SECURITIES PURCHASE AGREEMENT
LAURUS MASTER FUND, LTD.
and
ADAL GROUP, INC.
Dated: June 29, 2005
TABLE OF CONTENTS
Pages
1. Agreement to Sell and Purchase........................................1
2. Fees, Option and Warrant..............................................2
3. Closing, Delivery and Payment.........................................2
3.1 Closing......................................................2
3.2 Delivery.....................................................2
3.3 Equity Investment by Management..............................3
4. Representations and Warranties of the Company.........................3
4.1 Subsidiaries.................................................4
4.2 Capitalization; Voting Rights................................4
4.3 Authorization; Binding Obligations...........................5
4.4 Liabilities..................................................5
4.5 Agreements; Action...........................................6
4.6 Obligations to Related Parties...............................7
4.7 Changes......................................................8
4.8 Title to Properties and Assets; Liens, Etc...................9
4.9 Intellectual Property.......................................10
4.10 Compliance with Other Instruments...........................10
4.11 Litigation..................................................11
4.12 Tax Returns and Payments....................................11
4.13 Employees...................................................11
4.14 Registration Rights and Voting Rights.......................12
4.15 Compliance with Laws; Permits...............................12
4.16 Environmental and Safety Laws...............................13
4.17 Valid Offering..............................................13
4.18 Full Disclosure.............................................13
4.19 Insurance...................................................13
4.20 SEC Reports.................................................14
4.21 Listing.....................................................14
4.22 No Integrated Offering......................................14
4.23 Stop Transfer...............................................14
4.24 Dilution....................................................14
4.25 Patriot Act.................................................15
4.26 ERISA.......................................................15
5. Representations and Warranties of the Purchaser......................16
5.1 No Shorting.................................................16
5.2 Requisite Power and Authority...............................16
5.3 Investment Representations..................................16
5.4 The Purchaser Bears Economic Risk...........................16
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Pages
5.5 Acquisition for Own Account.................................17
5.6 The Purchaser Can Protect Its Interest......................17
5.7 Accredited Investor.........................................17
5.8 Legends.....................................................17
6. Covenants of the Company.............................................18
6.1 Stop-Orders.................................................18
6.2 Listing.....................................................18
6.3 Market Regulations..........................................19
6.4 Reporting Requirements......................................19
6.5 Use of Funds................................................19
6.6 Access to Facilities........................................19
6.7 Taxes.......................................................19
6.8 Insurance...................................................21
6.9 Intellectual Property.......................................22
6.10 Properties..................................................22
6.11 Confidentiality.............................................22
6.12 Required Approvals..........................................22
6.13 Reissuance of Securities....................................24
6.14 Opinion.....................................................24
6.15 Margin Stock................................................24
6.16 No Limitations on Additional Financing......................24
6.17 Authorization and Reservation of Shares.....................24
7. Covenants of the Purchaser...........................................25
7.1 Confidentiality.............................................25
7.2 Non-Public Information......................................25
7.3 Limitation on Acquisition of Common Stock of the Company....25
7.4 No Shorting.................................................25
8. Covenants of the Company and the Purchaser Regarding Indemnification.25
8.1 Company Indemnification.....................................25
8.2 Purchaser's Indemnification.................................26
9. Conversion of Convertible Note.......................................26
9.1 Mechanics of Conversion.....................................26
10. Registration Rights..................................................27
10.1 Registration Rights Granted.................................27
10.2 Offering Restrictions.......................................27
11. Miscellaneous........................................................28
11.1 Governing Law, Jurisdiction and Waiver of Jury Trial........28
11.2 Severability................................................29
11.3 Survival....................................................29
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Pages
11.4 Successors..................................................29
11.5 Entire Agreement; Maximum Interest..........................29
11.6 Amendment and Waiver........................................30
11.7 Delays or Omissions.........................................30
11.8 Notices.....................................................30
11.9 Attorneys' Fees.............................................31
11.10 Titles and Subtitles........................................31
11.11 Facsimile Signatures; Counterparts..........................31
11.12 Broker's Fees...............................................31
11.13 Construction................................................32
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LIST OF EXHIBITS
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 June 29, 2005, by and between ADAL GROUP, INC., a Delaware
corporation (the "Company"), and LAURUS MASTER FUND, LTD., a Cayman Islands
company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
Secured Convertible Term Note in the aggregate principal amount of One Million
Five Hundred Thousand Dollars ($1,500,000) in the form of Exhibit A hereto (as
amended, modified and/or supplemented from time to time, the "Note"), which Note
is convertible into shares of the Company's common stock, $0.0001 par value per
share (the "Common Stock") at an initial fixed conversion price of $3,00 per
share of Common Stock ("Fixed Conversion Price");
WHEREAS, the Company wishes to issue to the Purchaser a warrant in the
form of Exhibit B-1 hereto (as amended, modified and/or supplemented from time
to time, the "Warrant") to purchase up to 375,000 shares of the Company's Common
Stock (subject to adjustment as set forth therein) in connection with the
Purchaser's purchase of the Note;
WHEREAS, the Company wishes to issue to the Purchaser a warrant in the
form of Exhibit B-2 hereto (as amended, modified and/or supplemented from time
to time, the "Option") to purchase up to 150,702 shares of the Company's Common
Stock (subject to adjustment as set forth therein) in connection with the
Purchaser's purchase of the Note;
WHEREAS, the Purchaser desires to purchase the Note, the Option and the
Warrant on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note, the Option and
the Warrant to the 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 shall sell to the Purchaser, and the Purchaser shall purchase from the
Company, the Note. The sale of the Note on the Closing Date shall be known as
the "Offering." The Note will mature on the Maturity Date (as defined in the
Note). Collectively, the Note, the Option and the Warrant and Common Stock
issuable upon conversion of the Note and upon exercise of the Warrant and the
Option are referred to as the "Securities."
