Exhibit 4.17
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ELECTRIC CITY CORP.
SECURITIES PURCHASE AGREEMENT
DATED AS OF MAY 31, 2002
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SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (as it may be amended from time to time,
this "AGREEMENT"), is entered into as of May 31, 2002 by Electric City Corp., a
Delaware corporation (the "COMPANY"), and the purchaser whose name appears on
the signature page of this Agreement (the "PURCHASER").
W I T N E S S E T H:
WHEREAS, the Company desires to sell and issue to the Purchaser shares of
its Series C Convertible Preferred Stock, $.01 par value per share ("SERIES C
PREFERRED STOCK"), together with warrants to purchase shares of Series C
Preferred Stock, shares of its common stock, par value $0.0001 ("COMMON STOCK"),
and warrants to purchase shares of its Common Stock, all as more fully described
herein; and
WHEREAS, Purchaser desires to purchase such securities from the Company in
the amounts and for the purchase price and otherwise on the terms and subject to
the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 The following terms when used in this Agreement, including its preamble
and recitals, shall, except where the context otherwise requires, have the
following meanings, such meanings to be equally applicable to the singular and
plural forms thereof:
"AFFILIATE" means, as applied to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), as applied to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of such Person, whether through the ownership
of voting securities or by contract or otherwise.
"AGREEMENT" shall have the meaning set forth in the preamble of this
Agreement.
"ANCILLARY AGREEMENTS" means the Stockholders Agreement, the Investor
Rights Agreement, the Series C Preferred Stock Warrants, the Common Stock
Warrants and the Trading Agreement.
"ASSETS" shall have the meaning set forth in SECTION 5.5 hereof.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other
day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
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"CERTIFICATE OF DESIGNATIONS" means the Certificate of Designations,
Preferences and Relative, Participating, Optional and Other Special Rights
of Preferred Stock and Qualifications, Limitations and Restrictions Thereof
of Series C Convertible Preferred Stock of the Company, as filed with the
Secretary of State of Delaware.
"CERTIFICATE OF INCORPORATION" means the Amended Certificate of
Incorporation of the Company, as amended or restated from time to time.
"CLOSING" shall have the meaning set forth in SECTION 2.2 hereof.
"CLOSING DATE" shall have the meaning set forth in SECTION 2.2
hereof.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the United States Securities and Exchange
Commission or any other governmental authority at the time administering
the Securities Act or the Exchange Act.
"COMMISSION DOCUMENTS" shall have the meaning set forth in SECTION
5.25 hereof.
"COMMON SHARES" means the shares of Common Stock to be issued by the
Company to the Purchaser hereunder.
"COMMON STOCK" shall have the meaning set forth in the Recitals
hereof.
"COMMON STOCK WARRANTS" means the warrants to be issued by the
Company to Purchaser to purchase 281,250 shares of Common Stock, as
evidenced by a Warrant Certificate, as the same may be amended from time to
time in accordance with the terms thereof.
"COMPANY" shall have the meaning set forth in the preamble of this
Agreement.
"COMPANY IP" shall have the meaning set forth in SECTION 5.13 hereof.
"COMPANY PERSONNEL" shall have the meaning set forth in SECTION
5.15(a) hereof.
"CONVERSION PRICE" shall have the meaning set forth in Section 7(a)
of the Certificate of Designations.
"CONVERSION STOCK" shall have the meaning set forth in SECTION 6.1
hereof.
"CUSTOMERS" shall have the meaning set forth in SECTION 5.20 hereof.
"EMPLOYEE PLANS" shall have the meaning set forth in SECTION 5.15(a)
hereof.
"ENVIRONMENTAL CONDITION" shall have the meaning set forth in SECTION
5.16(i) hereof.
"ENVIRONMENTAL LAW" shall have the meaning set forth in SECTION
5.16(f) hereof.
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"ERISA" shall have the meaning set forth in SECTION 5.15(a) hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any similar or successor federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect from time
to time.
"GOVERNMENTAL AUTHORITY" means the government of any nation, state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"HAZARDOUS SUBSTANCES" shall have the meaning set forth in SECTION
5.16(g) hereof.
"INTERIM FINANCIAL STATEMENTS" shall have the meaning set forth in
SECTION 5.8 hereof.
"INVESTOR RIGHTS AGREEMENT" means the Investor Rights Agreement dated
as of July 31, 2001, by and among the Company and the Series A Holders, as
amended from time to time in accordance with the terms thereof.
"LIQUIDATION AMOUNT" shall have the meaning set forth in the
Certificate of Designations.
"LITIGATION" shall have the meaning set forth in SECTION 3.1(k)
hereof.
"LOSSES" shall have the meaning set forth in SECTION 8.1 hereof.
"OFFICER'S CERTIFICATE" means a certificate of the Company signed by
its Chief Executive Officer or Chief Financial Officer.
"PERSON" means an individual, a corporation, a limited liability
company, an association, a partnership, a trust or estate, a government or
any department or agency thereof.
"PLACEMENT AGENT" shall mean Delano Group Securities, LLC.
"PREFERRED SHARES" means shares of Series C Preferred Stock.
"PROPERTIES" shall have the meaning set forth in SECTION 5.16(c)
hereof.
"PURCHASER" shall have the meanings set forth in the preamble of this
Agreement.
"PURCHASE PRICE" shall have the meaning set forth in SECTION 2.2
hereof.
"REGULATORY APPROVALS" means (a) any and all certificates, permits,
licenses, franchises, concessions, grants, consents, approvals, orders,
registrations, authorizations, waivers, variances, exemptions,
declarations, or clearances from, or filings or
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registrations with, or reports or notices to, any Governmental Authority,
and (b) any and all waiting periods imposed by applicable laws.
"RELEASE" shall have the meaning set forth in SECTION 5.16(h) hereof.
"SECURITIES" shall have the meaning set forth in SECTION 2.1 hereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
any similar or successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same may be in effect from time to
time.
"SERIES C PREFERRED STOCK" shall have the meaning set forth in the
Recitals to this Agreement.
"SERIES C PREFERRED STOCK WARRANTS" means the warrants to be issued
by the Company to Purchaser to purchase 50,000 shares of Series C Preferred
Stock, as evidenced by a Warrant Certificate, as the same may be amended
from time to time in accordance with the terms thereof.
"STATED VALUE" of the Series C Preferred Stock shall mean $10.00 per
share.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement dated the
Closing Date, by and among the Company and the Series A Holders, as amended
from time to time in accordance with the terms thereof.
"STOCK TRADING AGREEMENT" means the Stock Trading Agreement dated the
Closing Date, by and among Newcourt Capital Securities, Inc., the Series A
Holders, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, as amended from time to time in accordance with the terms
thereof.
"SUBSIDIARY" of a Person means any corporation, association,
partnership, joint venture or other business entity of which more than 50%
of the voting stock or other equity interests (in the case of Persons other
than corporations), is owned or controlled, directly or indirectly, by the
Person, or one or more of the Subsidiaries of the Person, or a combination
thereof.
"TAXES" means any federal, state, county, local or foreign taxes,
charges, fees, levies, or other assessments, including, without limitation,
all net income, gross income, sales and use, ad valorem, transfer, gains,
profits, excise, franchise, real and personal property, gross receipt,
capital stock, business and occupation, disability, employment, payroll,
license, estimated, or withholding taxes or charges imposed by any
governmental entity, and includes any interest and penalties on or
additions to any such taxes (and, in the case of the Company and its
Subsidiaries, Taxes for which the Company or any of its Subsidiaries may be
liable in its own right, or as the transferee of the assets of, or as
successor to, any other corporation, association, partnership, joint
venture, or other entity, or under Treasury Regulation Section 1.1502-6 or
any similar provision of state or local law).
"TAX RETURN" means a report, return or other information required to
be supplied to a Governmental Authority with respect to Taxes including,
where permitted or
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required, combined, unitary, group or consolidated returns for any group of
entities that includes the Company or any of its Subsidiaries.
"TERM SHEET" means Schedule II hereto.
"TRANSACTIONS" shall have the meaning set forth in SECTION 3.1(k).
"TRANSACTION DOCUMENTS" shall have the meaning set forth in SECTION
5.1(b) hereof.
"UNION PLAN" means the defined contribution plan described on
Schedule 5.15(g) hereof.
"WARRANT CERTIFICATE" means a warrant certificate evidencing either
Common Stock Warrants or Series C Preferred Stock Warrants, duly executed
by the Company and delivered to the Purchaser pursuant to this Agreement,
and any replacement certificate issued by the Company in respect thereof
pursuant to partial exercise, transfer, loss or mutilation of any such
warrant certificate, as any such original or replacement certificate may be
amended and in effect from time to time.
