SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
December 15, 2004, among Workstream Inc., a Canadian corporation (the
"Company"), and each purchaser identified on the signature pages hereto (each,
including its successors and assigns, a "Purchaser" and collectively the
"Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act (as defined below), and Rule
506 promulgated thereunder, the Company desires to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company, in the aggregate, (a) up to $15,000,000 of shares of Common
Stock of the Company on the Closing Date and (b) warrants to purchase up to
$7,500,000 of shares of Common Stock of the Company (the "Warrants") on the
Closing Date.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in Section
3.1(j).
"Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person as such terms are used in and construed under
Rule 144. With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment
manager as such Purchaser will be deemed to be an Affiliate of such
Purchaser.
"Closing" means the closing of the purchase and sale of the Common
Stock pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers' obligations
to pay the Subscription Amount and (ii) the Company's obligations to
deliver the Securities have been satisfied or waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common shares of the Company, no par value,
and any securities into which such common shares may hereafter be
reclassified.
"Common Stock Equivalents" means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire at any
time Common Stock, including without limitation, any debt, preferred
stock, rights, options, warrants or other instrument that is at any time
convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
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"Company Counsel" means ▇▇▇▇▇▇-▇▇▇▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP or,
with respect to United States securities law matters, Cozen ▇'▇▇▇▇▇▇.
"Disclosure Schedules" means the Disclosure Schedules attached
hereto.
"Effective Date" means the date that the Registration Statement is
first declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Intellectual Property Rights" shall have the meaning ascribed to
such term in Section 3.1(o).
"Liens" means a lien, charge, security interest, encumbrance, right
of first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning ascribed to such
term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).
"Per Share Purchase Price" equals $3.00, subject to adjustment for
reverse and forward stock splits, stock dividends, stock combinations and
other similar transactions of the Common Stock that occur after the date
of this Agreement and prior to or on the Closing Date.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Agreement, among the Company and
each Purchaser, in the form of Exhibit A hereto.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering
the resale by the Purchasers of the Shares.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
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"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the shares of Common Stock and the Warrants
issued to each Purchaser pursuant to this Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means shares of the Common Stock issued to the Purchasers
pursuant to this Agreement, together with any shares of Common Stock
issued upon a stock split, dividend or other distribution,
recapitalization or similar event with respect to the foregoing following
the Closing Date, and any shares of Common Stock into which the Warrants
are exercised from time to time.
"Subscription Amount" means, as to each Purchaser, the amount set
forth below such Purchaser's signature block on the signature page hereto,
in United States dollars and in immediately available funds.
"Subsidiaries" shall mean the subsidiaries of the Company, if any,
set forth on Schedule 3.1(a).
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the Nasdaq SmallCap Market, the American Stock Exchange, the New York
Stock Exchange or the Nasdaq National Market.
"Transaction Documents" means this Agreement and the Registration
Rights Agreement and any other documents or agreements executed in
connection with the transactions contemplated hereunder.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by
Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern
Time to 4:02 p.m. Eastern Time); (b) if the Common Stock is not then
listed or quoted on a Trading Market and if prices for the Common Stock
are then quoted on the OTC Bulletin Board, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on
the OTC Bulletin Board; (c) if the Common Stock is not then listed or
quoted on the OTC Bulletin Board and if prices for the Common Stock are
then reported in the "Pink Sheets" published by the National Quotation
Bureau Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (c) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser
selected in good faith by the Purchasers and reasonably acceptable to the
Company.
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"Warrant Shares" means the Shares of Common Stock issued upon the
exercise of the Warrants.
"Warrants" shall have the meaning ascribed to such term in the
recitals hereto.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, each Purchaser shall purchase from the
Company, severally and not jointly with the other Purchasers, and the Company
shall issue and sell to each Purchaser, (a) a number of Shares equal to such
Purchaser's Subscription Amount divided by the Per Share Purchase Price and (b)
a number of Warrants equal to such Purchaser's Subscription Amount divided by
the product obtained by multiplying the Per Share Purchase Price by two. The
aggregate Subscription Amounts for Shares sold hereunder shall be up to
$15,000,000. Upon satisfaction of the conditions set forth in Section 2.2, the
Closing shall occur at the offices of Cozen ▇'▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, or such other location as the parties shall mutually
agree.