2. Fees, Option and Warrant. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser the Warrant
to purchase up to 375,000 shares of Common Stock (subject to adjustment as
set forth therein) in connection with the Offering, pursuant to Section 1
hereof. 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 for the
benefit of the holder of the Warrant and shares of the Company's Common
Stock issuable upon exercise of the Warrant (the "Warrant Shares").
(b) The Company will issue and deliver to the Purchaser the Option
to purchase up to 150,702 shares of Common Stock (subject to adjustment as
set forth therein) in connection with the Offering, pursuant to Section 1
hereof. 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 for the
benefit of the holder of the Option and shares of the Company's Common
Stock issuable upon exercise of the Option (the "Option Shares").
(c) Subject to the terms of Section 2(e) below, the Company shall
pay to Laurus Capital Management, LLC, the manager of the Purchaser, a
closing payment in an amount equal to seven percent (7.00%) of the
aggregate principal amount of the Note. The foregoing fee is referred to
herein as the "Closing Payment."
(d) 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 4.2) and all related matters. Amounts
required to be paid under this Section 2(d) will be paid on the Closing
Date and shall be $50,000 (plus the expense associated with retaining
local counsel for the Purchaser) for such expenses referred to in this
Section 2(d).
(e) The Closing Payment and the expenses referred to in the
preceding clause (d) (net of deposits previously paid by the Company)
shall be paid at closing out of funds held pursuant to the Escrow
Agreement (as defined below) 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 the Purchaser
may mutually agree (such date is hereinafter referred to as the "Closing
Date").
3.2 Delivery. Pursuant to the Escrow Agreement, at the Closing on
the Closing Date, the Company will deliver to the Purchaser, among other
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things, the Note, the Option and the Warrant 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.
3.3 Equity Investment by Management. Prior to the Closing Date,
certain managers of the Company shall make a cash common equity investment
into the Company which shall generate net cash proceeds for the Company
equal to at least (pound)150,000.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as follows (which representations and
warranties are made as of the date hereof):
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, limited liability company or partnership, as the case may be,
power and authority to own and operate its properties and assets and,
insofar as it is or shall be a party thereto, to (1) execute and deliver
(i) this Agreement, (ii) the Note, the Option 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 and/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 (as amended, modified and/or
supplemented from time to time, the "Registration Rights Agreement"),
(vii) the Funds Escrow Agreement dated as of the date hereof among the
Company, the Purchaser and the escrow agent referred to therein,
substantially in the form of Exhibit D hereto (as amended, modified and/or
supplemented from time to time, the "Escrow Agreement"), (viii) (a) the
Composite Guarantee and Debenture, dated as of the date hereof, among the
Company, its Subsidiaries and the Purchaser, (b) certain Deeds of
Priorities, dated on or after the date hereof, among the Purchaser, Lloyds
TSB Commercial Finance Limited, Lloyds TSB Bank plc, ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
Adal Seco Limited, Adal Estates Limited, Adal Extra Limited, Adal Group
(UK) Limited and/or Adal Engineering Limited, and (c) certain Deeds of
Priorities, each dated on or after the date hereof, among the Purchaser,
State Securities plc, Venture Finance Plc, ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Guilform
Holdings Limited and/or Adal Guilform Limited (as each of the documents
referred to in the preceding clauses (a) through (c), inclusive, of this
clause (viii) are amended, modified or supplemented from time to time,
collectively, the "Foreign Documentation") and (ix) all other documents,
instruments and agreements entered into in connection with the
transactions contemplated hereby and thereby (the preceding clauses (ii)
through (viii), collectively, the "Related Agreements"); (2) issue and
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sell the Note and the shares of Common Stock issuable upon conversion of
the Note (the "Note Shares"); (3) issue and sell the Warrant and the
Warrant Shares; (4) issue and sell the Option and the Option Shares and
(5) 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 or location 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 its
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. On the
date hereof, AdAl Engineering, a company organized under the laws of
Czechoslovakia (the "Immaterial Subsidiary"), does not own any assets
(other than immaterial assets) or have any liabilities (other than
immaterial liabilities).
