EXHIBIT 10.1
SECURITIES PURCHASE, REGISTRATION RIGHTS
AND SECURITY AGREEMENT
BY AND AMONG
SSP SOLUTIONS, INC.
AND
THE INVESTORS LISTED ON EXHIBIT A HERETO
DATED AS OF APRIL 16, 2000
TABLE OF CONTENTS
PAGE
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1. DEFINITIONS...................................................................... 2
2. PURCHASE AND SALE OF COMPANY SECURITIES.......................................... 2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................... 2
3.1 Organization and Qualification............................................ 2
3.2 Authorization; Enforcement; Validity...................................... 2
3.3 Capitalization............................................................ 3
3.4 Issuance of Securities.................................................... 4
3.5 No Conflicts.............................................................. 4
3.6 SEC Documents; Financial Statements....................................... 5
3.7 Absence of Certain Changes................................................ 5
3.8 Absence of Litigation..................................................... 5
3.9 No Undisclosed Events, Liabilities, Developments or Circumstances......... 6
3.10 No General Solicitation................................................... 6
3.11 Employee Relations........................................................ 6
3.12 Intellectual Property Rights.............................................. 6
3.13 Environmental Laws........................................................ 7
3.14 Title..................................................................... 7
3.15 Insurance................................................................. 7
3.16 Regulatory Permits........................................................ 7
3.17 Internal Accounting Controls.............................................. 7
3.18 Tax Status................................................................ 8
3.19 Transactions With Affiliates.............................................. 8
3.20 Rights Agreement.......................................................... 8
3.21 Foreign Corrupt Practices................................................. 8
3.22 No Undisclosed Liabilities................................................ 8
3.23 Investment Company Act Status............................................. 9
3.24 No Integrated Offering.................................................... 9
3.25 Ownership By Shahs and ▇▇▇▇▇▇▇............................................ 9
3.26 Disclosure................................................................ 9
3.27 S-3 Eligibility........................................................... 9
3.28 Significant Shareholders.................................................. 9
4. INVESTORS' REPRESENTATIONS AND WARRANTIES........................................ 9
4.1 Investment Purpose........................................................ 9
4.2 Accredited Investor Status................................................ 10
4.3 Reliance on Exemptions.................................................... 10
4.4 Information............................................................... 10
4.5 No Governmental Review.................................................... 10
4.6 Transfer or Resale........................................................ 10
4.7 Legends................................................................... 11
4.8 Authorization; Enforcement; Validity...................................... 11
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4.9 Residency................................................................. 12
4.10 Minimum Investment by Certain Investors................................... 12
5. GUARANTEE; GRANT OF SECURITY INTEREST............................................ 12
5.1 Guarantee................................................................. 12
5.2 Grant; Description of Collateral.......................................... 12
5.3 Priority; Agreements Relating to Collateral............................... 13
5.3.1 Priority of Security Interest...................................... 13
5.3.2 Senior Debt........................................................ 13
5.3.3 Execution of Subordination Agreement............................... 14
5.3.4 Additional Encumbrances............................................ 14
5.3.5 Insurance.......................................................... 14
5.4 Collateral Held by Investors.............................................. 14
5.5 Security Interest Absolute................................................ 14
5.6 Limitation on the Investors' Duty in Respect of Collateral................ 15
5.7 Reinstatement............................................................. 15
5.8 Representative of the Investors........................................... 15
6. COVENANTS........................................................................ 16
6.1 Payments with Respect to the Notes, Principal Notes....................... 16
6.2 Notice of Default or Litigation........................................... 16
6.3 Books, Records and Inspections............................................ 16
6.4 Taxes..................................................................... 16
6.5 Covenants Concerning the Collateral....................................... 16
6.5.1 Further Assurances................................................. 17
6.5.2 Corporate Identity................................................. 17
6.5.3 Fixtures and Equipment............................................. 17
6.5.4 Collateral Transfer, Removal or Sale............................... 17
6.5.5 Intellectual Property.............................................. 17
6.6 Form D and Blue Sky....................................................... 18
6.7 Reporting Status.......................................................... 18
6.8 Reservation of Shares..................................................... 18
6.9 Listing................................................................... 18
6.10 Expenses.................................................................. 18
6.11 Filing of Form 8-K........................................................ 19
6.12 Stockholder Approval; Proxy Statement..................................... 19
6.13 Investors' Covenants...................................................... 20
7. DEFAULTS AND REMEDIES............................................................ 20
7.1 Events of Default......................................................... 20
7.2 Acceleration.............................................................. 20
7.3 Other Remedies............................................................ 21
7.4 Waiver of Past Defaults................................................... 21
8. REGISTRATION..................................................................... 21
8.1 Mandatory Registration.................................................... 21
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8.2 Effect of Failure to File and Obtain and Maintain Effectiveness of
Registration Statement.................................................... 21
8.3 Related Obligations....................................................... 22
8.4 Obligations of the Investors.............................................. 25
8.5 Expenses of Registration.................................................. 26
8.6 Indemnification........................................................... 26
8.7 Contribution.............................................................. 29
8.8 Reports under the Exchange Act............................................ 29
8.9 Assignment of Registration Rights......................................... 29
8.10 Amendment of Registration Rights.......................................... 30
9. CLOSING.......................................................................... 30
10. MISCELLANEOUS.................................................................... 30
10.1 Payments.................................................................. 30
10.2 Consent to Amendments..................................................... 30
10.3 Form, Registration, Transfer and Exchange of the Note; Lost Note.......... 31
10.4 Entire Agreement.......................................................... 31
10.5 Severability.............................................................. 31
10.6 Successors and Assigns.................................................... 31
10.7 Notices................................................................... 31
10.8 Accounting Terms.......................................................... 32
10.9 Descriptive Headings...................................................... 32
10.10 Exhibits and Disclosure Schedules......................................... 32
10.11 Counterparts.............................................................. 32
10.12 Remedies.................................................................. 33
10.13 Governing Law and Choice of Forum......................................... 33
10.14 Indemnification........................................................... 33
10.15 Enforcement............................................................... 33
10.16 Representation by Counsel................................................. 34
10.17 WAIVER OF JURY TRIAL...................................................... 34
EXHIBITS
Exhibit A Names, Addresses, Contact Information and Purchase Amounts for
Investors
Exhibit B Certain Definitions
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SECURITIES PURCHASE, REGISTRATION RIGHTS AND SECURITY AGREEMENT
This Securities Purchase, Registration Rights and Security Agreement
(this "Agreement") is entered into as of April 16, 2002 by and among the
investors listed on Exhibit A hereto ("Investors"), and SSP Solutions, Inc., a
Delaware corporation (the "Company"). In addition, Litronic Industries, Inc., a
California corporation, Pulsar Data Systems, Incorporated, a Delaware
corporation, BIZ Interactive Zone, Inc., a Delaware corporation, and GET/SSP,
LLC, a Nevada limited liability company (collectively, "Guarantors"), are
wholly-owned subsidiaries of the Company and are parties to this Agreement only
for purposes of Sections 5, 6.5 and 9 of this Agreement. Each of ▇▇▇▇ ▇▇▇▇ and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (collectively, "Principals") is a party to this Agreement only
for purposes of Sections 4.10 and 9 of this Agreement. Kingsport Capital
Partners, LLC (the "Representative of the Investors") is a party to this
Agreement only for purposes of Section 5.8 and 9 of this Agreement. ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇") and Nefilim Associates, LLC, a Massachusetts limited
liability company ("Nefilim") are Investors hereunder but also are referred to
specifically herein as the "December Investors" for purposes of the recitals
below and Section 2 and 9 of this Agreement.
RECITALS
▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ purchased
8.0% Subordinated Convertible Notes dated December 18, 2001 in the original
principal amount of $1,500,000, $250,000, $375,000 and $375,000, respectively
(each a "December Note" and collectively, the "December Notes"), pursuant to an
SSP Solutions, Inc. Purchase Agreement 8.0% Subordinated Convertible Notes dated
December 17, 2001. ▇▇▇▇▇ ▇▇▇▇▇▇▇ later assigned his December Note to Nefilim.
The outstanding principal and accrued interest owed by the Company to ▇▇▇▇▇▇▇
and Nefilim under their respective December Notes as of the date hereof is
$1,539,667 and $256,444, respectively.
B. The Company desires to issue and sell to the Investors, and the
Investors desire to purchase, on the terms and conditions set forth herein, (i)
10% Secured Convertible Promissory Notes due December 31, 2005 in the aggregate
principal amount of $5,796,111 (as they may be amended, modified, restated,
supplemented or extended, the "Notes") and (ii) Warrants to Purchase Common
Stock in the aggregate amount of 3,477,666 shares of the Company's Common Stock
(as they may be amended, modified, restated, supplemented or extended, the
"Warrants").
C. Each of the Investors is purchasing a Note in the principal amount
and a Warrant to acquire the number of shares of the Company's Common Stock set
forth opposite that Investor's name on Exhibit A. Each of the Investors other
than the December Investors are purchasing the Notes and Warrants set forth
opposite their respective names on Exhibit A by delivery to the Company at the
Closing (as defined herein) of immediately available funds equal in amount to
the original face amount of the Note set forth opposite their respective names
on Exhibit ▇. ▇▇▇▇▇▇▇ is purchasing the Note and Warrant set forth opposite his
name on Exhibit A by delivery to the Company at the Closing of (i) $2,250,000 in
immediately available funds and (ii) his December Note for cancellation. Nefilim
is purchasing the Note and Warrant set forth
opposite its name on Exhibit A by delivery to the Company at the Closing of the
December Note assigned to it by ▇▇▇▇▇ ▇▇▇▇▇▇▇ for cancellation.
AGREEMENT
In consideration of the mutual covenants and agreements set forth
herein, and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. For the purpose of this Agreement capitalized terms not
otherwise defined herein have the meanings set forth in Exhibit B.
2. PURCHASE AND SALE OF COMPANY SECURITIES. Subject to the terms and
conditions contained herein, and in reliance upon the representations,
warranties and agreements contained herein, the Company shall issue and sell to
the Investors, and the Investors shall purchase, the Securities on the Closing
Date (as defined in Section 9.1). The aggregate purchase price being paid by the
Investors shall be $5,796,111 ("Purchase Price"), which shall be allocated by
the parties hereto $5,767,130 to the Notes and $28,981 to the Warrants (and
divided among the Investors in proportion to the face amounts of their Notes).
The Company and the Investors shall use such allocation of the Purchase Price
for all federal, state and local tax purposes. Each of the Investors other than
the December Investors shall deliver to the Company at the Closing immediately
available funds equal in amount to the original face amount of the Note set
forth opposite their respective names on Exhibit ▇. ▇▇▇▇▇▇▇ shall deliver to the
Company at the Closing (i) $2,250,000 in immediately available funds and (ii)
his December Note for cancellation. At the Closing, Nefilim shall deliver to the
Company the December Note assigned to it by ▇▇▇▇▇ ▇▇▇▇▇▇▇ for cancellation.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to the Investors that:
3.1 Organization and Qualification. The Company and each of its
Subsidiaries is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction in which it is incorporated, and has
the requisite corporate power and authorization to own its properties and to
carry on its businesses as now being conducted or as is proposed to be
conducted. The Company and each of its Subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which its ownership of property or the nature of the business conducted by it
or proposed to be conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would not
have a Material Adverse Effect. The Company has no Subsidiaries except as set
forth on Schedule 3.1.