ARTICLE II
ISSUE, PURCHASE AND SALE OF THE SECURITIES
2.1 AUTHORIZATION OF ISSUANCE OF SECURITIES. The Company has authorized the
initial issuance of (a) 200,000 Preferred Shares to be issued hereunder, having
the powers, designations, preferences and relative rights and the
qualifications, limitations and restrictions set forth in the Certificate of
Designations, and (b) up to 50,000 Preferred Shares upon exercise of the Series
C Preferred Stock Warrants, and (c) such additional shares of Series C Preferred
Stock as may be necessary to pay in-kind accrued but unpaid dividends on the
shares of Series C Preferred Stock referred to in clauses (a) and (b) preceding
for up to three (3) years; and (d) the Series C Preferred Stock Warrants; and
(e) the Common Stock Warrants, and (f) 30,082 Common Shares. The 200,000
Preferred Shares, 30,082 Common Shares, Series C Preferred Stock Warrants and
Common Stock Warrants to be issued pursuant to this Agreement are collectively
referred to herein as the "SECURITIES".
2.2 PURCHASE AND SALE OF SECURITIES; CLOSING. Subject to the terms and
conditions herein set forth, the Company hereby agrees to sell to Purchaser, and
Purchaser agrees to purchase from the Company, at the Closing (as defined
herein), for an aggregate purchase price of Two Million and no/100 Dollars
($2,000,000.00) (the "PURCHASE PRICE") the Securities. Subject to the
satisfaction or waiver of the parties' respective conditions to closing set
forth in Sections 3.1 and 3.2, the closing of the purchase and sale of the
Securities (the "CLOSING") shall take place on May 31, 2002, or at such other
time and on such other date as the Purchaser and the Company may agree (the
"CLOSING DATE"), at the offices of Purchaser or at such other location as the
Purchaser and the Company may agree. At the Closing, the Company will deliver to
Purchaser one or more stock certificates, as Purchaser may request, registered
in Purchaser's name evidencing the shares of Series C Preferred Stock and shares
of Common Stock to be purchased by Purchaser, together with the Common Stock
Warrants and the Series C Preferred Stock Warrants, against payment of the
Purchase Price therefore by wire transfer of immediately available funds to or
upon the order by the Company.
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ARTICLE III
CONDITIONS OF CLOSING
3.1 PURCHASER CONDITIONS TO CLOSING. Purchaser's obligation to purchase and
pay for the Securities to be purchased by Purchaser at the Closing is subject to
the satisfaction, as determined by, or waived by, Purchaser on or before the
Closing Date, of the following conditions:
(a) RECEIPT OF SECURITIES. Purchaser shall have received delivery of
the stock certificates and Warrant Certificates evidencing the Securities,
duly issued by the Company;
(b) OPINION OF THE COMPANY'S COUNSEL. Purchaser shall have received
from Schwartz, Cooper, ▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Chartered, special counsel to
the Company in connection with this transaction, an opinion dated on the
Closing Date;
(c) STOCKHOLDERS AGREEMENT AMENDMENT. The Stockholders Agreement
shall have been amended by the parties thereto to include the Purchaser as
a party thereto on terms consistent with the Term Sheet and otherwise
reasonably acceptable to the Purchaser;
(d) INVESTOR RIGHTS AGREEMENT. The Investor Rights Agreement shall
have been have been amended by the parties thereto to include the Purchaser
as a party thereto on terms consistent with the Term Sheet and otherwise
reasonably acceptable to the Purchaser;
(e) STOCK TRADING AGREEMENT. The Stock Trading Agreement shall have
been entered into an delivered by Purchaser;
(f) EXPENSES. The Company shall have paid the reasonable fees and
expenses of Purchaser's counsel, if any, incurred in connection with the
private placement contemplated by this Agreement;
(g) CERTIFICATE OF DESIGNATIONS. The Certificate of Designations
shall have been approved by the Board of Directors of the Company and filed
with the Secretary of State of the State of Delaware and shall be in full
force and effect;
(h) NO LITIGATION; NO ORDER. No action, suit or proceeding relating
to the transactions contemplated by this Agreement or any Ancillary
Agreement (the "TRANSACTIONS") shall be pending that in the reasonable good
faith judgment of Purchaser (i) seeks to restrain or prevent any of the
Transactions and has a reasonable probability of success or (ii) is
reasonably likely to have a material adverse effect on the assets,
business, prospects, properties, operations or conditions (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole and no
order (including, without limitation, a temporary restraining order),
decree, writ, judgment or injunction shall be in effect that restrains,
enjoins or prevents the consummation of the transactions contemplated by
this Agreement or any Ancillary Agreement (collectively, "LITIGATION");
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(i) PROCEEDINGS. On or prior to the Closing Date, all corporate and
other proceedings required to be taken under applicable laws, rules and all
regulations and all rules of The American Stock Exchange in connection with
the transactions contemplated by this Agreement or any Ancillary Agreement
shall have been taken and all filings and documents incident thereto shall
be reasonably satisfactory in form and substance to Purchaser and its
special counsel, and the Purchaser and its special counsel shall have
received all such counterpart originals or certified or other copies of
such documents as they may reasonably request;
(j) COMPLIANCE WITH THIS AGREEMENT. The Company shall have performed
and complied with all of its agreements and conditions set forth or
contemplated herein that are required to be performed or complied with by
the Company on or before the Closing Date;
(k) OFFICER'S CERTIFICATE. Such Purchaser shall have received a
certificate, dated the Closing Date and signed by the Chief Executive
Officer of the Company, certifying that the conditions set forth in
SECTIONS 3.1(f), 3.1(g), 3.1(h), 3.1(i), 3.1(j), 3.1(n),and 3.1(o) hereof
have been satisfied on and as of such date;
(l) SECRETARY'S CERTIFICATE. Purchaser shall have received a
certificate, dated the Closing Date and signed by the Secretary of the
Company, attaching good standing certificates from the Delaware Secretary
of State with respect to the Company and from the respective Secretaries of
State for the jurisdictions of incorporation for its Subsidiaries and
certifying the authenticity of attached copies of (i) the Certificate of
Incorporation and by-laws of the Company and the certificate of
incorporation and by-laws of each of its Subsidiaries, in each case as
amended; (ii) resolutions of the Board of Directors of the Company
approving this Agreement and the Ancillary Agreements and the transactions
contemplated by this Agreement and the Ancillary Agreements; and (iii) the
Certificate of Designations, as filed with the Secretary of State of the
State of Delaware;
(m) PURCHASE PERMITTED BY APPLICABLE LAWS; LEGAL INVESTMENT. The
acquisition of and payment for the Securities and the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements
(i) shall not be prohibited by any applicable law or governmental
regulation, (ii) shall not subject Purchaser to any penalty or, in its
reasonable judgment, other onerous conditions under or pursuant to any
applicable law or governmental regulation and (iii) shall be permitted by
the laws and regulations of the jurisdictions to which Purchaser is
subject;
(n) CONSENTS AND APPROVALS. All consents, waivers, approvals,
exemptions, authorizations, or other actions by, or notices to, or filings
with, Governmental Authorities and other Persons necessary or required in
connection with the execution, delivery or performance by the Company or
enforcement against the Company of this Agreement (including, without
limitation, the issuance of the Securities contemplated hereunder), any
Ancillary Agreement or any other document executed in connection with the
consummation of the transactions contemplated by this Agreement or any
Ancillary Agreement shall have been obtained and be in full force and
effect, and Purchaser and its special counsel shall have been furnished
with appropriate evidence thereof;
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(o) INSOLVENCY. The Company shall not have made an assignment for the
benefit of creditors, nor shall it have filed with a court of competent
jurisdiction an application for appointment of a receiver or similar
official with respect to it or any substantial part of its assets, nor
shall there have been filed by the Company or any of its Subsidiaries a
petition seeking relief under any provision of the Federal Bankruptcy Code
or any other federal or state statute now or hereafter in effect affording
relief to debtors, nor shall there have been filed against the Company or
any of its Subsidiaries any such application or petition; and
(p) LISTING. The Company shall have, within ninety (90) days of the
Closing Date, obtained approval from the American Stock Exchange to list
for trading on the American Stock Exchange the Common Stock issuable upon
conversion of the Series C Preferred Stock (including shares of Series C
Preferred Stock issuable upon the exercise of the Series C Preferred Stock
Warrants) and the Common Shares upon the exercise of the Common Stock
Warrants.
3.2 COMPANY CONDITIONS TO CLOSING. The Company's obligation to issue and
sell the Securities at the Closing is subject to the satisfaction, on or before
the Closing Date, of the following conditions:
(a) RECEIPT OF PURCHASE PRICE. The Company shall have received
payment of the Purchase Price by wire transfer of immediately available
funds;
(b) STOCKHOLDERS AGREEMENT. The Stockholders Agreement shall have
been amended by the parties thereto to include the Purchaser as a party
thereto on terms consistent with the Term Sheet and otherwise reasonably
acceptable to the Purchaser;
(c) INVESTOR RIGHTS AGREEMENT. The Investor Rights Agreement shall
have been amended by the parties thereto to include the Purchaser as a
party thereto on terms consistent with the Term Sheet and otherwise
reasonably acceptable to the Purchaser;
(d) STOCK TRADING AGREEMENT. The Stock Trading Agreement shall have
been entered into and delivered by Purchaser;
(e) NO LITIGATION; NO ORDER. No action, suit or proceeding relating
to the Transactions shall be pending that in the reasonable good faith
judgment of the Company seeks to restrain or prevent any of the
Transactions and has a reasonable probability of success;
(f) PURCHASE PERMITTED BY APPLICABLE LAWS; LEGAL INVESTMENT. The
acquisition of and payment for the Securities and the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements
(i) shall not be prohibited by any applicable law or governmental
regulation, and (ii) shall not subject the Company to any penalty or, in
its reasonable judgment, other onerous conditions under or pursuant to any
applicable law or governmental regulation; and
(g) CONSENTS AND APPROVALS. All consents, waivers, approvals,
exemptions, authorizations, or other actions by, or notices to, or filings
with, Governmental
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Authorities and other Persons necessary or required in connection with the
execution, delivery or performance by the Company or enforcement against
the Company of this Agreement (including, without limitation, the issuance
of the Securities contemplated hereunder), any Ancillary Agreement or any
other document executed in connection with the consummation of the
transactions contemplated by this Agreement or any Ancillary Agreement
shall have been obtained and be in full force and effect.
