EXHIBIT 10.1
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LOCATEPLUS HOLDINGS CORPORATION
SECURITIES PURCHASE AGREEMENT
JUNE 17, 2004
TABLE OF CONTENTS
PAGE
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1. Agreement to Sell and Purchase.............................................1
2. Fees and Warrant...........................................................2
3. Closing, Delivery and Payment..............................................2
3.1 Closing..............................................................2
3.2 Delivery.............................................................2
4. Representations and Warranties of the Company..............................3
4.1 Organization, Good Standing and Qualification........................3
4.2 Subsidiaries.........................................................3
4.3 Capitalization; Voting Rights........................................3
4.4 Authorization; Binding Obligations...................................4
4.5 Liabilities..........................................................5
4.6 Agreements; Action...................................................5
4.7 Obligations to Related Parties.......................................6
4.8 Changes..............................................................6
4.9 Title to Properties and Assets; Liens, Etc...........................8
4.10 Intellectual Property................................................8
4.11 Compliance with Other Instruments....................................9
4.12 Litigation...........................................................9
4.13 Tax Returns and Payments.............................................9
4.14 Employees...........................................................10
4.15 Registration Rights and Voting Rights...............................10
4.16 Compliance with Laws; Permits.......................................10
4.17 Environmental and Safety Laws.......................................11
4.18 Valid Offering......................................................11
4.19 Full Disclosure.....................................................11
4.20 Insurance...........................................................12
4.21 SEC Reports.........................................................12
4.22 Listing.............................................................12
4.23 No Integrated Offering..............................................12
4.24 Stop Transfer.......................................................12
4.25 Dilution............................................................12
4.26 Patriot Act.........................................................12
5. Representations and Warranties of the Purchaser...........................13
5.1 No Shorting.........................................................13
5.2 Requisite Power and Authority.......................................13
5.3 Investment Representations..........................................14
5.4 No General Solicitation.............................................15
5.5 Purchaser Bears Economic Risk.......................................14
5.6 Acquisition for Own Account.........................................14
5.7 Purchaser Can Protect Its Interest..................................15
5.8 Accredited Investor.................................................15
5.9 No Governmental Review..............................................15
5.10 Legends.............................................................15
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5.11 Patriot Act.........................................................15
6. Covenants of the Company..................................................17
6.1 Stop-Orders.........................................................17
6.2 Listing.............................................................17
6.3 Market Regulations..................................................17
6.4 Reporting Requirements..............................................17
6.5 Use of Funds........................................................17
6.6 Access to Facilities................................................17
6.7 Taxes...............................................................18
6.8 Insurance...........................................................18
6.9 Intellectual Property...............................................19
6.10 Properties..........................................................19
6.11 Confidentiality.....................................................19
6.12 Required Approvals..................................................20
6.13 Reissuance of Securities............................................21
6.14 Opinion.............................................................21
6.15 Margin Stock........................................................19
6.16 Financing Right of First Refusal....................................19
7. Covenants of the Purchaser................................................22
7.1 Confidentiality.....................................................22
7.2 Non-Public Information..............................................22
8. Covenants of the Company and Purchaser Regarding Indemnification..........22
8.1 Company Indemnification.............................................22
8.2 Purchaser's Indemnification.........................................22
9. Conversion of Convertible Note............................................23
9.1 Mechanics of Conversion.............................................23
10. Registration Rights.......................................................24
10.1 Registration Rights Granted.........................................24
10.2 Offering Restrictions...............................................25
11. Miscellaneous.............................................................25
11.1 Governing Law.......................................................25
11.2 Survival............................................................25
11.3 Successors..........................................................25
11.4 Entire Agreement....................................................26
11.5 Severability........................................................26
11.6 Amendment and Waiver................................................26
11.7 Delays or Omissions.................................................26
11.8 Notices.............................................................26
11.9 Attorneys' Fees.....................................................27
11.10 Titles and Subtitles................................................27
11.11 Facsimile Signatures; Counterparts..................................27
11.12 Broker's Fees.......................................................27
11.13 Construction........................................................28
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11.14 Combination of Class A Common Stock and Class B Common Stock........27
LIST OF EXHIBITS
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Form of Convertible Term Note........................................ Exhibit A
Form of Warrant...................................................... Exhibit B
Form of Opinion...................................................... Exhibit C
Form of Escrow Agreement............................................. Exhibit D
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of June17, 2004, by and between LOCATEPLUS HOLDINGS CORPORATION,
a Delaware corporation (the "Company"), and Laurus Master Fund, Ltd., a Cayman
Islands company (the "Purchaser").
RECITALS
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 has
authorized the issuance and sale to the Purchaser, and the Purchaser desires to
purchase from the Company a Convertible Term Note in the aggregate principal
amount of Three Million Dollars ($3,000,000) (the "Note"), which Note is
convertible into shares of the Company's Class A Voting Common Stock, $0.01 par
value per share (together with any other securities into which or for which any
of Class A Voting Common Stock may be converted or exchanged pursuant to a plan
of recapitalization, reorganization, combination merger, sale of assets or
otherwise, the "Class A Common Stock") at an initial fixed conversion price of
$0.40 per share of Class A Common Stock ("Fixed Conversion Price");
WHEREAS, the Company wishes to issue a warrant to the Purchaser to
purchase up to 1,320,000 shares of the Company's Class A Common Stock (subject
to adjustment as set forth therein) in connection with Purchaser's purchase of
the Note;
WHEREAS, Purchaser desires to purchase the Note and the Warrant (as
defined in Section 2) on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, representations, warranties and covenants hereinafter set forth
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Agreement to Sell and Purchase. Pursuant to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company, a Note in the aggregate principal amount of
$3,000,000 convertible in accordance with the terms thereof into shares of the
Company's Class A Common Stock in accordance with the terms of the Note and this
Agreement. The Note purchased on the Closing Date shall be known as the
"Offering." A form of the Note is annexed hereto as Exhibit A. The Note will
mature on the Maturity Date (as defined in the Note). Collectively, the Note and
Warrant and Class A Common Stock issuable in payment of the Note, upon
conversion of the Note and upon exercise of the Warrant are referred to as the
"Securities."
2. Fees and Warrant. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser a Warrant to
purchase up to 1,320,000 shares of Class A Common Stock in connection with the
Offering (the "Warrant") pursuant to Section 1 hereof. The Warrant must be
delivered on the Closing Date. A form of Warrant is annexed hereto as Exhibit B.
All the representations, covenants, warranties, undertakings, and
indemnification, and other rights made or granted to or for the benefit of the
Purchaser by the Company are hereby also made and granted in respect of the
Warrant and shares of the Company's Class A Common Stock issuable upon exercise
of the Warrant (the "Warrant Shares").
(b) Subject to the terms of Section 2(d) below, the Company shall pay
to Laurus Capital Management, LLC, the manager of the Purchaser, a closing
payment in an amount equal to three and nine-tenths percent (3.90%) of the
aggregate principal amount of the Note. The foregoing fee is referred to herein
as the "Closing Payment."
(c) The Company shall reimburse the Purchaser for its reasonable
expenses including legal fees and expenses) incurred in connection with the
preparation and negotiation of this Agreement and the Related Agreements (as
hereinafter defined), and expenses incurred in connection with the Purchaser's
due diligence review of the Company and its Subsidiaries (as defined in Section
6.8) and all related matters. Amounts required to be paid under this Section
2(c) will be paid on the Closing Date and shall be $44,500 for such expenses
referred to in this Section 2(c) (net of deposits previously paid by the
Company).
(d) The Closing Payment and the expenses referred to in the preceding
clause (c) (net of deposits previously paid by the Company) shall be paid at
closing out of funds held pursuant to a Funds Escrow Agreement of even date
herewith among the Company, Purchaser, and an Escrow Agent (the "Funds Escrow
Agreement") and a disbursement letter (the "Disbursement Letter").
3. Closing, Delivery and Payment.
3.1 Closing. Subject to the terms and conditions herein, the closing of the
transactions contemplated hereby (the "Closing"), shall take place on the date
hereof, at such time or place as the Company and Purchaser may mutually agree
(such date is hereinafter referred to as the "Closing Date").
3.2 Delivery. Pursuant to the Funds Escrow Agreement in the form attached
hereto as Exhibit D, at the Closing on the Closing Date, the Company will
deliver to the Purchaser, among other things, a Note in the form attached as
Exhibit A representing the aggregate principal amount of $3,000,000 and a
Warrant in the form attached as Exhibit B in the Purchaser's name representing
1,320,000 Warrant Shares and the Purchaser will deliver to the Company, among
other things, the amounts set forth in the Disbursement Letter by certified
funds or wire transfer.
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4. Representations and Warranties of the Company. Subject to the Schedules to
this Agreement delivered concurrently herewith, the Company hereby represents
and warrants to the Purchaser as follows (which representations and warranties
are supplemented by the Company's filings under the Securities Exchange Act of
1934 (collectively, the "Exchange Act Filings"), copies of which have been
provided to the Purchaser):
4.1 Organization, Good Standing and Qualification. Each of the Company and
each of its Subsidiaries is a corporation, partnership or limited liability
company, as the case may be, duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each of the Company
and each of its Subsidiaries has the corporate power and authority to own and
operate its properties and assets, to execute and deliver (i) this Agreement,
(ii) the Note and the Warrant to be issued in connection with this Agreement,
(iii) the Master Security Agreement dated as of the date hereof between the
Company, certain Subsidiaries of the Company and the Purchaser (as amended,
modified or supplemented from time to time, the "Master Security Agreement"),
(iv) the Registration Rights Agreement relating to the Securities dated as of
the date hereof between the Company and the Purchaser, (v) the Subsidiary
Guaranty dated as of the date hereof made by certain Subsidiaries of the Company
(as amended, modified or supplemented from time to time, the "Subsidiary
Guaranty"), (vi) the Stock Pledge Agreement dated as of the date hereof among
the Company, certain Subsidiaries of the Company and the Purchaser (as amended,
modified or supplemented from time to time, the "Stock Pledge Agreement"), (vii)
the Escrow Agreement dated as of the date hereof among the Company, the
Purchaser and the escrow agent referred to therein and (viii) all other
agreements related to this Agreement and the Note and referred to herein (the
preceding clauses (ii) through (viii), collectively, the "Related Agreements"),
to issue and sell the Note and the shares of Class A Common Stock issuable upon
conversion of the Note (the "Note Shares"), to issue and sell the Warrant and
the Warrant Shares, and to carry out the provisions of this Agreement and the
Related Agreements and to carry on its business as presently conducted. Each of
the Company and each of its Subsidiaries is duly qualified and is authorized to
do business and is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions in which the
nature of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so has not, or could not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects of the
Company and it Subsidiaries, taken individually and as a whole (a "Material
Adverse Effect").