3.2 Authorization; Enforcement; Validity. The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Notes, the Warrants and each of the other agreements entered
into by the parties hereto in connection with the transactions contemplated by
this Agreement, including but not limited to the Consent and Waiver Agreement
dated April 16, 2002, by and among ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and the Company,
and the letter to the Representative of the Investors regarding conversion of
the Notes
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dated April 16, 2002 and executed by the Company, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ and Wave Systems Corp. (collectively, the "Transaction
Documents"), and to issue the Securities in accordance with the terms hereof and
thereof. The execution and delivery of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated hereby, including
without limitation the issuance of the Warrants and the reservation for issuance
and the issuance of the Conversion Shares issuable upon conversion of the Notes,
the Warrant Shares issuable upon exercise of the Warrants or the Interest Shares
issuable upon the Company's payment of interest under the Notes in shares, have
been duly authorized by the Company's Board of Directors and, except for the
approval of the stockholders of the Company required to be obtained under the
rules and regulations of the Principal Market (as defined in Section 6.9), and
which will be obtained as soon as is practicable after the date hereof, no
further consent or authorization is required by the Company, its Board of
Directors or its stockholders. The Transaction Documents have been duly executed
and delivered by the Company. The Transaction Documents constitute the valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies.
3.3 Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of (i) 100,000,000 shares of Common Stock, of which as
of the date hereof, 20,664,832 shares are issued and outstanding, 5,891,487
shares are reserved for issuance pursuant to the Company's stock option and
purchase plans and 2,733,511 shares are issuable and reserved for issuance
pursuant to securities (other than the Notes, the Warrants and any securities
convertible into Payment Shares (as defined and disclosed in Schedule 3.3))
exercisable or exchangeable for, or convertible into, shares of Common Stock and
(ii) 5,000,000 shares of Preferred Stock, of which as of the date hereof, no
shares are issued and outstanding. All of such outstanding or issuable shares
have been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as disclosed in Schedule 3.3, (A) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances granted or created by the Company; (B) there
are no outstanding debt securities issued by the Company; (C) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries; (D) there are
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the
Securities Act (except this Agreement); (E) there are no outstanding securities
or instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (F) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
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the Securities as described in this Agreement; and (G) the Company does not have
any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement.
3.4 Issuance of Securities. Upon conversion or exercise in accordance
with the Notes or the Warrants, as the case may be, or payment of interest under
the Notes by issuing Interest Shares in accordance with the Notes, the
Conversion Shares, the Warrant Shares and the Interest Shares will be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock. 15,500,000 shares of Common Stock have
been duly authorized and reserved for issuance upon conversion of the Notes,
upon exercise of the Warrants and upon payment of interest due under the Notes.
The issuance by the Company of the Securities is exempt from registration under
the Securities Act.
3.5 No Conflicts. Except as disclosed in Schedule 3.5, the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby (including,
without limitation, the reservation for issuance and issuance of the Conversion
Shares, the Warrant Shares and the Interest Shares) will not (i) result in a
violation of the Company's Certificate of Incorporation or the Bylaws; (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party; (iii) result in a violation of any law, rule, regulation, order, judgment
or decree (including federal and state securities laws and regulations and the
rules and regulations of the Principal Market) applicable to the Company or any
of its Subsidiaries or by which any property or asset of the Company or any of
its Subsidiaries is bound or affected. Except as disclosed in Schedule 3.5,
neither the Company nor any of its Subsidiaries is in violation of any term of
its Certificate of Incorporation or Bylaws or their organizational charter or
bylaws, respectively. Except as disclosed in Schedule 3.5, neither the Company
nor any of its Subsidiaries is in violation or any term of or in default under
any contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its Subsidiaries. The business of the Company and its Subsidiaries is
not being conducted, and shall not be conducted, in violation of any law,
ordinance or regulation of any governmental entity, except where such violation
would not have a Material Adverse Effect. Except as specifically contemplated by
this Agreement and as required under the Securities Act, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents in accordance
with the terms hereof or thereof. Except as disclosed in Schedule 3.5, all
consents, authorizations, orders, filings and registrations which the Company is
required to obtain as described in the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company and its Subsidiaries are
unaware of any facts or circumstances that might give rise to any of the
foregoing. The Company is not in violation of the listing requirements of the
Principal Market and has no actual knowledge of any facts or any reason to
believe that facts exist that would reasonably lead to delisting or suspension
of the Common Stock by the Principal Market in the foreseeable future.
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3.6 SEC Documents; Financial Statements. Since December 31, 1999, except
as set forth on Schedule 3.6, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Exchange Act (all of the
foregoing filed prior to the date hereof (including all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein) being hereinafter referred to as the "SEC
Documents"). A complete and accurate list of the SEC Documents that have been
filed by the Company on ▇▇▇▇▇ is set forth on Schedule 3.6. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents. None of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Neither the Company
nor any of its Subsidiaries or any of their officers, directors, employees or
agents have provided the Investors with any material, nonpublic information.
3.7 Absence of Certain Changes. Except as disclosed in Schedule 3.7,
since December 31, 2001, there has been no material adverse change and no
material adverse development in the business, properties, assets, operations,
results of operations, financial conditions or prospects of the Company or its
Subsidiaries. The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy law nor does
the Company or any of its Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact which would reasonably lead a creditor to do so.
Except as disclosed in Schedule 3.7, since December 31, 2001, the Company has
not declared or paid any dividends, sold any assets, individually or in the
aggregate, in excess of $100,000 outside of the ordinary course of business or
had capital expenditures, individually or in the aggregate, in excess of
$100,000.
3.8 Absence of Litigation. There is no action, suit, proceeding, inquiry
or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened against or affecting the Company or any
of its Subsidiaries or any of the Company's or any Subsidiary's officers or
directors in their capacities as such, except as expressly set forth in Schedule
3.8. Except as set forth in Schedule 3.8, to the knowledge of the Company none
of the directors or officers of the Company have been involved in securities
related litigation during the past five years.
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3.9 No Undisclosed Events, Liabilities, Developments or Circumstances.
Except for the issuance of the Notes and Warrants contemplated by this Agreement
and as set forth on Schedule 3.9, no event, liability, development or
circumstance has occurred or exists, or is contemplated to occur, with respect
to the Company or its Subsidiaries or their respective business, properties,
prospects, operations or financial condition, that would be required to be
disclosed by the Company under applicable securities laws on a registration
statement on Form S-1 filed with the SEC relating to an issuance and sale by the
Company of its Common Stock and which has not been publicly disclosed.
3.10 No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Securities or the December Notes.
3.11 Employee Relations. Neither the Company nor any of its Subsidiaries
is involved in any union labor dispute nor, to the knowledge of the Company or
any of its Subsidiaries, is any such dispute threatened. None of the Company's
or its Subsidiaries' employees is a member of a union which relates to such
employee's relationship with the Company or its Subsidiaries, neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their relations
with their employees are good. No executive officer (as defined in Rule 501(f)
of the Securities Act) has notified the Company that he intends to leave the
Company or otherwise terminate his employment with the Company. No executive
officer, to the best knowledge of the Company and its Subsidiaries, is, or is
now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.
3.12 Intellectual Property Rights. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service ▇▇▇▇ registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights necessary
to conduct their respective businesses as now conducted or as proposed to be
conducted in the future. Except as set forth on Schedule 3.12, none of the
Company's trademarks, trade names, service marks, service ▇▇▇▇ registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, governmental authorizations, trade secrets or other intellectual
property rights have expired or terminated, or are expected to expire or
terminate within two years from the date of this Agreement. The Company and its
Subsidiaries do not have any knowledge of any infringement by the Company or its
Subsidiaries of trademarks, trade names, service marks, service ▇▇▇▇
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, trade secrets or other intellectual property rights of others, or of
any development of similar or identical trade secrets or technical information
by others and, except as set forth on Schedule 3.12, there is no claim, action
or proceeding being made or brought against, or to the Company's knowledge,
being threatened against, the Company or its Subsidiaries regarding its
trademarks, trade names, service marks, service ▇▇▇▇ registrations, service
names, patents, patent rights, copyrights, inventions, licenses, trade secrets,
or
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infringement of other intellectual property rights; and the Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and its Subsidiaries have taken security
measures to protect the secrecy, confidentiality and value of all of their
intellectual properties consistent with industry practices used by comparable
companies. Schedule 3.12 contains a complete list of all patents and trademarks
for which the Company has sought intellectual property protection with the
Patent and Trademark Office.
3.13 Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval.
3.14 Title. The Company and its Subsidiaries have good title to all
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in Schedule 3.14 or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and any of its Subsidiaries.
Any real property and facilities held under lease by the Company and any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and facilities by the Company and its
Subsidiaries.
3.15 Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company reasonably believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for and, except as set forth in
Schedule 3.15, neither the Company nor any such Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.
3.16 Regulatory Permits. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any Subsidiary has received any notice
of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
3.17 Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability,
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(iii) access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
3.18 Tax Status. The Company and each of its Subsidiaries (i) has made
or filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes), (ii) has paid all taxes and other governmental assessments
and charges shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and for which the
Company has made appropriate reserves for on its books, and (iii) has set aside
on its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
(referred to in clause (i) above) apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim.
3.19 Transactions With Affiliates. Except as set forth on Schedule 3.19,
and other than the grant of stock options disclosed on Schedule 3.3, none of the
officers, directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any such officer, director or employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
such officer, director, or employee has a substantial interest or is an officer,
director, trustee or partner.
3.20 Rights Agreement. The Company has not adopted a shareholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company.
3.21 Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
3.22 No Undisclosed Liabilities. The Company has no liabilities or
obligations of any nature, whether accrued, absolute, contingent, unliquidated
or otherwise, except those disclosed or described in the SEC Documents,
including the financial statements and notes thereto included in the SEC
Documents, and those liabilities and obligations incurred since the last day
covered by the financial statements included in the most recently filed SEC
Document listed on Schedule 3.6.
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3.23 Investment Company Act Status. Neither the Company nor any of the
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company" as those terms are defined in the Investment Company Act of
1940, as amended.
3.24 No Integrated Offering. Except as set forth on Schedule 3.24,
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 require registration of any of the Securities under the Securities Act or
cause this offering of the Securities to be integrated with prior offerings by
the Company for purposes of the Securities Act or any applicable stockholder
approval provisions, including, without limitation, under the rules and
regulations of any exchange or automated quotation system on which any of the
securities of the Company are listed or designated, nor will the Company or any
of its Subsidiaries take any action or steps that would require registration of
any of the Securities under the Securities Act or cause the offering of the
Securities to be integrated with other offerings.
3.25 Ownership By Shahs and ▇▇▇▇▇▇▇. ▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ are
the current Co-Chairmen and Co-Executive Officers of the Company. ▇▇▇▇▇▇ ▇▇▇▇
and ▇▇▇▇▇ ▇▇▇▇ are brothers of ▇▇▇▇ ▇▇▇▇ and part of the management of the
Company. ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇ own or control
the voting rights to approximately 56% of the voting securities of the Company
that are issued and outstanding as of the date hereof. Further, Wave Systems
Corp, a business partner of the Company, owns the voting rights to approximately
an additional 15% of the voting securities of the Company that are issued and
outstanding as of the date hereof.
3.26 Disclosure. This Agreement (including the schedules and exhibits
hereto) does not contain any untrue statement of any material fact or omit to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances under which they were made, not
misleading. To the Company's knowledge, there are no facts that, individually or
in the aggregate, would have a Material Adverse Effect that have not been set
forth in this Agreement (including the schedules attached hereto).
3.27 S-3 Eligibility. Upon filing of its Form 10-K for the fiscal year
ended December 31, 2001, on or before April 16, 2002, the Company will be
eligible to register the Conversion Shares, the Warrant Shares and the Interest
Shares on Form S-3.