2.2 Deliveries.
(a) On the Closing Date, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a certificate evidencing a number of Shares equal to such
Purchaser's Subscription Amount divided by the Per Share Purchase
Price, registered in the name of such Purchaser;
(iii) a warrant certificate, in the form attached hereto as
Exhibit B, evidencing a number of Warrants equal to such Purchaser's
Subscription Amount divided by the product obtained by multiplying
the Per Share Purchase Price by two, registered in the name of such
Purchaser;
(iv) the Registration Rights Agreement duly executed by the
Company;
(v) a certificate of the Secretary of the Company as to the
Company's Articles of Incorporation, as amended, By-Laws, as
amended, and resolutions of the Board of Directors of the Company
approving the transactions contemplated by the Transaction
Documents; and
(vi) a legal opinion of Company Counsel, in the form of
Exhibit C attached hereto.
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(b) On the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer to
the account as specified in writing by the Company; and
(iii) the Registration Rights Agreement duly executed by such
Purchaser.
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on the
Closing Date of the representations and warranties of the Purchasers
contained herein;
(ii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior to the Closing Date
shall have been performed; and
(iii) the delivery by the Purchasers of the items set forth in
Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being
met:
(i) the accuracy in all material respects on the Closing Date
of the representations and warranties of the Company contained
herein;
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date shall have
been performed;
(iii) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof; and
(v) from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission (except
for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing),
and, at any time prior to the Closing Date, trading in securities
generally as reported by Bloomberg Financial Markets shall not have
been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such service,
or on any Trading Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities
nor shall there have occurred any material outbreak or escalation of
hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in, any
financial market which, in each case, in the reasonable judgment of
each Purchaser, makes it impracticable or inadvisable to purchase
the Securities at the Closing.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the Disclosure Schedules which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser:
(a) Subsidiaries. All of the majority owned direct and indirect
Subsidiaries of the Company are set forth on Schedule 3.1(a). The Company
owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all the
issued and outstanding shares of capital stock of each Subsidiary are
validly issued and are fully paid, non-assessable and free of preemptive
and similar rights to subscribe for or purchase securities. If the Company
has no subsidiaries, then references in the Transaction Documents to the
Subsidiaries will be disregarded.
(b) Organization and Qualification. Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization (as applicable), with the requisite
power and authority to own and use its properties and assets and to carry
on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its
respective articles or certificate of incorporation, by-laws or other
organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing
as a foreign corporation or other entity in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in
good standing, as the case may be, could not have or reasonably be
expected to result in (i) a material adverse effect on the legality,
validity or enforceability of any Transaction Document, (ii) a material
adverse effect on the results of operations, assets, business or financial
condition of the Company and the Subsidiaries, taken as a whole, or (iii)
a material adverse effect on the Company's ability to perform in any
material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a "Material Adverse Effect") and no
Proceeding has been instituted in any ------------------------- such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit
or curtail such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no
further action is required by the Company in connection therewith other
than in connection with the Required Approvals. Each Transaction Document
has been (or upon delivery will have been) duly executed by the Company
and, when delivered in accordance with the terms hereof, will constitute
the valid and binding obligation of the Company enforceable against the
Company in accordance with its terms except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies, and (iii) insofar as indemnification and
contribution may be limited by applicable law.
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(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the issuance and sale of the
Securities, the issuance of Warrant Shares and the consummation by the
Company of the other transactions contemplated thereby do not and will not
(i) conflict with or violate any provision of the Company's or any
Subsidiary's articles or certificate of incorporation, by-laws or other
organizational or charter documents, or (ii) conflict with, or constitute
a default (or an event that with notice or lapse of time or both would
become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, or give to
others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including
federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected, or
(iv) conflict with or violate the terms of any agreement by which the
Company or any Subsidiary is bound or to which any property or asset of
the Company or any Subsidiary is bound or affected; except in the case of
each of clauses (ii), (iii) and (iv), such as could not have or reasonably
be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection
with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) filings required pursuant to Section
4.4 of this Agreement, (ii) the filing with the Commission of the
Registration Statement and any amendments thereto, (iii) application(s) to
the applicable Trading Market for the listing of the Shares for trading
thereon in the time and manner required thereby, and (iv) the filing of
Form D with the Commission and such filings as are required to be made
under applicable state securities laws (collectively, the "Required
Approvals").
