meanings, the terms
"Controlling," "Controlled by" and under "common Control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Conversion Date" shall mean the date of delivery (including delivery
via telecopy) of a Notice of Conversion for all or a portion of the shares of
Preferred Stock by the holder thereof to the Company.
"Conversion Price" has the meaning set forth in the terms of the
Preferred Stock.
"Conversion Shares" means the shares of common stock issuable upon
conversion of the Preferred Shares and the exercise of the Warrants.
"Derivative Securities" has the meaning set forth in Section 7.2.
"Directors" means the individuals then serving on the Board of
Directors or similar such management council of the Company.
"Disclosure Letter" has the meaning set forth in the preamble to
Article 3.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment,
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including, without limitation, ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants,
petroleum or petroleum products, chemicals or industrial, toxic or hazardous
substances or wastes or the cleanup or other remediation thereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" has the meaning set forth in Section 1.2.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
"Intellectual Property" has the meaning set forth in Section 3.17.
"Lien" means any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Majority Holders" means at any time after the Closing, the holders of
more than 50% of the outstanding shares of Preferred Stock at such time.
"Market Price" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
"Nasdaq Stock Market" means the Nasdaq Stock Market's National
Market System.
"National Market" means the Nasdaq Stock Market, the Nasdaq Small Cap
Market, the New York Stock Exchange, Inc. or the American Stock Exchange, Inc.
"Notice of Conversion" means the notice to be delivered by a holder of
Preferred Shares upon conversion of all or a portion thereof to the Company.
"Notice of Exercise" means the notice to be delivered by a holder of
the Warrant upon exercise of all or a portion thereof to the Company.
"Officer's Certificate" shall mean a certificate executed by the
President, chief executive officer or chief financial officer of the Company as
contemplated by Section 5.1 hereof.
"OTC Bulletin Board" means the over-the-counter bulletin board operated
by the NASD.
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"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company and the Subsidiaries.
"Person" means an individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock Company,
government (or any agency or political subdivision thereof) or other entity of
any kind.
"Preferred Shares" or "Preferred Stock" means the Company's Series A
Convertible Preferred Stock issuable pursuant to this Agreement.
"Purchase Price" means the purchase price for the Securities set forth
on Schedule I.
"Purchasers" means the entities listed on the signature page hereto and
their successors and assigns, including holders from time to time of the
Preferred Shares.
"Registration Rights Agreement" means the agreement between the Company
and Purchaser dated the date hereof substantially in the form set forth in
Exhibit C attached hereto.
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"SEC Reports" has the meaning set forth in Section 3.2.
"Securities" means the Preferred Shares, the Warrants, the Warrant
Shares and the Conversion Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which (x) a majority of the capital stock or other ownership
interests having ordinary voting power to elect a majority of the Board of
Directors or other persons performing similar functions are at the time directly
or indirectly owned by such Person or (y) the results of operations, the assets
and the liabilities of which are consolidated with such Person under GAAP.
"Subsidiary Corporate Documents" means the certificates of
incorporation and bylaws of each Subsidiary.
"Taxes" has the meaning set forth in Section 3.10.
"Trading Day" shall mean any Business Day in which the OTC Bulletin
Board, National Market or other automated quotation system or exchange on which
the Common Stock is then traded is open for trading for at least four (4) hours.
"Transfer" means any disposition of Securities that would constitute a
sale thereof under the Securities Act.
"Warrant" shall have the meaning set forth in Section 2.4.
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"Warrant Shares" shares of Common Stock of the Company issued upon
conversion of the Warrant.
1.2 Accounting Terms and Determinations. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared, in accordance with generally accepted
accounting principles as in effect from time to time, applied on a consistent
basis (except for changes concurred in by the Company's independent public
accountants) ("GAAP"). All references to "dollars," "Dollars" or "$" are to
United States dollars unless otherwise indicated.
2. PURCHASE AND SALE OF SECURITIES
2.1 Purchase and Sale of Preferred Shares. The Company agrees to issue
and sell to each Purchaser, and each Purchaser hereby agrees to purchase from
the Company, the number of Preferred Shares, at a purchase price of one thousand
dollars ($1,000.00) per share, set forth opposite the name of such Purchaser
under the heading "Number of Preferred Shares to be Purchased" on Schedule I, at
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the aggregate purchase price set forth opposite the name of such Purchaser under
the heading "Aggregate Purchase Price for Preferred Shares" on Schedule I.
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2.2 Minimum Closing. The Company covenants that no subscriptions for
Preferred Shares will be accepted unless proceeds from total subscriptions
exceed four million four hundred thousand dollars ($4,400,000) (the "Minimum
Offering Amount"). Subject to the satisfaction of this condition, each Purchaser
shall be required to fund to the Company its portion of the purchase price for
the Preferred Shares within two (2) days of the date of this Agreement.
2.3 Further Closings. From and after the Closing described in Section
2.2 above, the Company contemplates continuing its efforts to issue additional
Preferred Shares up to a maximum of $15 million, inclusive of the amount paid
for the Preferred Shares at the Closing (each a "Future Closing").
2.4 Warrant. In consideration for, and as an inducement to, the
Purchaser's purchase of the Preferred Shares, the Company will issue, in
connection with and in addition to the Preferred Shares, a Warrant (in the form
attached hereto as Exhibit A, the "Warrant") to purchase the number of shares of
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the Company's common stock, par value $0.01 per share (the "Common Stock") set
forth opposite each Purchaser's name under the heading "Number of Warrants" on
Schedule I.
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2.5 Exchange of Debt at Closing.
(a) The Minimum Offering Amount will include not more than
$1,800,000 of consideration resulting from the exchange at the Closing
of the Company's outstanding convertible notes for shares of Preferred
Stock and a Warrant (the actual amount so exchanged being referred to
as the "Debt Exchange Amount"). Accordingly, the cash consideration
received by the Company upon obtaining the Minimum Offering Amount
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will be less than the Minimum Offering Amount by the amount of the Debt
Exchange Amount.
(b) On the Closing Date, each Purchaser will submit the funds
representing the Purchase Price by wire transfer to an account of the
Company designated by the Company. Certificates representing such
appropriate number of Preferred Shares to be issued to each respective
subscriber in the amount of their respective accepted subscriptions
together with the Warrant shall promptly be delivered thereafter to each
Purchaser.
