Exhibit 99.2
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
December 14, 2004, among ▇▇▇▇ Security International, Inc., a Delaware
corporation (the "Company"), and each purchaser identified on the signature
pages hereto (each, including its successors and assigns, a "Purchaser" and
collectively the "Purchasers"); and
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act (as defined below), and Rule
506 promulgated thereunder, the Company desires to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company in the aggregate, up to $3,510,000 of shares of Common Stock
and Warrants on the Closing Date.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:
ARTICLE V.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in Section 3.1(j).
"Affiliate" means any Person that, directly or indirectly through one or
more intermediaries, controls or is controlled by or is under common control
with a Person as such terms are used in and construed under Rule 144. With
respect to a Purchaser, any investment fund or managed account that is managed
on a discretionary basis by the same investment manager as such Purchaser will
be deemed to be an Affiliate of such Purchaser.
"Closing" means the closing of the purchase and sale of the Common Stock
and the Warrants pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the Transaction Documents
have been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Purchasers' obligations to pay the Subscription
Amount and (ii) the Company's obligations to deliver the Securities have been
satisfied or waived.
"Closing Price" means on any particular date (a) the last reported closing
bid price per share of Common Stock on such date on the Trading Market (as
reported by Bloomberg L.P. at 4:15 PM (New York time), or (b) if there is no
such price on such date, then the closing bid price on the Trading Market on the
date nearest preceding such date (as reported by Bloomberg L.P. at 4:15 PM (New
York time) for the closing bid price for regular session trading on such day),
or (c) if the Common Stock is not then listed or quoted on a Trading Market and
if prices for the Common Stock are then quoted on the OTC Bulletin Board, the
closing bid price of the Common Stock for such date (or the nearest preceding
date) on the OTC Bulletin Board (as reported by Bloomberg L.P. at 4:15 PM (New
York time), (d) if the Common Stock is not then listed or quoted on the Trading
Market and if prices for the Common Stock are then reported in the "pink sheets"
published by the Pink Sheets LLC (formerly the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Common Stock so
reported, or (e) if the shares of Common Stock are not then publicly traded the
fair market value of a share of Common Stock as determined by a qualified
independent appraiser selected in good faith by the Purchasers of a majority in
interest of the Shares then outstanding.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, $0.01 par value per
share, and any securities into which such common stock may hereafter be
reclassified.
"Common Stock Equivalents" means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
"Company Counsel" means Drinker ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP.
"Disclosure Schedules" means the Disclosure Schedules of the Company
delivered concurrently herewith.
"Effective Date" means the date that the Registration Statement is first
declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exempt Issuance" means the issuance of (a) shares of Common Stock or
options to employees, officers or directors of the Company pursuant to any stock
or option plan duly adopted by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise of or conversion of any securities issued hereunder, convertible
securities, options or warrants issued and outstanding on the date of this
Agreement, provided that such securities have not been amended since the date of
this Agreement to increase the number of such securities, and (c) securities
issued pursuant to acquisitions or strategic transactions, provided any such
issuance shall only be to a Person which is, itself or through its subsidiaries,
selling assets or a business that is synergistic with the business of the
Company and in which the Company receives benefits in addition to the investment
of funds, but shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an entity whose
primary business is investing in securities or (d) the issuance of 400,000
shares of Common Stock and Warrants which issuance is being done
contemporaneously with this transaction under substantially the same terms and
conditions as this transaction and which has been consented to by the
Purchasers.
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"FW" means ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ LLP with offices located at ▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇.
"Intellectual Property Rights" shall have the meaning ascribed to such term
in Section 3.1(o).
"Liens" means a lien, charge, security interest, encumbrance, right of
first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning ascribed to such term in
Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in Section
3.1(m).
"Per Share Purchase Price" equals $4.41, subject to adjustment for reverse
and forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of this Agreement.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the date of this Agreement, among the Company and each Purchaser, in
the form of Exhibit A hereto.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale by the Purchasers of the Shares and the Warrant Shares.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in Section
3.1(h).
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"Securities" means the Shares, the Warrants and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of Common Stock issued or issuable to each
Purchaser pursuant to this Agreement.
"Subscription Amount" means, as to each Purchaser, the amounts set forth
below such Purchaser's signature block on the signature page hereto, in United
States dollars and in immediately available funds.
"Subsidiary" shall mean the subsidiaries of the Company, if any, set forth
on Schedule 3.1(a).
"Trading Day" means a day on which the Common Stock is traded on a Trading
Market.
"Trading Market" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the Nasdaq
SmallCap Market, the American Stock Exchange, the New York Stock Exchange or the
Nasdaq National Market.
"Transaction Documents" means this Agreement, the Warrants and the
Registration Rights Agreement and any other documents or agreements executed in
connection with the transactions contemplated hereunder.
"Warrants" means the Common Stock Purchase Warrants, in the form of Exhibit
B, issuable to the Purchasers at the Closing, which warrants shall be
exercisable immediately upon issuance for a term of 5 years and have an exercise
price equal to $5.88, per share.
"Warrant Shares" means the shares of Common Stock issuable upon exercise of
the Warrants.
ARTICLE VI.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, each Purchaser shall purchase from the
Company, severally and not jointly with the other Purchasers, and the Company
shall issue and sell to each Purchaser, (a) a number of Shares equal to such
Purchaser's Subscription Amount divided by the Per Share Purchase Price and (b)
the Warrants as determined pursuant to Section 2.2(a)(iii). The aggregate
Subscription Amount for Shares sold hereunder shall be up to $3,510,000. Upon
satisfaction of the conditions set forth in Section 2.2, the Closing shall occur
at the offices of FW or such other location as the parties shall mutually agree.