4.2 Subsidiaries. Each direct and indirect Subsidiary of the Company, the
direct owner of such Subsidiary and its percentage ownership thereof, is set
forth on Schedule 4.2. For the purpose of this Agreement, a "Subsidiary" of any
person or entity means (i) a corporation or other entity whose shares of stock
or other ownership interests having ordinary voting power (other than stock or
other ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such corporation, or other
persons or entities performing similar functions for such person or entity, are
owned, directly or indirectly, by such person or entity or (ii) a corporation or
other entity in which such person or entity owns, directly or indirectly, more
than 50% of the equity interests at such time.
4.3 Capitalization; Voting Rights.
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(a) The authorized capital stock of the Company, as of the date hereof
consists of 400,000,000 shares, (x) of which 150,000,000 are shares of Class A
Common Stock, par value $0.01 per share, 90,606,107 shares of which are issued
and outstanding and (y) of which 250,000,000 are shares of Class B Non-Voting
Common Stock, par value $0.01 per share, 72,898,596 shares of which are issued
and outstanding. The authorized capital stock of each Subsidiary of the Company
is set forth on Schedule 4.3.
(b) Except as disclosed on Schedule 4.3, other than: (i) the shares
reserved for issuance under the Company's stock option plans; and (ii) shares
which may be granted pursuant to this Agreement and the Related Agreements,
there are no outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal), proxy or stockholder agreements,
or arrangements or agreements of any kind for the purchase or acquisition from
the Company of any of its securities. Except as disclosed on Schedule 4.3,
neither the offer, issuance or sale of any of the Note or the Warrant, or the
issuance of any of the Note Shares or Warrant Shares, nor the consummation of
any transaction contemplated hereby will result in a change in the price or
number of any securities of the Company outstanding, under anti-dilution or
other similar provisions contained in or affecting any such securities.
(c) All issued and outstanding shares of the Company's common stock:
(i) have been duly authorized and validly issued and are fully paid and
nonassessable; and (ii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the shares
of the Class A Common Stock are as stated in the Company's Certificate of
Incorporation (the "Charter"). The Note Shares and Warrant Shares have been duly
and validly reserved for issuance. When issued in compliance with the provisions
of this Agreement and the Company's Charter, the Securities will be validly
issued, fully paid and nonassessable, and will be free of any liens or
encumbrances; provided, however, that the Securities may be subject to
restrictions on transfer under state and/or federal securities laws as set forth
herein or as otherwise required by such laws at the time a transfer is proposed.
4.4 Authorization; Binding Obligations. All corporate, partnership or
limited liability company, as the case may be, action on the part of the Company
and each of its Subsidiaries (including the respective officers and directors)
necessary for the authorization of this Agreement and the Related Agreements,
the performance of all obligations of the Company and its Subsidiaries hereunder
and under the other Related Agreements at the Closing and, the authorization,
sale, issuance and delivery of the Note and Warrant has been taken or will be
taken prior to the Closing. This Agreement and the Related Agreements, when
executed and delivered and to the extent it is a party thereto, will be valid
and binding obligations of each of the Company and each of its Subsidiaries,
enforceable against each such person in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting
enforcement of creditors' rights; and
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(b) general principles of equity that restrict the availability of
equitable or legal remedies.
The sale of the Note and the subsequent conversion of the Note into Note Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. The issuance of the
Warrant and the subsequent exercise of the Warrant for Warrant Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
4.5 Liabilities. Neither the Company nor any of its Subsidiaries has any
contingent liabilities, except current liabilities incurred in the ordinary
course of business, liabilities not required to be disclosed in filings made
with the Commission or required to be reflected in the Company's financial
statements pursuant to GAAP, and liabilities disclosed in any Exchange Act
Filings.
4.6 Agreements; Action. Except as set forth on Schedule 4.6 or as disclosed
in any Exchange Act Filings:
(a) there are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which
the Company or any of its Subsidiaries is a party or by which it is
bound which may involve: (i) obligations (contingent or otherwise)
of, or payments to, the Company in excess of $50,000 (other than
obligations of, or payments to, the Company arising from purchase
or sale agreements entered into in the ordinary course of
business); or (ii) the transfer or license of any patent,
copyright, trade secret or other proprietary right to or from the
Company (other than licenses arising from the purchase of "off the
shelf" or other standard products); or (iii) provisions restricting
the development, manufacture or distribution of the Company's
products or services; or (iv) indemnification by the Company with
respect to infringements of proprietary rights.
(b) Since December 31, 2003, neither the Company nor any of its
Subsidiaries has: (i) declared or paid any dividends, or authorized
or made any distribution upon or with respect to any class or
series of its capital stock; (ii) incurred any indebtedness for
money borrowed or any other liabilities (other than ordinary course
obligations) individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in
excess of $100,000 in the aggregate; (iii) made any loans or
advances to any person not in excess, individually or in the
aggregate, of $100,000, other than ordinary course advances for
travel expenses; or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its inventory
in the ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or
entity (including
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persons or entities the Company has reason to believe are
affiliated therewith) shall be aggregated for the purpose of
meeting the individual minimum dollar amounts of such subsections.
4.7 Obligations to Related Parties. Except as set forth on Schedule 4.7,
there are no obligations of the Company or any of its Subsidiaries to officers,
directors, stockholders or employees of the Company or any of its Subsidiaries
other than:
(a) for payment of salary for services rendered and for bonus payments;
(b) reimbursement for reasonable expenses incurred on behalf of the
Company and its Subsidiaries;
(c) for other standard employee benefits made generally available to
all employees (including stock option agreements outstanding under
any stock option plan approved by the Board of Directors of the
Company); and
(d) obligations listed in the Company's financial statements or
disclosed in any of its Exchange Act Filings.
Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company's knowledge, key employees or
stockholders of the Company or any members of their immediate families, are
indebted to the Company, individually or in the aggregate, in excess of $50,000
or have any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than
one percent (1%) of such company) which may compete with the Company. Except as
described above, no officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. Except as
set forth on Schedule 4.7, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
4.8 Changes. Since December 31, 2003, except as disclosed in any Exchange
Act Filing or in any Schedule to this Agreement or to any of the Related
Agreements, there has not been:
(a) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of
the Company or any of its Subsidiaries, which individually or in
the aggregate has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(b) any resignation or termination of any officer, key employee or
group of employees of the Company or any of its Subsidiaries;
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(c) any material change, except in the ordinary course of business, in
the contingent obligations of the Company or any of its
Subsidiaries by way of guaranty, endorsement, indemnity, warranty
or otherwise;
(d) any damage, destruction or loss, whether or not covered by
insurance, has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(e) any waiver by the Company or any of its Subsidiaries of a valuable
right or of a material debt owed to it;
(f) any direct or indirect loans made by the Company or any of its
Subsidiaries to any stockholder, employee, officer or director of
the Company or any of its Subsidiaries, other than advances made in
the ordinary course of business;
(g) any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder of the Company
or any of its Subsidiaries;
(h) any declaration or payment of any dividend or other distribution of
the assets of the Company or any of its Subsidiaries;
(i) any labor organization activity related to the Company or any of
its Subsidiaries;
(j) any debt, obligation or liability incurred, assumed or guaranteed
by the Company or any of its Subsidiaries, except those for
immaterial amounts and for current liabilities incurred in the
ordinary course of business;
(k) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets owned by the
Company or any of its Subsidiaries;
(l) any change in any material agreement to which the Company or any of
its Subsidiaries is a party or by which either the Company or any
of its Subsidiaries is bound which either individually or in the
aggregate has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be
expected to have, individually or in the aggregate, a Material
Adverse Effect; or
(n) any arrangement or commitment by the Company or any of its
Subsidiaries to do any of the acts described in subsection (a)
through (m) above.
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4.9 Title to Properties and Assets; Liens, Etc. Except as set forth on
Schedule 4.9, each of the Company and each of its Subsidiaries has good and
marketable title to its properties and assets, and good title to its leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than:
(a) those resulting from taxes which have not yet become delinquent;
(b) minor liens and encumbrances which do not materially detract from
the value of the property subject thereto or materially impair the
operations of the Company or any of its Subsidiaries; and
(c) those that have otherwise arisen in the ordinary course of
business.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 4.9, the Company and
its Subsidiaries are in compliance with all material terms of each lease to
which it is a party or is otherwise bound.
4.10 Intellectual Property.
(a) Each of the Company and each of its Subsidiaries owns or possesses
sufficient legal rights to all patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and
other proprietary rights and processes necessary for its business
as now conducted and to the Company's knowledge, as presently
proposed to be conducted (the "Intellectual Property"), without any
known infringement of the rights of others. There are no
outstanding options, licenses or agreements of any kind relating to
the foregoing proprietary rights, nor is the Company or any of its
Subsidiaries bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other
person or entity other than such licenses or agreements arising
from the purchase of "off the shelf" or standard products.
(b) Neither the Company nor any of its Subsidiaries has received any
communications alleging that the Company or any of its Subsidiaries
has violated any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of
any other person or entity, nor is the Company or any of its
Subsidiaries aware of any basis therefor.
(c) The Company does not believe it is or will be necessary to utilize
any inventions, trade secrets or proprietary information of any of
its employees made prior to their employment by the Company or any
of its Subsidiaries, except for inventions, trade secrets or
proprietary
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information that have been rightfully assigned to the Company or
any of its Subsidiaries.