(f) Issuance of Shares. The Securities issued pursuant to this
Agreement are duly authorized and the Shares, when issued and paid for in
accordance with the Transaction Documents, will be duly and validly
issued, fully paid and nonassessable, free and clear of all Liens imposed
by the Company other than restrictions on transfer provided for in the
Transaction Documents. Any Warrant Shares, when issued and paid for in
accordance with the warrant certificate, will be duly authorized and, when
the Warrants are properly exercised in accordance with the warrant
certificates, will be duly and validly issued issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents.
The Company has reserved from its duly authorized capital stock the
maximum number of shares of Common Stock issuable pursuant to this
Agreement.
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(g) Capitalization. The capitalization of the Company is as
described in Schedule 3.1(g). Except as set forth in Schedule 3.1(g), the
Company has not issued any capital stock since the date of its most recent
SEC Report other than pursuant to the exercise of employee stock options
under the Company's stock option plans, the issuance of shares of Common
Stock to employees pursuant to the Company's employee stock purchase plan
and pursuant to the conversion or exercise of outstanding Common Stock
Equivalents. No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. Except as a result
of the purchase and sale of the Securities and as set forth on Schedule
3.1(g), there are no outstanding options, warrants, script rights to
subscribe to, calls or commitments of any character whatsoever relating
to, or securities, rights or obligations convertible into or exchangeable
for, or giving any Person any right to subscribe for or acquire, any
shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound
to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. The issue and
sale of the Securities and Warrant Shares will not obligate the Company to
issue shares of Common Stock or other securities to any Person (other than
the Purchasers) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price
under such securities. All of the outstanding shares of capital stock of
the Company are validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, and none
of such outstanding shares was issued in violation of any preemptive
rights or similar rights to subscribe for or purchase securities. No
further approval or authorization of any stockholder, the Board of
Directors of the Company or others is required for the issuance and sale
of the Securities or the issuance of Warrant Shares. Except as disclosed
in the SEC Reports, there are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company's
capital stock to which the Company is a party or, to the knowledge of the
Company, between or among any of the Company's stockholders.
(h) SEC Reports; Financial Statements. The Company has filed all
reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing
materials, including the exhibits thereto, being collectively referred to
herein as the "SEC Reports") on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior
to the expiration of any such extension. As of their respective dates, the
SEC Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when
filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company
included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
during the periods involved ("GAAP"), except as may be otherwise specified
in such financial statements or the notes thereto and except that
unaudited financial statements may not contain all footnotes required by
GAAP, and fairly present in all material respects the financial position
of the Company and its consolidated subsidiaries as of and for the dates
thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
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(i) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in
a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent
with past practice and (B) liabilities not required to be reflected in the
Company's financial statements pursuant to GAAP or required to be
disclosed in filings made with the Commission or incurred in connection
with acquisitions disclosed in the SEC Reports, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Company has not issued
any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans. The Company does not have
pending before the Commission any request for confidential treatment of
information.
(j) Litigation. Except as set forth on Schedule 3.1(j), there is no
action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against the
Company, any Subsidiary or any of their respective properties before or by
any court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an
"Action") which (i) adversely affects or challenges the legality, validity
or enforceability of any of the Transaction Documents, the Securities or
Warrant Shares or (ii) could, if there were an unfavorable decision, have
or reasonably be expected to result in a Material Adverse Effect. Neither
the Company nor any Subsidiary, nor, to the knowledge of the Company, any
director or officer thereof, is or has been the subject of any Action
involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has not
been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company
or, to the knowledge of the Company, any current or former director or
officer of the Company. The Commission has not issued any stop order or
other order suspending the effectiveness of any registration statement
filed by the Company or any Subsidiary under the Exchange Act or the
Securities Act.
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(k) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees
of the Company which could reasonably be expected to result in a Material
Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or
any Subsidiary received notice of a claim that it is in default under or
that it is in violation of, any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any
of its properties is bound (whether or not such default or violation has
been waived), (ii) is in violation of any order of any court, arbitrator
or governmental body, or (iii) is in violation of any statute, rule or
regulation of any governmental authority, including without limitation all
foreign, federal, state and local laws applicable to its business except
in each case as could not have a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not have or
reasonably be expected to result in a Material Adverse Effect ("Material
Permits"), and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any
Material Permit.
(n) Title to Assets. Except as described in the SEC Reports, the
Company and the Subsidiaries have good and marketable title in fee simple
to all real property owned by them that is material to the business of the
Company and the Subsidiaries and good and marketable title in all personal
property owned by them that is material to the business of the Company and
the Subsidiaries, in each case free and clear of all Liens, except for
Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent
nor subject to penalties. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the
Subsidiaries are in compliance, except as could not have a Material
Adverse Effect.