2.2 Deliveries.
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(a) On the Closing Date, the Company shall deliver or cause to be delivered
to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a copy of the irrevocable instructions to the Company's transfer agent
instructing the transfer agent to deliver, on an expedited basis, a certificate
evidencing a number of Shares equal to such Purchaser's Subscription Amount
divided by the Per Share Purchase Price, registered in the name of such
Purchaser;
(iii) within 3 Trading Days of the Closing Date, a Warrant, registered in
the name of such Purchaser, pursuant to which such Purchaser shall have the
right to acquire up to the number of shares of Common Stock equal to 20% of the
Shares to be issued to such Purchaser at the Closing;
(iv) the Registration Rights Agreement duly executed by the Company; and
(v) a legal opinion of Company Counsel, in the form of Exhibit C attached
hereto.
(b) On the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer to the account
as specified in writing by the Company; and
(iii) the Registration Rights Agreement duly executed by such Purchaser.
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with the Closing
are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on the Closing Date
of the representations and warranties of the Purchasers contained herein;
(ii) all obligations, covenants and agreements of the Purchasers required
to be performed at or prior to the Closing Date shall have been performed; and
(iii) the delivery by the Purchasers of the items set forth in Section
2.2(b) of this Agreement.
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(b) The respective obligations of the Purchasers hereunder in connection
with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained herein;
(ii) all obligations, covenants and agreements of the Company required to
be performed at or prior to the Closing Date shall have been performed;
(iii) the delivery by the Company of the items set forth in Section 2.2(a)
of this Agreement;
(iv) there shall have been no Material Adverse Effect with respect to the
Company since the date hereof;
(v) the Company shall have received an aggregate Subscription Amount among
all Purchasers equal to no less than $3,510,000; and
(vi) From the date hereof to the Closing Date, trading in the Common Stock
shall not have been suspended by the Commission (except for any suspension of
trading of limited duration agreed to by the Company, which suspension shall be
terminated prior to the Closing), and, at any time prior to the Closing Date,
trading in securities generally as reported by Bloomberg Financial Markets shall
not have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such service, or on any
Trading Market, nor shall a banking moratorium have been declared either by the
United States or New York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any material
adverse change in, any financial market which, in each case, in the reasonable
judgment of each Purchaser, makes it impracticable or inadvisable to purchase
the Shares at the Closing.
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the Disclosure Schedules which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser:
(a) Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe for
or purchase securities. If the Company has no subsidiaries, then references in
the Transaction Documents to the Subsidiaries will be disregarded.
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(b) Organization and Qualification. Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company nor any Subsidiary is in violation
or default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in (i) a material adverse effect on the legality, validity or enforceability of
any Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or financial condition of the Company
and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on
the Company's ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
"Material Adverse Effect") and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company in
connection therewith other than in connection with the Required Approvals. Each
Transaction Document has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the issuance and sale of the Shares and
the consummation by the Company of the other transactions contemplated thereby
do not and will not (i) conflict with or violate any provision of the Company's
or any Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, result in the creation of any Lien upon any of the properties or
assets of the Company or any Subsidiary, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected, or (iv) conflict with or violate the terms of any
agreement by which the Company or any Subsidiary is bound or to which any
property or asset of the Company or any Subsidiary is bound or affected; except
in the case of each of clauses (ii) and (iii), such as could not have or
reasonably be expected to result in a Material Adverse Effect.
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(e) Filings, Consents and Approvals. The Company is not required to obtain
any consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) filings required pursuant to Section 4.4 of this Agreement, (ii) the filing
with the Commission of the Registration Statement, (iii) application(s) to each
applicable Trading Market for the listing of the Shares and Warrant Shares for
trading thereon in the time and manner required thereby, and (iv) the filing of
Form D with the Commission and such filings as are required to be made under
applicable state securities laws (collectively, the "Required Approvals").
(f) Issuance of the Securities. The Shares and Warrants are duly authorized
and, when issued and paid for in accordance with the Transaction Documents, will
be duly and validly issued, fully paid and nonassessable, free and clear of all
Liens imposed by the Company other than restrictions on transfer provided for in
the Transaction Documents. The Warrant Shares, when issued in accordance with
the terms of the Transaction Documents, will be validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company. The Company
has reserved from its duly authorized capital stock the maximum number of shares
of Common Stock issuable pursuant to this Agreement and the Warrants.
(g) Capitalization. The capitalization of the Company is as described in
the Company's most recent periodic report filed with the Commission. The Company
has not issued any capital stock since such filing other than pursuant to the
exercise of employee stock options under the Company's stock option plans, the
issuance of shares of Common Stock to employees pursuant to the Company's
employee stock purchase plan and pursuant to the conversion or exercise of
outstanding Common Stock Equivalents. No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents. Except as a result
of the purchase and sale of the Securities, there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. The issue and sale of the Securities
will not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities. All of the outstanding shares of
capital stock of the Company are validly issued, fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws, and
none of such outstanding shares was issued in violation of any preemptive rights
or similar rights to subscribe for or purchase securities. No further approval
or authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the Shares. Except as disclosed
in the SEC Reports, there are no stockholders agreements, voting agreements or
other similar agreements with respect to the Company's capital stock to which
the Company is a party or, to the knowledge of the Company, between or among any
of the Company's stockholders.
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(h) SEC Reports; Financial Statements. The Company has filed all reports
required to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) (the foregoing materials, including the exhibits
thereto, being collectively referred to herein as the "SEC Reports") on a timely
basis or has received a valid extension of such time of filing and has filed any
such SEC Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved ("GAAP"),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
(i) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in
the SEC Reports, (i) there has been no event, occurrence or development that has
had or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice and (B) liabilities not
required to be reflected in the Company's financial statements pursuant to GAAP
or required to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting, (iv) the Company has not
declared or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to existing
Company stock option plans. The Company does not have pending before the
Commission any request for confidential treatment of information.
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(j) Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an "Action") which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Securities or (ii) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty. There
has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to the knowledge
of the Company, is imminent with respect to any of the employees of the Company
which could reasonably be expected to result in a Material Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is in default
under or in violation of (and no event has occurred that has not been waived
that, with notice or lapse of time or both, would result in a default by the
Company or any Subsidiary under), nor has the Company or any Subsidiary received
notice of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws
applicable to its business except in each case as could not have a Material
Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not have or reasonably be expected to result in a
Material Adverse Effect ("Material Permits"), and neither the Company nor any
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any Material Permit.