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, as of the date
hereof consists of 101,000,000 shares, of which 100,000,000 are shares of
Common Stock, par value $0.0001 per share, 2,860,001 shares of which are
issued and outstanding, and 1,000,000 are shares of preferred stock, par
value $0.01 per share of which there are no shares of preferred stock are
issued and outstanding. The authorized, issued and outstanding 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, the Option or the Warrant, or the issuance of any of the Note
Shares, the Option 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.
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(d) The rights, preferences, privileges and restrictions of the
shares of the Common Stock are as stated in the Company's Certificate of
Incorporation (the "Charter") or as set forth under Delaware corporate
law. The Note Shares, the Option 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 their 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, the Option 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 or entity 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) 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. The issuance of the Option and
the subsequent exercise of the Option for Option 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 liabilities, except current liabilities incurred in the ordinary
course of business and liabilities disclosed in any of the Company's
filings under the Securities Exchange Act of 1934 ("Exchange Act") made
prior to the date of this Agreement (collectively, the "Exchange Act
Filings"), copies of which have been provided to the Purchaser.
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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, the
Company or any of its Subsidiaries in excess of $250,000 (other than
obligations of, the Company or any of its Subsidiaries 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 or any of its
Subsidiaries (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 or any of its
Subsidiaries products or services; or (iv) indemnification by the Company
or any of its Subsidiaries with respect to infringements of proprietary
rights.
(b) Since December 31, 2004 (the "Balance Sheet Date"), 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 $100,000 or, in the case of
indebtedness and/or liabilities individually less than $100,000, in excess
of $200,000 in the aggregate; (iii) made any loans or advances to any
person or entity 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
and the sale of obsolete or worn out equipment.
(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 persons or entities the Company or any Subsidiary of 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.
(d) The Company maintains reasonable disclosure controls and
procedures ("Disclosure Controls") designed to ensure that information
required to be disclosed by the Company in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized, and
reported, within the time periods specified in the rules and forms of the
Securities and Exchange Commission ("SEC").
(e) The Company makes and keep books, records, and accounts, that,
in reasonable detail, accurately and fairly reflect any and all
transactions in, and dispositions of, the Company's assets. The Company
maintains reasonable internal control over financial reporting ("Financial
Reporting Controls") designed by, or under the supervision of, the
Company's principal executive and principal financial officers, and
effected by the Company's board of directors, management, and other
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personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles ("GAAP"), including that:
(i) transactions are executed in accordance with management's
general or specific authorization; (ii) unauthorized acquisition,
use, or disposition of the Company's assets that could have a
material effect
on the financial statements are prevented or timely detected;
(iii) transactions are recorded as necessary to permit preparation
of financial statements in accordance with GAAP, and that the
Company's receipts and expenditures are being made only in
accordance with authorizations of the Company's management and board
of directors;
(iv) transactions are recorded as necessary to maintain
accountability for assets; and
(v) the recorded accountability for assets is compared with
the existing assets at reasonable intervals, and appropriate action
is taken with respect to any differences.
(f) There is no weakness in any of the Company's Disclosure Controls
or Financial Reporting Controls that is required to be disclosed in any of
the Exchange Act Filings, except as so disclosed.
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 each Subsidiary of
the Company, as applicable);
(d) obligations listed in the Company's and each of its Subsidiary's
financial statements or disclosed in any of the Company's Exchange Act Filings;
and
(e) obligations to any stockholders required under the Charter, as in
effect on the date hereof, and applicable law.
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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 of its Subsidiaries or any members of their
immediate families, are indebted to the Company or any of its Subsidiaries,
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 or
any of its Subsidiaries is affiliated or with which the Company or any of its
Subsidiaries has a business relationship, or any firm or corporation which
competes with the Company or any of its Subsidiaries, other than passive
investments in publicly traded companies (representing less than one percent
(1%) of such company) which may compete with the Company or any of its
Subsidiaries. Except as described above, no officer, director or stockholder of
the Company or any of its Subsidiaries, or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
the Company or any of its Subsidiaries and no agreements, understandings or
proposed transactions are contemplated between the Company or any of its
Subsidiaries and any such person. Except as set forth on Schedule 4.7, neither
the Company nor any of its Subsidiaries is a guarantor or indemnitor of any
indebtedness of any other person or entity.