(o) Patents and Trademarks. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses
and other similar rights necessary or material for use in connection with
their respective businesses as described in the SEC Reports and which the
failure to so have could have a Material Adverse Effect (collectively, the
"Intellectual Property Rights"). Neither the Company nor any Subsidiary
has received a written notice that the Intellectual Property Rights used
by the Company or any Subsidiary violates or infringes upon the rights of
any Person. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by
another Person of any of the Intellectual Property Rights of others.
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(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which the Company and the Subsidiaries are engaged. To the best of
Company's knowledge, such insurance contracts and policies are accurate
and complete. Neither the Company nor any Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage
as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as set forth
in the SEC Reports, to the knowledge of the Company, none of the officers
or directors of the Company and none of the employees of the Company are
presently a party to any transaction with the Company or any Subsidiary
(other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal property to
or from, or otherwise requiring payments to or from any officer, director
or such employee or, to the knowledge of the Company, any entity in which
any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of
$60,000, other than (i) for payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of
the Company and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company.
(r) ▇▇▇▇▇▇▇▇-▇▇▇▇▇; Internal Accounting Controls. The Company is in
material compliance with all provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002
which are applicable to it as of the Closing Date. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed
such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made
known to the certifying officers by others within those entities,
particularly during the period in which the Company's most recently filed
periodic report under the Exchange Act, as the case may be, is being
prepared. The Company's certifying officers have evaluated the
effectiveness of the Company's disclosure controls and procedures as of
the date prior to the filing date of the most recently filed periodic
report under the Exchange Act (such date, the "Evaluation Date"). The
Company presented in its most recently filed periodic report under the
Exchange Act the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no significant changes in the Company's internal controls (as
such term is defined in Item 307(b) of Regulation S-K under the Exchange
Act) or, to the Company's knowledge, in other factors that could
significantly affect the Company's internal controls.
11
(s) Certain Fees. No brokerage or finder's fees or commissions are
or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions contemplated by this Agreement.
The Purchasers shall have no obligation (other than with respect to their
own actions) with respect to any fees or with respect to any claims made
by or on behalf of other Persons for fees of a type contemplated in this
Section that may be due in connection with the transactions contemplated
by this Agreement.
(t) Private Placement. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers or the issuance of Warrant
Shares as contemplated hereby. The issuance and sale of the Securities
hereunder does not, and the issuance of Warrant Shares will not,
contravene the rules and regulations of the Trading Market.
(u) Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the Securities, will not
be or be an Affiliate of, an "investment company" within the meaning of
the Investment Company Act of 1940, as amended. The Company shall conduct
its business in a manner so that it will not become subject to the
Investment Company Act.
(v) Registration Rights. Except as set forth on Schedule 3.1(v), no
Person has any right to cause the Company to effect the registration under
the Securities Act of any securities of the Company.
(w) Listing and Maintenance Requirements. The Company's Common Stock
is registered pursuant to Section 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that the Commission is contemplating terminating such registration. The
Company has not, in the 12 months preceding the date hereof, received
notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with
the listing or maintenance requirements of such Trading Market. The
Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.
(x) Application of Takeover Protections. The Company and its Board
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other
similar anti-takeover provision under the Company's Articles of
Incorporation (or similar charter documents) or the laws of its place of
incorporation that is or could become applicable to the Purchasers as a
result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including without
limitation the Company's issuance of the Securities and Warrant Shares and
the Purchasers' ownership of the Securities and Warrant Shares.
12
(y) Disclosure. The Company confirms that, neither the Company nor
any other Person acting on its behalf has provided any of the Purchasers
or their agents or counsel with any information that constitutes or might
constitute material, non-public information. The Company understands and
confirms that the Purchasers will rely on the foregoing representations
and covenants in effecting transactions in securities of the Company. All
disclosure provided to the Purchasers regarding the Company, its business
and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, furnished by or on behalf of the Company with
respect to the representations and warranties made herein are true and
correct with respect to such representations and warranties and do not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. The
Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3.2
hereof.
(z) No Integrated Offering. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, neither the
Company, nor any of its Affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances
that would cause this offering of the Securities to be integrated with
prior offerings by the Company for purposes of the Securities Act or any
applicable shareholder 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.