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(n) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties. Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases of which the Company and the Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights necessary or material for use in connection with their respective
businesses as described in the SEC Reports and which the failure to so have
could have a Material Adverse Effect (collectively, the "Intellectual Property
Rights"). Neither the Company nor any Subsidiary has received a written notice
that the Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. To the knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is no
existing infringement by another Person of any of the Intellectual Property
Rights of others.
(p) Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged. To the best of Company's knowledge, such insurance
contracts and policies are accurate and complete. Neither the Company nor any
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as set forth in the
SEC Reports, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $60,000 other than (i) for payment of salary
or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) for other employee benefits,
including stock option agreements under any stock option plan of the Company.
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(r) ▇▇▇▇▇▇▇▇-▇▇▇▇▇; Internal Accounting Controls. The Company is in
material compliance with all provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 which
are applicable to it as of the Closing Date. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its subsidiaries, is made known
to the certifying officers by others within those entities, particularly during
the period in which the Company's most recently filed periodic report under the
Exchange Act, as the case may be, is being prepared. The Company's certifying
officers have evaluated the effectiveness of the Company's controls and
procedures as of the date prior to the filing date of the most recently filed
periodic report under the Exchange Act (such date, the "Evaluation Date"). The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company's internal controls (as such term is defined in Item
307(b) of Regulation S-K under the Exchange Act) or, to the Company's knowledge,
in other factors that could significantly affect the Company's internal
controls.
(s) Certain Fees. No brokerage or finder's fees or commissions are or will
be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by this Agreement. The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section that may
be due in connection with the transactions contemplated by this Agreement.
(t) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by the
Company to the Purchasers as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.
(u) Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Shares, will not be or be an
Affiliate of, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act.
12
(v) Registration Rights. No Person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the
Company.
(w) Listing and Maintenance Requirements. The Company's Common Stock is
registered pursuant to Section 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to its knowledge is likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act nor has the Company received any notification that the Commission is
contemplating terminating such registration. The Company has not, in the 12
months preceding the date hereof, received notice from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such Trading Market. The Company is, and has no reason to believe that it will
not in the foreseeable future continue to be, in compliance with all such
listing and maintenance requirements.
(x) Application of Takeover Protections. The Company and its Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Certificate of Incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation the Company's issuance of
the Securities and the Purchasers' ownership of the Securities.
(y) Disclosure. The Company confirms that, neither the Company nor any
other Person acting on its behalf has provided any of the Purchasers or their
agents or counsel with any information that constitutes or might constitute
material, non-public information. The Company understands and confirms that the
Purchasers will rely on the foregoing representations and covenants in effecting
transactions in securities of the Company. All disclosure provided to the
Purchasers regarding the Company, its business and the transactions contemplated
hereby, including the Disclosure Schedules to this Agreement, furnished by or on
behalf of the Company with respect to the representations and warranties made
herein are true and correct with respect to such representations and warranties
and do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any representations
or warranties with respect to the transactions contemplated hereby other than
those specifically set forth in Section 3.2 hereof.
(z) No Integrated Offering. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, neither the Company,
nor any of its affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of the Securities Act or any applicable shareholder approval
provisions, including, without limitation, under the rules and regulations of
any exchange or automated quotation system on which any of the securities of the
Company are listed or designated.
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(aa) Solvency. Based on the financial condition of the Company as of the
Closing Date after giving effect to the receipt by the Company of the proceeds
from the sale of the Securities hereunder, (i) the Company's fair saleable value
of its assets exceeds the amount that will be required to be paid on or in
respect of the Company's existing debts and other liabilities (including known
contingent liabilities) as they mature; (ii) the Company's assets do not
constitute unreasonably small capital to carry on its business for the current
fiscal year as now conducted and as proposed to be conducted including its
capital needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to liquidate all
of its assets, after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its debt when such amounts
are required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt).
(bb) Form S-3 Eligibility. The Company is eligible to register the resale
of its Common Stock by the Purchasers under Form S-3 promulgated under the
Securities Act and the Company hereby covenants and agrees to use its best
efforts to maintain its eligibility to use Form S-3 until the Registration
Statement covering the resale of the Shares shall have been filed with, and
declared effective by, the Commission.
(cc) Taxes. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any Subsidiary.
(dd) General Solicitation. Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Shares by any form of
general solicitation or general advertising. The Company has offered the Shares
for sale only to the Purchasers and certain other "accredited investors" within
the meaning of Rule 501 under the Securities Act.
(ee) Foreign Corrupt Practices. Neither the Company, nor to the knowledge
of the Company, any agent or other person acting on behalf of the Company, has
(i) directly or indirectly, used any corrupt funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.
14
(ff) Accountants. The Company's accountants are set forth on Schedule
3.1(ff) of the Disclosure Schedule. To the Company's knowledge, such
accountants, who the Company expects will express their opinion with respect to
the financial statements to be included in the Company's Annual Report on Form
10-K for the year ended December 31, 2004, are independent accountants as
required by the Securities Act.
(gg) Acknowledgment Regarding Purchasers' Purchase of Shares. The Company
acknowledges and agrees that each of the Purchasers is acting solely in the
capacity of an arm's length purchaser with respect to the Transaction Documents
and the transactions contemplated hereby. The Company further acknowledges that
no Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by any Purchaser or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to the Purchasers'
purchase of the Shares. The Company further represents to each Purchaser that
the Company's decision to enter into this Agreement has been based solely on the
independent evaluation of the transactions contemplated hereby by the Company
and its representatives.