3.28 Significant Shareholders. Set forth on Schedule 3.28 is a list of
stockholders each of whom is the record owner of 100,000 or more shares of the
Company's Common Stock.
4. INVESTORS' REPRESENTATIONS AND WARRANTIES. Each Investor represents
and warrants, with respect to only such Investor, that:
4.1 Investment Purpose. The Investor (i) is acquiring the Notes and the
Warrants, (ii) upon conversion of the Notes, will acquire the Conversion Shares
then issuable, (iii) upon exercise of the Warrants, will acquire the Warrant
Shares issuable upon exercise thereof, and (iv) upon the Company's election to
pay interest due under the Notes with Interest Shares, will acquire the Interest
Shares issued pursuant to the Notes, for such Investor's own account and not
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with a view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or exempted under the
Securities Act. From January 1, 2002 through the date hereof, the Investor has
not purchased, sold or "sold short" any securities of the Company (except
pursuant to this Agreement).
4.2 Accredited Investor Status. The Investor is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D.
4.3 Reliance on Exemptions. The Investor understands that the Securities
are being offered and sold to the Investor in reliance on specific exemptions
from the registration requirements of the United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and the Investor's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Investor set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Investor to acquire the Securities.
4.4 Information. The Investor and the Investor's advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company, including, without limitation, the information
required to be delivered to the Investors under Rule 502(b)(2) of Regulation D
as promulgated under the Securities Act, and any other materials relating to the
offer and sale of the Securities that have been requested by the Investor. The
Investor and such Investor's advisors, if any, have been afforded the
opportunity to ask questions of the Company. The Investor understands that the
Investor's investment in the Securities involves a high degree of risk. The
Investor has sought such accounting, legal and tax advice as the Investor has
considered necessary to make an informed investment decision with respect to the
Investor's acquisition of the Securities.
4.5 No Governmental Review. The Investor understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
4.6 Transfer or Resale. The Investor understands that, except as
provided in Section 8: (i) the Securities have not been and are not being
registered under the Securities Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) the Investor delivers to the Company an opinion of
counsel, in a generally acceptable form, to the effect that the Securities to be
sold, assigned or transferred may be sold, assigned or transferred pursuant to
an exemption from such registration, or (C) the Investor provides the Company
with reasonable assurance that the Securities can be sold, assigned or
transferred pursuant to Rule 144 promulgated under the Securities Act, as
amended, (or a successor rule thereto) ("Rule 144"); (ii) any sale of the
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the Securities Act) may require compliance with some other exemption under the
Securities Act or the rules and regulations of the SEC thereunder; and except as
provided in this
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Agreement (iii) neither the Company nor any other person is under any obligation
to register the Notes or Warrants under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder. Notwithstanding the foregoing, the Securities may be pledged in
connection with a bona fide margin account or other loan or financing
arrangement secured by the Securities.
4.7 Legends. The Investor understands that the certificates or other
instruments representing the Notes and the Warrants and, until such time as the
sale of the Conversion Shares, the Warrant Shares and the Interest Shares have
been registered under the Securities Act as contemplated by Section 8, the stock
certificates representing the Conversion Shares, the Warrant Shares and the
Interest Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II)
UNLESS SOLD PURSUANT TO RULE 144 UNDER THAT ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the Securities Act, (ii) in
connection with a sale transaction, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that a public
sale, assignment or transfer of the Securities may be made without registration
under the Securities Act, or (iii) such holder provides the Company with
reasonable assurances that the Securities can be sold pursuant to Rule 144
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold.
4.8 Authorization; Enforcement; Validity. This Agreement has been duly
and validly authorized, executed and delivered on behalf of the Investor and is
a valid and binding agreement of the Investor enforceable against the Investor
in accordance with its terms, subject as to enforceability to general principles
of equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
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4.9 Residency. The Investor is a resident of that jurisdiction specified
in its address on Exhibit A.
4.10 Minimum Investment by Certain Investors. Crestview Capital Fund,
LP, Crestview Capital Fund II, LP, Crestview Offshore Fund, Inc. and ▇▇▇▇▇▇
▇▇▇▇▇ shall invest an aggregate of not less than $1,750,000 for the purchase of
Securities offered hereunder. At or prior to the Closing, ▇▇▇▇ ▇▇▇▇ shall pay
the Company $347,224.16, and the Company shall accept such amount, as payment in
full and complete satisfaction of the amounts owed by ▇▇▇▇ ▇▇▇▇ to the Company
under the promissory note in the original principal amount of $500,000 which was
delivered by ▇▇▇▇ ▇▇▇▇ in July of 2000, which note was not otherwise due until
July 24, 2005. In addition, at or prior to the Closing, ▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ shall (i) accept in exchange for the December Notes currently held by
them amended and restated notes with similar terms but with a maturity date of
December 31, 2005 (collectively, the "Amended December Notes"), and (ii) lend
the Company $152,775.84 and $500,000, respectively, in exchange for promissory
notes dated the same date hereof that are not convertible into shares of capital
stock of the Company or any derivative security of the Company and which have a
maturity date of December 31, 2005 (collectively with the Amended December
Notes, the "Principal Notes" and each a "Principal Note").
5. GUARANTEE; GRANT OF SECURITY INTEREST.
5.1 Guarantee. Each Guarantor hereby unconditionally and irrevocably
guarantees to Investors and their respective successors, endorsees, transferees
and assigns the prompt payment (whether at stated maturity, by acceleration or
otherwise) and performance of the Obligations. Each Guarantor hereby waives, to
the fullest extent permitted by applicable law and subject to any applicable
grace or cure periods provided in the Transaction Documents: (i) presentment,
demand and protest, and notice of presentment, dishonor, intent to accelerate,
acceleration, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of the Notes, Warrants, notes, commercial
paper, accounts, contract rights, documents, instruments, chattel paper and
guaranties at any time held by Investors on which any Guarantor may in any way
be liable; (ii) all rights to notice and a hearing prior to the Representative
of the Investors' taking possession or control of, or to the Representative of
the Investors' reply, attachment or levy upon, or any bond or security which
might be required by any court prior to allowing the Representative of the
Investors to exercise any of its remedies; (iii) notice of any extension,
modification, renewal or amendment of any of the terms of this Agreement, the
Notes or the Warrants or any related agreement or instrument relating to the
Obligations; (iv) notice of the occurrence of any default or event of default
with respect to the Obligations; and (v) notice of any exercise or non-exercise
by the Representative of the Investors of any right, power or remedy with
respect to the Obligations.
5.2 Grant; Description of Collateral. To secure each Guarantor's
obligations under Section 5.1 above and the prompt and complete payment,
performance and observance of all of the Obligations, and to induce the
Investors to enter into this Agreement and to purchase the Securities as
provided for herein in accordance with the terms hereof, the Company and each
Guarantor hereby pledge and grant to the Investors on the Closing Date a
security interest (pro rata to each Investor in accordance with the relative
principal amounts of the Investors' Notes), during the time the Obligations are
outstanding, in all of the Company's or such Guarantor's, as applicable, right,
title and interest in and to all of its assets, whether now owned or hereafter
acquired or arising and whether owned or consigned by or to or leased by or to
the Company or such Guarantor, as
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applicable, and regardless of where located, including, without limitation, (a)
all Accounts; (b) all Agreements; (c) all Chattel Paper; (d) all Contracts; (e)
all Documents; (f) all Equipment; (g) all Fixtures; (h) all General Intangibles;
(i) all Instruments; (j) all Inventory; (k) all Leases; (l) all Investment
Property, including, without limitation, shares of Stock owned by the Company or
such Guarantor, as applicable; (m) all other Goods, cash, Cash Equivalents, and
personal property, whether tangible or intangible; (n) all books and records
(including, but not limited to, customer lists, credit files, computer programs,
printouts, manufacturing processes and other computer materials and records)
pertaining to any of the foregoing; and (o) to the extent not otherwise
included, all Proceeds of the items set forth in (a) through (n), and all
accessions to, substitutions and replacements for, and rents, profits and
products of, each of the items set forth in (a) through (n) (all of which being
hereinafter collectively referred to as the "Collateral").
5.3 Priority; Agreements Relating to Collateral.
5.3.1 Priority of Security Interest. Each Investor hereby
acknowledges and agrees that, as of the Closing Date, the Investor's
security interest in the Collateral is (i) a security interest shared
pro rata with the other Investors (in proportion to the face amounts of
their Notes), such that all the Obligations are secured by the
Collateral and the Obligations owed to an Investor are secured by the
Collateral only to the extent the Investor has a pro rata security
interest in the Collateral (in proportion to the face amounts of the
Investors' Notes), and (ii) is junior in priority to the security
interests of the holders of any Senior Debt (as defined below), except
for the Investor's security interest in the Company's intellectual
property, which is only junior in priority and subject to any rights of
(A) the United States government under any government contract pursuant
to which certain of the Company's intellectual property was developed,
and (B) a general contractor for the United States government under any
subcontract agreement between the Company and the general contractor
pursuant to which certain of the Company's intellectual property was
developed (such government contracts and subcontract agreements being
referred to herein collectively as the "Government Contracts").
5.3.2 Senior Debt. "Senior Debt" means an amount owing by the
Company or a Guarantor, including principal, interest (including any
interest accruing during any bankruptcy proceeding), premium, if any,
fees (including, without limitation, any commitment, agency, facility,
structuring, restructuring or other fee), costs, expenses and
indemnities, from time to time for indebtedness for borrowed money under
notes, debentures or other evidence of indebtedness issued to, or
agreements with, a commercial bank or similar financial institution
whose principal business is the lending of money solely for the purpose
of obtaining working capital for the Company or the Guarantor. Each
Investor hereby waives any and all notice of renewal, extension or
accrual of any of the Senior Debt, present or future, and agrees and
consents that without notice to or consent of the Investor: (a) the
obligations and liabilities of the Company, a Guarantor or any other
party or parties under the Senior Debt may, from time to time, in whole
or in part, be renewed, refinanced, replaced, terminated, decreased or
released; (b) the holders
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of Senior Debt and their representatives may exercise or refrain from
exercising any right, remedy or power granted by any document creating
or evidencing the Senior Debt or at law, in equity, or otherwise, with
respect to the Senior Debt or in connection with any collateral security
or lien (legal or equitable) held, given or intended to be given
therefor (including, without limitation, the right to perfect any lien
or security interest created in connection therewith); and (c) any and
all collateral security and/or liens (legal or equitable) at any time,
present or future, held, given or intended to be given for the Senior
Debt, and any rights or remedies of the holders of Senior Debt and their
representatives in respect thereof, may, from time to time, in whole or
in part, be surrendered, released, perfected, unperfected or waived by
the holders of Senior Debt and their representatives.
5.3.3 Execution of Subordination Agreement. Each Investor agrees
that, upon the request of any holder of Senior Debt, the Investor will
execute and deliver a subordination agreement for the benefit of such
holder of Senior Debt (in form reasonably acceptable to the Investor and
the Investor's counsel); provided, however that the foregoing shall not
require the Investor to execute or deliver any agreement which provides
for additional terms of subordination or otherwise adversely modifies
(whether by change, addition or deletion) the terms of the security
interest granted hereunder.
5.3.4 Additional Encumbrances. Neither the Company nor any
Guarantor shall, without the prior written consent of both the
Representative of the Investors and Investors holding a majority in
principal amount of the outstanding Notes, create or suffer to exist any
lien or security interest on or with respect to the Collateral, except
liens or security interests (i) in favor of holders of Senior Debt or
the Notes, (ii) securing taxes, assessments or governmental charges or
levies, or (iii) that arise in the ordinary course of business and not
created in connection with the borrowing of money or the obtaining of
credit.