ARTICLE IV
CERTAIN COVENANTS
4.1 FINANCIAL STATEMENTS AND OTHER REPORTS. After the Closing Date, the
Company agrees to send the following reports to each holder of Series C
Preferred Stock:
(a) so long as the Company is subject to the requirements of, or
otherwise making filings pursuant to, Section 13 or 15(d) of the Exchange
Act, within three (3) days after the filing with the Commission, a copy of
its Annual Report on Form 10-KSB or Form 10-K, its Quarterly Reports on
Form 10-QSB or Form 10-Q, any proxy statements or information statements
and any Current Reports on Form 8-K, together in each case with amendments
thereto;
(b) within one day after release, copies of all press releases
issued by the Company or any of its Subsidiaries;
(c) promptly upon receipt thereof, copies of reports, if any,
submitted to the Company by independent accountants in connection with each
annual or interim audit of the books of the Company made by such
accountants; and
(d) all other information sent to holders of the Common Stock or any
other equity security holder.
Without limiting the foregoing, the Company shall deliver to Purchaser until
Purchaser transfers, assigns (except in the case of an assignment to an
Affiliate) or sells all of its Series C Preferred Stock (i) as soon as
practicable and in any event within 45 days after the end of each fiscal
quarter, the following information: consolidated statements of income,
stockholders' equity and cash flows of the Company and its Subsidiaries for such
fiscal period and for the period from the beginning of the then current fiscal
year to the end of such fiscal period and a comparison of each such item to the
then current budget, and the balance sheet of the Company and its Consolidated
Subsidiaries as at the end of such fiscal period, setting forth in each case in
comparative form figures for the corresponding periods in the preceding fiscal
year, all in reasonable detail, prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
certified as to fair presentation by the principal financial officer of the
Company and accompanied by a written discussion of operations in summary form;
and (ii) as soon as practicable and in any event within 90 days after the end of
each fiscal year of the Company, the following information: statements of
income, stockholders' equity and cash flows of the Company and its consolidated
Subsidiaries for such year, and a consolidated balance sheet of the Company and
its consolidated Subsidiaries as at the end of such year, setting forth in each
case in comparative form corresponding figures from the preceding fiscal year,
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, and accompanied by an
opinion of BDO
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▇▇▇▇▇▇▇ ▇▇, or another firm of independent public accountants of recognized
national standing selected by the Company, to the effect that the consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied (except for changes in application in
which such accountants concur and as are noted therein) and present fairly the
financial condition of the Company and its consolidated Subsidiaries and that
the examination of such accountants in connection with such financial statements
has been made in accordance with generally accepted auditing standards and
accordingly included such tests of the accounting records and such other
auditing procedures as were considered necessary in the circumstances; and
accompanied by a written discussion of operations by management in summary form
with respect to such fiscal year, including a comparison to budget.
Purchaser is hereby authorized to deliver a copy of any financial statement
delivered to it pursuant to this SECTION 4.2 to any regulatory body having
jurisdiction over it that requests such information. Subject to compliance with
reasonable confidentiality requirements imposed by the Company, Purchaser shall
have reasonable access to the Company, including its management, and its books
and records during regular business hours and is further authorized to request
information from and to have access to, at the Company's expense, the Company's
independent public accountants. The Company shall request such accountants to
make available to Purchaser such information as Purchaser may reasonably
request.
4.2 CORPORATE EXISTENCE; LICENSES AND PERMITS; MAINTENANCE OF PROPERTIES.
The Company shall at all times use commercially reasonable efforts to do or
cause to be done all things necessary to maintain, preserve and renew its
existence as a corporation organized under the laws of a state of the United
States of America, and to preserve and keep in force and effect, and cause each
of its consolidated Subsidiaries to apply for on a timely basis, all licenses
and permits necessary and material to the conduct of the business of the Company
and its Subsidiaries, taken as a whole.
4.3 SECURITIES EXCHANGE. The Company shall use its reasonable best efforts
to maintain its Common Stock listing and to continue to have its Common Stock be
quoted on The American Stock Exchange or on another national securities
exchange, so long as it is subject to Section 13 or 15(d) of the Exchange Act.
4.4 BEST EFFORTS. The Company agrees to use its reasonable best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things reasonably necessary, proper or advisable under applicable laws, rules
and regulations to consummate and make effective the transactions contemplated
by this Agreement as promptly as practicable. In case at any time after the
Closing any further action is reasonably necessary to carry out the purposes of
this Agreement, the proper agents, officers and directors of the Company shall
take such action.
4.5 INSURANCE. The Company shall at all times maintain customary directors
and officers insurance in amounts as are customary for other publicly traded
companies of similar size.
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ARTICLE V
REPRESENTATIONS, COVENANTS AND WARRANTIES
The Company represents, covenants and warrants to each of the Purchasers as
follows:
5.1 ORGANIZATION; STANDING AND QUALIFICATION OF COMPANY AND ITS
SUBSIDIARIES; CORPORATE AUTHORITY.
(a) Each of the Company and each of its Subsidiaries is a corporation duly
organized and existing in good standing under the laws of the jurisdiction of
its organization, and has the corporate power to own its property and to carry
on its business as now being conducted, is duly qualified and in good standing
as a foreign corporation to do business in every jurisdiction where the
character of the properties owned or leased by it or the nature of any business
transacted by it makes such qualification necessary, except where such
nonqualification or lack of good standing would not have a material adverse
effect on the business of the Company and its Subsidiaries, taken as a whole.
Each of the Company and its Subsidiaries have delivered to Purchaser true,
complete and correct copies of their respective certificates of incorporation
and their respective by-laws, as amended through the date hereof, which are in
full force and effect on the date hereof.
(b) The execution and delivery by the Company of this Agreement and the
Ancillary Agreements (collectively, the "TRANSACTION DOCUMENTS"), and the
performance by the Company of all transactions and obligations contemplated
hereby and thereby are within its corporate authority. The execution, delivery
and performance of the Transaction Documents and each other agreement
contemplated by the terms hereof and thereof and the issuance of the Securities
have been duly authorized by all necessary corporate proceedings on the part of
the Company. Each of the Transaction Documents constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and to equitable principles relating to enforceability. The Preferred Shares and
the Common Shares are duly authorized and, when issued, will be validly issued,
fully paid and nonassessable and subject to no preemptive rights in favor of
other Persons which have not been waived. Assuming the accuracy of the
representations of Purchaser in this Agreement, the Preferred Shares and the
Common Shares issuable hereunder will be issued in compliance with all
applicable federal and state securities laws. The shares of Common Stock
issuable upon the conversion of the Preferred Shares and the Series C Preferred
Stock that is issuable upon exercise of the Series C Preferred Stock Warrants,
and the shares of Common Stock issuable upon the exercise of the Common Stock
Warrants are duly authorized and reserved for issuance, and, when issued upon
such conversion or exercise, will be validly issued, fully paid and
nonassessable, and subject to no preemptive rights in favor of other Persons
which have not been waived. Assuming the accuracy of the representations of
Purchaser in this Agreement, when such shares of Common Stock are issued, such
shares will be issued in compliance with all applicable federal and state
securities laws. The Company has reserved for issuance 337,500 shares of Series
C Preferred Stock and 3,363,668 shares of Common Stock for issuance upon
conversion thereof. In addition, the Company has reserved for issuance 281,250
shares of Common Stock issuable upon exercise of the Common Stock Warrants.
11
(c) Great Lakes Controlled Energy Corporation and Switchboard Apparatus,
Inc. are the only Subsidiaries of the Company. Each such Subsidiary is wholly
owned by the Company.
5.2 CAPITAL STOCK.
(a) As of the date hereof, the Company has authorized 85,000,000 shares of
Common Stock and 5,000,000 shares of preferred stock. As of the date hereof, the
Company has 31,113,842 issued and outstanding shares of Common Stock and
2,016,168 shares of preferred stock issued and outstanding. All outstanding
shares of the Company Common Stock have been duly authorized, validly issued and
are fully paid and nonassessable and free of preemptive rights. All outstanding
shares of Common Stock were issued in compliance with all applicable federal and
state securities laws.