(hh) Acknowledgement Regarding Purchasers' Trading Activity. Anything in
this Agreement or elsewhere herein to the contrary notwithstanding, it is
understood and agreed by the Company (i) that none of the Purchasers have been
asked to agree, nor has any Purchaser agreed, to desist from purchasing or
selling, long and/or short, securities of the Company, or "derivative"
securities based on securities issued by the Company or to hold the Securities
for any specified term; (ii) that past or future open market or other
transactions by any Purchaser, including short sales, and specifically
including, without limitation, short sales or "derivative" transactions, before
or after the closing of this or future private placement transactions, may
negatively impact the market price of the Company's publicly-traded securities;
(iii) that any Purchaser, and counter parties in "derivative" transactions to
which any such Purchaser is a party, directly or indirectly, presently may have
a "short" position in the Common Stock, and (iv) that each Purchaser shall not
be deemed to have any affiliation with or control over any arm's length
counter-party in any "derivative" transaction.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with full right, corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations thereunder. The execution,
delivery and performance by such Purchaser of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate or similar
action on the part of such Purchaser. Each Transaction Document to which it is a
party has been duly executed by such Purchaser, and when delivered by such
Purchaser in accordance with the terms hereof, will constitute the valid and
legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms, except (i) as limited by general equitable principles
and applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors' rights generally,
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.
15
(b) Purchaser Representation. Such Purchaser understands that the
Securities are "restricted securities" and have not been registered under the
Securities Act or any applicable state securities law and is acquiring the
Securities as principal for its own account and not with a view to or for
distributing or reselling such Securities or any part thereof, has no present
intention of distributing any of such Securities and has no arrangement or
understanding with any other persons regarding the distribution of such
Securities (this representation and warranty not limiting such Purchaser's right
to sell the Securities pursuant to the Registration Statement or otherwise in
compliance with applicable federal and state securities laws). Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its business. Such
Purchaser does not have any agreement or understanding, directly or indirectly,
with any Person to distribute any of the Securities.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on which it
exercises any Warrants, it will be either: (i) an "accredited investor" as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities
Act or (ii) a "qualified institutional buyer" as defined in Rule 144A(a) under
the Securities Act. Such Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment. Such Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e) General Solicitation. Such Purchaser is not purchasing the Securities
as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media
or broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.
16
(f) Short Sales. Such Purchaser has not directly or indirectly, nor has any
Person acting on behalf of or pursuant to any understanding with such Purchaser,
executed any Short Sales in the securities of the Company (including, without
limitations, any Short Sales involving the Company's securities) since 4 P.M.
(New York Time) on November 11, 2004 which was the time that such Purchaser was
first contacted regarding an investment in the Company ("Discussion Time"). For
purposes of this Section, "Short Sales" include, without limitation, all "short
sales" as defined in Rule 3b-3 of the Exchange Act. Such Purchaser covenants
that neither it nor any affiliates acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period from the
Discussion time until prior to the time that the transactions contemplated by
this Agreement are first publicly announced as described in Section 4.4.
Notwithstanding the foregoing, no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in Short Sales in the securities of
the Company after the time that the transactions contemplated by this Agreement
are first publicly announced as described in Section 4.4.
The Company acknowledges and agrees that each Purchaser does not make or
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.
ARTICLE VIII.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state and
federal securities laws. In connection with any transfer of Securities other
than pursuant to an effective registration statement or Rule 144, to the Company
or to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in Section 4.1(b), the Company may require the transferor thereof to provide to
the Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion and shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing to
be bound by the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required by this
Section 4.1(b), of a legend on any of the Securities in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)
UNDER THE SECURITIES ACT.
17
The Company acknowledges and agrees that a Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Securities to a financial
institution that is an "accredited investor" as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities to the
pledgees or secured parties. Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. At the appropriate Purchaser's expense,
the Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are subject
to registration pursuant to the Registration Rights Agreement, the preparation
and filing of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.
(c) Certificates evidencing the Shares and Warrant Shares shall not contain
any legend (including the legend set forth in Section 4.1(b)), (i) while a
registration statement (including the Registration Statement) covering the
resale of such security is effective under the Securities Act, or (ii) following
any sale of such Shares or Warrant Shares pursuant to Rule 144, or (iii) if such
Shares or Warrant Shares are eligible for sale under Rule 144(k), or (iv) if
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the Staff of
the Commission). The Company shall cause its counsel to issue a legal opinion to
the Company's transfer agent promptly after the Effective Date if required by
the Company's transfer agent to effect the removal of the legend hereunder. If
all or any portion of a Warrant is exercised at a time when there is an
effective registration statement to cover the resale of the Warrant Shares, such
Warrant Shares shall be issued free of all legends. The Company agrees that
following the Effective Date or at such time as such legend is no longer
required under this Section 4.1(c), it will, no later than three Trading Days
following the delivery by a Purchaser to the Company or the Company's transfer
agent of a certificate representing Shares or Warrant Shares, as the case may
be, issued with a restrictive legend (such date, the "Legend Removal Date"),
deliver or cause to be delivered to such Purchaser a certificate representing
such Securities that is free from all restrictive and other legends. The Company
may not make any notation on its records or give instructions to any transfer
agent of the Company that enlarge the restrictions on transfer set forth in this
Section.
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(d) In addition to such Purchaser's other available remedies, the Company
shall pay to a Purchaser, in cash, as partial liquidated damages and not as a
penalty, for each $1,000 of Shares or Warrant Shares (based on the Closing Price
of the Common Stock on the date such Securities are submitted to the Company's
transfer agent) subject to Section 4.1(c), $10 per Trading Day (increasing to
$20 per Trading Day five (5) Trading Days after such damages have begun to
accrue) for each Trading Day after the Legend Removal Date until such
certificate is delivered. Nothing herein shall limit such Purchaser's right to
pursue actual damages for the Company's failure to deliver certificates
representing any Securities as required by the Transaction Documents, and such
Purchaser shall have the right to pursue all remedies available to it at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief.
(e) Each Purchaser, severally and not jointly with the other Purchasers,
agrees that the removal of the restrictive legend from certificates representing
Securities as set forth in this Section 4.1 is predicated upon the Company's
reliance that the Purchaser will sell any Securities pursuant to either the
registration requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom.