4.11 Compliance with Other Instruments. Neither the Company nor any of its
Subsidiaries is in violation or default of (x) any term of its Charter or
Bylaws, or (y) of any provision of any indebtedness, mortgage, indenture,
contract, agreement or instrument to which it is party or by which it is bound
or of any judgment, decree, order or writ, except for a violation or default
which, in the case of this clause (y), has not had, or could not reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect. The execution, delivery and performance of and compliance with this
Agreement and the Related Agreements to which it is a party, and the issuance
and sale of the Note by the Company and the other Securities by the Company each
pursuant hereto and thereto, will not, with or without the passage of time or
giving of notice, result in any such violation, or be in conflict with or
constitute a default under any such term or provision, or result in the creation
of any mortgage, pledge, lien, encumbrance or charge upon any of the properties
or assets of the Company or any of its Subsidiaries or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
authorization or approval applicable to the Company, its business or operations
or any of its assets or properties, except where such result has not had, or
could not reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect.
4.12 Litigation. Except as set forth on Schedule 4.12 hereto, there is no
action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the Company or any of its Subsidiaries from entering into this
Agreement or the other Related Agreements, or from consummating the transactions
contemplated hereby or thereby, or which has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect or any change in the current equity ownership of the Company or any of
its Subsidiaries, nor is the Company aware that there is any basis to assert any
of the foregoing. Neither the Company nor any of its Subsidiaries is a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any of its Subsidiaries currently
pending or which the Company or any of its Subsidiaries intends to initiate.
4.13 Tax Returns and Payments. Each of the Company and each of its
Subsidiaries has timely filed all tax returns (federal, state and local)
required to be filed by it. All taxes shown to be due and payable on such
returns, any assessments imposed, and all other taxes due and payable by the
Company or any of its Subsidiaries on or before the Closing, have been paid or
will be paid prior to the time they become delinquent. Except as set forth on
Schedule 4.13, neither the Company nor any of its Subsidiaries has been advised:
(a) that any of its returns, federal, state or other, have been or are
being audited as of the date hereof; or
(b) of any deficiency in assessment or proposed judgment to its
federal, state or other taxes.
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The Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14 Employees. Except as set forth on Schedule 4.14, neither the Company
nor any of its Subsidiaries has any collective bargaining agreements with any of
its employees. There is no labor union organizing activity pending or, to the
Company's knowledge, threatened with respect to the Company or any of its
Subsidiaries. Except as disclosed in the Exchange Act Filings or on Schedule
4.14, neither the Company nor any of its Subsidiaries is a party to or bound by
any currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no employee
of the Company or any of its Subsidiaries, nor any consultant with whom the
Company or any of its Subsidiaries has contracted, is in violation of any term
of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company or any of its Subsidiaries because of the nature of
the business to be conducted by the Company or any of its Subsidiaries; and to
the Company's knowledge the continued employment by the Company or any of its
Subsidiaries of its present employees, and the performance of the Company's and
its Subsidiaries' contracts with its independent contractors, will not result in
any such violation. Neither the Company nor any of its Subsidiaries is aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries has received any notice alleging that
any such violation has occurred. Except for employees who have a current
effective employment agreement with the Company or any of its Subsidiaries, no
employee of the Company or any of its Subsidiaries has been granted the right to
continued employment by the Company or any of its Subsidiaries or to any
material compensation following termination of employment with the Company or
any of its Subsidiaries. Except as set forth on Schedule 4.14, the Company is
not aware that any officer, key employee or group of employees intends to
terminate his, her or their employment with the Company or any of its
Subsidiaries, nor does the Company or any of its Subsidiaries have a present
intention to terminate the employment of any officer, key employee or group of
employees. 4.15 Registration Rights and Voting Rights. Except as set forth on
Schedule 4.15 or except as disclosed in Exchange Act Filings, neither the
Company nor any of its Subsidiaries is presently under any obligation, and
neither the Company nor any of its Subsidiaries has granted any rights, to
register any of the Company's or its Subsidiaries' presently outstanding
securities or any of its securities that may hereafter be issued. Except as set
forth on Schedule 4.15 or except as disclosed in Exchange Act Filings, to the
Company's knowledge, no stockholder of the Company or any of its Subsidiaries
has entered into any agreement with respect to the voting of equity securities
of the Company or any of its Subsidiaries.
4.16 Compliance with Laws; Permits. Neither the Company nor any of its
Subsidiaries is in violation of any applicable statute, rule, regulation, order
or restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No governmental
10
orders, permissions, consents, approvals or authorizations are required to be
obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of this Agreement or any other
Related Agreement and the issuance of any of the Securities, except such as has
been duly and validly obtained or filed, or with respect to any filings that
must be made after the Closing, as will be filed in a timely manner. Each of the
Company and its Subsidiaries has all material franchises, permits, licenses and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
4.17 Environmental and Safety Laws. Neither the Company nor any of its
Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, except for
violations which have not had, or could not reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation. Except as set forth on
Schedule 4.17, no Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or any of its Subsidiaries or, to
the Company's knowledge, by any other person or entity on any property owned,
leased or used by the Company or any of its Subsidiaries. For the purposes of
the preceding sentence, "Hazardous Materials" shall mean:
(a) materials which are listed or otherwise defined as "hazardous" or
"toxic" under any applicable local, state, federal and/or foreign
laws and regulations that govern the existence and/or remedy of
contamination on property, the protection of the environment from
contamination, the control of hazardous wastes, or other activities
involving hazardous substances, including building materials; or
(b) any petroleum products or nuclear materials.
4.18 Private Placement. Assuming the accuracy of the representations and
warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act, and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws.
4.19 Full Disclosure. Each of the Company and each of its Subsidiaries has
provided the Purchaser with all information requested by the Purchaser in
connection with its decision to purchase the Note and Warrant, including all
information the Company and its Subsidiaries believe is reasonably necessary to
make such investment decision. Neither this Agreement, the Related Agreements,
the exhibits and schedules hereto and thereto nor any other document delivered
by the Company or any of its Subsidiaries to Purchaser or its attorneys or
agents in connection herewith or therewith or with the transactions contemplated
hereby or thereby, contain any untrue statement of a material fact nor omit to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances in which they are made, not
misleading. Any financial projections and other estimates provided to the
Purchaser by the Company or any of its Subsidiaries were based on the Company's
and its Subsidiaries' experience in the industry and on assumptions of fact and
opinion as to future
11
events which the Company or any of its Subsidiaries, at the date of the issuance
of such projections or estimates, believed to be reasonable.
4.20 Insurance. Each of the Company and each of its Subsidiaries has
general commercial, product liability, fire and casualty insurance policies with
coverages that the Company believes are customary for companies similarly
situated to the Company and its Subsidiaries in the same or similar business.
4.21 SEC Reports. Except as set forth on Schedule 4.21, the Company has
filed all proxy statements, reports and other documents required to be filed by
it under the Securities ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, as amended (the "Exchange Act"). The
Company has furnished the Purchaser with copies of: (i) its Annual Report on
Form 10-KSB for its fiscal year ended December 31, 2003; (ii) its Quarterly
Reports on Form 10-QSB for its fiscal quarter ended March 31, 2004, and (iii)
the Form 8-K filings which it has made during the fiscal year 2004 to date
(collectively, the "SEC Reports"). Except as set forth on Schedule 4.21, each
SEC Report was, at the time of its filing, in substantial compliance with the
requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
4.22 Listing. The Company's Class A Common Stock is listed for trading on
the NASD OTC Bulletin Board ("NASD OTCBB") and satisfies all requirements for
the continuation of such trading. The Company has not received any notice that
its Class A Common Stock will not be eligible to be traded on the NASD OTCBB or
that its Class A Common Stock does not meet all requirements for such trading.
4.23 No Integrated Offering. Neither the Company, nor any of its
Subsidiaries or 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 the offering of
the Securities pursuant to this Agreement or any of the Related Agreements to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Company or any of its affiliates or
Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
4.24 Stop Transfer. The Securities are restricted securities as of the date
of this Agreement. Neither the Company nor any of its Subsidiaries will issue
any stop transfer order or other order impeding the sale and delivery of any of
the Securities at such time as the Securities are registered for public sale or
an exemption from registration is available, except as required by state and
federal securities laws.
4.25 Dilution. The Company acknowledges that its obligation to issue the
shares of Class A Common Stock upon conversion of the Note and exercise of the
Warrant is binding
12
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.
4.26 Patriot Act. The Company certifies that, to the Company's knowledge,
neither the Company nor any of its Subsidiaries has been designated, and is not
owned or controlled, by a "suspected terrorist" as defined in Executive Order
13224. The Company hereby acknowledges that the Purchaser seeks to comply with
all applicable laws concerning money laundering and related activities. In
furtherance of those efforts, the Company hereby represents, warrants and agrees
that: (i) none of the cash or property that the Company or any of its
Subsidiaries will pay or will contribute to the Purchaser has been or shall be
derived from, or related to, any activity that is deemed criminal under United
States law; and (ii) no contribution or payment by the Company or any of its
Subsidiaries to the Purchaser, to the extent that they are within the Company's
and/or its Subsidiaries' control shall cause the Purchaser to be in violation of
the United States Bank Secrecy Act, the United States International Money
Laundering Control Act of 1986 or the United States International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001. The Company shall
promptly notify the Purchaser if any of these representations ceases to be true
and accurate regarding the Company or any of its Subsidiaries. The Company
agrees to provide the Purchaser any additional information regarding the Company
or any of its Subsidiaries that the Purchaser reasonably deems necessary or
convenient to ensure compliance with all applicable laws concerning money
laundering and similar activities. The Company understands and agrees that if at
any time it is discovered that any of the foregoing representations are
incorrect, or if otherwise required by applicable law or regulation related to
money laundering similar activities, the Purchaser may undertake appropriate
actions to ensure compliance with applicable law or regulation, including but
not limited to segregation and/or redemption of the Purchaser's investment in
the Company. The Company further understands that the Purchaser may release
confidential information about the Company and its Subsidiaries and, if
applicable, any underlying beneficial owners, to proper authorities if the
Purchaser, in its sole discretion, determines that it is in the best interests
of the Purchaser in light of relevant rules and regulations under the laws set
forth in subsection (ii) above.
5. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
5.1 No Shorting. The Purchaser or any of its affiliates and investment
partners has not, will not and will not cause any person or entity, directly or
indirectly, to engage in "short sales" of the Company's Class A Common Stock as
long as the Note shall be outstanding. Prior to the Closing Date, neither the
Purchaser nor any of its affiliates has bought or sold any of the Company's
equity interests.