2.6 Adoption of Certificate of Designation. The Company shall adopt and
file the Certificate of Designation attached hereto as Exhibit B with the
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Secretary of State of the State of Delaware on or before the acceptance of the
Purchaser's subscription for the Preferred Shares. The terms of the Certificate
of Designation provide that upon the consummation of a "Qualified Future
Financing" (including without limitation, shares of Preferred Stock which may be
issued at one or more Future Closings) which contains a "Superior Right" (as
those terms are defined in the Certificate of Designation), the terms and
conditions of such Superior Right shall be automatically incorporated into the
rights contained in the Certificate of Designation and will supersede any
provisions in the Certificate of Designation relating to such Superior Right
that would conflict with the exercise of application of such Superior Right. The
Company will provide notice of the incorporation of any Superior Right to all
holders of the Preferred Stock, and the holders of two-thirds (2/3) of the
voting power of the then outstanding Preferred Stock may waive the incorporation
of the Superior Right by providing written notice to the Company. If the Company
provides any consideration to the holders of the equity or convertible debt
instrument issued in connection with such Qualified Future Financing that is in
addition to the consideration provided to the holders of the Preferred Stock
(such as, for purposes of illustration, a warrant agreement other than a warrant
substantially identical to the Warrant offered in this Agreement and issued in
similar denominations and for substantially identical consideration provided or
a registration rights agreement providing additional registration rights), then
the Company will take all steps necessary to ensure that the holders of the
Preferred Stock also receive such additional consideration.
3. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants to Purchaser, on the date hereof and
again as of the Closing Date, except as set forth in the disclosure letter
("Disclosure Letter") dated the date hereof and delivered supplementally to the
Purchasers with this Agreement, the following:
3.1 Organization and Authority. The Company is a corporation or other
entity duly incorporated or organized, validly existing and in good standing
under the laws of Delaware. The Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The Company is qualified to conduct business as a foreign
corporation and is in good standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification necessary, except where
such failure would not have a Material Adverse Effect. A "Material Adverse
Effect" means any material adverse effect on the operations, results of
operations, properties, assets or condition (financial
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or otherwise) of the Company or the Company and its Subsidiaries, taken as a
whole, or on the transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith. The execution and
delivery by the Company of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the board of
directors of the Company and no further consent or authorization of the Company,
its board of directors or its shareholders is required. This Agreement has been
duly executed and delivered by the Company and constitutes a valid and binding
agreement of the Company, enforceable against it in accordance with its terms.
3.2 SEC Filings. The Company makes periodic filings with the Securities and
Exchange Commission (the "SEC") available at ▇▇▇.▇▇▇.▇▇▇. All such forms,
reports and other documents filed by the Company, including those that may be
filed between the execution of this Agreement until the Closing but not
including filings made by third parties relating to the Company, are referred to
herein as the "SEC Reports." Except to the extent the SEC Reports have been
modified by the non-public information delivered to the Purchasers included
within the Offering Materials (as such term is defined in Section 4.7), all of
the SEC Reports (a) were or will be filed on a timely basis (except where noted
in the SEC Reports), (b) were or will be prepared in compliance in all material
respects with the applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Reports, and (c) did not or will not at the
time they were or are filed contain any untrue statement of a material fact or
omit to state a material fact required to be stated in such SEC Reports or
necessary in order to make the statements in such SEC Reports, in the light of
the circumstance under which they were made, not misleading.
3.3 Capitalization. As of the date hereof, the authorized, issued and
outstanding capital stock of the Company is as set forth in the Offering
Materials and except as set forth therein no other shares of capital stock of
the Company will be outstanding as of the Closing Date. All of such outstanding
shares of capital stock are, or upon issuance will be, duly authorized, validly
issued, fully paid and nonassessable. No shares of capital stock of the Company
are subject to preemptive rights or similar rights of the shareholders of the
Company or any liens or encumbrances imposed through the actions or failure to
act of the Company. Other than as set forth in the Disclosure Letter, as of the
date hereof, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, and (ii) except for the
Registration Rights Agreement, there are no agreements or arrangements under
which the Company or any of its Subsidiaries are obligated to register the sale
of any of its or their securities under the Securities Act and (iii) there are
no anti-dilution or price adjustment provisions contained in any security issued
by the Company (or in any agreement providing rights to security holders) that
will be triggered by the issuance of the Securities. The Company has furnished
to Purchaser true and correct copies of the Company's Corporate Documents, and
the terms of all securities convertible into or exercisable for Common Stock and
the material rights of the holders thereof in respect thereto.
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3.4 Governmental Authorization. The execution and delivery by the Company
of this Agreement does not and will not, the issuance and sale by the Company of
the Securities does not and will not, and the consummation of the transactions
contemplated hereby will not, require any action by or in respect of, or filing
with, any governmental body, agency or governmental official except (a) such
actions or filings that have been undertaken or made prior to the date hereof
and that will be in full force and effect (or as to which all applicable waiting
periods have expired) on and as of the date hereof or which are not required to
be filed on or prior to the Closing Date, (b) such actions or filings that, if
not obtained, would not result in a Material Adverse Effect and (c) the filing
of a "Form D" in connection with the issuance of the Preferred Shares and
Warrants.
3.5 Issuance of Common Stock; Reservation of Preferred Shares. Upon
conversion in accordance with the terms of the Preferred Shares and exercise of
the Warrant, the Conversion Shares shall be duly and validly issued and
outstanding, fully paid and nonassessable, free and clear of any Taxes, Liens
and charges with respect to issuance and shall not be subject to preemptive
rights or similar rights of any other shareholders of the Company. Assuming the
representations and warranties of Purchaser herein are true and correct in all
material respects, each of the Securities will have been issued in material
compliance with all applicable U.S. federal and state securities laws. For as
long as the Securities are outstanding, the Company shall at all times have a
sufficient number of shares of Common Stock authorized and reserved to provide
for the conversion of the Preferred Shares into the Company's Common Stock and
for the exercise of the Warrant.
3.6 No Conflicts. The execution and delivery by the Company of this
Agreement and the Registration Rights Agreement to which it is a party did not
and will not, the issuance and sale by the Company of the Securities did not and
will not and the consummation of the transactions contemplated hereby will not,
contravene or constitute a default under or violation of (i) any provision of
applicable law or regulation, (ii) the Company Corporate Documents, (iii) any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Company or any Subsidiary or any of their respective assets, or result in
the creation or imposition of any Lien on any asset of the Company or any
Subsidiary. The Company and each Subsidiary is in compliance with and conforms
to all statutes, laws, ordinances, rules, regulations, orders, restrictions and
all other legal requirements of any domestic or foreign government or any
instrumentality thereof having jurisdiction over the conduct of its businesses
or the ownership of its properties, except where such failure would not have a
Material Adverse Effect.