(f) Until the date that is 30 days following the Effective Date, the
Company shall not undertake a reverse or forward stock split or reclassification
of the Common Stock without the prior written consent of the Purchasers holding
a majority in interest of the Shares.
4.2 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.
4.3 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.
19
4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m.
Eastern time on the Trading Day following the date hereof, file a Current Report
on Form 8-K, in each case reasonably acceptable to each Purchaser disclosing the
material terms of the transactions contemplated hereby, along with the
Transaction Documents as exhibits attached thereto; provided, however, if a
Purchaser objects to a Current Report on Form 8-K, the Company shall still be
permitted to file a Current Report on Form 8-K but only to the extent required
by law. The Company and each Purchaser shall consult with each other in issuing
any other press releases with respect to the transactions contemplated hereby,
and neither the Company nor any Purchaser shall issue any such press release or
otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of any Purchaser, or without the
prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (i) as required by federal
securities law in connection with the registration statement contemplated by the
Registration Rights Agreement and (ii) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with a copy of the disclosure permitted under subclause (i) or
(ii).
4.5 Shareholders Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholders rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.6 Non-Public Information. The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.
4.7 Use of Proceeds. Except as set forth on Schedule 4.7 attached hereto,
the Company shall use the net proceeds from the sale of the Securities hereunder
for working capital purposes and not for the satisfaction of any portion of the
Company's debt (other than payment of trade payables in the ordinary course of
the Company's business and prior practices), to redeem any Company equity or
equity-equivalent securities or to settle any outstanding litigation.
4.8 Reimbursement. If any Purchaser becomes involved in any capacity in any
Proceeding by or against any Person who is a stockholder of the Company (except
as a result of sales, pledges, margin sales and similar transactions by such
Purchaser to or with any current stockholder or a claim by the Person that
Purchaser did not have the authority to enter into this transaction), solely as
a result of such Purchaser's acquisition of the Securities under this Agreement,
the Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred. The reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliates of the
Purchasers who are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and controlling persons (if any), as
the case may be, of the Purchasers and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.
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4.9 Indemnification of Purchasers. Subject to the provisions of this
Section 4.9, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser's representation, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing. Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Purchaser
Party. The Company will not be liable to any Purchaser Party under this
Agreement (i) for any settlement by an Purchaser Party effected without the
Company's prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party's breach of any of
the representations, warranties, covenants or agreements made by the Purchasers
in this Agreement or in the other Transaction Documents.
21
4.10 Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement and Warrant Shares pursuant to any exercise of the Warrants.
4.11 Listing of Common Stock. The Company hereby agrees to use best efforts
to maintain the listing of the Common Stock on a Trading Market, and as soon as
reasonably practicable following the Closing (but not later than the earlier of
the Effective Date and the first anniversary of the Closing Date) to list all of
the Shares and Warrant Shares on such Trading Market. The Company further
agrees, if the Company applies to have the Common Stock traded on any other
Trading Market, it will include in such application all of the Shares and
Warrant Shares, and will take such other action as is necessary to cause all of
the Shares and Warrant Shares to be listed on such other Trading Market as
promptly as possible. The Company will take all action reasonably necessary to
continue the listing and trading of its Common Stock on a Trading Market and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Trading Market.
4.12 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended to treat for the Company the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.
4.13 Participation in Future Financing. From the date hereof until 6 months
after the Effective Date, upon any financing by the Company of its Common Stock
or Common Stock Equivalents (a "Subsequent Financing"), each Purchaser (or its
designees) shall have the right to participate in, (a) if such Subsequent
Financing will be undertaken by one proposed investor (and, if applicable, its
Affiliates) 100% of such Subsequent Financing (subject to the Pro-Rata
allocation provided for below) and (b) if such Subsequent Financing will be
undertaken by more than one proposed investor (excluding its Affiliates), all or
part of such Subsequent Financing (subject to the Pro-Rata allocation provided
for below) (the "Participation Maximum"). At least five (5) Trading Days prior
to the closing of the Subsequent Financing, the Company shall deliver to each
Purchaser a written notice of its intention to effect a Subsequent Financing
("Pre-Notice"), which Pre-Notice shall ask such Purchaser if it wants to review
the details of such financing (such additional notice, a "Subsequent Financing
Notice"). Upon the request of a Purchaser, and only upon a request by such
Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no
later than one (1) Trading Day after such request, deliver a Subsequent
Financing Notice to such Purchaser. The Subsequent Financing Notice shall
describe in reasonable detail the proposed terms of such Subsequent Financing,
the amount of proceeds intended to be raised thereunder, the Person with whom
such Subsequent Financing is proposed to be effected, and attached to which
shall be a term sheet or similar document relating thereto. If by 6:30 p.m. (New
York City time) on the fifth Trading Day after all of the Purchasers have
received the Pre-Notice, notifications by the Purchasers of their willingness to
participate in the Subsequent Financing (or to cause their designees to
participate) is, in the aggregate, less than the total amount of the Subsequent
Financing, then the Company may effect the remaining portion (or in the case of
clause (a) above, all) of such Subsequent Financing on the terms and to the
Persons set forth in the Subsequent Financing Notice. If the Company receives no
notice from a Purchaser as of such fifth (5th) Trading Day, such Purchaser shall
be deemed to have notified the Company that it does not elect to participate.
The Company must provide the Purchasers with a second Subsequent Financing
Notice, and the Purchasers will again have the right of participation set forth
above in this Section 4.13, if the Subsequent Financing subject to the initial
Subsequent Financing Notice is not consummated for any reason on the terms or
substantially equivalent terms set forth in such Subsequent Financing Notice
within 60 Trading Days after the date of the initial Subsequent Financing
Notice. In the event the Company receives responses to Subsequent Financing
Notices from Purchasers seeking to purchase more than the aggregate amount of
the Subsequent Financing, each such Purchaser shall have the right to purchase
their Pro Rata Portion (as defined below) of the Participation Maximum. "Pro
Rata Portion" is the ratio of (x) the Subscription Amount of Securities
purchased by a participating Purchaser and (y) the sum of the aggregate
Subscription Amount of all participating Purchasers. Notwithstanding the
foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance.