4.8 Changes. Since the Balance Sheet Date, 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;
(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, which 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
material 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;
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(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.
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 interests, 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, so long as in each
such case, such liens and encumbrances have no effect on the lien priority
of the Purchaser in such property;
(c) those that have otherwise arisen in the ordinary course of
business, so long as they have no effect on the lien priority of the
Purchaser therein;
(d) liens in favor of Purchaser; and
(e) liens of warehousemen, mechanics, materialmen, workers,
repairmen, common carriers, or landlords, liens for taxes, assessments or
other governmental charges, and other similar liens arising by operation
of law, in each case arising in the ordinary course of business and for
amounts that are not yet due and payable or which are being contested in
good faith by appropriate proceedings promptly instituted and diligently
9
conducted and for which an adequate reserve or other appropriate provision
shall have been made to the extent required by generally accepted
accounting principals.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in reasonably 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) Except as set forth on Schedule 4.10, 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 Intellectual Property 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 Intellectual Property 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 Intellectual Property of any of its employees made prior to
their employment by the Company or any of its Subsidiaries, except for
Intellectual Property that has 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) 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, which
violation or default, in the case of this clause (y), has had, or could
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
material 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 (other than a lien in favor of Purchaser), encumbrance or
10
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.
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 to 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 under applicable law or has filed all necessary
extensions under applicable law. 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 adjustment, deficiency, assessment or court decision in
respect of its federal, state or other taxes.
The Company has no knowledge of any liability for any tax 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 material term of any employment contract, proprietary
information agreement or any other agreement relating to the right of any
11
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 and its Subsidiaries of their
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 the operations of 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 and 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 and 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 provision of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act of 2002 or any SEC related regulation or rule or any rule of the
Principal Market (as hereafter defined) promulgated thereunder or any
other 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 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 have 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.
12
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 where the failure to be in compliance could not reasonably be
expected to have 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 in
violation of any applicable environmental law 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 Valid Offering. 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 of 1933, as amended (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, the
Option and Warrant. 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 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 which the Company believes are customary for
companies similarly situated to the Company and its Subsidiaries in the
same or similar business.
13
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 copies of: (i)
its Annual Reports on Form 10-KSB for its fiscal years ended December 31,
2004; and (ii) its Quarterly Reports on Form 10-QSB for its fiscal quarter
ended March 31, 2005, and the Form 8-K filings which it has made during
the fiscal year 2005 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 Common Stock is listed or quoted, as
applicable, on a Principal Market (as hereafter defined) and satisfies and
at all times hereafter will satisfy, all requirements for the continuation
of such listing or quotation, as applicable. The Company has not received
any notice that its Common Stock will be delisted from, or no longer
quoted on, as applicable, the Principal Market or that its Common Stock
does not meet all requirements for such listing or quotation, as
applicable. For purposes hereof, the term "Principal Market" means the
NASD Over The Counter Bulletin Board, NASDAQ SmallCap Market, NASDAQ
National Markets System, American Stock Exchange or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock).
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 specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of the Note
and exercise of the Warrant and the Option is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company.
14
4.26 Patriot Act. The Company certifies that, to the best of
Company's knowledge, neither the Company nor any of its Subsidiaries has
been designated, nor is or shall be 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 covenants 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, warranties or covenants
ceases to be true and accurate regarding the Company or any of its
Subsidiaries. The Company shall provide the Purchaser all additional
information regarding the Company or any of its Subsidiaries that the
Purchaser 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, warranties or covenants are
incorrect, or if otherwise required by applicable law or regulation
related to money laundering or 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.
4.27 ERISA. Based upon the Employee Retirement Income Security Act
of 1974 ("ERISA"), and the regulations and published interpretations
thereunder: (i) neither the Company nor any of its Subsidiaries has
engaged in any Prohibited Transactions (as defined in Section 406 of ERISA
and Section 4975 of the Internal Revenue Code of 1986, as amended (the
"Code")); (ii) each of the Company and each of its Subsidiaries has met
all applicable minimum funding requirements under Section 302 of ERISA in
respect of its plans; (iii) neither the Company nor any of its
Subsidiaries has any knowledge of any event or occurrence which would
cause the Pension Benefit Guaranty Corporation to institute proceedings
under Title IV of ERISA to terminate any employee benefit plan(s); (iv)
neither the Company nor any of its Subsidiaries has any fiduciary
responsibility for investments with respect to any plan existing for the
benefit of persons other than the Company's or such Subsidiary's
employees; and (v) neither the Company nor any of its Subsidiaries has
withdrawn, completely or partially, from any multi-employer pension plan
so as to incur liability under the Multiemployer Pension Plan Amendments
Act of 1980.