(b) Except as otherwise stated in this SECTION 5.2 or in SCHEDULE 5.2 and
except for shares of capital stock reserved for issuance in connection with the
transactions contemplated by this Agreement and the Ancillary Agreements, the
Company has not granted or issued, or agreed to grant or issue, any options,
warrants or similar rights to acquire or receive any of the authorized but
unissued shares of its capital stock of any class or any securities convertible
into shares of its capital stock of any class or any stock appreciation rights.
Except as stated in SCHEDULE 5.2, no adjustment to the exercise price of any
outstanding options or warrants of the Company will be required as a result of
the issuance of any of the Securities.
(c) Except as set forth in SCHEDULE 5.2(c), no holder of shares of Common
Stock (or securities convertible into or exchangeable or exercisable for Common
Stock) has any rights to purchase or receive additional or other securities upon
the occurrence of an event that might dilute such holder's percentage interest
in the Company.
5.3 NO DEFAULTS. Except as set forth in SCHEDULE 5.3, neither the Company
nor any of its Subsidiaries is in violation of, or in default under, nor has
there been any waiver given with respect to, any term or provision of any
charter, by-law, mortgage, indenture, agreement, instrument, statute, rule, law,
regulation, judgment, decree, order, writ, or injunction applicable to it, such
that such violations and defaults in the aggregate could reasonably be expected
to result in any material adverse change in the business, assets, properties,
condition (financial or otherwise) or results of operations of the Company and
its Subsidiaries, taken as a whole, or materially adversely affect the ability
of the Company to perform in any material respect its obligations under this
Agreement. All Regulatory Approvals required by the Company and its Subsidiaries
to conduct their respective business as now conducted by them have been obtained
and are in full force and effect, and the Company and its Subsidiaries are in
compliance with the terms and requirements of such Regulatory Approvals. Except
as set forth on SCHEDULE 5.3 hereto, since December 31, 2001, none of the
Company or any of its Subsidiaries has received any written notice or other
written communication from any Governmental Entity regarding (i) any revocation,
withdrawal, suspension, termination or modification of, or the imposition of any
material conditions with respect to, any Regulatory Approval, (ii) any violation
of any law by the Company or any of its Subsidiaries, or (iii) any other
limitations on the conduct of business by the Company or any of its
Subsidiaries.
5.4 BURDENSOME AND CONFLICTING AGREEMENTS AND CHARTER PROVISIONS. Neither
the execution or delivery of the Transaction Documents by the Company, nor the
offering, issuance and sale of the Securities by the Company, nor fulfillment
of, or compliance with, the terms and
12
provisions of the Transaction Documents and the Series C Preferred Stock by the
Company, nor the issuance of Series C Preferred Stock upon exercise of the
Series C Preferred Stock Warrants, nor the issuance by the Company of shares of
Common Stock upon conversion of the Series C Preferred Stock as provided in the
Certificate of Designations, or upon exercise of the Common Stock Warrants,
will, except as set forth in SCHEDULE 5.4, conflict with, or result in a breach
of the terms, conditions or provisions of, or constitute a default under, or
result in any violation of, or result in the creation of any lien upon any of
the properties or assets of the Company or any of its Subsidiaries, or require
any consent, approval or other action by, or notice to, or filing with, any
court or administrative or governmental body or any other Person or pursuant to
the Certificate of Incorporation or by-laws of the Company or the certificate of
incorporation or by-laws of any of the Company's Subsidiaries, any award of any
arbitrator or any material agreement (including any agreement with
stockholders), instrument, order, judgment, decree, statute, law, rule or
regulation to which the Company or any of its Subsidiaries is subject, except
for such approvals or waivers as may be required in connection with fulfillment
of, or compliance with, the Investor Rights Agreement, which shall have been
obtained by the Closing Date.
5.5 TITLE TO ASSETS, ETC. The Company has good and marketable fee simple
title to the assets reflected on the balance sheet set forth on SCHEDULE 5.5
(the "ASSETS"). Except as set forth in SCHEDULE 5.5, none of the Assets is
subject to any encumbrances, except for minor liens that in the aggregate are
not substantial in amount, do not materially detract from the value of the
property or assets subject thereto or interfere with the present use thereof and
have not arisen other than in the ordinary course of business. There are no
pending or threatened condemnation proceedings relating to any of the facilities
of the Company. The real property improvements (including leasehold
improvements) and fixtures and equipment of the Company are adequately insured
and are structurally sound with no known material defects. The facilities,
fixtures and equipment of the Company are in good operating condition and repair
(except for ordinary wear and tear and any defect for which the cost of
repairing would not be material), are sufficient for the operation of the
Company's business as presently conducted and are in conformity in all material
respects with all applicable laws, ordinances, orders, regulations and other
requirements (including applicable zoning, environmental, motor vehicle safety
or standards, occupational safety and health laws and regulations) relating
thereto currently in effect, except where the failure to conform would not have
a material adverse effect on the business or financial condition of the Company.
The Assets are valued on the Company's books at or below actual cost less an
adequate and proper depreciation charge. The Company has not depreciated any of
the Assets on an accelerated basis or in any other manner inconsistent with
applicable Internal Revenue Service tax and fiscal guidelines, if any.
5.6 LEASES. Each of the Company and its Subsidiaries enjoy peaceful and
undisturbed possession of all leases material to them. All such leases are valid
and subsisting and are in full force and effect.
5.7 CONTRACTS. Except as set forth in SCHEDULE 5.7, there is no contract,
agreement or understanding required to be described in or filed as an exhibit to
any Commission Documents that is not described in or filed as required by the
Securities Act or the Exchange Act, as the case may be. Except as set forth in
SCHEDULE 5.7, each such contract, agreement and understanding is valid and
binding and is in full force and effect and enforceable in accordance with its
terms (except as enforceability may be limited by applicable bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally or as may be limited by equitable
13
principles relating to enforceability), except in the case of such contracts,
agreements or understandings that are by their terms no longer in force or
effect. Except as set forth on SCHEDULE 5.7, (a) no approval or consent of, or
notice to, any Person is needed in order that such contract, agreement or
understanding shall continue in full force and effect in accordance with its
terms without penalty, acceleration or rights of early termination following the
consummation of the transactions contemplated by the Transaction Documents,
other than such notices, consents and approvals as have been obtained and (b)
the Company and/or its Subsidiaries are not in violation of, breach of, or
default under any such contract, agreement or understanding nor, to the
Company's knowledge, is any other party to any such contract, agreement or
understanding.
5.8 FINANCIAL STATEMENTS. The Company has furnished the Purchasers with (a)
the balance sheet of the Company and its consolidated Subsidiaries as at
December 31, 2001 and the related statements of income, stockholders' equity and
cash flows of the Company and its consolidated Subsidiaries for the fiscal year
ended December 31, 2001, all certified by BDO ▇▇▇▇▇▇▇ LLP, including in each
case the related schedules and notes, and (b) an unaudited balance sheet of the
Company and its consolidated Subsidiaries as at March 31, 2002 and statements of
income, stockholders' equity and cash flows of the Company and its consolidated
Subsidiaries for the interim period ended on such date, prepared by the Company
and certified by its principal financial officer (item (b) is referred to as the
"INTERIM FINANCIAL STATEMENTS").
All such financial statements (including any related schedules and notes)
have been prepared in accordance with generally accepted accounting principles
consistently applied, except to the extent set forth in the notes to such
financial statements and except for the absence of footnotes to the Interim
Financial Statements and except that the Interim Financial Statements are
subject to normal year-end adjustments and to adjustments made in the course of
an audit that would not in the aggregate be material, throughout the periods
involved and to the extent required by such principles show all liabilities,
direct and contingent, of the Company and its Subsidiaries required to be shown
thereon in accordance with generally accepted accounting principles. The balance
sheets and the related schedules and notes fairly present the financial
condition of the Company and its consolidated Subsidiaries as at the dates
thereof and the net income and stockholders' equity statements and the related
schedules and notes fairly present the results of the operations of the Company
and its consolidated Subsidiaries for the periods indicated. Except as set forth
in SCHEDULE 5.8, the Company has incurred no material liabilities since March
31, 2002, other than those incurred in the ordinary course.
Except as set forth in SCHEDULE 5.8, there has been no material adverse
change in the assets, business, prospects, properties, operations or condition,
financial or otherwise, of the Company and its Subsidiaries, taken as a whole,
since December 31, 2001.
5.9 ACTIONS PENDING. There is no action, suit, investigation or proceeding
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries before any court, arbitrator or administrative or
governmental body that (a) seeks to enjoin or otherwise prevent the consummation
of the sale or issuance of the Securities or (b) materially and adversely
affects, or as to which there is a reasonable possibility of an adverse decision
that would materially and adversely affect, either individually or collectively,
the assets, business, properties, prospects, operations or condition, financial
or otherwise, of the Company and its Subsidiaries, taken as a whole. Neither the
Company nor any of its Subsidiaries is in violation of any judgment, order,
writ, injunction, decree, rule or regulation of any court or governmental
department, commission, board, bureau, agency or instrumentality, the violation
of which
14
reasonably could be expected to, either individually or collectively, materially
and adversely affect the business, property, assets, prospects, operations or
condition (financial or otherwise) of the Company and its Subsidiaries, taken as
a whole.