22
4.14 Prohibition on Future Financing. From the date hereof until 45 days
after the Effective Date, neither the Company nor any Subsidiary shall issue
shares of Common Stock or Common Stock Equivalents; provided, however, the 45
day period set forth in this Section 4.14 shall be extended for the number of
Trading Days during such period in which (y) trading in the Common Stock is
suspended by any Trading Market, or (z) following the Effective Date, the
Registration Statement is not effective or the prospectus included in the
Registration Statement may not be used by the Purchasers for the resale of the
Shares and Warrant Shares. Notwithstanding the foregoing, this Section 4.14
shall not apply in respect of an Exempt Issuance.
4.15 Delivery of Securities After Closing. The Company shall deliver, or
cause to be delivered, the respective Shares and Warrants purchased by each
Purchaser to such Purchaser within 3 Trading Days of the Closing Date.
4.16 Subsequent Registrations. Other than pursuant to the Registration
Statement, prior to the Effective Date (as defined in the Registration Rights
Agreement) and during the Effectiveness Period (as defined in the Registration
Rights Agreement) at any point when the Purchasers are required to discontinue
use of the Registration Statement pursuant to the Registration Rights Agreement,
the Company may not file any registration statement (other than on Form S-8)
with the Commission with respect to any securities of the Company.
23
ARTICLE IX.
MISCELLANEOUS
5.1 Fees and Expenses. At the Closing, the Company will reimburse ▇▇▇▇▇▇▇
Partners, LP ("▇▇▇▇▇▇▇") the sum of $10,000 for its reasonable and documented
legal fees and expenses. Accordingly, in lieu of the foregoing payments, on the
Closing Date, the Subscription Amount ▇▇▇▇▇▇▇ is to pay for the Shares and the
Warrants shall be reduced by $10,000. The Company shall deliver, prior to the
Closing, a completed and executed copy of the Closing Statement, attached hereto
as Annex A. Except as otherwise set forth in this Agreement, each party shall
pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all stamp and other taxes and duties levied in connection
with the sale of the Securities.
5.2 Entire Agreement. The Transaction Documents, together with the exhibits
and schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 6:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading
Day, (c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each Purchaser or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.5 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
24
5.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".
5.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.9.
5.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. The parties hereby waive all rights to a trial by jury. If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys' fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
5.9 Survival. The representations and warranties herein shall survive the
Closing and delivery of the Shares and Warrant Shares until the applicable
statute of limitations lapses.
5.10 Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
25
5.11 Severability. If any provision of this Agreement is held to be invalid
or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.12 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
5.13 Replacement of Securities. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.14 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.15 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.16 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not represent all of
the Purchasers but only ▇▇▇▇▇▇▇, who has acted as placement agent to the
transaction. The Company has elected to provide all Purchasers with the same
terms and Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by the Purchasers.
26
5.17 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
Notwithstanding anything to the Transaction Documents to the contrary, if the
Company is found liable for damages for a breach of the Transaction Documents,
any liquidated damages paid in connection with such breach shall reduce such
damages by the amount paid; provided, however, no Purchaser shall be required to
return any payments for liquidated damages as a result of this provision.
(Signature Page Follows)
27
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
▇▇▇▇ SECURITY INTERNATIONAL, INC. Address for Notice:
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 1000 ▇▇▇▇▇▇▇▇ Place
-------------------- Suite 400
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇. ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Title: Executive Vice President
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
28
[PURCHASER SIGNATURE PAGES TO ▇▇▇▇ SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Investing Entity: ▇▇▇▇▇▇▇ Partners, L.P.
Signature of Authorized Signatory of Investing Entity: ▇▇▇▇▇▇▇ Capital, LLC
Name of Authorized Signatory: General Partner
Title of Authorized Signatory: Managing Member, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Email Address of Authorized Entity: ▇▇@▇▇▇▇.▇▇▇
Address for Notice of Investing Entity:
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ 1002
With Copies to:
Mr. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ LLP
The Graybar Building
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Direct (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Subscription Amount: $3,307,500
Shares: 750,000
Warrant Shares: 150,000
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
29
Annex A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the
date hereto, the purchasers shall purchase up to $3,510,000 of Common Stock and
Warrants from ▇▇▇▇ Security International, Inc., (the "Company"). All funds will
be wired into a trust account maintained by ____________, counsel to the
Company. All funds will be disbursed in accordance with this Closing Statement.
Disbursement Date: November ___, 2004
I. PURCHASE PRICE
Gross Proceeds to be Received in Trust $
II. DISBURSEMENTS
$
$
$
$
$
Total Amount Disbursed: $
WIRE INSTRUCTIONS:
To: _____________________________________
To: _____________________________________
30
DISCLOSURE SCHEDULES
The following schedules are the Disclosure Schedules to the Securities
Purchase Agreement dated December 14, 2004 ("Purchase Agreement") by and between
▇▇▇▇ Security International, Inc and each Purchaser identified on the signature
pages hereto. The attached schedules modify the Representations and Warranties
set forth in Section 3.1 of the Purchase Agreement.
Schedule 3.1(a) - Subsidiaries
Name of Subsidiary State of Incorporation
Car Care, Inc.; Delaware
Care Investment, Inc., Delaware
Colonial Full Service Car Wash, Inc., Texas
Crystall Falls Car Wash, Inc., Delaware
CRCD, Inc., Texas
Eager Beaver Car Wash, Inc., Florida
F.E.D. Properties, Inc. New York
50's Classic Car Wash of Lubbock, Inc. Texas
The Company Car Wash - Arizona, Inc. Arizona
The Company Car Wash, Inc. Delaware
The Company Security Centers, Inc. Colorado
The Company Security Products, Inc. Delaware
The Company Texas I, Inc. Delaware
The Company Texas II, Inc. Delaware
The Company Trademark Corp Delaware
The Company Truck Wash, Inc. Delaware
The Company Wash, Inc. Delaware
MSP Retail, Inc. Colorado
Worth Manufacturing Company, Inc. Texas
Schedule 3.1(g) Capitalization
The information on this Schedule 3.1(g) modifies the representation and
warranty set forth in Section 3.1(g) of the Purchase Agreement.