15
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, to directly engage in "short sales" of the Company's Common Stock
as long as the Note shall be outstanding.
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 the 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, this Agreement and the Related Agreements will be
valid and binding obligations of the 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. The Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon the
Purchaser's representations contained in this Agreement, including,
without limitation, that the Purchaser is an "accredited investor" within
the meaning of Regulation D under the Securities Act of 1933, as amended
(the "Securities Act"). 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, the Option and the Warrant to be purchased by it under this
Agreement and the Note Shares, the Option Shares and the Warrant Shares
acquired by it upon the conversion of the Note, the Option 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, the Option 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 The 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
16
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.
5.5 Acquisition for Own Account. The Purchaser is acquiring the
Note, the Option and Warrant and the Note Shares, the Option 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.
5.6 The Purchaser Can Protect Its Interest. The Purchaser represents
that 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, the Option and the
Securities and to protect its own interests in connection with the
transactions contemplated in this Agreement and the Related Agreements.
Further, the Purchaser is aware of no publication of any advertisement in
connection with the transactions contemplated in the Agreement or the
Related Agreements.
5.7 Accredited Investor. The Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the
Securities Act.
5.8 Legends.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK 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 STOCK 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 ADAL GROUP, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) The Note Shares, the Option 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 SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO ADAL GROUP, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
17
(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 SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ADAL GROUP, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(d) The Option shall bear substantially the following legend:
"THIS OPTION AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS OPTION AND
THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS OPTION MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS OPTION OR THE UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
ADAL GROUP, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
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 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 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 or
quotation, as applicable, of the shares of Common Stock issuable upon
conversion of the Note and upon the exercise of the Warrant and the Option
on the Principal Market upon which shares of Common Stock are listed or
quoted for trading, as applicable (subject to official notice of issuance)
and shall maintain such listing or quotation, as applicable, so long as
any other shares of Common Stock shall be so listed or quoted, as
applicable. The Company will maintain the listing or quotation, as
applicable, of its Common Stock on the Principal Market, and will comply
18
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 shall timely file 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 shall use the proceeds of the sale of
the Note, the Option and the Warrant for asset acquisitions reasonably
acceptable to the Purchaser and general working capital purposes.
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 or any Subsidiary (provided that no such
prior notice shall be required to be given and no such representative of
the Company or any Subsidiary shall be required to accompany the Purchaser
in the event the Purchaser believes such access is necessary to preserve
or protect the Collateral (as defined in the Master Security Agreement) or
following the occurrence and during the continuance of an Event of Default
(as defined in the Note)), 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 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. (i) 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 taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company and
19
its Subsidiaries; provided, however, that any such tax, assessment, charge
or levy need not be paid currently if (i) the validity thereof shall
currently and diligently be contested in good faith by appropriate
proceedings, (ii) such tax, assessment, charge or levy shall have no
effect on the lien priority of the Purchaser in any property of the
Company or any of its Subsidiaries and (iii) if the Company and/or such
Subsidiary shall have set aside on its books adequate reserves with
respect thereto in accordance with GAAP; 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.
(ii) If Company or any of its Subsidiaries shall be required by law
to deduct or withhold in respect of any and all present or future taxes, levies,
imposts, deductions and other governmental charges or withholdings, and all
interest, penalties and other liabilities with respect thereto, imposed by any
jurisdiction (or any political subdivision thereof) ("Taxes") other than, with
respect to the Purchaser, any Taxes (including income, branch profits or
franchise taxes) imposed on or measured by its net income ("Indemnified Taxes")
from or in respect of any sum payable hereunder to the Purchaser, then:
(a) the sum payable shall be increased by such additional amount
(the "Additional Amount") as necessary so that after making all required
deductions and withholdings (including deductions and withholdings applicable to
such Additional Amount) the Purchaser receives an amount equal to the sum it
would have received had no such deductions or withholdings been made;
(b) the Company or such Subsidiary shall make the appropriate
deductions or withholdings and shall pay the full amount deducted or withheld to
the relevant taxing authority or other authority in accordance with applicable
law;
(c) within thirty (30) days after the date of such payment, upon the
Purchaser's request, the Company or such Subsidiary shall furnish to the
Purchaser the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment reasonably satisfactory to the Purchaser;
(d) if the Company or such Subsidiary fails to pay amounts in
accordance with paragraph (b) above, the Company or such Subsidiary shall
indemnify the Purchaser for any incremental Indemnified Taxes that is paid by
the Purchaser as a result of the failure;
(e) the Company will indemnify the Purchaser for the full amount of
any Taxes imposed by any jurisdiction and paid by the Purchaser with respect to
any Additional Amount payable pursuant to paragraph (a) above and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes are correctly asserted; and
(f) the indemnification contemplated in paragraphs (d) and (e) above
shall be made within 30 days from the date the Purchaser makes written demand
therefor (which demand shall identify the nature and amount of Taxes for which
20
indemnification is being sought and shall include a copy of the relevant portion
of any written assessment from the governmental authority demanding payment of
such Taxes).