5.10 OFFERING OF SECURITIES. Assuming the accuracy of the representations
of Purchaser in this Agreement, the offer, sale and issuance of the Securities
are exempt from the registration requirements of the Securities Act. Neither the
Company nor any agent on its behalf has solicited or will solicit any offers to
sell or has offered to sell or will offer to sell all or any part of the
Securities to any Person so as to bring the offering and sale of such Securities
by the Company within the registration provisions of the Securities Act. The
Company has filed all notices and satisfied all registration or qualification
requirements of any state securities or Blue Sky law of any applicable
jurisdiction with respect to the offer, issuance and sale of the Securities or
required by the Ancillary Agreements.
5.11 BROKER'S OR FINDER'S COMMISSIONS. Other than the fee payable to the
Placement Agent, no broker's or finder's or placement fee or commission will be
payable with respect to the sale or the issuance of the Securities contemplated
hereby or by the Ancillary Agreements as a result of any act or omission by the
Company, and the Company will hold Purchaser harmless from any claim, demand or
liability for broker's or finder's or placement fees or commissions alleged to
have been incurred in connection with the sale or the issuance of the Securities
due to any actions or omissions by the Company or its Subsidiaries or any of
their respective directors, officers or agents.
5.12 APPLICATION OF PROCEEDS. The net proceeds of the sale of the Series C
Preferred Stock will be used by the Company for working capital and for general
corporate purposes.
5.13 INTELLECTUAL PROPERTY.
(a) The Company and its Subsidiaries exclusively own or possess the
requisite licenses or rights (on reasonable commercial terms) to use all
patents, trade secrets, trademarks, service marks, service names, trade names,
copyrights and other intellectual property rights necessary to enable each of
them to conduct their respective businesses as now operated (collectively, the
"COMPANY IP"). SCHEDULE 5.13(a) sets forth a full and complete list of all
intellectual property rights of the Company and its Subsidiaries. There is no
claim or action by any Person pertaining to, or proceeding pending, or to the
Company's knowledge threatened, that challenges the rights of the Company or its
Subsidiaries with respect to any Company IP. To the Company's knowledge, neither
the Company's nor any of its Subsidiaries' current and intended products and
services infringe on any patents, licenses, trademarks, service marks, service
names, trade names, copyrights or other intellectual property rights held by any
Person and neither the Company nor any of its Subsidiaries is aware of any facts
or circumstances that might give rise to any of the foregoing.
(b) Except as set forth in SCHEDULE 5.13(b), no proceedings or claims in
which the Company alleges that any Person is infringing upon, or otherwise
violating, any Company IP are pending, and none has been served by, instituted
or asserted by the Company or any of its Subsidiaries, nor are any proceedings
threatened alleging any such violation or infringement.
15
(c) The Company has taken and will take all commercially reasonable actions
that are necessary or advisable in order to fully protect the Company IP, in a
manner consistent with prudent commercial practice.
5.14 TAXES. The Company and each of its Subsidiaries has timely filed (or
caused to be filed) all Tax Returns that are required to be filed by (or with
respect to) it on or before the date hereof and has paid all Taxes due on or
before the date hereof whether or not reflected on such Tax Returns, including
pursuant to any assessment received by it. All such Tax Returns were true,
correct and complete in all material respects. None of such Tax Returns has been
audited by the relevant taxing authority, and no taxing authority has notified
(or threatened) the Company or any of its Subsidiaries, orally or in writing,
that such taxing authority will or may audit any such return. The Company and
its Subsidiaries have complied with all requirements of the Code, the Treasury
Regulations and any state, local or foreign law relating to the payment and
withholding of Taxes relating to them, and the Company and each of its
Subsidiaries have, within the time and in the manner prescribed by applicable
law, paid over to the proper taxing authorities all amounts required to be so
withheld and paid over relating to them. The charges, accruals and reserves on
the books of the Company and its Subsidiaries in respect of Taxes or other
governmental charges are adequate to cover any liability of the Company and its
Subsidiaries for Taxes through the date hereof. There are no liens for Taxes
with respect to any asset of the Company or any of its Subsidiaries, except for
liens with respect to Taxes that are not yet due and payable. No taxing
authority in a jurisdiction where the Company or any of its Subsidiaries, as the
case may be, does not file tax returns has made a claim, assertion or threat
that the Company or any of its Subsidiaries is or may be subject to taxation in
such jurisdiction.
5.15 ERISA.
(a) SCHEDULE 5.15 sets forth each plan, agreement, arrangement or
commitment that is an employment or consulting agreement, executive or incentive
compensation plan, bonus plan, deferred compensation agreement, employee
pension, profit sharing, savings or retirement plan, employee stock option or
stock purchase plan, group life, health, or accident insurance or other employee
benefit plan, agreement, arrangement or commitment, including, without
limitation, any severance, holiday, vacation, Christmas or other bonus plans
(including, but not limited to, "employee benefit plans," as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), maintained by the Company or any of its Subsidiaries for any present
or former employees, officers or directors of the Company or any of its
Subsidiaries ("COMPANY PERSONNEL") or with respect to which the Company or any
of its Subsidiaries has liability or makes or has an obligation to make
contributions ("EMPLOYEE PLANS").
(b) Except as to the Union Plan, the Company has provided the Purchaser
with access to (i) copies of all Employee Plans or, in the case of an unwritten
plan, a written description thereof, (ii) copies of any annual, financial or
actuarial reports and Internal Revenue Service determination letters relating to
such Employee Plans and (iii) copies of all summary plan descriptions (whether
or not required to be furnished under ERISA) and employee communications
relating to such Employee Plans that materially modify an existing summary plan
description and have been distributed to Company Personnel, in each case under
this clause (iii), existing or in effect during or within the past five years.
16
(c) Except as set forth on SCHEDULE 5.15(c), no Employee Plan except the
Union Plan (which is excluded from this SECTION 5.15(c) representation and
warranty) entitles Company Personnel to (i) any pension benefit that is unfunded
or (ii) any pension or other benefit to be paid after termination of employment
other than required by Section 601 of ERISA or pursuant to plans intending to be
qualified under Section 401(a) of the Code and listed on the SCHEDULE 5.15(c),
and no other benefits whatsoever are payable to any Company Personnel after
termination of employment (including retiree medical and death benefits).
(d) Each Employee Plan, except the Union Plan (which is excluded from this
SECTION 5.15(d) representation and warranty), that is an employee welfare
benefit plan under Section 3(1) of ERISA is either (i) funded through an
insurance company contract and is not a "welfare benefit fund" within the
meaning of Section 419 of the Code or (ii) unfunded.
(e) Each Employee Plan, except the Union Plan (which is excluded from this
SECTION 5.15(e) representation and warranty) by its terms and operation is in
compliance in all material respects with all applicable laws (including, but not
limited to, ERISA, the Code and the Age Discrimination in Employment Act of
1967, as amended).
(f) There are no actions, suits or claims pending or, to the Company's
knowledge, threatened against any Employee Plan or administrator or fiduciary of
any such Employee Plan (other than routine noncontested claims for benefits)
nor, to the Company's knowledge, does any set of circumstances exist that may
reasonably give rise to such a claim. As to each Employee Plan for which an
annual report is required to be filed by the Company under ERISA or the Code,
all such filings, including schedules, have been made on a timely basis and with
respect to the most recent report regarding each such Employee Plan liabilities
do not exceed assets, and no material adverse change has occurred with respect
to the financial materials covered thereby.
(g) Except as set forth on SCHEDULE 5.15(g), neither the Company nor any
entity that is or was at any time treated as a single employer with the Company
under Section 414(b), (c), (m) or (o) of the Code has at any time (i)
maintained, contributed to or been required to contribute to any plan under
which more than one employer makes contributions (within the meaning of Section
4064(a) of ERISA) or any plan that is a multiemployer plan, (ii) incurred or
expects to incur any liability to the Pension Benefit Guaranty Corporation or
otherwise under Title IV of ERISA or (iii) incurred or expects to incur
liability in connection with an "accumulated funding deficiency" within the
meaning of Section 412 of the Code whether or not waived.
(h) Each Employee Plan except the Union Plan (which is excluded from this
SECTION 5.15(h) representation and warranty) intended to be qualified under
Section 401(a) of the Code and, if applicable, Section 401(k) of the Code has
received a favorable determination letter from the Internal Revenue Service
stating that such Employee Plan is qualified under Section 401(a) and, if
applicable, Section 401(k) of the Code and the related trust is exempt from tax
under Section 501(a) and nothing has occurred since the date of such letter to
cause the letter to be no longer valid or effective.