3.7 Financial Information. Except as disclosed in either the Disclosure
Letter or the Offering Materials, since September 30, 2001 (the "Balance Sheet
Date"), there has been (x) no material adverse change in the assets or
liabilities, or in the business or condition, financial or otherwise, or in the
results of operations or prospects, of the Company and its Subsidiaries, whether
as a result of any legislative or regulatory change, revocation of any license
or rights to do business, fire, explosion, accident, casualty, labor trouble,
flood, drought, riot, storm, condemnation, act of God, public force or otherwise
and (y) no material adverse change in the assets or liabilities, or in the
business or condition, financial or otherwise, or in the results of
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operations or prospects, of the Company and its subsidiaries except in the
ordinary course of business; and no fact or condition exists or is contemplated
or threatened which might cause such a change in the future. The audited and
unaudited consolidated balance sheets of the Company and its Subsidiaries as set
forth in the SEC Reports, and the related consolidated statements of income,
changes in shareholders' equity and changes in cash flows as set forth in the
SEC Reports for the respective periods referenced therein, including the
footnotes thereto, except as indicated therein, (i) complied in all material
respects with applicable accounting requirements and (ii) have been prepared in
accordance with GAAP consistently applied throughout the periods indicated,
except that the unaudited financial statements do not contain notes and may be
subject to normal audit adjustments and normal annual adjustments. Such
financial statements fairly present the financial condition of the Company and
its Subsidiaries at the dates indicated and the consolidated results of their
operations and cash flows for the periods then ended and, except as indicated
therein, reflect all claims against and all Debts and liabilities of the Company
and its Subsidiaries, fixed or contingent.
3.8 Litigation. Except as set forth in the Disclosure Letter, there is no
action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary, before any court or arbitrator
or any governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or which challenges the validity of this
Agreement.
3.9 Environmental Matters. The costs and liabilities associated with
Environmental Laws (including the cost of compliance therewith) are unlikely to
have a material adverse effect on the business, condition (financial or
otherwise), operations, performance, properties or prospects of the Company or
any Subsidiary. Each of the Company and the Subsidiaries conducts its businesses
in compliance in all material respects with all applicable Environmental Laws.
3.10 Taxes. Except as set forth in the Disclosure Letter, all United States
federal, state, county, municipality, local or foreign income tax returns and
all other material tax returns (including foreign tax returns) which are
required to be filed by or on behalf of the Company and each Subsidiary have
been filed and all material taxes due pursuant to such returns or pursuant to
any assessment received by the Company and each Subsidiary have been paid except
those being disputed in good faith and for which adequate reserves have been
established. The charges, accruals and reserves on the books of the Company and
each Subsidiary in respect of taxes and other governmental charges have been
established in accordance with GAAP.
3.11 Not an Investment Company. Neither the Company nor any Subsidiary is
an "Investment Company" within the meaning of Investment Company Act of 1940, as
amended.
3.12 Full Disclosure. The information heretofore furnished by the Company
to Purchaser for purposes of or in connection with this Agreement or any
transaction contemplated hereby does not, and all such information hereafter
furnished by the Company or any Subsidiary to Purchaser will not (in each case
taken together and on the date as of which such information is furnished),
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in the light of the
circumstances under which they are made, not misleading.
3.13 No Solicitation; No Integration with Other Offerings. Except as set
forth in this Disclosure Letter, no form of general solicitation or general
advertising was used by the Company or, to the best of its actual knowledge, any
other Person acting on behalf of the Company, in connection with the offer and
sale of the Securities. Neither the Company, nor, to its knowledge, any Person
acting on behalf of the Company, has, either directly or indirectly, sold or
offered for sale to any Person (other than Purchasers) any of the Securities or,
within the six months prior to the date hereof, any other similar security of
the Company except as contemplated by this Agreement, and the Company represents
that neither itself nor any Person authorized to act on its behalf (except that
the Company makes no representation as to Purchaser and their Affiliates) will
sell or offer for sale any such security to, or solicit any offers to buy any
such security from, or otherwise approach or negotiate in respect thereof with,
any Person or Persons so as thereby to cause the issuance or sale of any of the
Securities to be in violation of any of the provisions of Section 5 of the
Securities Act.
3.14 Permits. (a) Each of the Company and its Subsidiaries has all material
Permits; (b) all such Permits are in full force and effect, and each of the
Company and its Subsidiaries has fulfilled and performed all material
obligations with respect to such Permits; (c) no event has occurred which
allows, or after notice of lapse of time would allow, revocation or termination
by the issuer thereof or which results in any other material impairment of the
rights of the holder of any such Permit; and (d) the Company has no reason to
believe that any governmental body or agency is considering limiting, suspending
or revoking any such Permit.
3.15 Absence of Any Undisclosed Liabilities or Capital Calls. There are no
liabilities of the Company or any Subsidiary of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, and there
is no existing condition, situation or set of circumstances which would
reasonably be expected to result in such a liability, other than (i) those
liabilities provided for in the Offering Materials, (ii) liabilities and
obligations incurred in the ordinary course of business since the Balance Sheet
Date and (iii) other undisclosed liabilities which, individually or in the
aggregate, would not have a Material Adverse Effect.
3.16 Proprietary Information of Third Parties. Except as set forth in the
Disclosure Letter, to the best of the Company's knowledge, no third party has
claimed or has reason to claim that any person employed by or affiliated with
the Company has (a) violated or may be violating any of the terms or conditions
of his employment, non-competition or non-disclosure agreement with such third
party, (b) disclosed or may be disclosing or utilized or may be utilizing any
trade secret or proprietary information or documentation of such third party or
(c) interfered or may be interfering in the employment relationship between such
third party and any of its present or former employees. No third party has
requested information from the Company which suggests that such a claim might be
contemplated. To the best of the Company's knowledge, no person employed by or
affiliated with the Company has employed or proposes to employ any trade secret
or any information of documentation proprietary to any former employer, and to
the best of
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the Company's knowledge, no person employed by or affiliated with the Company
has violated any confidential relationship which such person may have had with
any third party, in connection with the development or sale of any service or
proposed service of the Company, and the Company has no reason to believe there
will be any such employment or violation. To the best of the Company's
knowledge, none of the execution or delivery of this Agreement, or the carrying
on of the business of the Company as officer, employees or agents by any
officer, director or key employee of the Company, or the conduct or proposed
conduct of the business of the Company, will conflict with or result in a breach
of the terms, conditions or provisions of or constitute a default under any
contract, covenant or instrument under which any such person is obligated.
3.17 Intellectual Property Rights. Each of the Company and its Subsidiaries
owns, or is licensed under, and has the rights to use, all patents, patent
applications, trademarks, trademark applications, trade names, copyrights,
technology, know-how and processes, service marks, service ▇▇▇▇ applications,
trade secrets, and customer lists (collectively, "Intellectual Property") used
in, necessary for or proposed to be used in the conduct of its business; no
claims have been asserted by any Person to the use of any such Intellectual
Property or challenging or questioning the validity or effectiveness of any
license or agreement related thereto. To the best of Company's and its
Subsidiaries' knowledge, there is no valid basis for any such claim and the use
of such Intellectual Property by the Company and its Subsidiaries will not
infringe upon the rights of any Person.
3.18 Insurance. The Company and its Subsidiaries maintain, with financially
sound and reputable insurance companies, insurance in at least such amounts and
against such risks such that any uninsured loss would not have a Material
Adverse Effect. All insurance coverages of the Company and its Subsidiaries are
in full force and effect and there are no past due premiums in respect of any
such insurance.