1. Outstanding Options and Warrants of the Company as of September 30, 2004
are set forth on the attached Schedule dated September 30, 2004 and incorporated
into this Schedule 3.1(g). Since September 30, 2004 to December 14, 2004 the
options listed below have been issued. The representation and warranty given by
the Company in Section 3.1(g) is modified by the fact that the options and
warrants listed in the Schedule dated September 30, 2004 and in this Schedule
3.1(g) are outstanding.
Options Granted September 30, 2004
To December 14, 2004
NAME DATE OF NUMBER EXPIRATION
GRANT OF OPTIONS DATE
▇▇▇▇▇▇▇, ▇▇▇▇ 10/15/04 6,000 10 years
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 10/19/04 50,000 10 years
▇▇▇▇▇▇, ▇▇▇▇▇ 10/19/04 5,000 10 years
▇▇▇▇▇▇, ▇▇▇ 10/14/04 10,000 10 years
▇▇▇▇▇▇, ▇▇▇▇▇ 10/19/04 5,000 10 years
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ 11/02/04 25,000 10 years
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ 11/19/04 14,000 10 years
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ 11/19/04 14,000 10 years
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ 11/19/04 14,000 10 years
▇▇▇▇▇, ▇▇▇▇▇▇ 11/19/04 14,000 10 years
▇▇▇▇▇▇▇, ▇▇▇▇▇ 11/19/04 14,000 10 years
▇▇▇▇▇▇▇, ▇▇▇▇▇ 11/02/04 568,182 10 years
▇▇▇▇▇▇▇, ▇▇▇▇▇ 11/19/04 150,000 10 years
▇▇▇▇▇▇, ▇▇▇▇▇▇ 11/19/04 75,000 10 years
▇▇▇▇▇▇, ▇▇▇▇▇▇ 11/02/04 37,500 10 years
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 11/19/04 25,000 10 years
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ 11/19/04 50,000 10 years
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ 12/10/04 5,000 10 years
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ 12/10/04 2,000 10 years
Schedule 3.1(h)
The information on this Schedule 3.1(h) modifies the representation and
warranty set forth in Section 3.1(h) of the Purchase Agreement.
1. The Company makes no representation or warranty regarding whether it may
have failed to file reports required to be filed by it under the Exchange Act
for the two years preceding the date hereof on a timely basis. The Company does
represent and warrant that, if it has failed to file reports required to be
filed by it under the Exchange Act for the two years preceding the date hereof
on a timely basis that its failure will not result in a Material Adverse Effect.
2. The Company makes no representation or warranty regarding whether The
SEC Reports when filed contained untrue statements of material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. However, the Company represents and warrants that if any
untrue statement or omission was made in the SEC Reports, the untrue statement
or omission will not result in a Material Adverse Effect.
Schedule 3.1(i) Material Changes
The information on this Schedule 3.1(i) modifies the representation and
warranty set forth in Section 3.1(i) of the Purchase Agreement.
There is pending before the Commission a request for confidential treatment
of information in connection with documents produced by the Company under a
subpoena of the Commission. The Company has produced documents requested in a
subpoena issued in connection with an investigation being conducted by the
United States Securities and Exchange Commission of possible securities law
violations. The investigation involves the Company and current or former
directors and officers of the Company. The subpoena was issued on October 27,
2003. The subpoena requested documents and information that would identify
persons who knew of two transactions involving the Company prior to the
Company's public announcement of the transactions. The transactions were
announced by the Company on March 29, 1999 and were consummated in July of 1999.
The subpoena also requested documents relating to the Company's dealings with
two investment-banking firms and certain of their employees.
There is pending before the Commission a request for confidential treatment
of information in connection with documents produced by the Company in
accordance with a request of the Commission dated July 20, 2004. The July 20,
2004 request of the Commission asked the Company to voluntarily provide
information and documents relating to Price Legacy Corporation's sale of
1,875,000 shares of the Company's common stock on the open market in April, 2004
and Price Legacy Corporation's payment of $8.9 million to the Company in
exchange for the Company removing a sales restriction from 1,750,000 of the
shares that were sold. The Company supplied the requested information in August
of 2004.
Schedule 3.1(j) Litigation
The information on this Schedule 3.1(j) modifies the representation and
warranty set forth in Section 3.1(j) of the Purchase Agreement.
A. Actions. The following discloses all pending Actins against the Company,
other than routine litigation, involving claims for damages in excess of $1.0
million. The Company makes no representation or warranty that the following
Actions, if there were an unfavorable decision, would not have a Material
Adverse Effect on the Company.
1. In December 2003, one of the Company's car wash subsidiaries was named
as a defendant in a suit filed by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ in the Circuit Court of the
Twelfth Judicial Circuit in and for Sarasota County, Florida. The suit alleges
that the plaintiff is entitled to damages due to psychological injury and
emotional distress sustained when an employee of the car wash allegedly
assaulted ▇▇. ▇▇▇▇▇▇▇ with sexually explicit acts and words. The Company's
subsidiary is alleged to have been negligent in hiring, retaining and
supervising the employee. The Plaintiff has demanded $95,000 to settle the case.
2. Although the Company is not aware of any substantiated claim of
permanent personal injury from its products, the Company is aware of reports of
incidents in which, among other things; defense sprays have been mischievously
or improperly used, in some cases by minors; have not been instantly effective;
or have been ineffective against enraged or intoxicated individuals.
ARTICLE X. B. Claims of Violation or Liability Under Federal or State
Securities Laws. Directors and Officers of the Company have been the subject of
an Action involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty.