(aa) Solvency. Based on the financial condition of the Company as of
the Closing Date after giving effect to the receipt by the Company of the
proceeds from the sale of the Securities hereunder, (i) the Company's fair
saleable value of its assets exceeds the amount that will be required to
be paid on or in respect of the Company's existing debts and other
liabilities (including known contingent liabilities) as they mature; (ii)
the Company's assets do not constitute unreasonably small capital to carry
on its business for the current fiscal year as now conducted and as
proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the
Company, and projected capital requirements and capital availability
thereof; and (iii) the current cash flow of the Company, together with the
proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its debt when such
amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be payable on or in respect of
its debt).
13
(bb) Form S-3 Eligibility. The Company is eligible to register the
resale of its Common Stock by the Purchasers under Form S-3 promulgated
under the Securities Act and the Company hereby covenants and agrees to
use its best efforts to maintain its eligibility to use Form S-3 until the
Registration Statement covering the resale of the Shares shall have been
filed with, and declared effective by, the Commission.
(cc) Taxes. Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, the Company and each Subsidiary have filed all necessary
federal, state and foreign income and franchise tax returns and have paid
or accrued all taxes shown as due thereon, and the Company has no
knowledge of a tax deficiency which has been asserted or threatened
against the Company or any Subsidiary.
(dd) General Solicitation. Neither the Company nor any person acting
on behalf of the Company has offered or sold any of the Securities by any
form of general solicitation or general advertising. The Company has
offered the Securities for sale only to the Purchasers and certain other
"accredited investors" within the meaning of Rule 501 under the Securities
Act.
(ee) Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of
the Company, has (i) directly or indirectly, used any corrupt funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds,
(iii) failed to disclose fully any contribution made by the Company (or
made by any person acting on its behalf of which the Company is aware)
which is in violation of law, or (iv) violated in any material respect any
provision of the Foreign Corrupt Practices Act of 1977, as amended.
(ff) Accountants. The Company's accountants are
PricewaterhouseCoopers LLP. To the Company's knowledge, such accountants,
who the have expressed their opinion with respect to the financial
statements included in the Company's Annual Report on Form 10-K for the
year ended May 31, 2004, are independent accountants as required by the
Securities Act.
(gg) Acknowledgment Regarding Purchasers' Purchase of Securities.
The Company acknowledges and agrees that each of the Purchasers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby. The
Company further acknowledges that no Purchaser is acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement and the transactions contemplated hereby and any
advice given by any Purchaser or any of their respective representatives
or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Purchasers' purchase of
the Securities. The Company further represents to each Purchaser that the
Company's decision to enter into this Agreement has been based solely on
the independent evaluation of the transactions contemplated hereby by the
Company and its representatives.
14
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by such
Purchaser of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate or similar action on the part
of such Purchaser. Each Transaction Document to which it is a party has
been duly executed by such Purchaser, and when delivered by such Purchaser
in accordance with the terms hereof, will constitute the valid and legally
binding obligation of such Purchaser, enforceable against it in accordance
with its terms, except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(b) Purchaser Representation. Such Purchaser understands that the
Securities are, and the Warrant Shares will be, "restricted securities"
and have not been registered under the Securities Act or any applicable
state securities law and is acquiring the Securities and any Warrant
Shares as principal for its own account and not with a view to or for
distributing or reselling such Securities, Warrant Shares or any part
thereof, has no present intention of distributing any of such Securities
or Warrant Shares and has no arrangement or understanding with any other
persons regarding the distribution of such Securities or Warrant Shares
(this representation and warranty not limiting such Purchaser's right to
sell the Securities or Warrant Shares pursuant to the Registration
Statement or otherwise in compliance with applicable federal and state
securities laws). Such Purchaser is acquiring the Securities hereunder and
any Warrant Shares in the ordinary course of its business. Such Purchaser
does not have any agreement or understanding, directly or indirectly, with
any Person to distribute any of the Securities or any Warrant Shares.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, an "accredited investor"
as defined in Rule 501(a) under the Securities Act. Such Purchaser is not
required to be registered as a broker-dealer under Section 15 of the
Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
15
(e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement. (f) Securities Filings. The Purchasers acknowledge that
they have been provided with copies of and have reviewed the following
documents, which have been filed by the Company with the Commission
pursuant to the Exchange Act (collectively, the "Disclosure Reports" and,
and, together with this Agreement and the Disclosure Schedule to this
Agreement, the "Disclosure Materials"): (i) the Company's Annual Report on
Form 10-K, as amended, for the fiscal year ended May 31, 2004; (ii) the
Company's Quarterly Reports on Form 10-Q for the quarter ended August 31,
2004 and (iii) the Company's proxy statement with respect to its 2004
annual meeting.