3.19 Title to Properties. The Company and its Subsidiaries have good and
marketable title to all their respective properties reflected in the Offering
Materials, free and clear of all Liens, other than as disclosed in the Offering
Materials.
3.20 Internal Accounting Controls. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient, in the judgment of
the Company's Board of Directors, to provide reasonable assurance that (i)
transactions are executed in accordance with managements' 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.
3.21 Foreign Practices. Neither the Company nor any of its Subsidiaries
nor, to the Company's knowledge, any employee or agent of the Company or any
Subsidiary has made any payments of funds of the Company or Subsidiary, or
received or retained any funds, in each case in violation of any law, rule or
regulation.
11
3.22 Brokers. The Company has no contract, arrangement or understanding
with any broker, finder or similar agent with respect to the transactions
contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Each Purchaser, severally but not jointly, represents and warrants to the
Company, on the date hereof and as of the Closing Date, the following:
4.1 Shares for Account of Purchaser. The Securities are being acquired for
the account of the Purchaser (or if the Purchaser is a trust or other entity,
solely for the beneficiaries thereof) for investment purposes only, and are not
being purchased with a view to or for the resale, distribution or
fractionalization thereof, and the Purchaser has no contract, undertaking,
agreement or arrangement with, and has no present plan to enter into any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or pledge the Securities or any portion thereof.
4.2 Securities Not Registered Under Securities Laws. The Purchaser has
been informed and understands that: (a) THE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE ON
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
LAWS. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES OR OTHER REGULATORY AUTHORITY, NOR
HAS ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE
OFFERING OF SUCH SECURITIES OR THE ACCURACY OR ADEQUACY OF ANY DISCLOSURES
RELATED THERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE; and
(b) the Securities have not been, and Purchasers in such Securities have no
right, other than as provided for in the Registration Rights Agreement, to
require that they be, registered under the Securities Act or any applicable
state securities laws, and such securities are being offered and sold in
reliance upon exemptions available under such laws.
4.3 Limitation on Transferability of Securities. The Purchaser has been
informed and understands and agrees that:
(a) THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER
THE SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS PURSUANT TO
REGISTRATION OR EXEMPTIONS THEREFROM. A LEGEND RESTRICTING THE TRANSFER OF
SUCH SECURITIES SHALL BE PLACED ON THE CERTIFICATES REPRESENTING THE
SECURITIES.
(b) The Purchaser is aware that the Purchaser must bear the economic
risk of the investment in the Securities for an indefinite period of time,
because the Securities
12
have not been registered under the Securities Act, or the securities laws
of any state and, therefore, cannot be sold unless they are subsequently
registered under the Securities Act and any applicable state securities
laws or unless an exemption from registration is available. The Purchaser
further understands that only the Company can take action to register the
Securities.
(c) No offer, sale, transfer or other disposition of the Securities
may be made unless such Securities have theretofore been effectively
registered under the Securities Act and applicable state securities laws,
or the Company has received the written opinion of counsel satisfactory to
the Company that the transaction will not violate or require registration
under such laws and obtains warranties similar to those set forth herein
from the proposed transferee.
(d) The Purchaser shall pay all expenses and costs, if any, incurred
by the Company for legal or accounting services in connection with
reviewing any proposed sale or other transfer of the Securities and issuing
opinions in connection therewith.
(e) In the event of any sale or other transfer of any Securities,
the Purchaser shall be required and it shall be the sole responsibility of
the Purchaser to comply with the restrictions of the transferability of
such Securities imposed under applicable federal and state securities laws
and regulations.
4.4 Status of Purchaser. The Purchaser (check applicable blanks, if any):
_____ (a) is a natural person who has an individual net worth, or
joint net worth with that person's spouse, of more than $1,000,000; or
_____ (b) is a natural person who individually had actual income in
excess of $200,000 in each of the two most recent years and who reasonably
expects income in excess of $200,000 in the current year; or is a natural
person who, jointly with such person's spouse, had income in excess of
$300,000 in each of the two most recent years and who reasonably expects
joint income in excess of $300,000 in the current year; or
_____ (c) is a director, executive officer or general partner of the
Company; or
_____ (d) is a trust, with total assets in excess of $5.0 million, not
formed for the specific purpose of acquiring the Securities, whose purchase
is directed by a sophisticated person as described in the Securities Act;
or
_____ (e) is a corporation or partnership, not formed for the specific
purpose of acquiring the Securities, with total assets in excess of $5.0
million; or
_____ (f) is otherwise an Accredited Purchaser as defined in Section
501(a) of Regulation D as adopted by the Securities and Exchange
Commission.
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4.5 Financial Ability of Purchaser. The Purchaser (a) has the financial
ability to bear the economic risk of his or her investment in the Securities
(including the possible loss of the entire amount thereof), (b) has adequate
means for providing for his or her current and future needs and personal
contingencies notwithstanding (i) the Purchaser's investment in the Securities,
(ii) the unavailability of any tax, financial or other benefits from the
Purchaser's investment in or ownership of the Securities, or (iii) the complete
loss of the Purchaser's entire investment in the Securities, and (c) has no need
for liquidity with respect to his or her investment in the Securities.
4.6 Purchaser Sophistication. The Purchaser has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of an investment in the Securities and has obtained sufficient
information from the Company to enable him or her to evaluate the risks of an
investment in the Securities.
4.7 Receipt of Other Information. The Purchaser:
(a) has been furnished with copies of certain non-public information
of the Company under a written confidentiality agreement (together with the
SEC Reports available to the Purchaser via the world-wide web, the
"Offering Materials"), has carefully read the Offering Materials and has
evaluated and understands the risks of an investment in the Securities,
and, except as indicated in subsections (b) and (c), has relied solely upon
the information contained in the Offering Materials;
(b) has been provided an opportunity to obtain any additional
information concerning the Offering, to the extent the Company or its
authorized representatives possess the same or could acquire it without
unreasonable effort or expense; and
(c) has had the opportunity to ask questions of, and receive answers
from, the Company or its authorized representatives concerning the terms
and conditions of the Offering and other matters pertaining to an
investment in the Securities and, to the extent the Company or its
authorized representatives possess the same or could acquire it without
unreasonable effort or expense, to obtain such additional information as
the Purchaser considers necessary to verify the accuracy of the information
contained in the Offering Materials or that which was otherwise provided in
order for him or her to evaluate the merits or risks of an investment in
the Securities, and has not been furnished any other offering literature or
prospectus except as mentioned herein or in the Offering Materials.
4.8 Suitability of Investment. The Purchaser has determined that the
Securities are a suitable investment for him or her and that, at this time, he
or she is able to bear a complete loss of his or her investment in the
Securities.
4.9 Independent Investment Decision. In making a decision to invest in the
Securities, the Purchaser has relied solely upon independent investigations made
by him or her and is not relying on the Company or its authorized
representatives or any references in the
14
Offering Materials to any legal opinion with respect to tax or other economic
considerations involved in an investment in the Securities.