5.2 Requisite Power and Authority. The Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
corporate action on Purchaser's part required for the lawful execution and
delivery of this Agreement and the Related Agreements have been or will be
effectively taken prior to the Closing. Upon their execution and delivery,
13
this Agreement and the Related Agreements will be valid and binding obligations
of Purchaser, enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting
enforcement of creditors' rights; and
(b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
5.3 Investment Representations. Purchaser understands that the Securities
are being offered and sold pursuant to, and in reliance on, specific exemptions
from the registration requirements of United States federal and state securities
laws based in part upon the truth and accuracy of, and Purchaser's compliance
with, its representations, warranties, agreements, acknowledgements and
understandings contained in the Agreement, including, without limitation, that
the Purchaser is an "accredited investor" within the meaning of Rule 501(a) of
Regulation D under the Securities Act, in order to determine the availability of
such exemptions and the eligibility of such Purchaser to acquire the Securities.
The Purchaser confirms that it has received or has had full access to all the
information it considers necessary or appropriate to make an informed investment
decision with respect to the Note and the Warrant to be purchased by it under
this Agreement and the Note Shares and the Warrant Shares acquired by it upon
the conversion of the Note and the exercise of the Warrant, respectively. The
Purchaser further confirms that it has had an opportunity to ask questions and
receive answers from the Company regarding the Company's and its Subsidiaries'
business, management and financial affairs and the terms and conditions of the
Offering, the Note, the Warrant and the Securities and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify any
information furnished to the Purchaser or to which the Purchaser had access.
5.4 No General Solicitation. The Purchaser is not purchasing the Securities
as a result of any advertisement, article notice or other communication
concerning 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.
5.5 Purchaser Bears Economic Risk. The Purchaser has substantial experience
in evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests. The Purchaser must bear the economic risk of this investment
until the Securities are sold pursuant to: (i) an effective registration
statement under the Securities Act; or (ii) an exemption from registration is
available with respect to such sale.
5.6 Acquisition for Own Account. The Purchaser is acquiring the Note and
Warrant and the Note Shares and the Warrant Shares for the Purchaser's own
account for investment only, and not as a nominee or agent and not with a view
towards or for resale in connection with their distribution.
14
5.7 Purchaser Can Protect Its Interest. The Purchaser understands that its
investment in the Securities involves a high degree of risk. The Purchaser
represents that, either alone or together with its representatives, accountants,
or legal counsel, by reason of its, or of its management's, business and
financial experience, the Purchaser has the capacity to evaluate the merits and
risks of its investment in the Note, the Warrant and the Securities and to
protect its own interests in connection with the transactions contemplated in
this Agreement and the Related Agreements. Further, Purchaser is aware of no
publication of any advertisement in connection with the transactions
contemplated in the Agreement or the Related Agreements.
5.8 Accredited Investor. Purchaser represents that it is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D under the
Securities Act. Such Purchaser is not required to be registered as a broker
dealer under Section 15 of the Exchange Act.
5.9 No Governmental Review. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendations or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the Offering.
5.10 Legends.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE COMMON
SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO LOCATEPLUS HOLDINGS CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) The Note Shares and the Warrant Shares, if not issued by DWAC
system (as hereinafter defined), shall bear a legend which shall be
in substantially the following form until such shares are covered
by an effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH
15
SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO LOCATEPLUS HOLDINGS CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING
COMMON SHARES UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO LOCATEPLUS HOLDINGS
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
5.11 Patriot Act. The Purchaser certifies that, to the Purchaser's
knowledge, neither Purchaser nor any of its affiliates has been designated, and
is not owned or controlled, by a "suspected terrorist" as defined in Executive
Order 13224. The Purchaser hereby acknowledges that the Company seeks to comply
with all applicable laws concerning money laundering and related activities. In
furtherance of those efforts, the Purchaser hereby represents, warrants and
agrees that: (i) none of the cash or property that the Purchaser or any of its
affiliates will pay or will contribute to the Company has been or shall be
derived from, or related to, any activity that is deemed criminal under United
States law; and (ii) no contribution or payment by the Purchaser or any of its
affiliates to the Company, to the extent that they are within the Purchaser's
and/or its affilite's control shall cause the Company to be in violation of the
United States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. The Purchaser shall promptly
notify the Company if any of these representations ceases to be true and
accurate regarding the Purchaser or any of its affiliates. The Purchaser agrees
to provide the Company any additional information regarding the Purchaser or any
of its affiliates that the Company reasonably deems necessary or convenient to
ensure compliance with all applicable laws concerning money laundering and
similar activities. The Purchaser understands and agrees that if at any time it
is discovered that any of the foregoing representations are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
similar activities, the Company may undertake appropriate actions to ensure
compliance with applicable law or regulation. The Purchaser further understands
that the Company may release confidential information about the Purchaser and
its affiliates and, if applicable, any underlying beneficial owners, to proper
authorities if the Company, in its sole discretion, determines that it is in the
best interests of the Company in light of relevant rules and regulations under
the laws set forth in subsection (ii) above.
16
6. Covenants of the Company. The Company covenants and agrees with the Purchaser
as follows:
6.1 Stop-Orders. The Company will advise the Purchaser, promptly after it
receives notice of issuance by the Securities and Exchange Commission (the
"SEC"), any state securities commission or any other regulatory authority of any
stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Class A Common Stock of the Company for offering or sale in any jurisdiction, or
the initiation of any proceeding for any such purpose.
6.2 Listing. The Company shall promptly secure the listing of the shares of
Class A Common Stock issuable upon conversion of the Note and upon the exercise
of the Warrant on the NASD OTCBB, or any other exchange registered as a
"national securities exchange" pursuant to Section 6 of the Exchange Act upon
which shares of Class A Common Stock are then listed (subject to official notice
of issuance) (the "Principal Market"), and shall maintain such listing so long
as any other shares of Class A Common Stock shall be so listed. The Company will
maintain the listing of its Class A Common Stock on the Principal Market, and
will comply in all material respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable.
6.3 Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Purchaser and promptly provide copies thereof to the Purchaser.
6.4 Reporting Requirements. The Company will timely file (or obtain
extensions thereof and file within the applicable grace period) with the SEC all
reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination.
6.5 Use of Funds. The Company agrees that it will use the proceeds of the
sale of the Note and the Warrant for general working capital purposes and
strategic acquisitions (so long as the Company and/or the applicable Subsidiary
has complied with the requirements of Section 6.12(f)).
6.6 Access to Facilities. Each of the Company and each of its Subsidiaries
will permit any representatives designated by the Purchaser (or any successor of
the Purchaser), upon reasonable notice and during normal business hours, at such
person's expense and accompanied by a representative of the Company, to:
(a) visit and inspect any of the properties of the Company or any of
its Subsidiaries;
(b) examine the corporate and financial records of the Company or any
of its Subsidiaries (unless such examination is not permitted by
federal, state or
17
local law or by contract) and make copies thereof or extracts
therefrom; and
(c) discuss the affairs, finances and accounts of the Company or any of
its Subsidiaries with the directors, officers and independent
accountants of the Company or any of its Subsidiaries.
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to the Purchaser unless the
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.
6.7 Taxes. Each of the Company and each of its Subsidiaries will promptly
pay and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Company and its Subsidiaries;
provided, however, that any such tax, assessment, charge or levy need not be
paid if the validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Company and/or such Subsidiary shall have set
aside on its books adequate reserves with respect thereto, and provided,
further, that the Company and its Subsidiaries will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefor.
6.8 Insurance. Each of the Company and its Subsidiaries will keep its
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in similar business similarly situated
as the Company and its Subsidiaries; and the Company and its Subsidiaries will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner which the Company reasonably believes is customary for companies in
similar business similarly situated as the Company and its Subsidiaries and to
the extent available on commercially reasonable terms. The Company, and each of
its Subsidiaries will jointly and severally bear the full risk of loss from any
loss of any nature whatsoever with respect to the assets pledged to the
Purchaser as security for its obligations hereunder and under the Related
Agreements. At the Company's and each of its Subsidiaries' joint and several
cost and expense in amounts and with carriers reasonably acceptable to
Purchaser, the Company and each of its Subsidiaries shall (i) keep all its
insurable properties and properties in which it has an interest insured against
the hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to the Company's or the
respective Subsidiary's including business interruption insurance; (ii) maintain
a bond in such amounts as is customary in the case of companies engaged in
businesses similar to the Company's or the respective Subsidiary's insuring
against larceny, embezzlement or other criminal misappropriation of insured's
officers and employees who may either singly or jointly with others at any time
have access to the assets or funds of the Company or any of its Subsidiaries
either directly or through governmental authority to draw upon such funds or to
direct generally the disposition of such assets; (iii) maintain public and
product liability insurance against claims for personal injury, death or
property damage suffered by others; (iv) maintain all such worker's compensation
or similar insurance as may be required
18
under the laws of any state or jurisdiction in which the Company or the
respective Subsidiary is engaged in business; and (v) furnish Purchaser with (x)
copies of all policies and evidence of the maintenance of such policies at least
thirty (30) days before any expiration date, (y) excepting the Company's
workers' compensation policy, endorsements to such policies naming Purchaser as
"co-insured" or "additional insured" and appropriate loss payable endorsements
in form and substance satisfactory to Purchaser, naming Purchaser as loss payee,
and (z) evidence that as to Purchaser the insurance coverage shall not be
impaired or invalidated by any act or neglect of the Company or any Subsidiary
and the insurer will provide Purchaser with at least thirty (30) days notice
prior to cancellation. The Company and each Subsidiary shall instruct the
insurance carriers that in the event of any loss thereunder, the carriers shall
make payment for such loss to the Company and/or the Subsidiary and Purchaser
jointly. In the event that as of the date of receipt of each loss recovery upon
any such insurance, the Purchaser has not declared an event of default with
respect to this Agreement or any of the Related Agreements, then the Company
and/or such Subsidiary shall be permitted to direct the application of such loss
recovery proceeds toward investment in property, plant and equipment that would
comprise "Collateral" secured by Purchaser's security interest pursuant to its
security agreement, with any surplus funds to be applied toward payment of the
obligations of the Company to Purchaser. In the event that Purchaser has
properly declared an event of default with respect to this Agreement or any of
the Related Agreements, then all loss recoveries received by Purchaser upon any
such insurance thereafter may be applied to the obligations of the Company
hereunder and under the Related Agreements, in such order as the Purchaser may
determine. Any surplus (following satisfaction of all Company obligations to
Purchaser) shall be paid by Purchaser to the Company or applied as may be
otherwise required by law. Any deficiency thereon shall be paid by the Company
or the Subsidiary, as applicable, to Purchaser, on demand.