(g) Offering Exemption. The Purchasers understand that the
Securities are being offered and sold in reliance upon specific exemptions
from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and
accuracy of the representations, warranties, agreements, acknowledgements
and understandings set forth herein in order to determine the
applicability of such exemptions and the suitability of the Purchasers to
acquire the Securities.
(h) Access to Information. The Purchasers acknowledge that they have
reviewed the Disclosure Materials and have been afforded (i) the
opportunity to ask such questions as they have deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms
and conditions of the offering of the Securities and the merits and risks
of investing in the Securities; (ii) access to information about the
Company and the Subsidiaries and their respective financial condition,
results of operations, business, properties, management and prospects
sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information that the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the
investment.
The Company acknowledges and agrees that each Purchaser does not make or
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities and any Warrant Shares may only be disposed of in
compliance with state and federal securities laws. In connection with any
transfer of Securities and Warrant Shares, other than pursuant to an
effective registration statement, pursuant to Rule 144 (subject to the
Company's receipt of routine backup documentation from the Purchaser) or
to the Company, the Company may require the transferor thereof to provide
to the Company an opinion of counsel selected by the transferor and
reasonably acceptable to the Company, the form and substance of which
opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred
Securities or Warrant Shares under the Securities Act. As a condition of
transfer, any such transferee shall agree in writing to be bound by the
terms of this Agreement and shall have the rights of a Purchaser under
this Agreement and the Registration Rights Agreement.
16
(b) The Purchasers agree to the imprinting, so long as is required
by this Section 4.1(b), of a legend on any certificates evidencing the
Shares in the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, HAVE BEEN TAKEN FOR
INVESTMENT AND MAY NOT BE SOLD OR OFFERED FOR SALE UNLESS A
REGISTRATION STATEMENT UNDER THE FEDERAL SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER THE SECURITIES LAWS OF ANY APPLICABLE STATE WITH
RESPECT TO THESE SHARES, IS THEN IN EFFECT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT OR THE APPLICABLE STATE
SECURITIES LAWS ARE THEN IN FACT APPLICABLE TO THE OFFER OR SALE.
The Company acknowledges and agrees that a Purchaser may from time
to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the
Securities and any Warrant Shares to a financial institution that is an
"accredited investor" as defined in Rule 501(a) under the Securities Act
and who agrees to be bound by the provisions of this Agreement and the
Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer such pledged or secured
Securities or Warrant Shares to the pledgees or secured parties. Such a
pledge or transfer would not be subject to approval of the Company and no
legal opinion of legal counsel of the pledgee, secured party or pledgor
shall be required in connection with the pledge. Further, no notice shall
be required of such pledge. At the appropriate Purchaser's expense, the
Company will execute and deliver such reasonable documentation as a
pledgee or secured party of Securities or Warrant Shares may reasonably
request in connection with a pledge or transfer of the Securities or
Warrant Shares, including, if the Securities or Warrant Shares are subject
to registration pursuant to the Registration Rights Agreement, the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of selling stockholders
thereunder.
(c) Certificates evidencing the Shares shall not contain any legend
(including the legend set forth in Section 4.1(b)), (i) while a
registration statement (including the Registration Statement) covering the
resale of such Shares is effective under the Securities Act, or (ii)
following any sale of such Shares pursuant to Rule 144, or (iii) if such
Shares are eligible for sale under Rule 144(k) (subject to receipt of
routine backup documentation demonstrating eligibility for such rule), or
(iv) if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements
issued by the Staff of the Commission). The Company shall cause its
counsel to issue a legal opinion to the Company's transfer agent promptly
after the Effective Date if required by the Company's transfer agent to
effect the removal of the legend hereunder. The Company agrees that
following the Effective Date or at such time as such legend is no longer
required under this Section 4.1(c), it will, no later than five Trading
Days following the delivery by a Purchaser to the Company or the Company's
transfer agent of a certificate representing Shares issued with a
restrictive legend (such date, the "Legend Removal Date"), deliver or
cause to be delivered to such Purchaser a certificate representing such
Shares that is free from all restrictive and other legends. Unless
required under applicable law, the Company may not make any notation on
its records or give instructions to any transfer agent of the Company that
enlarge the restrictions on transfer set forth in this Section.