Waste Management, Inc. for itself and as parent to the successor to Eastern
Environmental Services, Inc filed suit against ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇., ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ in a case
styled Waste Management, Inc v. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇., et al., No 99-930 (GMS),
in the United States District Court for the District of Delaware on December 31,
1999. The suit alleged various breaches of fiduciary duty and violations of
federal securities laws. The suit was settled and dismissed in January 2001
without the defendants paying any money or admitting any wrongdoing.
C. Investigations. The Item below sets forth that there is pending before
the Commission an investigation involving the company and current and former
directors or officers of the Company.
1. The Company has produced documents requested in a subpoena issued in
connection with an investigation being conducted by the United States Securities
and Exchange Commission of possible securities law violations. The investigation
involves the Company and current or former directors and officers of the
Company. The subpoena was issued on October 27, 2003. The subpoena requested
documents and information that would identify persons who knew of two
transactions involving the Company prior to the Company's public announcement of
the transactions. The transactions were announced by the Company on March 29,
1999 and were consummated in July of 1999. The subpoena also requested documents
relating to the Company's dealings with two investment-banking firms and certain
of their employees.
2. The Company has produced documents requested by the Commission in a
letter dated July 20, 2004. The July 20, 2004 letter requested the Company to
voluntarily provide information and documents relating to Price Legacy
Corporation's sale of 1,875,000 shares of the Company's common stock on the open
market in April, 2004 and Price Legacy Corporation's payment of $8.9 million to
the Company in exchange for the Company removing a sales restriction from
1,750,000 of the shares that were sold. The Company supplied the requested
information in August of 2004.
3. On December 7, 2004 the Company received an information request from
NASD Market Regulation in connection with a review of trading in the Company
common stock surrounding the October 26, 2004 news announcement that the Company
had developed and introduced a gel pepper spray that can spray up to 25 feet,
and can be used in conjunction with Taser or stun guns ("Corporate Disclosure").
In the request, NASD Market Regulation requested that the Company provide a
detailed written chronology of the events that preceded the Corporate
Disclosure. The Company intends to comply with the request.
Schedule 3.l(l) Compliance
The information on this Schedule 3.1(l) modifies the representation and
warranty set forth in Section 3.1(l) of the Purchase Agreement.
The Company's debt as of September 30, 2004 was approximately $29.9
million. Of the borrowings, approximately $2.8 million is classified as current
as it was due in less than twelve months.
Several of the Company's debt agreements, as amended, contain certain
affirmative and negative covenants and require the maintenance of certain levels
of tangible net worth, maintenance of certain unencumbered cash and marketable
securities balances, and the maintenance of certain debt coverage ratios on a
consolidated level. At September 30, 2004, the Company was not in compliance
with its consolidated debt coverage ratios related to our GMAC notes payable and
Bank One notes payable.
With respect to the GMAC and Bank One notes payable, the Company has
received a waiver of acceleration of the notes through October 1, 2005.
Additionally, the Company has entered into amendments to the Bank One term
loan agreements effective March 31, 2004. The amended debt coverage ratio with
Bank One requires the Company to maintain a consolidated earnings before
interest, income taxes, depreciation and amortization ("EBITDA") to debt service
(collectively " the debt coverage ratio") of 1.05 to 1 at March 31, 2004; 1.03
to 1 at June 30, 2004; and 1.05 to 1 at September 30, 2004 and December 31,
2004. The Bank One amendment also requires the maintenance of minimum total
unencumbered cash and marketable securities balance of $5 million. This cash
balance requirement will be lowered to $1 million upon the Company returning to
a debt coverage ratio of at least 1.10 to 1.
If the Company is unable to obtain waivers or amendments in the future,
Bank One debt totaling $14.7 million and GMAC debt totaling $11.0 million,
including debt recorded as long-term debt at September 30, 2004, would become
payable on demand.
The Company's Form 10-Q filed for the quarter ended September 30, 2004 has
additional information concerning the Company's debt.
Schedule 3.1(n) Title to Assets
The information on this Schedule 3.1(n) modifies the representation and
warranty set forth in Section 3.1(n) of the Purchase Agreement.
All matters disclosed on the Company's 10-K for Year Ended 2003 and its
10-Q for Quarter ended September 30, 2004 are hereby incorporated by reference,
including, without limitation, all financial statements and exhibits. The
Company has liens and mortgage loans on it properties in the aggregate amount of
$29.9 million as of September 30, 2004. The Company makes no representation or
warranty that the liens do not affect the value of such property.
Schedule 3.1(v) Registration Rights
The information on this Schedule 3.1(v) modifies the representation and
warranty set forth in Section 3.1(v) of the Purchase Agreement.
There are four existing S-3 registration statements and one S-4
registration statement on file with the Securities and Exchange Commission
naming persons and entities that have registration rights that have been honored
by the S-3 Registration Statements. The S-3 Registration Statements were
effective on December 23, 1999, April 5, 2000, April 11, 2000 and September 28,
2004. The S-4 Registration Statement was effective on December 21, 1999. Common
Stock has been issued and may in the future be issued under the S-4.
Schedule 3.1(bb) Form S-3 Eligibility
The information on this Schedule 3.1(bb) modifies the representation and
warranty set forth in Section 3.1(bb) of the Purchase Agreement.
The Company makes no representation or warranty that it is eligible to
register the resale of its Common Stock by the Purchasers under Form S-3
promulgated under the Securities Act.
Schedule 3.1(ff) Accountants
The Company's accountants are ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP
Schedule 4.7 Use of Proceeds
The information on this Schedule 4.7 modifies the representation and
warranty set forth in Section 4.7 of the Purchase Agreement.
The Company will be using some or all of the net proceeds from the sale of
the Securities hereunder for the satisfaction of a portion of the Company's debt
and for working capital, including making acquisitions.
IN WITNESS WHEREOF, the parties acknowledge that the Disclosure Schedules
preceding this signature page are the Disclosure Schedules to the Securities
Purchase Agreement dated December 14, 2004 by and between ▇▇▇▇ Security
International, Inc and each Purchaser identified on the signature pages hereto.
▇▇▇▇ SECURITY INTERNATIONAL, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
__________________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President