4.10 Authority. The execution, delivery, and performance of this Agreement
have been duly authorized by the Purchaser. The execution and delivery of this
Agreement and the purchase of the Securities do not conflict with or breach any
provision of the organizational documents of the Purchaser or any law, ruling,
regulation, statute or agreement to which it is subject.
4.11 No Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement as a result of arrangements
entered into by the Purchaser.
4.12 Reliance on Representations and Warranties. It is understood and
agreed that Company has relied and will rely upon the representations and
warranties of the Purchaser contained in this Agreement for purposes of
determining whether the Purchaser meets the Purchaser suitability standards
imposed under state and federal securities laws and regulations in order to
enable the Company to decide whether the offer and sale of the Securities may he
made without registration under applicable federal and state securities laws and
regulations in reliance upon exemptions provided thereunder.
5. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
5.1 Conditions Precedent to Purchaser's Obligations to Purchase. The
obligation of each Purchaser hereunder to purchase the Preferred Shares at the
Closing is subject to the satisfaction, on or before the Closing Date of each of
the following conditions:
(a) The Company shall have duly executed this Agreement, the Warrants
and the Registration Rights Agreement and delivered the same to Purchasers;
(b) The Company shall have delivered to Purchasers duly executed
certificates representing the Preferred Shares and the Warrants;
(c) Each Purchaser shall have purchased and paid for the Preferred
Shares being purchased by it on the Closing Date, and the aggregate
purchase price paid by all of the Purchasers for the Preferred Shares being
purchased by them on the Closing Date (including the Debt Exchange) shall
be at least $4,400,000.00;
(d) The representations and warranties of the Company contained herein
shall be true and correct in all material respects as of the date when made
and as of the Closing Date as though made at such time (except for
representations and warranties that speak as of a specified date) and the
Company shall have performed, satisfied and complied with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by it at or prior to the Closing Date.
Purchasers shall have received an Officer's Certificate executed by the
chief executive officer of the Company,
15
dated as of the Closing Date, to the foregoing effect, including but not
limited to certificates with respect to the Company Corporate Documents,
resolutions relating to the transactions contemplated hereby and the
incumbencies of certain officers and Directors of the Company;
(e) The Company shall have received all governmental, board of
directors, shareholders and third party consents and approvals necessary or
desirable in connection with the issuance and sale of the Securities and
the consummation of the transactions contemplated by this Agreement;
(f) Purchasers shall have received an opinion, dated the Closing Date,
of counsel to the Company, reasonably satisfactory to Purchasers;
(g) The Company Corporate Documents and the Subsidiary Corporate
Documents, if any, shall be in full force and effect and no term or
condition thereof shall have been amended, waived or otherwise modified
without the prior written consent of Purchaser and the Company shall have
delivered to Purchasers the Certificate of Designation of the Preferred
Stock certified by the Secretary of State of Delaware; and
(h) Purchasers shall have received all other opinions, resolutions,
certificates, instruments, agreements or other documents as required by
this Agreement;
(i) The Company shall have delivered to Purchasers a copy of the
executed employment/non-competition agreement between the Company and
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇.
5.2 Conditions to the Company's Obligations. The obligations of the
Company to issue and sell the Securities to the Purchasers pursuant to this
Agreement are subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:
(a) The representations and warranties of each Purchaser contained
herein shall be true and correct in all material respects on the date first
made and on the Closing Date and each Purchaser shall have performed and
complied in all material respects with all agreements required by this
Agreement to be performed or complied with by each Purchaser at or prior to
the Closing Date;
(b) The issue and sale of the Securities by the Company shall not be
prohibited by any applicable law, court order or governmental regulation;
(c) The receipt by the Company of duly executed counterparts of this
Agreement and the Registration Rights Agreement signed by each Purchaser;
and
(d) The Company shall have received payment of the Purchase Price.
6. AFFIRMATIVE COVENANTS
Unless such obligation is waived by the holders of at least two-thirds of
the then outstanding Preferred Shares, the Company, hereby agrees that, from and
after the date hereof:
16
6.1 Information. The Company will make available to each holder of the
Preferred Shares:
(a) promptly upon the filing thereof, copies of (i) all registration
statements (other than the exhibits thereto and any registration statements
on Form S-8 or its equivalent), and (ii) all SEC Reports;
(b) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and proxy
statements so mailed and any other document generally distributed to
shareholders.
(c) promptly following the commencement thereof, notice and a
description in reasonable detail of any litigation or proceeding to which
the Company or any Subsidiary is a party in which the amount involved is
$250,000 or more and not covered by insurance or in which injunctive or
similar relief is sought.
6.2 Payment of Obligations. The Company will, and will cause each
Subsidiary to, pay and discharge, at or before maturity, all their respective
material obligations, including, without limitation, tax liabilities, except
where the same may be contested in good faith by appropriate proceedings and
will maintain, in accordance with GAAP, appropriate reserves for the accrual of
any of the same.
6.3 Maintenance of Property; Insurance. The Company will, and will cause
each Subsidiary to, keep all property useful and necessary in its business in
good working order and condition, ordinary wear and tear excepted. In addition,
the Company and each Subsidiary will maintain insurance in at least such amounts
and against such risks as it has insured against as of the Closing Date.
6.4 Maintenance of Existence. The Company will, and will cause each
Subsidiary to, continue to engage in business of the same general type as now
conducted by the Company and such Subsidiaries, and will preserve, renew and
keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business.
6.5 Compliance with Laws. The Company will, and will cause each Subsidiary
to, comply, in all material respects, with all federal, state, municipal, local
or foreign applicable laws, ordinances, rules, regulations, municipal by-laws,
codes and requirements of governmental authorities except (i) where compliance
therewith is contested in good faith by appropriate proceedings or (ii) where
non-compliance therewith could not reasonably be expected, in the aggregate, to
have a material adverse effect on the business, condition (financial or
otherwise), operations, performance, properties or prospects of the Company or
such Subsidiary.
6.6 Inspection of Property, Books and Records. The Company will, and will
cause each Subsidiary to, keep proper books of record and account in which full,
true and correct entries shall be made of all dealings and transactions in
relation to their respective businesses and activities; and will permit, during
normal business hours, a representative of each Purchaser or an
17
affiliate thereof, as representatives of Purchaser, to visit and inspect any of
their respective properties, upon reasonable prior notice, to examine and make
abstracts from any of their respective books and records and to discuss their
respective affairs, finances and accounts with their respective executive
officers and independent public accountants (and by this provision the Company
authorizes its independent public accountants to disclose and discuss with
Purchaser the affairs, finances and accounts of the Company and its Subsidiaries
in the presence of a representative of the Company; provided, however, that such
discussions will not result in any unreasonable expense to the Company, without
Company consent), all at such reasonable times.