5.3.5 Insurance. The Company and each Guarantor shall in good
faith seek and evaluate insurance products relative to the intellectual
property of the Company or that Guarantor, as applicable. If the terms,
costs and availability of funds provided by these insurance products are
reasonably acceptable to the Company, the Guarantor, as applicable, the
Representative of the Investors and Investors holding a majority in
principal amount of the outstanding Notes, the insurance products shall
be obtained at the Company's expense for the term that the Obligations
remain outstanding.
5.4 Collateral Held by Investors. The Collateral includes all of the
Company's and Guarantors' property held by the Investors, including, but not
limited to, all property of every description now or hereafter in the possession
or custody of, or in transit to, the Investors, for any purpose, including, but
not limited to, for safekeeping, collection or pledge, for the account of the
Company or any Guarantor, or as to which the Company or any Guarantor may have
any right or power.
5.5 Security Interest Absolute. All rights and security interests of the
Investors in the Collateral shall be absolute and unconditional, irrespective
of: (i) any lack of validity or enforceability of any of the Obligations or any
other agreement or instrument relating thereto; (ii)
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any change in the time, manner or place of payment of, or in any other term of,
all or any of the Obligations, or any other amendment or waiver of or any
consent to any departure from terms of the Notes; (iii) any exchange, release or
non-perfection of any Collateral for all or any of the Obligations; or (iv) any
other circumstance which might otherwise constitute a defense available to the
Company or a Guarantor, or a discharge of the Company's or any Guarantor's
obligations, with respect to the validity or enforceability of a security
interest to the Collateral.
5.6 Limitation on the Investors' Duty in Respect of Collateral. The
Investors shall use reasonable care with respect to the Collateral in their
possession or under their control, if any. The Investors shall not have any
other duty as to any Collateral in their possession or control or in the
possession or control of any agent or nominee of the Investors, or any income
thereon or as to the preservation of rights against prior parties or any other
rights pertaining thereto. Upon request of the Company, the Investors shall
account for any monies received by the Investors in respect of any foreclosure
on or disposition of the Collateral.
5.7 Reinstatement. The provisions of this Section 5 shall remain in full
force and effect and continue to be effective should any petition be filed by or
against the Company or any Guarantor for liquidation or reorganization, should
the Company or any Guarantor become insolvent or make an assignment for the
benefit of creditors, or should a receiver or trustee be appointed for all or
any significant part of the Company's or any Guarantor's assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Obligations, or any part thereof, is, pursuant to
applicable law, rescinded or reduced in amount, or must otherwise be restored or
returned by any obligee of the Obligations, whether as a "voidable preference,"
"fraudulent transfer" or otherwise, all as though the payment or performance had
not been made. If any payment, or any part thereof, is rescinded, reduced,
restored or returned, the Obligations shall be reinstated and deemed reduced
only by such amount paid and not so rescinded, reduced, restored or returned.
5.8 Representative of the Investors. Each Investor hereby appoints
Kingsport Capital Partners, LLC as the Representative of the Investors hereunder
and as its attorney-in-fact for purposes of enforcing the Investor's rights as a
secured party under this Agreement, and Kingsport Capital Partners, LLC accepts
such appointment as the Representative of the Investors and hereby agrees to act
on behalf of the Investors as the Representative of the Investors. No Investor
shall exercise or attempt to exercise any rights as a secured party without
prior written consent of the Representative of the Investors. Should a material
default occur upon any Note, the holder of such Note shall notify the
Representative of the Investor and the Representative of the Investors shall
call a meeting of the Investors and the Representative of the Investors. The
Representative of the Investors shall then take whatever legal or other action
as shall have been authorized by Investors holding a majority of the outstanding
principal amount of the Notes for purposes of enforcing the rights of the
Investors as secured parties under this Agreement. Any legal or other action
taken by the Representative of the Investors shall be for the benefit of the
Investors (pro rata to each Investor in accordance with the relative outstanding
principal amounts of the Investors' Notes). Each Investor hereby acknowledges
and agrees that if any Investor shall obtain any payment (whether voluntary or
involuntary, through the exercise of any right or set-off, or otherwise) on
account of any Note held by that Investor in excess of that Investor's ratable
share of payments on account of the Notes held by all of the Investors, that
Investor shall pay over to the Representative of the Investors or, at the
Representative of the Investors's direction,
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to any other Investor pro rata in the outstanding principal amounts of each of
their respective Notes, any property in cash or otherwise received by the
Investor comprising the excess of that Investor's ratable share of payments on
account of the Notes held by all of the Investors.
6. COVENANTS. The Company and Guarantors, as applicable, covenant and
agree as set forth in Sections 6.1 through 6.12. The Investors covenant and
agree as set forth in Section 6.13.
6.1 Payments with Respect to the Notes, Principal Notes. The Company
shall pay the principal of, interest on and other amounts due pursuant to the
terms of the Notes on the dates and in the manner provided therein. Unless the
Notes have been paid in full or fully converted to shares of Common Stock of the
Company in accordance with their terms, the Company shall not prepay any amounts
owed under any Principal Note without the prior written consent of the
Representative of the Investors.
6.2 Notice of Default or Litigation. Promptly, and in any event within
one Business Day, after an officer of the Company obtains knowledge thereof, the
Company shall deliver to the Representative of the Investors notice of (i) the
occurrence of any event, act or condition which constitutes a Default or Event
of Default, (ii) any litigation or governmental proceeding pending against the
Company and (iii) any other event which is likely to have a Material Adverse
Effect. Each such notice shall specify in reasonable detail the nature of the
event, act, condition, Default, Event of Default or proceeding and what action
the Company is taking or proposes to take with respect thereto.
6.3 Books, Records and Inspections. The Company shall keep (i) proper
books of record and account in which full, true and correct entries in
conformity with all requirements of law and with GAAP (except that all interim
information shall be subject to normal year-end adjustments) shall be made of
all dealings and transactions in relation to its business and activities and
(ii) satisfactory and complete records of the Collateral. The Company shall
permit designated agents of the Representative of the Investors to visit and
inspect any of the properties of the Company, and to examine the books of
account and records of the Collateral of the Company and make copies thereof,
and discuss the affairs, finances and accounts of the Company with, and be
advised as to the same by, its officers and independent accountants, all during
the Company's normal business hours, upon prior notice and to such extent as the
Representative of the Investors may request. The Company shall ▇▇▇▇ its books
and records pertaining to the Collateral to evidence this Agreement and the Lien
granted hereby. Upon the occurrence and during the continuation of a Default or
an Event of Default, the Company shall deliver and turn over all of its books
and records pertaining to the Collateral to the Representative of the Investors
at any time on demand of the Representative of the Investors.
6.4 Taxes. The Company shall pay when due all Taxes, except as contested
in good faith and by appropriate proceedings if adequate reserves have been
established with respect thereto.
6.5 Covenants Concerning the Collateral. For so long as any Obligations
remain outstanding:
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6.5.1 Further Assurances. At any time and from time to time,
upon the request of the Representative of the Investors and at the sole
expense of the Company, the Company and/or any Guarantor shall promptly
and duly execute and deliver any and all such further instruments and
documents and take such further action as the Representative of the
Investors may reasonably deem necessary to obtain the full benefits of
this Agreement and of the rights and powers herein granted, including,
without limitation, the filing of a financing statement or continuation
statement with the secretary of state of the state in which the Company
or the Guarantor, as applicable, is incorporated. The Company and each
Guarantor also authorizes the Representative of the Investors to file
any such financing or continuation statement without the signature of
the Company or the Guarantor, as applicable, to the extent permitted by
applicable law. The Investors, upon request, shall cause the
Representative of the Investors to provide the Company and/or a
Guarantor with photocopies of all such filings at the Company's expense.
If any amount payable under or in connection with any of the Collateral
is or shall become evidenced by any Instrument, the Instrument, other
than checks received in the ordinary course of business, shall be duly
endorsed in a manner satisfactory to the Investors immediately upon the
Company's or a Guarantor's, as applicable, receipt thereof and promptly
delivered to the Representative of the Investors.
6.5.2 Corporate Identity. Neither the Company nor any Guarantor
shall change its name, identity, state of incorporation or corporate
structure in any manner that might make any financing or continuation
statement filed in connection herewith misleading within the meaning of
Section 9-506 of the UCC or any other applicable provision of the UCC
unless it shall have given the Representative of the Investors at least
30 days' prior written notice thereof and shall have taken all action
(or made arrangements satisfactory to the Representative of the
Investors, at the Company's expense, to take such action substantially
simultaneously with the change if it is impossible to take such action
in advance) necessary or requested by the Representative of the
Investors to amend the financing statement or continuation statement so
that it is not misleading.
6.5.3 Fixtures and Equipment. The Company and each Guarantor
shall keep and maintain the Fixtures and Equipment owned by it in good
operating condition sufficient for the continuation of the business
conducted by it on a basis consistent with past practices, and the
Company and each Guarantor, as applicable, shall provide or arrange for
all maintenance and service and all repairs necessary for that purpose.
6.5.4 Collateral Transfer, Removal or Sale. Neither the Company
nor any Guarantor shall, without the prior written consent of both the
Representative of the Investors and Investors holding a majority in
principal amount of the outstanding Notes, sell, assign, transfer or
otherwise dispose of any Collateral, other than sales of Inventory and
licenses of the Company's or Guarantor's, as applicable, intellectual
property in the ordinary course, consistent with past practices and in a
manner consistent with the best interests of the Company or such
Guarantor, as applicable, and its stockholders.
6.5.5 Intellectual Property. Neither the Company nor any
Guarantor shall, without the prior written consent of both the
Representative of the Investors and Investors holding a majority in
principal amount of the outstanding Notes, create or allow to exist,
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any lien, encumbrance or other security interest in any intellectual
property of the Company or the Guarantor, as applicable.
6.6 Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to the Representative of the Investors promptly after the filing. The
Company shall take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for or to qualify the Securities for
sale to the Investors pursuant to this Agreement under applicable securities or
"Blue Sky" laws of the states of the United States, and shall provide evidence
of any such action so taken to the Representative of the Investors. The Company
shall make all filings and reports relating to the offer and sale of the
Securities required under applicable securities or "Blue Sky" laws of the states
of the United States.
6.7 Reporting Status. Until the date as of which the Investors may sell
all of the Conversion Shares, the Warrant Shares and the Interest Shares without
restriction pursuant to Rule 144(k) promulgated under the Securities Act (or
successor thereto), the Company shall timely file all reports required to be
filed with the SEC pursuant to the Exchange Act and with any Principal Market,
and the Company shall not terminate its status as an issuer required to file
reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would otherwise permit termination.
6.8 Reservation of Shares. The Company shall take all action necessary
to at all times have authorized, and reserved for the purpose of issuance, the
number of shares of Common Stock needed to provide for the issuance of the
shares of Common Stock upon conversion of all Notes and the number of shares of
Common Stock needed to provide for the issuance of the shares of Common Stock
upon exercise of all outstanding Warrants.
6.9 Listing. The Company shall promptly secure the listing of all of the
Registrable Securities upon each national securities exchange and automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Registrable
Securities from time to time issuable under the terms of the Transaction
Documents. The Company shall maintain the Common Stock's authorization for
quotation on The Nasdaq National Market or The Nasdaq SmallCap Market or listed
on The New York Stock Exchange, Inc. or The American Stock Exchange, Inc. (as
applicable, the "Principal Market"). Neither the Company nor any of its
Subsidiaries shall take any action that would be reasonably expected to result
in the delisting or suspension of the Common Stock from the Principal Market,
and the Company shall use best efforts to continue such listing. The Company
shall pay all fees and expenses in connection with satisfying its obligations
under this Section 6.9.