(i) Neither the Company nor, to the knowledge of the Company, any other
Person, including any fiduciary, has engaged in any "prohibited transaction" (as
defined in Section 4975 of the Code or Section 406 of ERISA), that could subject
any of the Employee Plans (or their trusts), the Company, or any Person who the
Company has an obligation to indemnify, to any tax
17
or penalty imposed under Section 4975 of the Code or Section 502 of ERISA. To
the knowledge of the Company, no "reportable event" (as such term is defined in
Section 4043 of ERISA) for which the notice requirement has not been waived by
the Pension Benefit Guaranty Corporation has occurred or is expected to occur
with respect to any Employee Plan and the Company will provide each Purchaser
notice of any reportable events upon learning of the same.
(j) Except as set forth on SCHEDULE 5.15(j), the events contemplated by
this Agreement (either alone or together with any other event) will not (i)
entitle any Company Personnel to severance pay, unemployment compensation, or
other similar payments under any Employee Plan or law, (ii) accelerate the time
of payment or vesting or increase the amount of benefits due under any Employee
Plan or compensation to any Company Personnel, (iii) result in any payments
(including parachute payments) under any Employee Plan or law becoming due to
any Company Personnel or (iv) terminate or modify or give a third party a right
to terminate or modify the provisions or terms of any Employee Plan.
(k) Except as set forth in SCHEDULE 5.15(k), neither the Company nor any of
its Subsidiaries (nor any entity that is or was at any time treated as a single
employer with the Company or any Subsidiary under Section 414(b), (c), (m) or
(o) of the Code or ERISA) has any obligation or liability (contingent or
otherwise) relating to or in connection with the Union Plan. The Union Plan is
not subject to Title IV of ERISA. Except as set forth in SCHEDULE 5.15(k), all
contributions required to be made by the Company or any Subsidiary to the Union
Plan have been made when due and, to the best of the Company's knowledge, if the
Company and/or any of its Subsidiaries were to withdraw from the Union Plan on
the Closing Date, neither the Company nor any of its Subsidiaries would incur
any liability relating to or in connection with the Union Plan.
5.16 ENVIRONMENTAL.
(a) Except as set forth on SCHEDULE 5.16(a), the Company and its
Subsidiaries comply, and the Company, its Subsidiaries and their respective
predecessors at all times during their existence have complied, with all
applicable Environmental Laws (as defined below).
(b) There is not now pending or, to the knowledge of the Company or any of
its Subsidiaries, threatened, any action, claim, proceeding or investigation,
nor has the Company, its Subsidiaries, or any of their respective predecessors
received any notice, claim, demand letter or request for information at any
time, alleging that the Company, any of its Subsidiaries, or any of their
respective predecessors may be or is in violation of, or liable under, any
Environmental Law, nor does there exist any basis for any such action, claim,
proceeding or investigation.
(c) Except as disclosed on SCHEDULE 5.16(c), there are no Hazardous
Substances (as defined below) located on any of the properties currently or
formerly owned or operated by the Company, any of its Subsidiaries or any of
their respective predecessors (including soil, groundwater and surface features
and buildings and structures thereon) (the "PROPERTIES"), and none of the
Properties contains, or has contained, any underground improvements, including,
but not limited to, treatment or storage tanks, sumps, water, gas or oil ▇▇▇▇▇,
or associated piping.
(d) The Company and its Subsidiaries do not have any contingent liability
in connection with a Release (as defined below) or threatened Release of any
Hazardous Substance at any location.
18
(e) To the knowledge of the Company and its Subsidiaries, there are no
present or past Environmental Conditions (as defined below) in any way related
to the Company, any of its Subsidiaries, or any of their respective predecessors
that have, or may have, individually or in the aggregate, a material adverse
effect with respect to any Property or the business or condition of the Company
and its Subsidiaries, taken as a whole.
(f) As used herein, "ENVIRONMENTAL LAW" means any federal, state, local or
foreign law, regulation, order, decree, judgment, opinion, common law or binding
equitable principle or agency requirement relating to pollution, contamination,
wastes, hazardous material or the protection of the environment, human health or
safety.
(g) As used herein, "HAZARDOUS SUBSTANCE" means any substance that is
listed, classified under or regulated by any governmental authority pursuant to
any Environmental Law, including, without limitation, any petroleum product or
by-product, asbestos-containing material, lead-containing paint or plumbing,
polychlorinated biphenyls, radioactive material or radon.
(h) As used herein, "RELEASE" means any release, spill, emission, leaking,
pumping, injection, deposit, discharge, dispersal, leaching or migrating into
the indoor or outdoor environment of any Hazardous Substance.
(i) As used herein, "ENVIRONMENTAL CONDITION" means the Release or
threatened Release of any Hazardous Substance upon, under, in or about any of
the Properties, or any other circumstance involving any Property or the Company,
any of its Subsidiaries, or any of their respective predecessors that could be
expected to result in any claim, liability, costs or losses, or any restriction
on the ownership, use or transfer of any Property pursuant to any Environmental
Law.
5.17 INSURANCE. The Company maintains or is covered by valid policies of
workers' compensation insurance, product liability insurance, and of insurance
with respect to its properties and business. The Company currently maintains in
full force insurance covering the respective risks of the Company and its
Subsidiaries of such types and in such amounts, with such deductibles and with
such insurance companies as are customary for other companies engaged in similar
lines of business. The Company currently maintains key man life insurance for
▇▇▇▇ ▇▇▇▇▇▇ in the amount of $5,000,000, which is and will remain in full force
and effect through December 31, 2005. SCHEDULE 5.17 lists all insurance
policies, the name of the insurer, a description of the policy, the amount of
coverage, the amount of any deductible, the amount of the premium and the
expiration date of the policy.
5.18 TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE 5.18,
neither the Company nor any of its Subsidiaries is directly or indirectly a
party to or otherwise involved in any transaction including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service, with any Affiliate.
5.19 EMPLOYEES; LABOR MATTERS. Except as set forth in SCHEDULE 5.19, the
Company is not a party to any labor agreement with respect to its employees with
any labor organization, group or association. The Company is not delinquent in
payments to any of the employees of the Company for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed for
it to the date hereof or amounts required to be reimbursed to such employees.
The Company is in material compliance with all applicable laws respecting
19
employment practices, terms and conditions of employment and wages and hours and
is not engaged in any unfair labor practice. Except as set forth in SCHEDULE
5.19, there is no unfair labor practice charge or complaint against the Company
pending before any Governmental Authority arising out of the Company's
activities, and the Company has no knowledge of any facts or information that
would give rise thereto. There is no labor strike or labor disturbance pending
or threatened against the Company nor, except as set forth in SCHEDULE 5.19, is
any grievance currently being asserted, and the Company has not experienced a
work stoppage or other labor difficulty. The Company has not received any
information indicating that any of its employment policies or practices is
currently being audited or investigated by any Governmental Authority. The
Company is, and at all times has been, in compliance with the requirements of
the Immigration Reform Control Act of 1986.
5.20. CUSTOMERS, SUPPLIERS AND DISTRIBUTORS. SCHEDULE 5.20 sets forth a
listing of each customer that accounted for more than $100,000 in revenue for
the Company for the year ended December 31, 2001 (collectively, the
"CUSTOMERS"). The relationships of the Company with its Customers, suppliers,
distributors and manufacturer's representatives are good commercial working
relationships. To the knowledge of the Company, no Customer, supplier,
distributor or manufacturer's representative of the Company intends to terminate
or materially reduce its business relationship with the Company for any reason.
5.21 INVESTOR RIGHTS AGREEMENTS. SCHEDULE 5.21 lists all agreements with
any Person in which the Company has granted registration rights with respect to
its capital stock. The Company will not, on or after the Closing Date, enter
into any agreement with respect to its securities that is inconsistent with the
rights granted to Purchaser in the Investor Rights Agreement or otherwise
conflicts with the provisions thereof. Upon obtaining the approvals and waivers
set forth in SCHEDULE 5.21, which the Company shall obtain prior to the Closing,
the rights to be granted to Purchaser under the Investor Rights Agreement will
not in any way conflict with any other agreements to which the Company is a
party or by which it is bound.
5.22 AGREEMENTS WITH STOCKHOLDERS. SCHEDULE 5.22 lists all agreements,
arrangements or understandings between the Company and one or more stockholders
of the Company relating to the transfer of any class of securities of the
Company (including, without limitation, tag-along rights, drag-along rights,
rights of first offer or any similar rights or obligations) or voting of any
class of securities of the Company.
5.23 COMPANY QUALIFIES AS A "SMALLER ENTERPRISE". The Company qualifies as
a "smaller enterprise" under the Code of Federal Regulations, such that a small
business investment company is permitted to make an investment in the Company.
5.24 COMMISSION DOCUMENTS. Except as set forth in SCHEDULE 5.24, the
Company has filed all registration statements, proxy statements, information
statements, reports and other documents required to be filed by it under the
Securities Act or the Exchange Act, and all amendments thereto (collectively,
the "COMMISSION DOCUMENTS") Each Commission Document when filed with the
Commission was true and accurate in all material respects and in compliance in
all material respects with the requirements of its respective report form and
the rules and regulations of the Commission. No Commission Document 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
contained therein, in light of the circumstances under which made, not
misleading.