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 their respective 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 the Purchaser, each of 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 under the laws of any state or
jurisdiction in which the Company or the respective Subsidiary is engaged
in business; and (v) furnish the 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 the Purchaser as
"co-insured" or "additional insured" and appropriate loss payable
endorsements in form and substance satisfactory to the Purchaser, naming
the Purchaser as loss payee, and (z) evidence that as to the 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 the
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 the 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
21
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 the
Purchaser's security interest pursuant to the Master Security Agreement or
such other security agreement as shall be required by the Purchaser, with
any surplus funds to be applied toward payment of the obligations of the
Company to the Purchaser. In the event that the 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 the 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 the Purchaser) shall be paid by the 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
the 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 reasonably 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 to the extent such properties are necessary to the
continued operations of the business; 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 will not, and will not permit any
of its Subsidiaries to, 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 the Purchaser's
identity and the terms of this Agreement to its current and prospective
debt and equity financing sources.
6.12 Required Approvals. (I) For so long as twenty-five percent
(25%) of the 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 manditorily
redeemable prior to the one year anniversary of Maturity Date (as defined
in the Note or (iii) redeem any of its preferred stock or other equity
interests;
22
(b) liquidate, dissolve or effect a material reorganization (it
being understood that in no event shall the Company or any of its
Subsidiaries dissolve, liquidate or merge with any other person or entity
(unless, in the case of such a merger, the Company or, in the case of
merger not involving the Company, such Subsidiary, as applicable, 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; or
(i) create, incur, assume or suffer to exist any indebtedness whether secured or
unsecured other than (w) unsecured subordinated indebtedness of the Company or
any Subsidiary thereof in an aggregate principal amount not to exceed
US$3,000,000 at any time outstanding, which indebtedness referred to in this
clause (w) shall be subordinated to the indebtedness incurred by the Company and
its Subsidiaries under this Agreement and the Related Agreements, and solely
with respect to such subordination, on terms and subject to documentation
reasonably satisfactory to the Purchaser; (x) the Company's obligations owed to
the Purchaser, (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 Purchaser than the indebtedness being refinanced or
replaced, and (z) any indebtedness incurred in connection with the purchase of
assets (other than equipment) 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, so long as any lien relating
thereto shall only encumber the fixed assets so purchased and no other assets of
the Company or any of its Subsidiaries; (ii) cancel any indebtedness 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 or entity, except the
endorsement of negotiable instruments by the Company or any Subsidiary thereof
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); and
(II) The Company, without the prior written consent of the Purchaser,
shall not, and shall not permit any of its Subsidiaries to:
(a) create or acquire any Subsidiary after the date hereof unless
(i) such Subsidiary is a wholly-owned Subsidiary of the Company and (ii)
such Subsidiary becomes a party to the Master Security Agreement, and the
Subsidiary Guaranty, or in the case of each of the foregoing, the foreign
equivalent thereof in form and substance satisfactory to the Purchaser and
its legal counsel (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; or
23
(b) make investments in, make any loans or advances to, or transfer
assets to, the Immaterial Subsidiary or (ii) permit any Subsidiary to make
investments in, make any loans or advances to, or transfer assets to, the
Immaterial Subsidiary.
6.13 Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.8 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 provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the 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 acceptable to the Purchaser) in connection
with the conversion of the Note and exercise of the Warrant and the
Option.
6.15 Margin Stock. The Company will not permit any of the proceeds
of the Note, the Option 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 No Limitations on Additional Financing. 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. "Additional Financing" shall mean the incurrence of any
additional indebtedness by the Company, and/or the sale of any equity
interests of the Company or any of its Subsidiaries to the Purchaser.
6.17 Authorization and Reservation of Shares. The Company shall at
all times have authorized and reserved a sufficient number of shares of
Common Stock to provide for the conversion of the Note and exercise of the
Warrants and the Option.
24
7. Covenants of the Purchaser. The Purchaser covenants and agrees with the
Company as follows:
7.1 Confidentiality. The Purchaser 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 will not effect any sales
in the shares of the Company's Common Stock while in possession of
material, non-public information regarding the Company if such sales would
violate applicable securities law.