6.10 Expenses. The Company shall reimburse the Representative of the
Investors an aggregate of up to $35,000 for expenses (including reasonable
attorneys fees and costs) incurred by the Representative of the Investors for
purposes of performing due diligence in connection with the transactions
contemplated by this Agreement. Prior to the date hereof, the Company previously
paid the Representative of the Investors $7,500 of the $35,000 referred to
above, so the Company shall only be obligated to reimburse the Representative of
the Investors for an aggregate of up to an additional $27,500 pursuant to this
Section 6.10. Any additional
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reimbursement required to be made hereunder shall be made by the Company
promptly upon presentment by the Representative of the Investors of evidence
satisfactory to the Company that expenses greater than $7,500 have been incurred
by the Representative of the Investors for purposes of performing due diligence
in connection with the transactions contemplated by this Agreement. Crestview
Capital Fund, L.P. (an affiliate of the Representative of the Investors) may
withhold payment of $27,500 (or such lesser amount of the up to $35,000 of
expenses not previously reimbursed by the Company as contemplated in this
Section 6.10) of its subscription price for the Securities as a set-off of the
Company's obligations not previously satisfied hereunder.
6.11 Filing of Form 8-K. On or before the first Business Day following
the Closing Date, the Company shall issue a press release describing the
transaction and shall also file a Current Report on Form 8-K with the SEC
describing the terms of the transactions contemplated by the Transaction
Documents and including as exhibits to the Form 8-K this Agreement, the form of
Note and the form of Warrant, as and to the extent required by the Exchange Act.
6.12 Stockholder Approval; Proxy Statement. As promptly as possible
after the execution and delivery of this Agreement, the Company shall cause a
meeting of its stockholders (the "Company Stockholder Meeting") to be held (on a
date selected in consultation with the Representative of the Investors) for the
purpose of voting on the approval or ratification of the transactions
contemplated by this Agreement, including approval or ratification of the
issuance of the Conversion Shares, the Warrant Shares and the Interest Shares
contemplated hereby (collectively, the "Transactions"). The Company's Board of
Directors shall recommend approval and adoption or ratification of the
Transactions. In connection with the Company Stockholder Meeting, the Company
(i) shall prepare and file with the SEC, and use its reasonable best efforts to
have cleared by the SEC and will thereafter mail to its stockholders as promptly
as practicable a proxy statement meeting the requirements of Regulation 14A
promulgated under the Exchange Act (the "Proxy Statement") and all other proxy
materials relating to the Company Stockholder Meeting, which Proxy Statement
shall include the recommendation of the Company's Board of Directors in favor of
the Transactions, (ii) shall ensure that all proxies solicited in connection
with the Company Stockholder Meeting are solicited in compliance with all
applicable statutes, laws and regulations, including the rules and regulations
promulgated by the SEC, and (iii) shall otherwise comply with Applicable Law in
connection with the Transactions. The Company will provide the Representative of
the Investors with a copy of the preliminary Proxy Statement and all
modifications thereto prior to filing or delivery to the SEC and will consult
with the Representative of the Investors in connection therewith. The Company
will notify the Representative of the Investors promptly of any receipt of any
comments from the SEC or its staff and of any request by the SEC or its staff
for amendments or supplements to the Proxy Statement or for additional
information and will supply the Representative of the Investors with copies of
all correspondence between the Company or any of its representatives, on the one
hand, and the SEC or its staff, on the other hand, with respect to the Proxy
Statement. If at any time after the mailing of the Proxy Statement to the
Company's stockholders there occurs any event that should be set forth in an
amendment or supplement to the Proxy Statement, the Company will promptly
prepare and mail to its stockholders such an amendment or supplement. The
Company will not mail any Proxy Statement, or any amendment or supplement
thereto, to which the Representative of the Investors reasonably objects. The
Company covenants that the Proxy Statement, including any amendment or
supplement thereto, shall not contain any untrue
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statement of a material fact or omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading.
6.13 Investors' Covenants. Each Investor hereby covenants and agrees
that he, she or it shall abstain from voting any Conversion Shares, Warrant
Shares and Interest Shares he, she or it may have acquired prior to the record
date of the Company Stockholder Meeting for or against the Transactions to be
voted upon at the Company Stockholder Meeting.
7. DEFAULTS AND REMEDIES.
7.1 Events of Default. An "Event of Default" occurs if:
(a) the Company fails to make any payment of principal or
premium on the Notes when due, whether at maturity, upon prepayment or
acceleration, or otherwise;
(b) the Company fails to make any payment of accrued interest on
the Notes (including any payment of interest in kind in accordance with the
terms of the Notes) when such payment becomes due, whether a regularly scheduled
payment or otherwise;
(c) the Company fails to comply with any of the agreements or
covenants contained in, or otherwise breaches, this Agreement or any other
agreement, covenant or provision contained in the Transaction Documents and such
failure continues for a period of 10 days after an officer of the Company
obtains knowledge thereof;
(d) any representation or warranty made by the Company under,
relating to or in connection with this Agreement shall be false or misleading
when made;
(e) the Company, pursuant to or within the meaning of any
Bankruptcy Law, commences a voluntary case or proceeding, consents to the entry
of an order for relief against it in an involuntary case or proceeding, consents
to the appointment of a Custodian of it or for all or substantially all of its
property, makes a general assignment for the benefit of its creditors, or
generally is unable to pay its debts as they become due;
(f) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that is for relief against the Company in an
involuntary case or proceeding, appoints a Custodian of the Company or for all
or substantially all of its property, or orders the liquidation of the Company;
(g) the Registration Statement referred to in Section 8.1 of
this Agreement has not been filed or become effective by the date 120 days after
the Closing Date; or
(h) except for the security interests granted hereunder and
except as may arise under the Government Contracts, the Company or any Guarantor
grants or agrees to grant to any Person a security interest in any intellectual
property of the Company or any Guarantor.
7.2 Acceleration. If an Event of Default (other than an Event of Default
specified in clause (e) or (f) of Section 7.1) occurs and is continuing and has
not been cured within the
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applicable cure period, if any, the Investors, by written notice to the Company,
may declare all unpaid principal of and accrued interest on the Notes to be due
and payable as specified below. Upon a declaration of acceleration, the
principal and accrued interest shall become immediately due and payable. If an
Event of Default specified in clause (e) or (f) of Section 7.1 occurs, all
principal of and interest on the Notes then outstanding shall ipso facto become
and be immediately due and payable without any declaration or other act on the
part of the Investors.
7.3 Other Remedies. If any Default or Event of Default occurs and is
continuing, the Investors may proceed to protect and enforce their rights under
this Agreement or the Notes by exercising such remedies as are available in
respect thereof under this Agreement or under applicable law, either by suit in
equity or by action at law, or both, whether for the collection of the payment
of principal of or interest on the Notes or to enforce the specific performance
of any covenant or other agreement contained in this Agreement or the Notes. No
remedy conferred in this Agreement upon the Investors is intended to be
exclusive of any other remedy, and each and every remedy shall be cumulative and
shall be in addition to every other remedy conferred herein or now or hereafter
existing at law or in equity or by statute or otherwise. The Investors shall be
entitled to all of the rights and remedies of secured parties under the UCC.
7.4 Waiver of Past Defaults. The Investors, by written notice to the
Company, may waive an existing Default or Event of Default and its consequences
with respect to the Notes; provided, however, that no such waiver will extend to
any subsequent or other Default or Event of Default or impair any right of the
Investors which may arise as a result of the Default or Event of Default.
8. REGISTRATION.
8.1 Mandatory Registration. The Company shall prepare, and, as soon as
practicable but in no event later than 60 days after the Closing Date (the
"Filing Deadline"), file with the SEC, a registration statement ("Registration
Statement") on Form S-3 covering the resale of all of the Registrable
Securities. If Form S-3 is unavailable for such a registration, the Company
shall use such other form as is available for such a registration. The Company
shall use its best efforts to have the Registration Statement declared effective
by the SEC as soon as practicable, but in no event later than the date which is
120 days after the Closing Date (the "Effectiveness Deadline").
8.2 Effect of Failure to File and Obtain and Maintain Effectiveness of
Registration Statement. If (i) a Registration Statement covering all the
Registrable Securities and required to be filed by the Company pursuant to this
Agreement is not (A) filed with the SEC on or before the Filing Deadline or (B)
declared effective by the SEC on or before the Effectiveness Deadline or (ii) on
any day after the Registration Statement has been declared effective by the SEC
sales of all the Registrable Securities required to be included on such
Registration Statement cannot be made pursuant to the Registration Statement
(including, without limitation, because of a failure to keep the Registration
Statement effective, to disclose such information as is necessary for sales to
be made pursuant to the Registration Statement or to register sufficient shares
of Common Stock), then, as partial relief for the damages to any holder by
reason of any such delay in or reduction of its ability to sell the underlying
shares of Common Stock (which remedy shall not be exclusive of any other
remedies available at law or in equity), the Company shall pay to
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each holder of Notes an amount in cash equal to 2% of the face amount of the
Notes per month for each month of delay (prorated for partial months),
retroactive to the Closing Date. The payments to which a holder shall be
entitled pursuant to this Section 8.2 are referred to herein as "Registration
Delay Payments." Registration Delay Payments shall be paid on the earlier of (I)
the last day of the calendar month during which such Registration Delay Payments
are incurred and (II) the third business day after the event or failure giving
rise to the Registration Delay Payments is cured. If the Company fails to make
Registration Delay Payments in a timely manner, such Registration Delay Payments
shall bear interest at the rate of 1.5% per month (prorated for partial months)
until paid in full. The Company promptly shall deliver to the Representative of
the Investors copies of any SEC comments pertaining to the Registration
Statement and the Company shall respond to the SEC comments within five Business
Days of the Company's receipt of the SEC comments.
8.3 Related Obligations. At such time as the Company is obligated to
file a Registration Statement with the SEC pursuant to Section 8.1, the Company
will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:
(a) The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the applicable Registrable Securities
(but in no event later than the Filing Deadline) and use its best efforts to
cause such Registration Statement relating to the Registrable Securities to
become effective as soon as practicable after such filing (but in no event later
than the Effectiveness Deadline). The Company shall keep each Registration
Statement effective pursuant to Rule 415 at all times until the earlier of (i)
the date as of which the Investors may sell all of the Registrable Securities
covered by such Registration Statement without restriction pursuant to Rule
144(k) (or successor thereto) promulgated under the Securities Act or (ii) the
date on which the Investors shall have sold all the Registrable Securities
covered by such Registration Statement (the "Registration Period"), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading. The term "best efforts" means, among other
things, that the Company shall submit to the SEC, within two business days after
the Company learns that no review of a particular Registration Statement will be
made by the staff of the SEC or that the staff has no further comments on the
Registration Statement, as the case may be, a request for acceleration of
effectiveness of the Registration Statement to a time and date not later than 48
hours after the submission of such request.
(b) The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the Securities Act, as may be necessary to keep such
Registration Statement effective at all times during the Registration Period,
and, during such period, comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities of the Company covered
by the Registration Statement until such time as all of the Registrable
Securities shall have been disposed of in accordance with the intended
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methods of disposition by the seller or sellers thereof as set forth in the
Registration Statement. In the case of amendments and supplements to a
Registration Statement which are required to be filed pursuant to this Agreement
(including pursuant to this Section 8.3(b)) by reason of the Company filing a
report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the
Exchange Act, the Company shall have incorporated the report by reference into
the Registration Statement, if applicable, or shall file such amendments or
supplements with the SEC on the same day on which the Exchange Act report is
filed which created the requirement for the Company to amend or supplement the
Registration Statement.