6.7 Investment Company Act. The Company will not be or become an open-end
investment trust, unit investment trust or face-amount certificate company that
is or is required to be registered under Section 8 of the Investment Company Act
of 1940, as amended.
6.8 Use of Proceeds. The proceeds from the issuance and sale of the
Preferred Shares by the Company shall be used as set forth in the Officer's
Certificate to be delivered at Closing, as described in Section 8.4 below and a
copy of which is attached hereto. None of the proceeds from the issuance and
sale of the Preferred Shares by the Company pursuant to this Agreement will be
used directly or indirectly for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any "margin stock" within the meaning of
Regulation G of the Board of Governors of the Federal Reserve System.
6.9 Compliance with Terms and Conditions of Material Contracts. The
Company will, and will cause each Subsidiary to, comply, in all respects, with
all terms and conditions of all material contracts to which it is subject.
6.10 Reserved Shares and Listings.
(a) The Company shall at all times have authorized, and reserved for
the purpose of issuance, a sufficient number of shares of Common Stock to
provide for the full conversion of the outstanding Preferred Shares and
exercise of the Warrants (based on the conversion price of the Preferred
Shares in effect from time to time and the exercise price of the Warrant).
If at any time the number of shares of Common Stock authorized and reserved
for issuance is below the number of Conversion Shares issued or issuable
upon conversion of the Preferred Shares and exercise of the Warrant, the
Company will promptly take all corporate action necessary to authorize and
reserve a sufficient number of shares. The Company will obtain any
authorization, consent, approval or other action by or make any filing with
any court or administrative body that may be required under applicable
state securities laws in connection with the issuance of shares of Common
Stock upon conversion of the Preferred Shares.
(b) The Company will use its best lawful efforts to maintain the
listing and trading of its Common Stock on a National Market or the OTC
Bulletin Board. To the extent applicable, the Company will comply in all
respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the National Association of Securities Dealers, Inc.
(the "NASD") and such exchanges, as applicable. The Company shall promptly
provide to each Purchaser copies of any notices it receives regarding the
18
continued eligibility of the Common Stock for listing on any National
Market or the OTC Bulletin Board.
6.11 Transfer Agent Instructions. Upon receipt of a Notice of Conversion or
Notice of Exercise, as applicable, the Company shall immediately direct the
Company's transfer agent to issue certificates, registered in the name of
Purchaser or its nominee, for the Conversion Shares, in such amounts as
specified from time to time by Purchaser to the Company upon proper conversion
of the Preferred Shares or exercise of the Warrant. Upon conversion of any
Preferred Shares in accordance with their terms and/or exercise of any Warrant
in accordance with their terms, the Company will, and will use its best lawful
efforts to cause its transfer agent to, issue as promptly and reasonably
practicable one or more certificates representing shares of Common Stock in such
name or names and in such denominations specified by a Purchaser in a Notice of
Conversion or Notice of Exercise, as the case may be (which certificates shall
contain a restrictive legend substantially similar to the legend set forth in
Section 4.3(a) above).
6.12 Maintenance of Reporting Status; Supplemental Information. So long as
any of the Securities are outstanding, the Company shall use its best lawful
efforts to timely file all reports required to be filed with the Commission
pursuant to the Exchange Act. The Company shall not terminate its status as an
issuer required to file reports under the Exchange Act, even if the Exchange Act
or the rules and regulations thereunder would permit such termination. If at
anytime the Company is not subject to the requirements of Section 13 or 15(d) of
the Exchange Act, the Company will promptly furnish at its expense, upon
request, for the benefit of the holders from time to time of Securities, and
prospective purchasers of Securities, information satisfying the information
requirements of Rule 144 under the Securities Act.
6.13 Form D; Blue Sky Laws. The Company agrees to file a "Form D" with
respect to the Securities as required under Regulation D of the Securities Act
and to provide a copy thereof to Purchaser promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the Company
shall reasonably determine is necessary to qualify the Securities for sale to
Purchaser at the Closing pursuant to this Agreement under applicable securities
or "blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to Purchaser on or prior to the Closing Date.
7. NEGATIVE COVENANTS
Without the prior written consent of the holders of at least two-thirds of
the then outstanding Preferred Shares, the Company agrees that after the date
hereof and for the benefit of each Purchaser:
7.1 Transactions with Affiliates. The Company and each Subsidiary will not
enter into any material transactions with any Affiliate, except where such
transaction is on terms which are, to the Company or such Subsidiary, no less
favorable than terms that could be obtained by the Company or such Subsidiary
from a Person that is not an Affiliate of the Company upon negotiation at arm's
length, as determined in good faith by the Board of Directors of the Company.
19
7.2 Prohibition on Floating Conversion Rate Equity Offerings; Registration
Rights.
(a) Except with respect to equity securities that may be issuable upon
the exercise or conversion of Derivative Securities (as defined below)
outstanding as of the date hereof, the Company agrees that it will not
issue any of its equity securities (or securities convertible into or
exchangeable or exercisable for equity securities (the "Derivative
Securities")) for which the conversion price at the time of conversion is
based on a floating rate (such as a percentage of the Company's Closing Bid
Price over a Trading Day average calculated from time to time).
(b) Except with respect to equity securities that may be issuable upon
the exercise or conversion of Derivative Securities outstanding as of the
date hereof, the Company agrees it will not issue any of its equity
securities (or Derivative Securities), unless such securities are
"restricted securities." As used herein, "restricted securities" shall mean
securities that may not be sold publicly or otherwise transferred (except
in a private transaction) prior to twelve (12) months following the date of
issuance of such securities.
(c) The restrictions contained in this Section 7.2 shall not apply to
the issuance by the Company of (or the agreement to issue) Common Stock or
Derivative Securities in connection with (i) the acquisition (including by
merger) of a business or of assets otherwise permitted under this
Agreement, or (ii) stock option or other compensatory plans.
7.3 Limitation on Stock Repurchases. Except as otherwise set forth in the
Preferred Shares and the Warrants, the Company shall not redeem, repurchase or
otherwise repurchase (whether for cash or in exchange for property or other
securities or otherwise) any shares of capital stock of the Company or any
warrants, rights or options to purchase or acquire any such shares, except that
the Company may redeem, repurchase or otherwise acquires any shares of capital
stock of the Company from (i) any terminated employee or consultant of the
Company; or (ii) any future investors acquiring Derivative Securities ("Future
Investors") which have redemption rights (provided, if any such rights are so
granted to such Future Investors, then the Purchasers shall automatically, and
without further action, be deemed to have been granted identical redemption
rights as the Future Investors, on a pari passu basis, with respect to the
Purchasers' shares of Preferred Stock).
8. OTHER AGREEMENTS
8.1 Registration Rights. The Preferred Shares shall have the registration
rights set forth in the Registration Rights Agreement, attached as Exhibit C
---------
hereto.