6.9 Intellectual Property. Each of the Company and each of its Subsidiaries
shall maintain in full force and effect its existence, rights and franchises and
all licenses and other rights to use Intellectual Property owned or possessed by
it and reasonably deemed to be necessary to the conduct of its business.
6.10 Properties. Each of the Company and each of its Subsidiaries will keep
its properties in good repair, working order and condition, reasonable wear and
tear excepted, and from time to time make all needful and proper repairs,
renewals, replacements, additions and improvements thereto; and each of the
Company and each of its Subsidiaries will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
6.11 Confidentiality. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Purchaser, unless
expressly agreed to by the Purchaser or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement. Notwithstanding the foregoing, the Company may disclose Purchaser's
identity and the terms of this Agreement to its current and prospective debt and
equity financing sources.
19
6.12 Required Approvals. For so long as twenty-five percent (25%) of the
initial principal amount of the Note is outstanding, the Company, without the
prior written consent of the Purchaser, shall not, and shall not permit any of
its Subsidiaries to:
(a) (i) directly or indirectly declare or pay any dividends, other than
dividends paid to the Company or any of its wholly-owned
Subsidiaries, (ii) issue any preferred stock that is mandatorially
redeemable prior to the six month anniversary of the Maturity Date
(as defined in the Note) or (iii) without the prior written consent
of the Purchaser (such consent not to be unreasonably withheld)
redeem any of its preferred stock or other equity interests;
(b) (i) liquidate, (ii) dissolve or (iii) effect a material
reorganization which materially changes the focus or scope of the
Company's and/or such Subsidiaries' business operations (it being
understood that in no event shall the Company dissolve, liquidate
or merge with any other person or entity (unless the Company is the
surviving entity);
(c) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which
by its terms would (under any circumstances) restrict the Company's
or any of its Subsidiaries right to perform the provisions of this
Agreement, any Related Agreement or any of the agreements
contemplated hereby or thereby;
(d) materially alter or change the scope of the business of the Company
and its Subsidiaries taken as a whole;
(e) (i) create, incur, assume or suffer to exist any indebtedness
(exclusive of trade debt and debt incurred to finance the purchase
of equipment (not in excess of five percent (5%) per annum of the
fair market value of the Company's assets) whether secured or
unsecured other than (x) the Company's indebtedness to Laurus, (y)
indebtedness set forth on Schedule 6.12(e) attached hereto and made
a part hereof and any refinancings or replacements thereof on terms
no less favorable to the Company and the Purchaser than the
indebtedness being refinanced or replaced, and (z) any debt
incurred in connection with the purchase of assets in the ordinary
course of business, or any refinancings or replacements thereof on
terms no less favorable to the Purchaser than the indebtedness
being refinanced or replaced; (ii) cancel any debt owing to it in
excess of $50,000 in the aggregate during any 12 month period;
(iii) assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any other
Person, except the endorsement of negotiable instruments by the
Company for deposit or collection or similar transactions in the
ordinary course of business or guarantees of indebtedness otherwise
permitted to be outstanding pursuant to this clause (e) or (iv)
without the consent of the Purchaser, after the date hereof, draw
down under that certain Investment Agreement dated August 5, 2003
by
20
and between the Company and Dutchess Private Equities Fund, L.P.
(as amended, modified or supplemented from time to time) in an
aggregate amount in excess of $350,000; and
(f) create or acquire any Subsidiary after the date hereof unless (i)
such Subsidiary becomes a wholly-owned Subsidiary of the Company
and (ii) such Subsidiary becomes party to the Master Security
Agreement, the Stock Pledge Agreement and the Subsidiary Guaranty
(either by executing a counterpart thereof or an assumption or
joinder agreement in respect thereof) and, to the extent required
by the Purchaser, satisfies each condition of this Agreement and
the Related Agreements as if such Subsidiary were a Subsidiary on
the Closing Date.
6.13 Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 5.10 above
at such time as:
(a) the holder thereof is permitted to dispose of such Securities
pursuant to Rule 144(k) under the Securities Act; or
(b) upon resale subject to an effective registration statement after
such Securities are registered under the Securities Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and obtain legal opinions
required by the applicable transfer agent in connection with such resales
provided the Company and its counsel receive reasonably requested
representations from the selling Purchaser and broker, if any.
6.14 Opinion. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to the Purchaser from the Company's external
legal counsel. The Company will provide, at the Company's expense, such other
legal opinions in the future as are deemed reasonably necessary by the Purchaser
(and reasonablyacceptable to the Purchaser) in connection with the conversion of
the Note and exercise of the Warrant.
6.15 Margin Stock. The Company will not permit any of the proceeds of the
Note or the Warrant to be used directly or indirectly to "purchase" or "carry"
"margin stock" or to repay indebtedness incurred to "purchase" or "carry"
"margin stock" within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect.
6.16 Financing Right of First Negotiation. (a) For so long as at least
twenty-five percent (25%) of the initial principal amount of the Note is
outstanding, the Company hereby grants to the Purchaser a right of first
negotiation to provide Additional Financing (as defined below) to be issued by
the Company or any of its Subsidiaries, subject to the following terms and
conditions. Prior to the incurrence of additional indebtedness or the issuance
of any additional equity interests (an "Additional Financing"), in each case,
after the date hereof, the Company or any Subsidiary of the Company, as the case
may be, shall notify the Purchaser of its intention to enter into such
Additional Financing. The Purchaser shall have the right, but not the
obligation,
21
to agree to provide such Additional Financing to the Company or such Subsidiary
pursuant to the terms of a proposal submitted by the Company or such Subsidiary
to the Purchaser. If the Purchaser does not agree to such proposal for such
Additional Financing within five (5) business days after receipt of such
proposal by the Purchaser, the Company shall have no further obligation under
this Section 6.16 with respect to such Additional Financing so long as the terms
of any such Additional Financing provided by a person other than the Purchaser
does not substantially deviate from the proposal previously submitted to
Purchaser from the Company. (b) The Company will not, and will not permit its
Subsidiaries to, agree, directly or indirectly, to any restriction with any
person or entity which limits the ability of the Purchaser to consummate an
Additional Financing with the Company or any of its Subsidiaries.
7. Covenants of the Purchaser. The Purchaser covenants and agrees with the
Company as follows:
7.1 Confidentiality. The Purchaser agrees that it will not disclose, and
will not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
7.2 Non-Public Information. The Purchaser agrees not to effect any sales in
the shares of the Company's Class A Common Stock while in possession of
material, non-public information regarding the Company if such sales would
violate applicable securities law.
8. Covenants of the Company and Purchaser Regarding Indemnification.
8.1 Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend the Purchaser, each of the Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which results, arises out of or is based upon: (i) any
misrepresentation by the Company or any of its Subsidiaries or breach of any
warranty by the Company or any of its Subsidiaries in this Agreement, any other
Related Agreement or in any exhibits or schedules attached hereto or thereto; or
(ii) any breach or default in performance by Company or any of its Subsidiaries
of any covenant or undertaking to be performed by Company or any of its
Subsidiaries hereunder, under any other Related Agreement or any other agreement
entered into by the Company and/or any of its Subsidiaries and Purchaser
relating hereto or thereto.
8.2 Purchaser's Indemnification. Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and its Subsidiaries and each of the
Company's and its Subsidiaries' officers, directors, agents, affiliates, control
persons and principal shareholders, at all times against any claim, cost,
expense, liability, obligation, loss or damage (including reasonable legal fees)
of any nature, incurred by or imposed upon the Company or any of its
Subsidiaries which results, arises out of or is based upon: (i) any
misrepresentation by Purchaser
22
or breach of any warranty by Purchaser in this Agreement or any Related
Agreement or in any exhibits or schedules attached hereto or thereto; or (ii)
any breach or default in performance by Purchaser of any covenant or undertaking
to be performed by Purchaser hereunder, under any other Related Agreement, or
any other agreement entered into by the Company and/or any of its Subsidiaries
and Purchaser relating hereto.
9. Conversion of Convertible Note.
9.1 Mechanics of Conversion.
(a) Provided the Purchaser has notified the Company of the Purchaser's
intention to sell the Note Shares and the Note Shares are included
in an effective registration statement or are otherwise exempt from
registration when sold: (i) upon the conversion of the Note or part
thereof, the Company shall, at its own cost and expense, take all
necessary action (including the issuance of an opinion of counsel
reasonably acceptable to the Purchaser following a request by the
Purchaser) to assure that the Company's transfer agent shall issue
shares of the Company's Class A Common Stock in the name of the
Purchaser (or its nominee) or such other persons as designated by
the Purchaser in accordance with Section 9.1(b) hereof and in such
denominations to be specified representing the number of Note
Shares issuable upon such conversion; and (ii) the Company warrants
that no instructions other than these instructions have been or
will be given to the transfer agent of the Company's Class A Common
Stock and that after the Effectiveness Date (as defined in the
Registration Rights Agreement) the Note Shares issued will be
freely transferable subject to the prospectus delivery requirements
of the Securities Act and the provisions of this Agreement, and
will not contain a legend restricting the resale or transferability
of the Note Shares.
(b) Purchaser will give notice of its decision to exercise its right to
convert the Note or part thereofby telecopying or otherwise
delivering an executed and completed notice of the number of shares
to be converted to the Company (the "Notice of Conversion"). The
Purchaser will not be required to surrender the Note until the
Purchaser receives a credit to the account of the Purchaser's prime
broker through the DWAC system (as defined below) representing the
Note Shares, the Purchaser receives physical delivery of the Note
Shares, or until the Note has been fully satisfied. Each date on
which a Notice of Conversion is telecopied or delivered to the
Company in accordance with the provisions hereof shall be deemed a
"Conversion Date." Pursuant to the terms of the Notice of
Conversion, the Company will issue instructions to the transfer
agent accompanied by an opinion of counsel within one (1) business
day of the date of the delivery to the Company of the Notice of
Conversion and shall cause the transfer agent to transmit the
certificates representing the Conversion Shares to the Holder
either physically by overnight courier, or by crediting the account
of the Purchaser's prime broker with the
23
Depository Trust Company ("DTC") through its Deposit Withdrawal
Agent Commission ("DWAC") system, within three (3) business days
after receipt by the Company of the Notice of Conversion (the
"Delivery Date").