(c) The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the Registration Statement is prepared and filed with the SEC, at
least one copy of the Registration Statement and any amendment(s) thereto,
including financial statements and schedules, all documents incorporated therein
by reference, all exhibits and each preliminary prospectus, (ii) upon the
effectiveness of any Registration Statement, ten copies of the prospectus
included in the Registration Statement and all amendments and supplements
thereto (or such other number of copies as the Investor may reasonably request)
and (iii) such other documents, including copies of any preliminary or final
prospectus, as the Investor may reasonably request from time to time in order to
facilitate the disposition of the Registrable Securities owned by the Investor.
(d) The Company shall use its best efforts to (i) register and
qualify, unless an exemption from registration and qualification applies, the
resale by the Investors of the Registrable Securities covered by a Registration
Statement under such other securities or "Blue Sky" laws of all the states of
the United States, (ii) prepare and file in those jurisdictions, such amendments
(including post-effective amendments) and supplements to the registrations and
qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (iii) take such other actions as may be necessary to
maintain the registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in those jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (x) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 8.3(d), (y) subject itself to general taxation in any such jurisdiction,
or (z) file a general consent to service of process in any such jurisdiction.
The Company shall promptly notify the Representative of the Investors of the
receipt by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "Blue Sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for that purpose.
(e) The Company shall notify the Representative of the Investors
in writing of the happening of any event, as promptly as practicable after
becoming aware of the event, as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission 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 (provided that in no event shall the notice
contain any material, nonpublic information), and promptly prepare a supplement
or amendment to such Registration Statement to correct the untrue statement or
omission, and deliver ten copies of such
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supplement or amendment to each Investor (or such other number of copies as an
Investor may reasonably request). The Company shall also promptly notify the
Representative of the Investors in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to the Representative of
the Investors by facsimile on the same day of such effectiveness and by
overnight mail), (ii) of any request by the SEC for amendments or supplements to
a Registration Statement or related prospectus or related information, and (iii)
of the Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
(f) The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of the order or suspension at the
earliest possible moment and to notify the Representative of the Investors of
the issuance of the order and the resolution thereof or its receipt of actual
notice of the initiation or threat of any proceeding for such purpose.
(g) If requested by an Investor, the Company shall (i) as soon
as practicable incorporate in a prospectus supplement or post-effective
amendment such information as an Investor requests to be included therein
relating to the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the number of Registrable
Securities being offered or sold, the purchase price being paid therefor and any
other terms of the offering of the Registrable Securities to be sold in the
offering; (ii) as soon as practicable make all required filings of such
prospectus supplement or post-effective amendment after being notified of the
matters to be incorporated in the prospectus supplement or post-effective
amendment; and (iii) as soon as practicable, supplement or make amendments to
any Registration Statement if reasonably requested by an Investor.
(h) The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
(i) The Company shall make generally available to its
security holders as soon as practical, but not later than 90 days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a
twelve-month period beginning on the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
(j) The Company shall otherwise use its best efforts to
comply with all applicable rules and regulations of the SEC in connection with
any registration hereunder.
(k) Within two Business Days after a Registration
Statement which covers applicable Registrable Securities is ordered effective by
the SEC, the Company shall deliver, and shall cause legal counsel for the
Company to deliver, to its transfer agent (with
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copies to the Investors whose Registrable Securities are included in the
Registration Statement) confirmation that the Registration Statement has been
declared effective by the SEC.
(l) The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by Investors of Registrable
Securities pursuant to a Registration Statement.
(m) Notwithstanding anything to the contrary in Section
8.3(e), at any time after the applicable Registration Statement has been
declared effective by the SEC, the Company may delay the disclosure of material
non-public information concerning the Company the disclosure of which at the
time is not, in the good faith opinion of the Board of Directors of the Company
and its counsel, in the best interest of the Company and, in the opinion of
counsel to the Company, otherwise required (a "Grace Period"); provided, that
the Company shall promptly (i) notify the Representative of the Investors in
writing of the existence of material non-public information giving rise to a
Grace Period (provided that in each notice the Company will not disclose the
content of such material non-public information to the Investors) and the date
on which the Grace Period will begin, and (ii) notify the Representative of the
Investors in writing of the date on which the Grace Period ends; and, provided
further, that no Grace Period shall exceed 15 consecutive days and during any
365 day period, such Grace Periods shall not exceed an aggregate of 30 days and
the first day of any Grace Period must be at least two trading days after the
last day of any prior Grace Period (an "Allowable Grace Period"). For purposes
of determining the length of a Grace Period above, the Grace Period shall begin
on and include the date the Representative of the Investors receives the notice
referred to in clause (i) and shall end on and include the later of the date the
Representative of the Investors receives the notice referred to in clause (ii)
and the date referred to in the notice. The provisions of Section 8.3(f) shall
not be applicable during the period of any Allowable Grace Period. Upon
expiration of the Grace Period, the Company shall again be bound by the first
sentence of Section 8.3(e) with respect to the information giving rise to the
Grace Period unless the material non-public information is no longer applicable.
8.4 Obligations of the Investors.
(a) At least seven business days prior to the first anticipated
filing date of a Registration Statement, the Company shall notify each Investor
in writing of the information the Company requires from each Investor if the
Investor elects to have any of the Investor's Registrable Securities included in
the Registration Statement. It shall be a condition precedent to the obligations
of the Company to complete the registration pursuant to this Agreement with
respect to the Registrable Securities of a particular Investor that the Investor
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of the Registrable Securities and shall execute such documents in connection
with the registration as the Company may reasonably request.
(b) Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless the
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Investor has notified the Company in writing of the Investor's election to
exclude all of the Investor's Registrable Securities from the Registration
Statement.
(c) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
8.3(f) or the first sentence of Section 8.3(e), the Investor will immediately
discontinue disposition of Registrable Securities pursuant to any Registration
Statement(s) covering the Registrable Securities until the Investor's receipt of
the copies of the supplemented or amended prospectus contemplated by Section
8.3(f) or the first sentence of Section 8.3(e) or receipt of notice that no
supplement or amendment is required. Notwithstanding anything to the contrary,
the Company shall cause its transfer agent to deliver unlegended shares of
Common Stock to a transferee of an Investor in accordance with the terms of this
Agreement in connection with any sale of Registrable Securities with respect to
which an Investor has entered into a contract for sale prior to the Investor's
receipt of a notice from the Company of the happening of any event of the kind
described in Section 8.3(f) or the first sentence of Section 8.3(e) and for
which the Investor has not yet settled.
8.5 Expenses of Registration. All reasonable expenses, other than
underwriting discounts and commissions, incurred in connection with
registrations, filings or qualifications pursuant to Section 8.1, including,
without limitation, all registration, listing and qualifications fees, printers
and accounting fees, and fees and disbursements of counsel for the Company and
the Representative of the Investors shall be paid by the Company.
8.6 Indemnification. If any Registrable Securities are included in a
Registration Statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor, the
directors, officers, partners, employees, agents, representatives of, and each
Person, if any, who controls any Investor within the meaning of the Securities
Act or the Exchange Act (each, an "Indemnified Person"), against any losses,
claims, damages, liabilities, judgments, fines, penalties, charges, costs,
reasonable attorneys' fees, amounts paid in settlement or expenses, joint or
several, (collectively, "Claims") incurred in investigating, preparing or
defending any action, claim, suit, inquiry, proceeding, investigation or appeal
taken from the foregoing by or before any court or governmental, administrative
or other regulatory agency, body or the SEC, whether pending or threatened,
whether or not an indemnified party is or may be a party thereto ("Indemnified
Damages"), to which any of them may become subject insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon: (i) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or any post-effective
amendment thereto or in any filing made in connection with the qualification of
the offering under the securities or other "Blue Sky" laws of any jurisdiction
in which Registrable Securities are offered ("Blue Sky Filing"), or the omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to
-26-
state therein any material fact necessary to make the statements made therein,
in light of the circumstances under which the statements therein were made, not
misleading, (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any other law, including, without limitation,
any state securities law, or any rule or regulation thereunder relating to the
offer or sale of the Registrable Securities pursuant to a Registration Statement
or (iv) any material violation of this Agreement (the matters in the foregoing
clauses (i) through (iv) being, collectively, "Violations"). Subject to Section
8.6(c), the Company shall reimburse the Indemnified Persons, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any Claim. Notwithstanding anything to the contrary contained herein,
the indemnification agreement contained in this Section 8.6(a): (i) shall not
apply to a Claim by an Indemnified Person arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by the Indemnified Person for the
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
the prospectus was timely made available by the Company pursuant to Section
8.3(d); (ii) with respect to any preliminary prospectus, shall not inure to the
benefit of any person from whom the person asserting any Claim purchased the
Registrable Securities that are the subject thereof (or to the benefit of any
person controlling such person) if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected in the prospectus, as
then amended or supplemented, if the prospectus was timely made available by the
Company pursuant to Section 8.3(d), and the Indemnified Person was promptly
advised in writing not to use the incorrect prospectus prior to the use giving
rise to a Violation and the Indemnified Person, notwithstanding the advice, used
it; (iii) shall not be available to the extent the Claim is based on a failure
of the Investor to deliver or to cause to be delivered the prospectus made
available by the Company, if the prospectus was timely made available by the
Company pursuant to Section 8.3(d); and (iv) shall not apply to amounts paid in
settlement of any Claim if the settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investors.
(b) In connection with any Registration Statement in which an
Investor is participating, each Investor agrees to severally and not jointly
indemnify, hold harmless and defend, to the same extent and in the same manner
as is set forth in Section 8.6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement each Person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act (each an "Indemnified Party"), against any Claim or Indemnified Damages to
which any of them may become subject, under the Securities Act, the Exchange Act
or otherwise, insofar as the Claim or Indemnified Damages arise out of or are
based upon any Violation, in each case to the extent, and only to the extent,
that the Violation occurs in reliance upon and in conformity with information
furnished to the Company in writing by the Investor expressly for use in
connection with such Registration Statement; and, subject to Section 8.6(c), the
Investor will reimburse any legal or other expenses reasonably incurred by an
Indemnified Party in connection with investigating or defending any Claim;
provided, however, that the indemnity agreement contained in this Section 8.6(b)
and the agreement with respect to contribution contained in Section 8.7 shall
not apply to amounts paid in settlement of any Claim
-27-
if the settlement is effected without the prior written consent of the Investor,
which consent shall not be unreasonably withheld; provided, further, however,
that the Investor shall be liable under this Section 8.6(b) for only that amount
of a Claim or Indemnified Damages as does not exceed the net proceeds to the
Investor as a result of the sale of Registrable Securities pursuant to the
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 8.6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.
(c) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 8.6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, the Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
8.6, deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for the
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by that counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between the Indemnified Person or Indemnified Party and any
other party represented by that counsel in the proceeding. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding a majority of the
Registrable Securities included in the Registration Statement to which the Claim
relates. The Indemnified Party or Indemnified Person shall cooperate fully with
the indemnifying party in connection with any negotiation or defense of any such
action or Claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Indemnified Party or
Indemnified Person which relates to such action or Claim. The indemnifying party
shall keep the Indemnified Party or Indemnified Person fully apprized as to the
status of the defense or any settlement negotiations with respect thereto. No
indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its prior written consent, provided, however, that
the indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the prior written consent of the
Indemnified Party or Indemnified Person, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to the Claim or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such
-28-
action shall not relieve the indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 8.6, except to the
extent that the indemnifying party is prejudiced in its ability to defend the
action.