7.3 Limitation on Acquisition of Common Stock of the Company.
Notwithstanding anything to the contrary contained in this Agreement, any
Related Agreement or any document, instrument or agreement entered into in
connection with any other transactions between the Purchaser and the
Company, the Purchaser may not acquire stock in the Company (including,
without limitation, pursuant to a contract to purchase, by exercising an
option or warrant, by converting any other security or instrument, by
acquiring or exercising any other right to acquire, shares of stock or
other security convertible into shares of stock in the Company, or
otherwise, and such contracts, options, warrants, conversion or other
rights shall not be enforceable or exercisable) to the extent such stock
acquisition would cause any interest (including any original issue
discount) payable by the Company to Laurus not to qualify as "portfolio
interest" within the meaning of Section 881(c)(2) of the Code, by reason
of Section 881(c)(3) of the Code, taking into account the constructive
ownership rules under Section 871(h)(3)(C) of the Code (the "Stock
Acquisition Limitation"). The Stock Acquisition Limitation shall
automatically become null and void without any notice to the Company upon
the earlier to occur of either (a) the Company's delivery to the Purchaser
of a Notice of Redemption (as defined in the Note) or (b) the existence of
an Event of Default (as defined in the Note) at a time when the average
closing price of the Company's common stock as reported by Bloomberg, L.P.
on the Principal Market for the immediately preceding five trading days is
greater than or equal to 150% of the Fixed Conversion Price (as defined in
the Note).
7.4 No Shorting. Neither the Purchaser, nor any of its affiliates
and investment partners will, nor will cause any person or entity, to
directly engage in "short sales" of the Company's Common Stock as long as
the Note shall be outstanding.
8. Covenants of the Company and the 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 all claims, costs, expenses, liabilities,
obligations, losses or damages (including reasonable legal fees) of any
nature, incurred by or imposed upon the Purchaser which do not result from
the Purchaser's gross negligence or willful misconduct and which result,
arise out of or are based upon: (i) any misrepresentation by the Company
25
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
the Purchaser relating hereto or thereto.
8.2 Purchaser's Indemnification. The Purchaser agrees to indemnify,
hold harmless, reimburse and defend the Company and each of the Company's
officers, directors, agents, affiliates, control persons and principal
shareholders, at all times against any claims, costs, expenses,
liabilities, obligations, losses or damages (including reasonable legal
fees) of any nature, incurred by or imposed upon the Company which do not
result from the Company's gross negligence or willful misconduct and,
which result, arise out of or are based upon: (i) any misrepresentation by
the Purchaser or breach of any warranty by the Purchaser in this Agreement
or in any exhibits or schedules attached hereto or any Related Agreement;
or (ii) any breach or default in performance by the Purchaser of any
covenant or undertaking to be performed by the Purchaser hereunder, or any
other agreement entered into by the Company and the 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 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 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) The Purchaser will give notice of its decision to exercise its
right to convert the Note or part thereof by 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 or until the Note
26
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 by crediting the account of the
Purchaser's prime broker with the 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 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 greater of:
(i) $500 per business day after the Delivery Date; or (ii) the Purchaser's
actual damages from such delayed delivery. 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 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 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.
10. Registration Rights.
10.1 Registration Rights Granted. The Company hereby grants
registration rights to the Purchaser pursuant to the Registration Rights
Agreement.
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, prior to the full repayment or
conversion of the Note (together with all accrued and unpaid interest and
fees related thereto), (x) enter into any equity line of credit agreement
or similar agreement or (y) issue, or enter into any agreement to issued,
any securities with a variable/floating conversion and/or pricing feature
which are or could be (by conversion or registration) free trading
securities (i.e. common stock subject to a registration statement).
27
11. Miscellaneous.
11.1 Governing Law, Jurisdiction and Waiver of Jury Trial.
(a) THIS AGREEMENT AND THE OTHER RELATED AGREEMENTS SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH
STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
(b) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL
COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN THE COMPANY, ON THE ONE HAND, AND THE PURCHASER, ON THE OTHER
HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE RELATED AGREEMENTS OR TO
ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER
RELATED AGREEMENTS; PROVIDED, THAT THE PURCHASER AND THE COMPANY
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A
COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK. ; AND
FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR
OPERATE TO PRECLUDE THE PURCHASER FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON
THE COLLATERAL (AS DEFINED IN THE MASTER SECURITY AGREEMENT) OR ANY OTHER
SECURITY FOR THE OBLIGATIONS (AS DEFINED IN THE MASTER SECURITY
AGREEMENT), OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE
PURCHASER. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE
COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. THE COMPANY
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN SECTION 11.9 AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE
COMPANY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE
U.S. MAILS, PROPER POSTAGE PREPAID.