17
(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages
and not as a penalty, for each $1,000 of Shares (based on the VWAP of the
Common Stock on the date such Shares are submitted to the Company's
transfer agent) subject to Section 4.1(c), $1 per Trading Day (increasing
to $2 per Trading Day five (5) Trading Days after such damages have begun
to accrue) for each Trading Day after the Legend Removal Date until such
certificate is delivered. Nothing herein shall limit such Purchaser's
right to pursue actual damages for the Company's failure to deliver
certificates representing any Shares as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Shares as set forth in this Section 4.1 is
predicated upon the Company's reliance that the Purchaser will sell any
Shares pursuant to either the registration requirements of the Securities
Act, including any applicable prospectus delivery requirements, or an
exemption therefrom, which Purchaser hereby covenants to do.
(f) Until the date that each Purchaser holds less than 20% of the
Shares initially purchased hereunder by such Purchaser, the Company shall
not undertake a reverse or forward stock split or reclassification of the
Common Stock without the prior written consent of the Purchasers holding a
majority in interest of the Shares, except in connection with seeking to
satisfy listing and maintenance requirements of the Trading Market.
4.2 Furnishing of Information. As long as any Purchaser owns Securities or
Warrant Shares, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Purchaser owns Securities or Warrant Shares and
until the Purchaser is eligible to use Rule 144(k), if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
or Warrant Shares under Rule 144. The Company further covenants that it will
take such further action as any holder of Securities or Warrant Shares may
reasonably request, all to the extent required from time to time to enable such
Person to sell such Securities or Warrant Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.
18
4.3 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.
4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m.
Eastern time on the Trading Day following the date hereof, issue a press release
or file a Current Report on Form 8-K, in each case reasonably acceptable to each
Purchaser disclosing the material terms of the transactions contemplated hereby.
The Company and each Purchaser shall consult with each other in issuing any
other press releases with respect to the transactions contemplated hereby, and
neither the Company nor any Purchaser shall issue any such press release or
otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of any Purchaser, or without the
prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (i) as required by federal
securities law in connection with the registration statement contemplated by the
Registration Rights Agreement and (ii) to the extent such disclosure is required
by other law or Trading Market regulations, in which case the Company shall
provide the Purchasers with prior notice of such disclosure permitted under
subclause (i) or (ii).
4.5 Shareholders Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholders rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities or Warrant Shares under the Transaction Documents
or under any other agreement between the Company and the Purchasers. The Company
shall conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.6 Non-Public Information. The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.
19
4.7 Use of Proceeds. Except as set forth on Schedule 4.7 attached hereto,
the Company shall use the net proceeds from the sale of the Securities hereunder
and the exercise of Warrants for working capital purposes and for the
satisfaction of any portion of the Company's debt (including but not limited to
the payment of trade payables in the ordinary course of the Company's business
and prior practices).
4.8 Indemnification of Purchasers. Subject to the provisions of this
Section 4.8, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser's representations, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing. Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is a material
conflict on any material issue between the position of the Company and the
position of such Purchaser Party. The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party
effected without the Company's prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party's
breach of any of the representations, warranties, covenants or agreements made
by the Purchasers in this Agreement or in the other Transaction Documents.
4.9 Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement.
4.10 Listing of Common Stock. The Company hereby agrees to use best
efforts to maintain the listing of the Common Stock on the Trading Market, and
as soon as reasonably practicable following the Closing (but not later than the
earlier of the Effective Date and the first anniversary of the Closing Date) to
list all of the Shares on the Trading Market. The Company further agrees, if the
Company applies to have the Common Stock traded on any other Trading Market, it
will include in such application all of the Shares (including only those Shares
into which the Purchasers have exercised their Warrants at the time of such
application), and will take such other action as is necessary to cause the
Shares to be listed on such other Trading Market as promptly as possible. The
Company will take all action reasonably necessary to continue the listing and
trading of its Common Stock on a Trading Market and will comply in all material
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Trading Market.
20
4.11 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended to treat for the Company the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or Warrant Shares
or otherwise.
4.12 Delivery of Securities After Closing. The Company shall deliver, or
cause to be delivered, the respective Securities purchased by each Purchaser to
such Purchaser within 3 Trading Days of the Closing Date.
ARTICLE V.
MISCELLANEOUS
5.1 Fees and Expenses. Except as otherwise set forth in this Agreement,
each party shall pay the fees and expenses of its advisers, counsel, accountants
and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement. The Company shall pay all stamp and other taxes and duties
levied in connection with the sale of the Securities.