(d) The indemnification required by this Section 8.6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
(e) The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
8.7 Contribution. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 8.6 to the fullest extent permitted by law; provided,
however, that: (i) no person involved in the sale of Registrable Securities,
which person is guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) in connection with the sale, shall be
entitled to contribution from any person involved in the sale of Registrable
Securities who was not guilty of fraudulent misrepresentation; and (ii)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by the seller from the sale of the
Registrable Securities pursuant to the Registration Statement.
8.8 Reports under the Exchange Act. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
so long as the Company remains subject to such requirements and the filing of
such reports and other documents is required for the applicable provisions of
Rule 144; and
(c) furnish to each Investor so long as the Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell the securities pursuant to Rule 144 without
registration.
8.9 Assignment of Registration Rights. The rights under this Agreement
shall be automatically assignable by the Investors to any transferee of all or
any portion of Registrable Securities if: (i) the Investor agrees in writing
with the transferee or assignee to assign such rights, and a copy of that
agreement is furnished to the Company within a reasonable time after
-29-
such transfer or assignment; (ii) the Company is, within a reasonable time after
such transfer or assignment, furnished with written notice of (a) the name and
address of the transferee or assignee, and (b) the securities with respect to
which the registration rights are being transferred or assigned; (iii)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein; and (v) the transfer was made in accordance
with the applicable requirements of this Agreement.
8.10 Amendment of Registration Rights. Provisions of this Section 8 may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company, the Representative of the Investors and
Investors who then hold at least two-thirds (2/3) of the Registrable Securities.
Any amendment or waiver affected in accordance with this Section 8.10 shall be
binding upon each Investor and the Company. No such amendment shall be effective
to the extent that it applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of this Agreement
unless the same consideration also is offered to all of the parties to this
Agreement.
9. CLOSING. The closing of the transactions contemplated by this Agreement
("Closing") shall occur in multiple closings, the first of which is taking place
on the date first mentioned above (each closing date is referred to herein as a
"Closing Date"). Notwithstanding any other contrary provision in the Transaction
Documents, the parties hereto acknowledge and agree that the Company may offer,
sell and issue additional Notes and Warrants to Persons on the same terms and
conditions as set forth in this Agreement for a period of up to 30 days
following the date first mentioned above. The parties further acknowledge and
agree that any Person who purchases Notes and Warrants pursuant to the preceding
sentence shall, upon an appropriate amendment to Exhibit A and his, her or its
execution of Exhibit A and payment of the applicable purchase price for the
Notes and Warrants issued to that Person, be deemed an Investor hereunder for
all purposes.
10. MISCELLANEOUS.
10.1 Payments. Before disposing of the Notes or any portion thereof, the
Investors shall make a notation thereon (or on a schedule attached thereto) of
the amount of all payments previously made with respect thereto.
10.2 Consent to Amendments. Except as otherwise set forth in Section
8.10 of this Agreement, this Agreement may be amended, restated, supplemented,
modified or extended, and the Company may take any action herein prohibited, or
omit to perform any act herein required to be performed by it, if, and only if,
prior to taking any such action or omitting to perform any such act, the Company
shall have obtained the written consent of both the Representative of the
Investors and Investors holding a majority of the principal amount of the
outstanding Notes to such amendment, restatement, supplement, modification,
extension, action, or omission to act.
-30-
10.3 Form, Registration, Transfer and Exchange of the Note; Lost Note.
The Company shall keep at its principal office a register in which it shall
provide for the registration of the Notes and of transfers of the Notes or any
portions thereof. Upon surrender for registration of transfer of any Note at the
principal office in accordance with the provisions hereof, the Company shall, at
its expense and within three Business Days of such surrender and provided it can
do so without violating Applicable Law, execute and deliver one or more new
Notes of like tenor and of a like aggregate principal amount, which new Note or
Notes shall be registered in the name of such Transferee or Transferees.
10.4 Entire Agreement. This Agreement, the Notes, the Warrants and the
other agreements and instruments furnished pursuant hereto or in connection
herewith constitute the full and entire agreement and understanding between the
Investors and the Company, and supersede all prior written or oral agreements
and understandings relating to the subject matter hereof, including, without
limitation the Term Sheet for the transactions contemplated by this Agreement,
by and between the Company and the Representative of the Investors.
10.5 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
10.6 Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
(including, without limitation, any Transferee). The Investors may assign any
and all of its rights under this Agreement, the Note and the Warrants to any
Transferee and upon such assignment the Transferee shall be entitled to all of
the rights of the Investors hereunder to the same extent as if the Transferee
were an original party hereof.
10.7 Notices. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given if transmitted by telecopier with
receipt acknowledged, or upon delivery, if delivered personally or by recognized
commercial courier with receipt acknowledged, or upon the expiration of 72 hours
after mailing, if mailed by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
-31-
If to the Company, Guarantors or If to the Investors, at each of
Principals, at: the following:
SSP Solutions, Inc. c/o Kingsport Capital Partners, LLC
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President Attn: ▇▇▇▇▇▇▇ ▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇ Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
c/o ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Company
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: With a copy to:
▇▇▇▇▇ & ▇▇▇▇▇▇, LLP ▇▇▇▇, Gerber & ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ ▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
Costa Mesa, California 92629 ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, Esq. Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇ Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
or at such other address or addresses as the Investors or the Company, as the
case may be, may specify by written notice given in accordance with this Section
10.7.
10.8 Accounting Terms. For purposes of this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to them by
generally accepted accounting principles and all accounting determinations
hereunder or pursuant hereto shall be made, and all financial statements
required to be delivered by the Company hereunder shall be prepared in
accordance with generally accepted accounting principles applied on a consistent
basis.
10.9 Descriptive Headings. The descriptive headings of the several
paragraphs of this Agreement are for convenience of reference only and do not
constitute a part of this Agreement and are not to be considered in construing
or interpreting this Agreement.
10.10 Exhibits and Disclosure Schedules. The Exhibits and the Schedules
attached hereto are incorporated herein and shall be an integral part of this
Agreement.
10.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
-32-
10.12 Remedies. In the event of any litigation relating to this
Agreement or the Securities, each party shall bear its own fees, costs, and
expenses, including without limitation fees and expenses of attorneys and
accountants and all fees, costs and expenses of appeals. None of the rights,
powers or remedies conferred under this Agreement or the Securities shall be
mutually exclusive, and each such right, power or remedy shall be cumulative and
in addition to any other right, power or remedy whether conferred by this
Agreement or now or hereafter available at law, in equity, by statute or
otherwise.
10.13 Governing Law and Choice of Forum. Except where the UCC
specifically requires the application of another jurisdiction's laws, in all
respects, including all matters of construction, validity and performance, this
Agreement and the rights and obligations arising hereunder shall be governed by,
and construed and enforced in accordance with, the laws of the State of
California applicable to contracts made and performed in such state, without
regard to principles thereof regarding conflicts of laws. The parties hereby
consent, in any dispute, action, litigation or other proceeding concerning the
Transaction Documents (including arbitration) to the jurisdiction of the courts
of California, with the County of Orange being the sole venue for the bringing
of the action or proceeding.
10.14 Indemnification. The Company shall indemnify and hold harmless the
Investors, their respective Affiliates and their respective officers, directors,
partners and members (collectively, the "Investor Indemnitees"), from and
against any and all claims, losses, damages and liabilities, and agrees to
reimburse the Investor Indemnitees for all reasonable out-of-pocket expenses
(including the reasonable fees and expenses of legal counsel), in each case
promptly as incurred by the Investor Indemnitees and to the extent arising out
of or in connection with:
(a) any misrepresentation, omission of fact or breach of any of
the representations or warranties by the Company or any Guarantor contained in
this Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company pursuant to
this Agreement;
(b) any failure by the Company or any Guarantor to perform in
any material respect its respective covenants, agreements, undertakings or
obligations set forth in this Agreement, the annexes, schedules or exhibits
hereto or any instrument, agreement or certificate entered into or delivered by
the Company pursuant to this Agreement; or
(c) any action instituted against the Investors, or any of them,
by any stockholder of the Company who is not an Affiliate of an Investor, with
respect to any of the transactions contemplated by this Agreement.
10.15 Enforcement. The Company agree to pay all costs and expenses,
including the fees and expenses of any attorneys, accountants and other experts
retained by the Investors which are expended or incurred by the Investors in
connection with this Agreement or the Note, the exercise, enforcement, waiver,
consent, amendment, protection or modification of any of its rights or remedies
hereunder or thereunder, or the collection of any sums due hereunder or
thereunder, or any actions or proceedings taken with respect to the Collateral,
whether or not suit is commenced.
-33-
10.16 Representation by Counsel. Each party represents and warrants that
it has been represented by independent counsel in the negotiation of this
Agreement, its Exhibits and Schedules, the Notes and the Warrants, and has
received the advice of its counsel prior to executing this Agreement, the Notes
and the Warrants.
10.17 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), 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 AND UNDERSTANDING THEY ARE WAIVING A CONSTITUTIONAL RIGHT, THE
PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER IN CONTRACT, TORT OR
OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO, THIS
AGREEMENT, THE SECURITIES AND/OR ANY RELATED AGREEMENT OR THE TRANSACTIONS
COMPLETED HEREBY OR THEREBY.
[SIGNATURES ON FOLLOWING PAGE]
-34-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized representatives as of the date
first written above.
"COMPANY" SSP SOLUTIONS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Chief Financial Officer
"GUARANTORS" LITRONIC INDUSTRIES, INC.
(ONLY FOR PURPOSES OF
SECTIONS 5, 6.5 AND 9 OF
THIS AGREEMENT) By: /s/ ▇▇▇▇ ▇▇▇▇
------------------------------------
▇▇▇▇ ▇▇▇▇, President
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Chief Financial Officer
PULSAR DATA SYSTEMS, INCORPORATED
By: /s/ ▇▇▇▇ ▇▇▇▇
------------------------------------
▇▇▇▇ ▇▇▇▇, Chief Executive Officer
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Chief Financial Officer
BIZ INTERACTIVE ZONE, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, President
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Chief Financial Officer
GET/SSP, LLC
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Manager
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
-35-
"PRINCIPALS" By: /s/ ▇▇▇▇ ▇▇▇▇
(ONLY FOR PURPOSES OF ------------------------------------
SECTIONS 4.10 AND 9 OF ▇▇▇▇ ▇▇▇▇
THIS AGREEMENT)
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
REPRESENTATIVE
OF THE INVESTORS
(ONLY FOR PURPOSES OF KINGSPORT CAPITAL PARTNERS, LLC
SECTIONS 5.8 AND 9 OF
THIS AGREEMENT)
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇
Its: Manager
By:
------------------------------------
Its:
"INVESTORS" [INVESTORS' SIGNATURES APPEAR ON
EXHIBIT A]
-36-
EXHIBIT A
INVESTOR INFORMATION AND SIGNATURE PAGE
Amount No. of
Name, Address and Contract Information of Note Warrants Signature
-------------------------------------- ---------- ---------- ----------
Crestview Capital Fund, L.P. $1,075,000 645,000
c/o Kingsport Capital Partners, LLC By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇ ---------------------------
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Title: Manager
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Crestview Capital Fund II, L.P. $400,000 240,000
c/o Kingsport Capital Partners, LLC By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇ ---------------------------
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Title: Manager
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Crestview Offshore Fund, Inc. $25,000 15,000
c/o Kingsport Capital Partners, LLC By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇ ---------------------------
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Title: Manager
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇ $250,000 150,000
c/o Kingsport Capital Partners, LLC By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇ ---------------------------
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ $3,789,667 2,273,800
c/o ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Company By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ---------------------------
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Nefilim Associates, LLC $256,444 153,866
c/o ▇▇▇▇▇ ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ---------------------------
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Title: Managing Partner
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇ ------------------------
EXHIBIT B
DEFINITIONS
"Account Debtor" means any "account debtor" as that term is defined in
the UCC.