(c) The Company understands that a delay in the delivery of the Note
Shares in the form required pursuant to Section 9 hereof beyond the
Delivery Date could result in economic loss to the Purchaser. In
the event that the Company fails to direct its transfer agent to
deliver the Note Shares to the Purchaser physically or via the DWAC
system within the time frame set forth in Section 9.1(b) above and
the Note Shares are not delivered to the Purchaser by the Delivery
Date, as compensation to the Purchaser for such loss, the Company
agrees to pay late payments to the Purchaser for late issuance of
the Note Shares in the form required pursuant to Section 9 hereof
upon conversion of the Note in the amount equal to the amount of
the Purchaser's actual damages from such delayed delivery.
Notwithstanding the foregoing, the Company will not owe the
Purchaser any late payments if the delay in the delivery of the
Note Shares beyond the Delivery Date is not within the sole control
of the Company and the Company is actively using commercially
reasonable efforts to have the transfer agent transmit the
certificates as soon as possible. The Company shall pay any
payments incurred under this Section in immediately available funds
upon demand and, in the case of actual damages, accompanied by
reasonable documentation of the amount of such damages. Such
documentation shall show the number of shares of Class A Common
Stock the Purchaser is forced to purchase (in an open market
transaction) which the Purchaser anticipated receiving upon such
conversion, and shall be calculated as the amount by which (A) the
Purchaser's total purchase price (including customary brokerage
commissions, if any) for the shares of Class A Common Stock so
purchased exceeds (B) the aggregate principal and/or interest
amount of the Note, for which such Conversion Notice was not timely
honored.
Nothing contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required to
be paid or other charges hereunder exceed the maximum amount permitted by such
law, any payments in excess of such maximum shall be credited against amounts
owed by the Company to a Purchaser and thus refunded to the Company.
10. Registration Rights.
10.1 Registration Rights Granted. The Company hereby grants registration
rights to the Purchaser pursuant to a Registration Rights Agreement dated as of
even date herewith between the Company and the Purchaser.
24
10.2 Offering Restrictions. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company (these exceptions hereinafter referred to
as the "Excepted Issuances"), neither the Company nor any of its Subsidiaries
will issue any securities with a continuously variable/floating conversion
feature which are or could be (by conversion or registration) free-trading
securities (i.e. common stock subject to a registration statement) prior to the
full repayment or conversion of the Note (together with all accrued and unpaid
interest and fees related thereto) (the "Exclusion Period").
11. Miscellaneous.
11.1 Governing Law. THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY EITHER
PARTY AGAINST THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT AND EACH RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS
OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH
PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS
ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND
WAIVE TRIAL BY JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY
RELATED AGREEMENT DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE
UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH
MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED
AGREEMENT. 11.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby to the extent provided
therein. All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
11.3 Successors. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person who shall be a holder
of the Securities from time to time, other than the holders of Class A Common
Stock which has been sold by the Purchaser pursuant to Rule 144 or an effective
registration statement. Purchaser may not assign its rights hereunder to a
competitor of the Company.
25
11.4 Entire Agreement. This Agreement, the Related Agreements, the exhibits
and schedules hereto and thereto and the other documents delivered pursuant
hereto constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and no party shall be liable or bound
to any other in any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein and therein.
11.5 Severability. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
11.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the written
consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the Purchaser
under this Agreement may be waived only with the written consent of
the Purchaser.
(c) The obligations of the Purchaser and the rights of the Company
under this Agreement may be waived only with the written consent of
the Company.
11.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.
11.8 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal business
hours of the recipient, if not, then on the next business day;
(c) three (3) business days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or
(d) one (1) day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of
receipt.
All communications shall be sent as follows:
26
IF TO THE COMPANY, TO: LocatePLUS Holdings Corporation
Attention: Chief Financial Officer
Facsimile:
WITH A COPY TO:
▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile: 617-261-3175
IF TO THE PURCHASER, TO: Laurus Master Fund, Ltd.
c/o Ironshore Corporate Services ltd.
▇.▇. ▇▇▇ ▇▇▇▇ G.T.
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
WITH A COPY TO:
▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
11.9 Attorneys' Fees. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
11.10 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
11.11 Facsimile Signatures; Counterparts. This Agreement may be executed by
facsimile signatures and in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument.
11.12 Broker's Fees. Except as set forth on Schedule 11.12 hereof, each
party hereto represents and warrants that no agent, broker, investment banker,
person or firm acting on behalf of or under the authority of such party hereto
is or will be entitled to any broker's or finder's fee or any other commission
directly or indirectly in connection with the transactions contemplated herein.
Each party hereto further agrees to indemnify each other party for any claims,
losses or
27
expenses incurred by such other party as a result of the representation in this
Section 11.12 being untrue.
11.13 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and the Related Agreements
and, therefore, stipulates that the rule of construction that ambiguities are to
be resolved against the drafting party shall not be applied in the
interpretation of this Agreement to favor any party against the other.
11.14 Combination of Class A Common Stock and Class B Common Stock.
Notwithstanding anything to the contrary contained in this Agreement or any
Related Agreement, the Company shall be permitted to combine its outstanding
Class A Common Stock and its outstanding Class B Common Stock (the "Class B
Common Stock") into one class of common stock (such combined common stock class,
the "Combined Common Stock"), so long as (x) no Event of Default has occurred
and is continuing and (y) the Company shall have provided the Purchaser with at
least 10 business days prior written notice of any such combination. In
connection with any such combination referred to in this Section 11.14, all
rights of the Purchaser, and obligations of the Company, with respect to the
Class A Common Stock (including, without limitation, all conversion rights and
registration requirements) shall then be applicable to the Combined Common
Stock.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
28
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
LOCATEPLUS HOLDINGS CORPORATION LAURUS MASTER FUND, LTD.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ Grin
------------------------------- -----------------------------
Name: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Name: ▇▇▇▇▇ Grin
------------------------------- -----------------------------
Title: President Title: Managing Partner
------------------------------- -----------------------------
29
SCHEDULE 4.2-SUBSIDIARIES
SUBSIDIARY NAME PERCENT OWNERSHIP
LocatePLUS Corporation 100%
Worldwide Information, Inc. 100%
Certifion Corporation 100%
Dataphant, Inc. 100%
Metrigenics, Inc. 100%
30
SCHEDULE 4.3-AUTHROIZED CAPITAL STOCK OF EACH SUBSIDIARIES AND
OPTIONS AND WARRANT OTHER THAN EMPLOYEE STOCK OPTION PLANS
SUBSIDIARY NAME SHARES AUTHORIZED
AND OUTSTANDING
LocatePLUS Corporation 100
Worldwide Information, Inc. 100
Certifion Corporation 100
Dataphant, Inc. 100
Metrigenics, Inc. 100
Price/ Grant
Optionholder GRANTED Share Date
WARRANTS CLASS A
▇▇▇▇▇, ▇▇▇▇▇ and ▇▇▇▇▇ 50,000 $0.20 2/6/2001
▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇ 30,000 $0.20 2/9/2001
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 60,000 $0.20 2/12/2001
▇▇▇▇▇, ▇▇▇▇▇▇ 60,000 $0.20 2/17/2001
▇▇▇▇▇▇▇▇, Jr. Trust 15,000 $0.20 3/1/2001
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇ 75,000 $0.20 3/7/2001
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 5,000 $0.20 3/9/2001
▇▇▇▇▇▇, ▇▇▇▇▇▇ 35,000 $0.20 3/15/2001
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 25,000 $0.20 3/20/2001
▇▇▇▇, ▇▇▇▇▇ 50,000 $0.20 3/20/2001
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ 65,000 $0.20 4/3/2001
▇▇▇▇▇▇, ▇▇▇▇▇▇ 25,000 $0.20 4/27/2001
Oftring Company 43,500 $0.20 4/27/2001
Para, ▇▇▇▇ 19,000 $0.20 4/27/2001
▇▇▇▇▇, ▇▇▇▇▇▇ 50,000 $0.20 4/27/2001
▇▇▇▇▇▇▇, ▇▇▇▇ 35,133 $1.00 3/12/2002
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 139,041 $1.00 4/9/2002
▇▇▇▇▇▇, ▇▇▇▇▇▇ 53,065 $1.00 4/9/2002
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 21,500 $0.27 4/9/2002
▇▇▇▇▇▇, ▇▇▇▇▇▇ 13,000 $0.27 4/9/2002
▇▇▇▇▇, ▇▇▇▇▇▇▇ 472,500 $0.16 3/31/2003
▇▇▇▇▇▇, ▇▇▇▇▇ 187,500 $0.16 3/31/2003
▇▇▇▇▇▇, ▇▇▇▇▇ 531,750 $0.16 3/31/2003
▇▇▇▇▇▇▇, ▇▇▇ 375,000 $0.16 3/31/2003
Para, ▇▇▇▇▇▇ 270,000 $0.16 3/31/2003
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ 438,750 $0.16 3/31/2003
▇▇▇▇▇▇ ▇▇▇▇▇▇ 468,750 $0.16 6/10/2003
▇▇▇▇▇▇ ▇▇▇▇▇▇ 468,750 $0.16 6/10/2003
PUBLIC WARRANTS 12,000,000 $0.50 10/12/2002
▇-▇
▇▇▇▇▇▇▇▇ - ▇▇ ▇
▇▇▇▇▇▇, ▇▇▇▇ 500,000 $0.10 1/30/2001
▇▇▇▇▇▇, ▇▇▇▇▇ 250,000 $0.15 8/2/2001
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇. 250,000 $0.15 8/2/2001
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 25,000 $0.20 10/12/2001
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ 25,000 $0.20 10/12/2001
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. 26,346 $0.15 10/18/2001
▇▇▇▇▇▇-▇▇▇▇▇▇▇▇▇▇ 26,207 $0.15 10/18/2001
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇. 77,374 $0.15 10/18/2001
Sappin, ▇▇▇▇▇▇ ▇. 8,736 $0.15 10/18/2001
▇▇▇▇▇, ▇▇▇▇▇▇▇ 12,500 $0.20 11/20/2001
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ 12,500 $0.20 11/20/2001
▇▇▇▇▇▇, ▇▇▇▇▇▇ 300,000 $0.30 12/1/2001
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 300,000 $0.30 ▇▇/▇/▇▇▇▇
▇▇▇▇, ▇▇▇▇ 300,000 $0.30 12/1/2001