8.2 Board Seats. As contemplated by the Certificate of Designation, the
Majority Holders of the Preferred Shares shall have the right on the Closing
Date or thereafter to designate one (1) individual to serve on the Board of
Directors of the Company.
20
8.3 Reverse Stock Split. The Purchasers and the Company acknowledge that
the Company is contemplating a potential reverse stock split at a future date.
The Purchasers, by act of the Majority Holders voting separately as a class,
shall have the right to approve any reverse stock split of the Company that is
approved and authorized by the Board of Directors and thereafter submitted to
the stockholders of the Company for a vote (whether at a meeting, by proxy or by
written consent).
8.4 Use of Proceeds. The Company shall use the proceeds received from the
issuance of the Preferred Shares for working capital and other general corporate
purposes as determined in the discretion of the Board of Directors of the
Company, including, without limitation, to repay certain existing indebtedness
of the Company reflected in the SEC Reports (other than the convertible notes
exchanged for Preferred Shares at the Closing), transaction costs and expenses,
accounts payable of the Company, and future potential acquisitions and related
transactions as described in the Offering Materials and as set forth on Schedule
--------
8.4 attached hereto.
---
8.5 Right of First Offer. The Company shall offer to the holders of
Preferred Shares, from time to time, exercisable by the Majority Holders
thereof, a right of first offer to participate in any Qualified Future Financing
(as contemplated by Section 2.6 above), in addition to, and not in lieu of, the
rights afforded to the Purchaser under Section 2.6 above and in the Certificate
of Designation associated with such Qualified Future Financing. In addition
thereto, and not in lieu thereof, such right of first offer shall also apply in
the event the Company offers to consummate any debt or equity financing
(including the issuance of securities exercisable or convertible into securities
of the Company) from and after the expiration of the Qualified Future Financing
(i.e., after the Company raises $15,000,000 in capital in the aggregate,
including the Preferred Shares issued at the Closing), which, by its terms,
would result in the Purchasers being afforded a reduction to their Conversion
Price as contemplated by Section 4(g) of the Certificate of Designation (i.e.,
issuances below the seventy-five cent ($0.75) Conversion Price as specified in
the Certificate of Designation) (and any exercise of such right shall not
otherwise diminish the Purchaser's rights to adjust the Conversion Price under
the Certificate of Designation). Such right of first offer shall be exercisable
by vote of the Majority Holders within twenty (20) days of the delivery of a
written summary, containing the substantial terms of, the proposed transaction.
The Majority Holders may waive the right (or shorten the 20-day time period)
with respect to any particular transaction, by written notice to the Company.
21
9. MISCELLANEOUS
9.1 Notices. All notices, demands and other communications to any party
hereunder shall be in writing (including telecopier or similar writing) and
shall be given to such party at its address set forth on the signature pages
hereof, or such other address as such party may hereafter specify for the
purpose to the other parties. Each such notice, demand or other communication
shall be effective (i) if given by telecopy, when such telecopy is transmitted
to the telecopy number specified on the signature page hereof, (ii) if given by
mail, four days after such communication is deposited in the mail with first
class postage prepaid, addressed as aforesaid or (iii) if given by any other
means, when delivered at the address specified in or pursuant to this Section.
9.2 No Waivers; Amendments.
(a) No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy.
(b) Unless specifically noted to the contrary, any provision of this
Agreement may be amended, supplemented or waived if, but only if, such
amendment, supplement or waiver is in writing and is signed by the Company
and the Majority Holders.
9.3 Indemnification.
(a) The Company agrees to indemnify and hold harmless Purchaser, its
Affiliates, and each Person, if any, who controls Purchaser, or any of its
Affiliates, and the respective partners, agents, employees, officers and
Directors of Purchaser, their Affiliates and any such Controlling Person
(each an "Indemnified Party") and collectively, the "Indemnified Parties"),
from and against any and all losses, claims, damages, liabilities and
expenses (including, without limitation and as incurred, reasonable costs
of investigating, preparing or defending any such claim or action, whether
or not such Indemnified Party is a party thereto, provided that the Company
shall not be obligated to advance such costs to any Indemnified Party
unless it has received from such Indemnified Party an undertaking to repay
to the Company the costs so advanced if it should be determined by final
judgment of a court of competent jurisdiction that such Indemnified Party
was not entitled to indemnification hereunder with respect to such costs)
which may be incurred by such Indemnified Party in connection with any
administrative or judicial proceeding brought or threatened that relates to
or arises out of, or is in connection with a breach of any of the Company's
representations and warranties or covenants contained herein; provided that
--------
the Company will not be responsible for any claims, liabilities, losses,
damages or expenses that are determined by final judgment of a court of
competent jurisdiction to result from such Indemnified Party's gross
negligence, willful misconduct or bad faith.
23
(b) If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Company under this
Agreement, such Indemnified Party shall promptly notify the Company in
writing and the Company, at its option, may, assume the defense thereof,
including the employment of counsel reasonably satisfactory to such
Indemnified Party and payment of all reasonable fees and expenses. The
failure to so notify the Company shall not affect any obligations the
Company may have to such Indemnified Party under this Agreement or
otherwise unless the Company is materially adversely affected by such
failure. Such Indemnified Party shall have the right to employ separate
counsel in such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified
Party, unless (i) the Company has failed to assume the defense and employ
counsel or (ii) the named parties to any such action (including any
impleaded parties) include such Indemnified Party and the Company, and such
Indemnified Party shall have been advised by counsel that there may be one
or more legal defenses available to it which are different from or
additional to those available to the Company, in which case, if such
Indemnified Party notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not have
the right to assume the defense of such action or proceeding on behalf of
such Indemnified Party, provided, however, that the Company shall not, in
-------- -------
connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances,
be responsible hereunder for the reasonable fees and expenses of more than
one such firm of separate counsel, in addition to any local counsel, which
counsel shall be designated by Purchaser. The Company shall not be liable
for any settlement of any such action effected without the written consent
of the Company (which shall not be unreasonably withheld) and the Company
agrees to indemnify and hold harmless each Indemnified Party from and
against any loss or liability by reason of settlement of any action
effected with the consent of the Company. In addition, the Company will
not, without the prior written consent of Purchaser, settle or compromise
or consent to the entry of any judgment in or otherwise seek to terminate
any pending or threatened action, claim, suit or proceeding in respect to
which indemnification or contribution may be sought hereunder (whether or
not any Indemnified Party is a party thereto) unless such settlement,
compromise, consent or termination includes an express unconditional
release of Purchaser and the other Indemnified Parties, satisfactory in
form and substance to Purchaser, from all liability arising out of such
action, claim, suit or proceeding.
(c) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 8.3 (i) shall be in addition to any
liability the Company may have to any Indemnified Party at common law or
otherwise; (ii) shall survive the termination of this Agreement and the
payment in full of the Preferred Shares and (iii) shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of Purchaser or any other Indemnified Party.