5.2 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 6:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading
Day, (c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.3 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each Purchaser or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
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5.4 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.5 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities or Warrant Shares, provided such
transferee agrees in writing to be bound, with respect to the transferred
Securities or Warrant Share , by the provisions hereof that apply to the
Purchasers.
5.6 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.8.
5.7 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. The parties hereby waive all rights to a trial by jury. If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys' fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
22
5.8 Survival. The representations and warranties herein shall survive for
three years following the Closing and delivery of the Securities.
5.9 Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.10 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.11 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time
prior to the Company's performance upon written notice to the Company, any
relevant notice, demand or election in whole or in part without prejudice to its
future actions and rights.
5.12 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.14 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
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5.15 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. The Company has
elected to provide all Purchasers with the same terms and Transaction Documents
for the convenience of the Company and not because it was required or requested
to do so by the Purchasers.
5.16 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
(Signature Page Follows)
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IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
WORKSTREAM INC. Address for Notice:
-------------------
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
---------------------- Suite 410
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Title: Chief Executive Officer
With a copy to (which shall not constitute notice):
▇▇▇▇▇▇-▇▇▇▇▇▇▇▇▇, Hill and ▇▇▇▇▇▇▇▇▇ LLP
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
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[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Investing Entity: Rubicon Master Fund
------------------------------------------------------
Signature of Authorized Signatory of
Investing Entity: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
----------------------------------
Name of Authorized Signatory: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------------------------------------
Title of Authorized Signatory: Partner
--------------------------------------------------
Email Address of Authorized Entity:
---------------------------------------------
Address for Notice of Investing Entity:
Address for Delivery of Securities for Investing Entity (if not same as above):
Subscription Amount: $7,500,000
Securities: 2,500,000 shares of Common Stock of Workstream Inc. and warrants to
purchase 1,250,000 shares of Common Stock at a price of $3.50
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
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[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Investing Entity: Union Spring Fund Ltd.
------------------------------------------------------
Signature of Authorized Signatory of Investing Entity: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------
Name of Authorized Signatory: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------------------
Title of Authorized Signatory: Director
-------------------------------------------------
Email Address of Authorized Entity:
---------------------------------------------
Address for Notice of Investing Entity:
Address for Delivery of Securities for Investing Entity (if not same as above):
Subscription Amount: $2,500,000
Securities:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
27
[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investing Entity: Sunrise Equity Partners LP
------------------------------------------------------
Signature of Authorized Signatory of Investing Entity: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
-------------------------
Name of Authorized Signatory: ▇▇▇▇▇▇▇ ▇▇▇▇▇
---------------------------------------------------
Title of Authorized Signatory: Manager of Level Counter, LLC, the general
partner of Sunrise Equity Parnters, LP
--------------------------------------------------------------------------------
Email Address of Authorized Entity:
---------------------------------------------
Address for Notice of Investing Entity:
Address for Delivery of Securities for Investing Entity (if not same as above):
Subscription Amount: $2,000,000
Securities: common stock and warrants
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investing Entity: Sunrise Foundation Trust
------------------------------------------------------
Signature of Authorized Signatory of Investing Entity: /s/ ▇▇▇▇▇▇ ▇. Low
-------------------------
Name of Authorized Signatory: ▇▇▇▇▇▇ ▇. Low
---------------------------------------------------
Title of Authorized Signatory: -------------------------------------------------
Email Address of Authorized Entity:
---------------------------------------------
Address for Notice of Investing Entity:
Address for Delivery of Securities for Investing Entity (if not same as above):
Subscription Amount: $1,000,002
Securities: 333,334 shares of Common Stock of Workstream, Inc. and warrants
to purchase 166,667 shares of Common Stock at a price of $3.50
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investing Entity: ▇▇▇▇▇▇ ▇. Low
------------------------------------------------------
Signature of Authorized Signatory of Investing Entity: /s/ ▇▇▇▇▇▇ ▇. Low
-------------------------
Name of Authorized Signatory: ▇▇▇▇▇▇ ▇. Low
---------------------------------------------------
Title of Authorized Signatory: -------------------------------------------------
Email Address of Authorized Entity:
---------------------------------------------
Address for Notice of Investing Entity:
Address for Delivery of Securities for Investing Entity (if not same as above):
Subscription Amount: $1,000,002
Securities: 333,334 shares of Common Stock of Workstream, Inc. and warrants
to purchase 166,667 shares of Common Stock at a price of $3.50
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
28