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 324,581 $0.15 12/31/2001
▇▇▇▇▇▇, ▇▇▇▇▇▇ 42,553 $0.15 12/31/2001
▇▇▇▇▇▇, ▇▇▇▇ 1,177,680 $0.15 1/31/2002
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 35,000 $0.15 2/1/2002
▇▇▇▇▇▇▇▇, ▇▇▇▇ 35,000 $0.15 2/1/2002
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 27,089 0.15 2/28/2002
▇▇▇▇▇▇, ▇▇▇▇▇▇ 16,889 0.15 2/28/2002
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 35,000 0.22 8/27/2002
▇▇▇▇▇, ▇▇▇▇ 35,000 0.22 8/27/2002
▇▇▇▇▇▇▇▇▇ Leasing Co 57,184 $0.30 10/15/2002
KFT 250,000 0.22 12/5/2002
Volones 250,000 0.22 12/15/2002
▇▇▇▇▇▇▇, ▇▇▇ 12,500 0.22 12/16/2002
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 10,000 0.22 2/6/2003
▇▇▇▇▇ & ▇▇▇▇▇ ▇▇▇▇▇ 65,000 0.1 2/17/2003
▇▇▇▇▇▇▇ ▇▇▇▇ 5,000 0.22 2/19/2003
▇▇▇▇▇▇▇ ▇▇▇▇▇ 250,000 0.1 2/27/2003
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 10,000 0.22 3/29/2003
▇▇▇▇ ▇▇▇▇▇▇▇▇ 10,000 0.22 3/29/2003
▇▇▇▇▇ & ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 35,000 0.22 3/29/2003
J&J ▇▇▇▇ 1,300,000 0.1 5/1/2003
▇▇▇▇▇▇▇, ▇▇▇▇ 35,000 0.15 5/23/2003
▇▇▇▇, ▇▇▇ 35,000 0.15 5/23/2003
▇▇▇▇▇▇▇▇, ▇▇▇▇ 35,000 0.15 5/23/2003
vFinance Investments 20,000 0.1925 5/23/2003
▇▇▇▇▇▇▇▇ ▇▇▇▇ 2,500 0.1925 5/23/2003
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 2,500 0.1925 5/23/2003
Volones 250,000 0.22 6/15/2002
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 100,000 0.22 7/10/2003
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 5,000 0.22 7/10/2003
▇▇▇▇▇ & ▇▇▇▇▇ ▇▇▇▇▇ 25,000 0.22 7/10/2003
▇▇▇▇▇ ▇▇▇▇▇ 55,000 0.22 7/10/2003
▇▇▇▇▇▇▇ ▇▇▇▇ Family Trust 10,000 0.1 6/10/2003
Deveraux, Inc. 300,000 0.10 10/3/2003
A-2
UpFront Consulting 150,000 0.10 10/3/2003
▇▇▇▇ ▇▇▇▇▇▇ 25,000 0.25 10/3/2003
▇. ▇▇▇▇▇ Consulting 25,000 0.25 10/3/2003
Evergreen Investment Partners 700,000 0.2 10/31/2003
Kenzy Investment Trust 300,000 0.2 10/31/2003
▇▇▇▇▇ ▇▇▇ 250,000 0.22 12/15/2003
J&J ▇▇▇▇ 1,000,000 0.27 8/7/2003
Evergreen Investment Partners 300,000 0.2 4/1/2004
Kenzy Investment Trust 400,000 0.2 4/1/2004
Total OS Class A Warrants 16,082,239
Total OS Class B Warrants 10,122,139
Total 26,204,378
A-3
SCHEDULE 4.6-OBLIGATIONS OTHER THAN IN THE ORDINARY COURSE OF
BUSINESS IN EXCESS OF $50,000
NONE
A-1
SCHEDULE 4.7-OBLIGATIONS TO OFFICERS, OTHER THAN IN THE ORDINARY
COURSE OF BUSINESS IN EXCESS OF $50,000
During 2000, we issued cash loans of $400,000 and received, in exchange,
promissory notes from two of our officers, ▇▇. ▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇. Although the notes were due January 3, 2010, their terms provided that,
if, as of January 3, 2003, the officers were still employed by us, then the
obligations and debt evidenced by the notes were to be canceled without further
action, and we are to pay to the officers, no later than February 29, 2004, an
amount in cash sufficient to fulfill the officers' tax liabilities attributable
to the cancellation of the notes. As such, we have been expensing the principal
of the notes on a monthly basis and in 2003 and 2002, recognized $9,722 and
$133,000 of amortization expense respectively on notes receivable from related
parties. Additionally, we have accrued approximately $6,701 in 2003 and $71,480
in 2002 ($215,929 cumulative through December 31, 2003) relating to an estimate
of their tax liability expected to be reimbursed by us which is still
outstanding.
A-1
SCHEDULE 4.9-GOOD TITLE TO PROPERTY EXCEPT AS LISTED AND COMPLIANCE
WITH ALL MATERIAL TERMS OF LEASES EXCEPT AS LISTED
We have purchases equipment under various leasing arrangements. Title to the
leased equipment still resides with the leasing companies. A list of lease
obligations is attached in Schedule 6.12. It is anticipated that the majority of
leased equipment will be purchased at the end of the lease term. Until the end
of lease purchase has taken place, title to the equipment is still held by the
leasing companies. The following leasing companies have a security interest in
equipment that has been leased to the company.
▇▇▇▇▇▇▇▇▇ Leasing Company
Boston Financial and Equity Corporation
NEXL Financial Services, Inc.
Dell Financial Services
▇▇▇▇▇▇▇▇ properties holds a lien on all corporate assets as a requirement for
our office lease.
A-1
SCHEDULE 4.12-PENDING LITIGATION THAT WOULD PREVENT THIS AGREEMENT
NONE
A-1
SCHEDULE 4.13-NO TAX AUDIT LIABILITY EXCEPT AS LISTED
In 2003, the Department of Employment and Training performed an audit of our
unemployment contribution and found that the state had been using an incorrect
contribution rate for our unemployment taxes. They have since adjusted our
contribution rate but also calculated an outstanding liability of approximately
$19,000 for underpayment based on the rate the state had been using. To satisfy
this outstanding liability, the department established a payment plan of
approximately $1,000 per month and as May 31, 2004, $8,000 remains outstanding
on this balance.
A-1
SCHEDULE 4.14-COLLECTIVE BARGAINING, EMPLOYMENT CONTRACTS, POST
EMPLOYMENT COMPENSATION
NONE
A-1
SCHEDULE 4.15-EQUITY TO BE REGISTERED
WARRANTS AND REGISTRATION RIGHTS
WARRANTS CLASS A
----------------------------------------------------------------------------------------------------
▇▇▇▇▇, ▇▇▇▇▇ and ▇▇▇▇▇ 50,000 No registration rights
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇ 30,000 No registration rights
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 60,000 No registration rights
----------------------------------------------------------------------------------------------------
▇▇▇▇▇, ▇▇▇▇▇▇ 60,000 No registration rights
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇, Jr. Trust 15,000 No registration rights
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇ 75,000 No registration rights
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 5,000 No registration rights
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇, ▇▇▇▇▇▇ 35,000 No registration rights
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 25,000 No registration rights
----------------------------------------------------------------------------------------------------
▇▇▇▇, ▇▇▇▇▇ 50,000 No registration rights
----------------------------------------------------------------------------------------------------
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ 65,000 No registration rights
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
2001 GRANTS
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇, ▇▇▇▇▇▇ 25,000 No registration rights
----------------------------------------------------------------------------------------------------
Oftring Company 43,500 No registration rights
----------------------------------------------------------------------------------------------------
Para, ▇▇▇▇ 19,000 No registration rights
----------------------------------------------------------------------------------------------------
▇▇▇▇▇, ▇▇▇▇▇▇ 50,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
2002 GRANTS
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇, ▇▇▇▇ 35,133 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 139,041 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇, ▇▇▇▇▇▇ 53,065 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 21,500 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇, ▇▇▇▇▇▇ 13,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
2003 GRANTS
----------------------------------------------------------------------------------------------------
▇▇▇▇▇, ▇▇▇▇▇▇▇ 472,500 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇, ▇▇▇▇▇ 187,500 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇, ▇▇▇▇▇ 531,750 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇, ▇▇▇ 375,000 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
Para, ▇▇▇▇▇▇ 270,000 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
WARRANTS - CL B
----------------------------------------------------------------------------------------------------
2001 GRANTS
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇, ▇▇▇▇ 500,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇, ▇▇▇▇▇ 250,000 No registration rights
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇. 250,000 No registration rights
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 25,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ 25,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. 26,346 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇-▇▇▇▇▇▇▇▇▇▇ 26,207 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇. 77,374 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
Sappin, ▇▇▇▇▇▇ ▇. 8,736 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
A-1
----------------------------------------------------------------------------------------------------
▇▇▇▇▇, ▇▇▇▇▇▇▇ 12,500 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ 12,500 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇, ▇▇▇▇▇▇ 300,000 No registration rights
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 300,000 No registration rights
----------------------------------------------------------------------------------------------------
Para, ▇▇▇▇ 300,000 No registration rights
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 324,581 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇, ▇▇▇▇▇▇ 42,553 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
2002 GRANTS
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇, ▇▇▇▇ 1,177,680 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 35,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇, ▇▇▇▇ 35,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 27,089 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇, ▇▇▇▇▇▇ 16,889 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 35,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇, ▇▇▇▇ 35,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇▇ Leasing Co 57,184 Demand if short form (S-3 or equivalent) is available
----------------------------------------------------------------------------------------------------
KFT 250,000 Demand if short form (S-3 or equivalent) is available
----------------------------------------------------------------------------------------------------
Volones 250,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇, ▇▇▇ 12,500 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
2003 GRANTS
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇, ▇▇▇▇ 1,111,110 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 10,000 Demand if short form (S-3 or equivalent) is available
----------------------------------------------------------------------------------------------------
J&J ▇▇▇▇ Family Ltd 50,000 Demand if short form (S-3 or equivalent) is available
----------------------------------------------------------------------------------------------------
▇▇▇▇▇ & ▇▇▇▇▇ ▇▇▇▇▇ 65,000 Demand if short form (S-3 or equivalent) is available
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇ 5,000 Demand if short form (S-3 or equivalent) is available
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ 250,000 Demand if short form (S-3 or equivalent) is available
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 10,000 Demand if short form (S-3 or equivalent) is available
----------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇ 10,000 Demand if short form (S-3 or equivalent) is available