(d) The Purchaser acknowledges the Purchaser's understanding of the
representations, warranties and covenants set forth herein and that the
Company relied
23
upon such representations, covenants and warranties and the Purchaser
agrees to indemnify, defend and save harmless the Company, its directors,
officers, agents and employees, and each of them, from and against any and
all loss, liability, claim, damage and expense (including, but not limited
to, any and all expenses reasonably incurred in investigating, preparing or
defending against any litigation commenced or threatened or any claim
whatsoever), arising out of or based upon any false representation or
warranty or breach or failure by the Purchaser to comply with any covenant
or agreement made by the Purchaser herein or in any other document
furnished by the Purchaser to any of the foregoing in connection with the
Purchaser's investment in the Securities.
9.4 Expenses. The parties hereto shall each bear their own legal,
financial and other expenses incurred in relation to the execution of this
Agreement and the related transactions thereto; provided, however, to the extent
any Purchaser utilizes outside legal counsel (and not individuals who are
employed by such Purchaser) in connection with the negotiation and execution of
this Agreement and the related transactions hereto, the Company shall reimburse
such Purchaser for its reasonable attorneys fees associated with such
Purchaser's acquisition of Preferred Shares.
9.5 Successors and Assigns. This Agreement shall be binding upon the
Company and each Purchaser and its respective successors and assigns; neither
the Company nor Purchasers may transfer or assign this Agreement or any right,
title or interest in, to or under this Agreement without the prior written
consent of the other party, and any attempted assignment without such consent
shall be void and without further force or effect.
9.6 Governing Law. This Agreement shall be governed by and controlled in
accordance with the laws substantive of the State of Texas without regard to
conflict of law provisions.
9.7 Entire Agreement. This Agreement, the Exhibits or Schedules hereto,
which include, but are not limited to the Certificate of Designation and the
Registration Rights Agreement set forth the entire agreement and understanding
of the parties relating to the subject matter hereof and supercedes all prior
and contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof. The terms
and conditions of all Exhibits and Schedules to this Agreement are incorporated
herein by this reference and shall constitute part of this Agreement as is fully
set forth herein.
9.8 Survival; Severability. All representations, warranties, covenants,
acknowledgments and agreements contained herein shall survive (a) changes in the
transactions, documents and instruments described in the Offering Materials, (b)
the acceptance of this Agreement and the Closing and the delivery of the
Securities and the Conversion Shares, and (c) the death, disability,
incompetency, termination, bankruptcy, insolvency or dissolution of the
Purchaser. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
24
9.9 Title and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
9.10 Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given Trading Day for the purposes of this Agreement and all
Exhibits shall be Bloomberg, L.P. or any successor thereto. The written mutual
consent of the Purchaser and the Company shall be required to employ any other
reporting entity.
9.11 Confidentiality. The Purchaser acknowledges that certain of the
information provided to the Purchaser is confidential and non-public and agrees
that all such information shall be kept in confidence by Purchaser and neither
used by Purchaser to Purchaser's personal benefit (other than in connection with
this Agreement) nor disclosed to any third party for any reason; provided, that
this obligation shall not apply to any such information which (i) is or becomes
part of the public knowledge or literature and readily accessible (except as a
result of violation of any confidentiality agreements); or (ii) is received from
third parties (except third parties who disclose such information in violation
of any confidentiality agreements including, but not limited to, any Agreement
they may have with the Company).
9.12 Powers and Remedies Cumulative. No right or remedy herein conferred
upon or reserved to Purchaser is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Every power and remedy given by the Preferred Shares or by law may be exercised
from time to time, and as often as shall be deemed expedient, by Purchaser.
(Signature page follows)
25
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
EDGE TECHNOLOGY GROUP, INC.
By: _____________________________________________
Name: _____________________________________________
Title: _____________________________________________
Address:
____________________________________________________
____________________________________________________
Fax: _____________________________________________
Tel.: _____________________________________________
PURCHASERS:
SANDERA PARTNERS, L.P., a Texas limited partnership
By: Sandera Capital Management, L.P., it sole
general partner
By: Sandera Capital, L.L.C., its
sole general partner
By: ________________________________
Name: ________________________________
Title: ________________________________
Address:
____________________________________________________
____________________________________________________
Fax: _____________________________________________
Tel.: _____________________________________________
26
GCA STRATEGIC INVESTMENT FUND
LIMITED
By: ____________________________
Name: ____________________________
Title: ____________________________
Address:
___________________________________
___________________________________
Fax: ____________________________
Tel.: ____________________________
GLOBAL CAPITAL FUNDING GROUP, L.P.
By: _______________________________
its general partner
By: ____________________________
Name: ____________________________
Title: ____________________________
Address:
___________________________________
___________________________________
Fax: ____________________________
Tel.: ____________________________
27
▇▇▇▇ ▇▇▇▇▇▇
____________________________________
▇▇▇▇ ▇▇▇▇▇▇
Address:
_________________________________________
_________________________________________
Fax: __________________________________
Tel.: __________________________________
28
▇▇▇▇ ▇. ▇▇▇▇▇
__________________________________
▇▇▇▇ ▇. ▇▇▇▇▇
Address:
_________________________________________
_________________________________________
Fax: __________________________________
Tel.: __________________________________
29
LIST OF EXHIBITS
Exhibit A - Warrant
Exhibit B - Certificate of Designation
Exhibit C - Registration Rights Agreement
SCHEDULE I
---------------------------------------------------------------------------------------------------------------------
Name and Address of Purchaser Number of Aggregate Number of Warrant
Preferred Shares Purchase Price Shares
to be Purchased
---------------------------------------------------------------------------------------------------------------------
Sandera Partners, L.P. 2,000 $2,000,000 533,333
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
---------------------------------------------------------------------------------------------------------------------
GCA Strategic Investment Fund Limited 750 $ 750,000 200,000
c/o Prince Management Limited
Mechanics Building
12 Church Street
▇▇▇▇▇▇▇▇ Bermuda, HMII
---------------------------------------------------------------------------------------------------------------------
Global Capital Funding Group, L.P. 1,250 $1,250,000 333,333
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
---------------------------------------------------------------------------------------------------------------------
Infinity Investors Limited (a) $ 258,464 (a)
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
P.O. Box 556
Charlestown, Nevis West Indies
---------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇ 100 $ 100,000 26,666
The Summit, Suite 1100
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
---------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇ 100 $ 100,000 26,666
The Summit, Suite 1100
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
---------------------------------------------------------------------------------------------------------------------
Totals $4,200 $4,458,464 1,119,998
---------------------------------------------------------------------------------------------------------------------
(a) Represents the conversion of $258,464.03 of existing debt into 397,637 of
$.01 Common Stock of Edge Technology Group, Inc. Though included herein and
counting toward Minimum Offering Amount per section 2.2 of the Subscription and
Securities Purchase Agreement, such conversion does not entitle the holder to
preferred shares, warrants or other rights and privileges under the Agreement