"Accounts" means all "accounts" as that term is defined in the UCC, now
owned or hereafter acquired by the Company or any Guarantor, as applicable, and
other forms of obligations in respect of the payment of money (other than forms
of obligations evidenced by Chattel Paper, Documents or Instruments) now owned
or hereafter received or acquired by or belonging or owing to the Company or any
Guarantor, as applicable.
"Affiliate" has the meaning specified in Rule 405 under the Securities
Act.
"Agreements" means all contracts, undertakings or agreements (other than
rights evidenced by Chattel Paper, Documents or Instruments) in or under which
the Company or any Guarantor, as applicable, may now or hereafter have any
right, title or interest.
"Applicable Laws" means any federal, state or local statute, law, rule,
regulation or ordinance applicable to the Company or any Guarantor, as
applicable, or its business, including, without limitation, laws relating to
franchise, building, zoning, health, sanitation, safety or labor relations, and
any order, ruling, judgment or decree of any court, governmental agency or
authority or self-regulatory agency which is binding on the Company or any
Guarantor, as applicable, or its properties.
"Bankruptcy Law" means Title 11 of the U.S. Code or any similar Federal
or state law for the relief of debtors.
"Board of Directors" means the board of directors of any Person.
"Business Day" means any day except Saturday, Sunday and any day which
either is a legal holiday under the laws of the State of California or is a day
on which banking institutions located in such state are authorized or required
by law or other governmental action to close.
"Cash Equivalents" means interest-bearing demand or time deposits that
mature no more than 30 days from the date of creation thereof and that are
either (i) insured by the Federal Deposit Insurance Corporation, or (ii) held in
any United States commercial bank having general obligations rated at least "AA"
or equivalent by Standard & Poor's Corporation or ▇▇▇▇▇'▇ Investors Service and
having capital and surplus of at least $500,000,000 or the equivalent.
"Charge" means any federal, state, county, city, municipal, local,
foreign or other governmental tax at the time due and payable, levy, assessment,
charge, lien, claim or encumbrance upon or relating to: (i) the Collateral; (ii)
the Obligations; (iii) the employees, payroll, income or gross receipts of the
Company; (iv) the ownership or use of any of the assets of the Company; or (v)
any other aspect of the business of the Company.
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"Chattel Paper" means all "chattel paper," as that term is defined in
the UCC, now owned or hereafter acquired by the Company or any Guarantor, as
applicable, wherever located.
"Claim" or "Claims" means any and all manner of action or actions,
proceedings, cause or causes of action, suits, damages (whether general, special
or punitive), debts, liabilities, demands, rights, obligations, costs, expenses,
losses, attorney's and experts' fees (whether or not litigation is commenced),
liens and indemnities of every kind and nature whatsoever, whether known or
unknown, suspected or unsuspected, and whether based on contract, tort, stature
or other legal or equitable theory of recovery or otherwise.
"Collateral" has the meaning set forth in Section 5.2.
"Common Stock" means the common stock, $.01 par value per share, of the
Company.
"Contract" means all of the Company's or any Guarantor's, as applicable,
right, title, and interest in and to each presently existing and hereafter
arising loan account, account, lease, installment sale contract, contract right,
Instrument, note, document, chattel paper, general intangible, and all other
forms of obligations owing to the Company or any Guarantor, as applicable, all
rights of the Company or any Guarantor, as applicable, to receive payment
thereof, together with all other rights of the Company or any Guarantor, as
applicable, obtained in connection therewith, and any collateral therefor.
"Contract Debtor" means each person who is obligated to the Company or
any Guarantor, as applicable, to perform any duty under or to make any payment
pursuant to the terms of a Contract.
"Conversion Shares" means the shares of the Company's Common Stock
issuable upon conversion of the Notes.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or lapse of time or
both would be, an Event of Default.
"Documents" means all "documents," as that term is defined in the UCC,
now owned or hereafter acquired by the Company or any Guarantor, as applicable,
wherever located.
"Equipment" means all "equipment," as that term is defined in the UCC,
now or hereafter owned or acquired by the Company or any Guarantor, as
applicable, or in which the Company or any Guarantor, as applicable, has any
interest, wherever located.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder, all as the same
shall be in effect at the time.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder, all as
the same shall be in effect at the time.
"Fixtures" means all "fixtures," as that term is defined in the UCC, now
or hereafter owned or acquired by the Company or any Guarantor, as applicable,
wherever located.
"GAAP" means generally accepted accounting principles and practices set
forth in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board.
"General Intangibles" means all "general intangibles," as that term is
defined in the UCC, including but not limited to patents and trademarks, now
owned or hereafter acquired by the Company or any Guarantor, as applicable.
"Goods" means all "goods," as that term is defined in the UCC, now owned
or hereafter acquired by the Company or any Guarantor, as applicable, wherever
located.
"Goodwill" means all goodwill, trade secrets, proprietary or
confidential information, technical information, proprietary software and
computer source code, procedures, formulae, quality control standards, designs,
operating and training manuals, customer lists, client databases, candidate
databases, distribution agreements and general intangibles now owned or
hereafter acquired by the Company or any Guarantor, as applicable.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guarantee" or "Guaranty" means (i) any guarantee (other than by
endorsement of negotiable instruments for collection in the ordinary course of
business), direct or indirect, in any manner, of any Indebtedness or other
obligation and (ii) any agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of Indebtedness or any
other obligation, including, without limiting the foregoing, any indemnification
agreement, warranty and any agreement to pay amounts drawn down by letters of
credit. The amount of a Guarantee shall be deemed to be the maximum amount of
the obligation guaranteed for which the guarantor could be held liable under
such Guarantee.
"Holder" means the Person in whose name a Note is registered on the
Company's books.
"Indebtedness" means (without duplication), when used with reference to
any Person, (i) any indebtedness, contingent or otherwise, in respect of
borrowed money (whether or not the recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof), or evidenced by bonds,
notes, debentures or similar instruments or letters of credit or representing
the unpaid balance of the purchase price of any property (including any such
balance that constitutes a trade payable in excess of $10,000 incurred in the
ordinary course of business that is overdue by more than 60 days from its due
date and is not being contested in good faith, (ii)
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the principal component of any capital lease obligations of that Person, (iii)
the maximum fixed repurchase price of any redeemable stock of that Person, (iv)
the maximum amount payable under any earnout agreement, contingent payment
obligation, deferred financing fee or similar deferred or contingent obligation,
(v) obligations secured by a Lien to which any property or asset, including
leasehold interests and any other tangible or intangible property rights, owned
by that Person is subject, whether or not the obligations secured thereby have
been assumed by that Person, and (vi) Guarantees of items which would be
included within this definition regardless of whether the items would appear
upon the balance sheet.
"Instruments" means all "instruments," as that term is defined in the
UCC, now owned or hereafter acquired by the Company or any Guarantor, as
applicable, wherever located.
"Intangible Assets" means all intangible assets (determined in
conformity with GAAP) including, without limitation, goodwill, intellectual
property, licenses, organizational costs, deferred amounts, covenants not to
compete, unearned income and restricted funds.
"Interest Shares" means any shares of Common Stock of the Company issued
by the Company to holders of the Notes in satisfaction of the Company's
quarterly interest payment obligations becoming due under the Notes prior to the
maturity of the Notes.
"Inventory" means all "inventory" as that term is defined in the UCC, in
all of its forms, now owned or held, or hereafter acquired by the Company or any
Guarantor, as applicable, wherever located.
"Investment Property" means all "investment property" as that term is
defined in the UCC, now owned or hereafter acquired by the Company or any
Guarantor, as applicable, wherever located.
"Leases" means all of those leasehold estates in real property now owned
or hereafter acquired by the Company or any Guarantor, as applicable, as lessee.
"Licenses and Permits" means all licenses, franchises, certificates,
permits, consents, registrations, certificates, memberships and other approvals
of all governmental or regulatory agencies whether Federal, state or local,
necessary to the conduct of its business.
"Lien" means any lien, pledge, mortgage, claim, covenant, restriction,
security interest, charge or encumbrance of any kind, including the interest of
a lessor under a capital lease obligation having substantially the same economic
effect.
"Material Adverse Effect" means an adverse effect on the repayment of
the Obligations to the Investors or, with respect to any Person, a material
adverse effect on the condition (financial or otherwise), business, results of
operations, prospects or properties of that Person.
"Obligations" means any and all indebtedness, claims, debts, liabilities
or obligations of the Company owing to the Investors (or any assignee or
transferee of the Investors) under or with respect to this Agreement or the
Notes, together with interest, premiums and fees accruing thereon and costs and
expenses (including attorneys' fees) of collection thereof (including
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interest, fees, costs and expenses accruing after the filing of a petition by or
against the Company under any Bankruptcy Law or any similar federal or state
statute).
"Person" means any individual, trustee, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, limited liability partnership, public
benefit corporation, institution, entity or government.
"Proceeds" means "proceeds," as that term is defined in the UCC.
"Registrable Securities" means, collectively, the Conversion Shares, the
Warrant Shares, the Interest Shares and any securities issued or issuable upon
any stock dividend, stock split, recapitalization, merger, consolidation or
similar event with respect to those shares. As to any particular Registrable
Securities, the securities shall cease to be Registrable Securities when (i) a
registration statement covering the securities has become effective under the
Securities Act and the securities shall have been disposed of in accordance with
the registration statement, (ii) the securities shall have been distributed to
the public pursuant to Rule 144 or Rule 144A (or any successor provisions) under
the Securities Act or (iii) the securities are no longer outstanding.
"Representative of the Investors" means Kingsport Capital Partners, LLC.
"SEC" means the Securities and Exchange Commission or any other Federal
agency at the time administering the Securities Act.
"Securities" means the Notes and the Warrants issuable to the Investors
hereunder and the Conversion Shares and Warrant Shares issuable upon conversion
or exercise thereof and the Interest Shares issuable, at the election of the
Company, in satisfaction of the Company's interest payment obligations under the
Notes.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder, all as the same
shall be in effect at the time.
"Stock" means all shares, options, warrants, general or limited
partnership interests, membership interests, participations or other equivalents
(regardless of how designated) of or in a corporation, partnership, limited
liability company or equivalent entity, whether voting or nonvoting, including,
but not limited to, common stock, preferred stock, or any other "equity
security" (as that term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the Commission under the Exchange Act).
"Subsidiary" and "Subsidiaries" means any Person of which more than 50%
of the total voting power of shares of capital stock (or equivalent interest in
a limited liability company or other entity) entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, officers or
trustees thereof, is at the time owned in the aggregate, directly or indirectly,
by the Company or its Subsidiaries.
"Taxes" means any income, excise, sales, use, stamp or franchise taxes
and any other taxes, fees, duties, levies, withholdings or other charges of any
nature whatsoever imposed by
-5-
any taxing authority, whether Federal, state, local or foreign, together with
any interest and penalties and additions to tax.
"Transferee" means any direct or indirect transferee of all or any part
of the Securities.
"UCC" means the Uniform Commercial Code as it may, from time to time, be
in effect in the State of California; provided, that if, by reason of mandatory
provisions of law, any or all of the attachment, perfection or priority of, or
the remedies with respect to, the Investors' security interest in any Collateral
is governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of California, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
this Agreement relating to such attachment, perfection, priority or remedies and
for purposes of the definitions related to such provisions.
"Warrant Shares" means the shares of the Company's Common Stock issuable
upon exercise of the Warrants.
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DISCLOSURE SCHEDULES
[see attached]
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