----------------------------------------------------------------------------------------------------
▇▇▇▇▇ & ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 35,000 Demand if short form (S-3 or equivalent) is available
----------------------------------------------------------------------------------------------------
J&J ▇▇▇▇ 50,000 Demand if short form (S-3 or equivalent) is available
----------------------------------------------------------------------------------------------------
J&J ▇▇▇▇ 200,000 Demand if short form (S-3 or equivalent) is available
----------------------------------------------------------------------------------------------------
J&J ▇▇▇▇ 1,300,000 Demand if short form (S-3 or equivalent) is available
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇, ▇▇▇▇ 35,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇, ▇▇▇ 35,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇, ▇▇▇▇ 35,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
vFinance Investments 20,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇ 2,500 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 2,500 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 100,000 Demand if short form (S-3 or equivalent) is available
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 5,000 Demand if short form (S-3 or equivalent) is available
----------------------------------------------------------------------------------------------------
▇▇▇▇▇ & ▇▇▇▇▇ ▇▇▇▇▇ 25,000 Demand if short form (S-3 or equivalent) is available
----------------------------------------------------------------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇ 55,000 Demand if short form (S-3 or equivalent) is available
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇ Family Trust 10,000 Demand if short form (S-3 or equivalent) is available
----------------------------------------------------------------------------------------------------
Deveraux, Inc. 300,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
UpFront Consulting 150,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
A-2
----------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇ 25,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇. ▇▇▇▇▇ Consulting 25,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
Evergreen Investment Partners 700,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
Kenzy Investment Trust 300,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇ ▇▇▇ 250,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
J&J ▇▇▇▇ 1,000,000 Demand if short form (S-3 or equivalent) is available
----------------------------------------------------------------------------------------------------
Evergreen Investment Partners 300,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
Kenzy Investment Trust 400,000 Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
SHARES WITH REGISTRATION RIGHTS
CLASS A
----------------------------------------------------------------------------------------------------
▇▇▇▇▇, ▇▇▇▇▇▇▇ 390,625 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
National Financial 4,000,000 Piggy-Back
----------------------------------------------------------------------------------------------------
▇▇▇▇▇, ▇▇▇▇ 357,143 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
Greenwood Partners 1,235,219 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 390,625 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 812,922 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇ 390,625 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ 473,571 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇ 475,000 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇ 475,000 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇, ▇▇▇▇▇▇▇ 157,500 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇, ▇▇▇▇▇ 62,500 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇, ▇▇▇▇▇ 177,250 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇, ▇▇▇ 125,000 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
Para, ▇▇▇▇▇▇ 90,000 Demand & Piggy-Back - Subject to underwriter restriction
----------------------------------------------------------------------------------------------------
A-3
SCHEDULE 4.17-HAZORDOUS MATERIALS
NONE
A-1
SCHEDULE 4.21-REQUIRED SEC FILILING NOT FILED
NONE
A-1
SCHEDULE 6.12-INDEBTEDNESS
NOTES PAYABLE
▇▇▇▇ 1,500,000
Chase 14,519
▇. ▇▇▇▇▇▇▇▇▇ 9,999
▇▇▇▇▇ & ▇▇▇▇▇ ▇▇▇▇▇ 65,000
▇▇▇▇▇▇▇ ▇▇▇▇ 5,000
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 5,000
▇▇▇▇▇▇▇ ▇▇▇▇▇ 44,307
▇▇▇▇▇▇ ▇▇▇▇ 10,000
▇▇▇▇▇ ▇▇▇▇▇▇▇ 100,000
▇▇▇▇▇▇▇▇▇▇ 10,000
▇▇▇▇▇▇▇▇ 10,000
▇▇▇▇▇▇▇ 10,000
▇▇▇▇▇▇▇▇ 35,000
▇▇▇▇▇▇▇▇ 20,000
Champagne 10,000
Dutchess 250,000
-----------------
TOTAL NOTES PAYABLE 2,098,824
=================
CAPITAL LEASES
AMEX 16,117
Heartland 16,361
Advanta 20,640
Citicorp 17,040
HP Financial 29,579
▇▇▇▇▇▇▇▇▇ 47,763
▇▇▇▇▇▇▇▇▇ 2 32,873
Avaya 7,268
ABB 12,740
Nexl 82,480
Nexl 2 12,908
Nexl 3 471,631
Nexl 4 83,840
Boston Financial 2 3,613
Boston Financial 3 28,279
-----------------
TOTAL CAPITAL LEASES 883,132
=================
A-1
SCHEDULE 11.12-LIST OF BROKERS RECEIVING FEES FOR THIS TRANSACTION
Reedland Capital Partners, an Institutional Division of Financial West Group
will receive a cash fee of 6% of the gross proceeds and a five year warrant to
purchase 600,000 shares of Class A Common Stock with a strike price set at 120%
of the five day average closing price immediately preceding the Closing Date.
EXHIBIT A
FORM OF CONVERTIBLE NOTE
A-1
EXHIBIT B
FORM OF WARRANT
B-1
EXHIBIT C
FORM OF OPINION
1. Each of the Company and each of its Subsidiaries is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware [other jurisdiction] and has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as it is now being conducted.
2. Each of the Company and each of its Subsidiaries has the requisite
corporate power and authority to execute, deliver and perform its obligations
under the Agreement and the Related Agreements. All corporate action on the part
of the Company and each of its Subsidiaries and its officers, directors and
stockholders necessary has been taken for: (i) the authorization of the
Agreement and the Related Agreements and the performance of all obligations of
the Company and each of its Subsidiaries thereunder; and (ii) the authorization,
sale, issuance and delivery of the Securities pursuant to the Agreement and the
Related Agreements. The Note Shares and the Warrant Shares, when issued pursuant
to and in accordance with the terms of the Agreement and the Related Agreements
and upon delivery shall be validly issued and outstanding, fully paid and non
assessable.
3. The execution, delivery and performance by each of the Company and
each of its Subsidiaries of the Agreement and the Related Agreements to which it
is a party and the consummation of the transactions on its part contemplated by
any thereof, will not, with or without the giving of notice or the passage of
time or both:
(a) Violate the provisions of their respective Charter or
bylaws; or
(b) Violate any judgment, decree, order or award of any court
binding upon the Company or any of its Subsidiaries; or
(c) Violate any [insert jurisdictions in which counsel is
qualified] or federal law
4. The Agreement and the Related Agreements will constitute, valid and
legally binding obligations of each of the Company and each of its Subsidiaries
(to the extent such person is a party thereto), and are enforceable against each
of the Company and each of its Subsidiaries in accordance with their respective
terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; and
(b) general principles of equity that restrict the
availability of equitable or legal remedies.
5. To such counsel's knowledge, the sale of the Note and the subsequent
conversion of the Note into Note Shares are not subject to any preemptive rights
or rights of first refusal that have not been properly waived or complied with.
To such counsel's knowledge, the sale of the Warrant and the subsequent exercise
of the Warrant for Warrant Shares are not subject to any
C-1
preemptive rights or, to such counsel's knowledge, rights of first refusal that
have not been properly waived or complied with.
6. Assuming the accuracy of the representations and warranties of the
Purchaser contained in the Agreement, the offer, sale and issuance of the
Securities on the Closing Date will be exempt from the registration requirements
of the Securities Act. To such counsel's knowledge, 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 and security under circumstances that would cause the offering of the
Securities pursuant to the Agreement or any Related Agreement to be integrated
with prior offerings by the Company for purposes of the Securities Act which
would prevent the Company from selling the Securities pursuant to Rule 506 under
the Securities Act, or any applicable exchange-related stockholder approval
provisions.
7. There is no action, suit, proceeding or investigation pending or, to
such counsel's knowledge, currently threatened against the Company or any of its
Subsidiaries that prevents the right of the Company or any of its Subsidiaries
to enter into this Agreement or any of the Related Agreements, or to consummate
the transactions contemplated thereby. To such counsel's knowledge, the Company
is not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality; nor is
there any action, suit, proceeding or investigation by the Company currently
pending or which the Company intends to initiate.
8. The terms and provisions of the Master Security Agreement and the
Stock Pledge Agreement create a valid security interest in favor of Laurus, in
the respective rights, title and interests of the Company and its Subsidiaries
in and to the Collateral (as defined in each of the Master Security Agreement
and the Stock Pledge Agreement). Each UCC-1 Financing Statement naming the
Company or any Subsidiary thereof as debtor and Laurus as secured party are in
proper form for filing and assuming that such UCC-1 Financing Statements have
been filed with the Secretary of State of Delaware [Insert other jurisdictions],
the security interest created under the Master Security Agreement will
constitute a perfected security interest under the Uniform Commercial Code in
favor of Laurus in respect of the Collateral that can be perfected by filing a
financing statement. After giving effect to the delivery to Laurus of the stock
certificates representing the ownership interests of each Subsidiary of the
Company (together with effective endorsements) and assuming the continued
possession by Laurus of such stock certificates in the State of New York, the
security interest created in favor of Laurus under the Stock Pledge Agreement
constitutes a valid and enforceable first perfected security interest in such
ownership interests (and the proceeds thereof) in favor of Laurus, subject to no
other security interest. No filings, registrations or recordings are required in
order to perfect (or maintain the perfection or priority of) the security
interest created under the Stock Pledge Agreement in respect of such ownership
interests.
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