20
5.25 DISCLOSURE. Neither this Agreement nor any other document, certificate
or statement prepared by or on behalf of the Company by its authorized
representatives or agents and furnished to or made available to the Purchaser in
writing by or on behalf of the Company by its authorized representatives or
agents in connection herewith, contains any untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary in
order to make the statements contained herein and therein, in the light of the
circumstances under which made, not misleading.
ARTICLE VI
REPRESENTATIONS OF THE PURCHASER
Purchaser represents and warrants as to itself only as follows:
6.1 INVESTMENT PURPOSE. Purchaser is purchasing the Securities for
Purchaser's own account for investment only and not with a view toward or in
connection with the public sale or distribution thereof. Purchaser will not
resell the Securities or the capital stock issued upon conversion of any such
Securities (the "CONVERSION STOCK") except pursuant to sales that are exempt
from the registration requirements of the Securities Act and all applicable
state securities laws, and/or sales registered under the Securities Act and all
applicable state securities laws. Purchaser understands that Purchaser may bear
the economic risk of this investment indefinitely, unless the Securities and/or
the Conversion Stock are registered pursuant to the Securities Act and any
applicable state securities laws or an exemption from such registration is
available, and that the Company has no present intention of registering the
Securities or the Conversion Stock other than as contemplated by the Investor
Rights Agreement.
6.2 ACCREDITED INVESTOR STATUS. Purchaser is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act. By reason of its business and financial experience,
sophistication and knowledge, Purchaser is capable of evaluating the risks and
merits of the investment made pursuant to this Agreement.
6.3 AUTHORIZATION; ENFORCEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of Purchaser and is the legally
valid and binding agreement of Purchaser enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability. As of the
Closing Date, each Ancillary Agreement to which Purchaser is a party will be the
legally valid and binding agreement of Purchaser enforceable in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability.
6.4 BROKER'S OR FINDER'S COMMISSIONS. Other than the fee payable to the
Placement Agent (which will be paid by the Company) no broker's or finder's or
placement fee or commission will be payable with respect to the sale or the
issuance of the Securities as a result of any act or omission by the Purchaser,
and the Purchaser will hold the Company harmless from any claim, demand or
liability for broker's or finder's or placement fees or commissions alleged to
have been incurred in connection with the sale or the issuance of the Securities
due to any actions of the Purchaser.
21
ARTICLE VII
INDEMNIFICATION
7.1 INDEMNIFICATION BY COMPANY. In addition to all other sums due hereunder
or provided for in this Agreement, the Company agrees to indemnify and hold
harmless Purchaser and its officers, directors, agents, employees and partners
(each, an "INDEMNIFIED PARTY") to the fullest extent permitted by law from and
against any and all losses, claims, damages, expenses (including reasonable
fees, disbursements and other charges of counsel), damages or other liabilities
("LOSSES") resulting from:
(i) any breach of any representation or warranty, covenant or
agreement of the Company in this Agreement, or
(ii) any legal, administrative or other actions (including actions
brought by any equityholders of the Company or derivative actions brought
by any Person claiming through the Company or in the Company's name),
proceedings or investigations (whether formal or informal), or written
threats thereof, based upon, relating to or arising out of any of the
Transaction Documents or the Securities, the transactions contemplated
hereby or thereby, or any indemnified person's role therein;
PROVIDED, HOWEVER, that the Company shall not be liable under this SECTION 7.1:
(a) for any amount paid in settlement of claims without the Company's consent
(which consent shall not be unreasonably withheld or delayed), (b) with respect
to disputes among holders of the Preferred Shares as to their rights under the
Ancillary Documents which disputes are not caused by the Company, or (c) to the
extent that it is finally judicially determined that such Losses resulted
primarily from the willful misconduct, bad faith or gross negligence of such
indemnified party or a breach of such Purchaser's representations in ARTICLE VI;
PROVIDED, FURTHER, that if and to the extent that such indemnification is
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of such indemnified liability that shall be
permissible under applicable laws. In connection with the obligation of the
Company to indemnify for expenses as set forth above, the Company further agrees
to reimburse each indemnified party for all such expenses (including reasonable
fees, disbursements and other charges of counsel) as they are incurred by such
indemnified party; PROVIDED, HOWEVER, that in no event shall the Company be
required to pay fees and expenses under this ARTICLE VII for more than one firm
of attorneys in addition to the firm of attorneys representing the Company in
any jurisdiction in any one legal action or group of related legal actions;
PROVIDED, FURTHER, that if an indemnified party is reimbursed hereunder for any
expenses, such reimbursement of expenses shall be refunded to the extent it is
finally judicially determined that the Losses in question resulted primarily
from the willful misconduct, bad faith or gross negligence of such indemnified
party.
7.2 NOTIFICATION. Each indemnified party under this ARTICLE VII shall,
promptly (and in any event within 20 days), after the receipt of notice of the
commencement of any action or other proceeding against such indemnified party in
respect of which indemnity may be sought from the Company under this ARTICLE
VII, notify the Company in writing of the commencement thereof. The failure of
any indemnified party so to notify the Company of any such action shall not
relieve the Company from any liability that it may have to such indemnified
party pursuant to this ARTICLE VII, except to the extent that such failure
causes material prejudice to the Company. In case any such action or other
proceeding shall be brought against any indemnified party and it
22
shall notify the Company of the commencement thereof, the Company shall be
entitled to participate therein and, to the extent that it may wish, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; PROVIDED, HOWEVER, that any indemnified party may, at its own expense,
retain separate counsel to participate in such defense. Notwithstanding the
foregoing, in any action or proceeding in which both the Company and an
indemnified party is, or is reasonably likely to become, a party, such
indemnified party shall have the right to employ separate counsel at the
Company's expense and to control its own defense of such action or proceeding
if, in the reasonable written opinion of counsel to such indemnified party
(obtained at the expense of the Company), (a) there are or may be legal defenses
available to such indemnified party or to other indemnified parties that are
different from or additional to those available to the Company or (b) any
conflict or potential conflict exists between the Company and such indemnified
party that would make such separate representation advisable; PROVIDED, HOWEVER,
that in no event shall the Company be required to pay fees and expenses under
this ARTICLE VII for more than one firm of attorneys in addition to the firm of
attorneys representing the Company in any jurisdiction in any one legal action
or group of related legal actions. The Company shall not, without the consent of
the indemnified party (which consent shall not be unreasonably withheld),
consent to the entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or litigation or that requires action other than the payment of money by
the Company. The rights accorded to indemnified parties hereunder shall be in
addition to any rights that any indemnified party may have at common law, by
separate agreement or otherwise.
7.3 INVESTOR RIGHTS AGREEMENT. Notwithstanding anything to the contrary in
this ARTICLE VII, the indemnification and contribution provisions of the
Investor Rights Agreement shall govern any claim made with respect to
registration statements filed pursuant thereto or sales made thereunder.
7.4 SURVIVAL OF PROVISIONS OF ARTICLE VII. The obligations of the Company
under this ARTICLE VII shall survive indefinitely.
ARTICLE VIII
MISCELLANEOUS
8.1 DIVIDEND PAYMENTS. The Company agrees that, so long as Purchaser shall
hold any Series C Preferred Stock, the Company will make any cash payments with
respect thereto pursuant to the terms of the Certificate of Designations by wire
transfer of immediately available funds for credit to such Purchaser's account
in the United States of America as such Purchaser may designate in writing,
notwithstanding any contrary provision herein or in any share of Series C
Preferred Stock with respect to the place of payment. The Company agrees to
afford the benefits of this SECTION 8.1 to any permitted transferee of any
Series C Preferred Stock purchased by any Purchaser hereunder.
8.2 EXPENSES. The Company agrees to pay, and save Purchaser harmless
against liability for the payment of, all reasonable out-of-pocket expenses
arising in connection with:
(a) the negotiation and execution of the Transaction Documents and
the Certificate of Designations and the issuance of the Securities,
including all taxes (including any intangible personal property tax,
together in each case with interest and
23
penalties, if any, and also including any filing fees payable to any
governmental authority, and any income tax payable by any Purchaser in
respect of any reimbursement for any such tax or fee) that may be payable
in respect of the execution and delivery of the Transaction Documents or
the issuance, delivery or acquisition (but not the holding, ownership or
transfer) of any of the Securities issued pursuant to this Agreement or any
Common Stock issuable upon conversion of any Series C Preferred Stock or
upon exercise of the Common Stock Warrants;
(b) the reasonable fees and expenses of Purchasers' special counsel,
if any, in connection with the Transaction Documents and the Certificate of
Designations, and any subsequent modification thereof or consent thereto
(including any proposed modification or consent, whether or not finalized);
and
(c) the cost and expenses, including reasonable attorney's fees,
incurred by Purchaser in enforcing any of its rights hereunder, including,
without limitation, costs and expenses incurred in any bankruptcy case.
The obligations of the Company under this SECTION 8.2 shall survive the transfer
of any Securities by Purchaser.
8.3 RESTRICTIVE LEGENDS. The Securities shall bear a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED, QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT OR SUCH LAWS AND NEITHER THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY
AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES.