(c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES
HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
28
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT,
TORT, OR OTHERWISE BETWEEN THE PURCHASER AND/OR THE COMPANY ARISING OUT
OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY OTHER RELATED
AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.
11.2 Severability. Wherever possible each provision of this
Agreement and the Related Agreements shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of
this Agreement or any Related Agreement shall be prohibited by or invalid
or illegal under applicable law such provision shall be ineffective to the
extent of such prohibition or invalidity or illegality, without
invalidating the remainder of such provision or the remaining provisions
thereof which shall not in any way be affected or impaired thereby.
11.3 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. All
indemnities set forth herein shall survive the execution, delivery and
termination of this Agreement and the Note and the making and repayment of
the obligations arising hereunder, under the Note and under the other
Related Agreements.
11.4 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 or entity
which shall be a holder of the Securities from time to time, other than
the holders of Common Stock which has been sold by the Purchaser pursuant
to Rule 144 or an effective registration statement. The Purchaser may not
assign its rights hereunder to a competitor of the Company, unless an
Event of Default, as defined in the Note, has occurred and is continuing.
11.5 Entire Agreement; Maximum Interest. 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. Nothing contained in this
Agreement, any Related Agreement 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 rate permitted by applicable law. In the event that the rate of
interest or dividends required to be paid or other charges hereunder
29
exceed the maximum rate permitted by such law, any payments in excess of
such maximum shall be credited against amounts owed by the Company to the
Purchaser and thus refunded to the Company.
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:
If to the Company, to: Adal Group, Inc.
Billhurst Studio
P.O. Box 177
Lingfield Common Rd.
Lingfield, Surrey, United Kingdom
RH7 6B7
Attention: Chief Financial Officer
Facsimile: ▇▇-▇▇▇▇-▇▇▇▇▇▇
30
with a copy to:
Loeb & Loeb LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to the Purchaser, to: Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
▇.▇. ▇▇▇ ▇▇▇ ▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇
South Church Street
Grand Cayman, Cayman Islands
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 or any Related
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
and/or such Related 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 agreement.
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
31
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 expenses
incurred by such other party as a result of the representation in this
Section 11.13 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 or any Related Agreement
to favor any party against the other.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
32
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:
ADAL GROUP, INC. LAURUS MASTER FUND, LTD.
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ Grin
-------------------- ---------------
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Name: ▇▇▇▇▇▇ Grin
Title: Chief Executive Officer Title: Director
33
EXHIBIT A
FORM OF CONVERTIBLE NOTE
▇-▇
▇▇▇▇▇▇▇ ▇-▇
FORM OF WARRANT
B-1
EXHIBIT B-2
FORM OF OPTION
2
EXHIBIT C
FORM OF OPINION
1. The Company is a corporation incorporated, validly existing and in good
standing under the laws of the jurisdiction of its formation 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. The Company 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 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 thereunder; and (ii) the authorization, sale,
issuance and delivery of the Securities pursuant to the Agreement and the
Related Agreements. The Note Shares, the Option 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 the Company of the Agreement
and the Related Agreements 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 its Charter or bylaws; or
(b) Violate any judgment, decree, order or award of any court
binding upon the Company; or
(c) Violate any state law of the States of New York and Delaware, or
U.S. federal law. 4. The Agreement and the Related Agreements will
constitute, valid and legally binding obligations of the Company, and are
enforceable against the Company 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 our 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 our
knowledge, the sale of the Warrant and the subsequent exercise of the Warrant
for Warrant Shares are not subject to any preemptive rights or, to our
knowledge, rights of first refusal that have not been properly waived or
complied with. To our knowledge, the sale of the Option and the subsequent
exercise of the Option for Option Shares are not subject to any preemptive
rights or, to our knowledge, rights of first refusal that have not been properly
waived or complied with.
C-1
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 our 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 any 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
our knowledge, currently threatened against the Company that prevents the right
of the Company to enter into this Agreement, or to consummate the transactions
contemplated thereby. To our 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 create a
valid security interest in favor of the Purchaser, in the respective rights,
title and interests of the Company in and to the Collateral (as defined in the
Master Security Agreement). Each UCC-1 Financing Statement naming the Company
thereof as debtor and the Purchaser 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, the security interest created under the
Master Security Agreement will constitute a perfected security interest under
the Uniform Commercial Code in favor of the Purchaser in respect of the
Collateral that can be perfected by filing a financing statement.
C-2
EXHIBIT D
FORM OF ESCROW AGREEMENT
D-1