In addition, the certificates evidencing the Preferred Shares and the Series C
Preferred Stock Warrants shall also bear the following legend:
THE SHARES OF COMMON STOCK ISSUABLE UPON THE [CONVERSION] [EXERCISE]
OF THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO AN INVESTOR
RIGHTS AGREEMENT, A STOCKHOLDERS AGREEMENT AND A TRADING AGREEMENT,
AS EACH OF THE SAME MAY BE AMENDED FROM TIME TO TIME, COPIES OF WHICH
ARE AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICES OF THE COMPANY.
24
8.4 CONSENT TO AMENDMENTS. This Agreement may be amended, and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if the Company shall obtain the written consent
of Purchaser to such amendment, action or omission to act. Any consideration
given to any holder to obtain his, her or its consent under this Agreement or
any Ancillary Agreement or with respect to the Series C Preferred Stock shall be
given pro rata to all holders of shares of Series C Preferred Stock whether or
not they give consent. Each holder of any shares of Series C Preferred Stock at
the time or thereafter outstanding (or of shares of Common Stock entitled to any
rights hereunder) shall be bound by any consent authorized by this SECTION 8.4,
whether or not such shares of Series C Preferred Stock shall have been marked to
indicate such consent, but any shares of Series C Preferred Stock issued
thereafter may bear a notation referring to any such consent. No course of
dealing between the Company and the holder of any shares of Series C Preferred
Stock nor any delay in exercising any rights hereunder or under any shares of
Series C Preferred Stock shall operate as a waiver of any rights of any holder
of such shares of Series C Preferred Stock. As used herein, the term "this
Agreement" and references thereto shall mean this Agreement as it may from time
to time be amended or supplemented.
8.5 NOTICES TO SUBSEQUENT HOLDER. Except as otherwise provided herein, if
any shares of Series C Preferred Stock shall have been transferred to another
holder and that holder shall have designated in writing the address to which
communications with respect to such shares of Series C Preferred Stock shall be
mailed, all notices, certificates, requests, statements and other documents
required to be delivered to Purchaser by any provision hereof shall also be
delivered to each such holder.
8.6 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND INDEMNITIES. All
representations, warranties, covenants and agreements contained herein or made
in writing by the Company in connection herewith shall survive the execution,
delivery and performance of this Agreement and the Ancillary Agreements,
regardless of any investigation made by the Purchaser or on the Purchaser's
behalf.
8.7 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, all
covenants and agreements contained 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 whether so expressed or not.
8.8 NOTICES. All notices, consents and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given when
(a) delivered by hand, (b) sent by telecopier (with receipt confirmed), provided
that a copy is mailed by certified or registered mail, return receipt requested
or (c) when received by the addressee, if sent by Express Mail, Federal Express
or other express delivery service (receipt requested), in each case to the
appropriate addresses and telecopier numbers set forth below (or to such other
addresses and telecopier numbers as a party may designate as to itself by notice
to the other parties):
(i) If to the Company, to: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax No. ▇▇▇-▇▇▇-▇▇▇▇
Attention: General Counsel.
(ii) If to Purchaser: at the address set forth on SCHEDULE I.
25
8.9 ACCOUNTING TERMS. Unless otherwise set forth herein, all accounting
terms and provisions in this Agreement or any Ancillary Agreement shall be
construed to be as determined in accordance with generally accepted accounting
principles in the United States then in effect.
8.10 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Illinois. This Agreement may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement is sought.
8.11 HEADINGS. The descriptive headings of the several paragraphs of this
Agreement and the table of contents are inserted for convenience only and do not
constitute a part of this Agreement.
8.12 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be deemed but one and the same instrument and
each of which shall be deemed an original, and it shall not be necessary in
making proof of this Agreement to produce or account for more than one such
counterpart. It shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart for each of the parties
hereto. Delivery by facsimile by any of the parties hereto of an executed
counterpart of this Agreement shall be effective as an original executed
counterpart hereof and shall be deemed a representation that an original
executed counterpart hereof will be delivered.
8.13 NON-BUSINESS DAYS. If the date for making any payment or the last date
for performance of any act or the exercising of any right, as provided in this
Agreement, shall not be a Business Day, such payment may be made or act
performed or right exercised on the next succeeding Business Day, with the same
force and effect as if done on the nominal date provided in this Agreement.
8.14 FURTHER ASSURANCES. The Company shall from time to time and at all
times hereafter make, do, execute or cause or procure to be made, done and
executed such further acts, deeds, conveyances, consents and assurances, without
further consideration, that may reasonably be required to effect the
transactions contemplated by this Agreement or any Ancillary Agreement.
8.15 INTEGRATION. This Agreement and the Ancillary Agreements, together
with the exhibits hereto and thereto, embody the entire agreement by and among
the parties hereto with respect to the matters set forth herein and supersede
any and all previous agreements, whether oral or written, on the same subject
matter.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS.]
26
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
COMPANY: PURCHASER:
ELECTRIC CITY CORP., ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
a Delaware corporation an individual
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------ ---------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Executive Officer
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
SCHEDULE I
PURCHASER NO. OF SHARES NO. OF NO. OF NO. OF TOTAL AGGREGATE
OF SERIES C SERIES C SHARES OF COMMON PURCHASE PRICE
PREFERRED PREFERRED COMMON STOCK
STOCK STOCK STOCK WARRANTS
WARRANTS
-----------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 200,000 50,000 30,082 281,250 $ 2,000,000
c/o ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Co.
▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax:
-----------------------------------------------------------------------------------------------------------
ARTICLE I DEFINITIONS.......................................................................................1
ARTICLE II ISSUE, PURCHASE AND SALE OF THE SECURITIES.......................................................5
2.1 Authorization of Issuance of Series C Preferred Stock.............................................5
2.2 Purchase and Sale of Securities...................................................................5
ARTICLE III CONDITIONS OF CLOSING...........................................................................6
3.1 Purchaser Conditions to Closing...................................................................6
3.2 Company Conditions to Closing.....................................................................8
ARTICLE IV CERTAIN COVENANTS................................................................................9
4.1 Financial Statements and Other Reports............................................................9
4.2 Corporate Existence; Licenses and Permits; Maintenance of Properties..............................9
4.3 Securities Exchange..............................................................................10
4.4 Best Efforts.....................................................................................10
4.5 Insurance........................................................................................10
ARTICLE V REPRESENTATIONS, COVENANTS AND WARRANTIES........................................................11
5.1 Organization; Standing and Qualification of Company and its Subsidiaries; Corporate Authority....11
5.2 Capital Stock....................................................................................12
5.3 No Defaults......................................................................................12
5.4 Burdensome and Conflicting Agreements and Charter Provisions.....................................12
5.5 Title to Assets, Etc.............................................................................13
5.6 Leases...........................................................................................13
5.7 Contracts........................................................................................13
5.8 Financial Statements.............................................................................14
5.9 Actions Pending..................................................................................14
5.10 Offering of Securities...........................................................................15
5.11 Broker's or Finder's Commissions.................................................................15
5.12 Application of Proceeds..........................................................................15
5.13 Intellectual Property............................................................................15
5.14 Taxes............................................................................................16
5.15 ERISA............................................................................................16
5.16 Environmental....................................................................................18
5.17 Insurance........................................................................................19
5.18 Transactions with Affiliates.....................................................................19
5.19 Employees; Labor Matters.........................................................................19
5.20 Customers, Suppliers and Distributors............................................................20
5.21 Investor Rights Agreements.......................................................................20
5.22 Agreements with Stockholders.....................................................................20
5.23 Company Qualifies as a "Smaller Enterprise"......................................................20
5.24 Commission Documents.............................................................................20
5.25 Disclosure.......................................................................................20
ARTICLE VI REPRESENTATIONS OF THE PURCHASERS...............................................................21
6.1 Investment Purpose...............................................................................21
6.2 Accredited Investor Status.......................................................................21
6.3 Authorization; Enforcement......................................................................21
6.4 Broker's or Finder's Commissions.................................................................21
ARTICLE VII INDEMNIFICATION................................................................................21
7.1 Indemnification by Company.......................................................................21
7.2 Notification.....................................................................................22
7.3 Investor Rights Agreement........................................................................23
7.4 Survivial of Provisions of Article VII...........................................................23
ARTICLE VIII MISCELLANEOUS.................................................................................23
8.1 Dividend Payments................................................................................23
8.2 Expenses.........................................................................................23
8.3 Restrictive Legends..............................................................................24
8.4 Consent to Amendments............................................................................24
8.5 Notices to Subsequent Holder.....................................................................25
8.6 Survival of Representations, Warranties and Indemnities..........................................25
8.7 Successors and Assigns...........................................................................25
8.8 Notices..........................................................................................25
8.9 Accounting Terms.................................................................................25
8.10 Governing Law....................................................................................26
8.11 Headings; Table of Contents......................................................................26
8.12 Counterparts.....................................................................................26
8.13 Non-Business Days................................................................................26
8.14 Further Assurances...............................................................................26
8.15 Integration......................................................................................26