EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
-----------------------------
LAURUS MASTER FUND, LTD.
and
ADAL GROUP, INC.
Dated as of: November 21, 2005
TABLE OF CONTENTS
Page
1. Agreement to Sell and Purchase.............................................1
2. Fees.......................................................................1
3. Closing, Delivery and Payment..............................................2
3.1 Closing...........................................................2
3.2 Delivery..........................................................2
4. Representations and Warranties of the Company..............................2
4.1 Organization, Good Standing and Qualification.....................2
4.2 Subsidiaries......................................................3
4.3 Capitalization; Voting Rights.....................................3
4.4 Authorization; Binding Obligations................................4
4.5 Liabilities.......................................................4
4.6 Agreements; Action................................................4
4.7 Obligations to Related Parties....................................6
4.8 Changes...........................................................7
4.9 Title to Properties and Assets; Liens, Etc........................8
4.10 Intellectual Property.............................................8
4.11 Compliance with Other Instruments.................................9
4.12 Litigation........................................................9
4.13 Tax Returns and Payments.........................................10
4.14 Employees........................................................10
4.15 Registration Rights and Voting Rights............................11
4.16 Compliance with Laws; Permits....................................11
4.17 Environmental and Safety Laws....................................11
4.18 Valid Offering...................................................12
4.19 Full Disclosure..................................................12
4.20 Insurance........................................................12
4.21 SEC Reports......................................................12
4.22 Listing..........................................................13
4.23 No Integrated Offering...........................................13
4.24 Patriot Act......................................................13
4.25 ERISA............................................................14
5. Representations and Warranties of the Purchaser...........................14
5.1 No Shorting......................................................14
5.2 Requisite Power and Authority....................................14
5.3 Investment Representations.......................................14
5.4 The Purchaser Bears Economic Risk................................15
5.5 Acquisition for Own Account......................................15
5.6 The Purchaser Can Protect Its Interest...........................15
5.7 Accredited Investor..............................................15
5.8 Legend...........................................................15
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6. Covenants of the Company..................................................16
6.1 Listing..........................................................16
6.2 Market Regulations...............................................16
6.3 Reporting Requirements...........................................16
6.4 Use of Funds.....................................................16
6.5 Access to Facilities.............................................16
6.6 Taxes............................................................17
6.7 Insurance........................................................18
6.8 Intellectual Property............................................19
6.9 Properties.......................................................19
6.10 Confidentiality..................................................19
6.11 Required Approvals...............................................20
6.12 Opinion..........................................................21
6.13 Margin Stock.....................................................21
6.14 No Limitations on Additional Financing...........................21
7. Covenants of the Purchaser................................................21
7.1 Confidentiality..................................................21
7.2 Non-Public Information...........................................21
7.3 Limitation on Acquisition of Common Stock of the Company.........22
7.4 No Shorting......................................................22
8. Covenants of the Company and the Purchaser Regarding Indemnification......22
8.1 Company Indemnification..........................................22
8.2 Purchaser's Indemnification......................................22
8.3 Offering Restrictions............................................23
9. Miscellaneous.............................................................23
9.1 Governing Law, Jurisdiction and Waiver of Jury Trial.............23
9.2 Severability.....................................................24
9.3 Survival.........................................................24
9.4 Successors.......................................................24
9.5 Entire Agreement; Maximum Interest...............................25
9.6 Amendment and Waiver.............................................25
9.7 Delays or Omissions..............................................25
9.8 Notices..........................................................25
9.9 Attorneys' Fees..................................................26
9.10 Titles and Subtitles.............................................27
9.11 Facsimile Signatures; Counterparts...............................27
9.12 Broker's Fees....................................................27
9.13 Construction.....................................................27
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LIST OF EXHIBITS
Form of Term Note......................................................Exhibit A
Form of Opinion........................................................Exhibit B
Form of Escrow Agreement...............................................Exhibit C
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of November 21, 2005, by and between ADAL GROUP, INC., a Delaware
corporation (the "Company"), and LAURUS MASTER FUND, LTD., a Cayman Islands
company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a Secured
Term Note in the aggregate principal amount of Five Hundred Thousand Dollars
($500,000) in the form of Exhibit A hereto (as amended, modified and/or
supplemented from time to time, the "Note");
WHEREAS, the Purchaser desires to purchase the Note on the terms and
conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note to the Purchaser
on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Agreement to Sell and Purchase. Pursuant to the terms and conditions
set forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company shall sell to the Purchaser, and the Purchaser shall purchase from the
Company, the Note. The sale of the Note on the Closing Date shall be known as
the "Offering." The Note will mature on the Maturity Date (as defined in the
Note).
2. Fees. On the Closing Date:
(a) The Company shall reimburse the Purchaser for its reasonable
expenses (including legal fees and expenses) incurred in connection with
the preparation and negotiation of this Agreement and the Related
Agreements (as hereinafter defined), and expenses incurred in connection
with the Purchaser's due diligence review of the Company and its
Subsidiaries (as defined in Section 4.2) and all related matters. Amounts
required to be paid under this Section 2(b) will be paid on the Closing
Date and shall be $10,000 (plus the expense associated UK local counsel
for the Purchaser) for such expenses referred to in this Section 2(b).
(b) The Closing Payment and the expenses referred to in the
preceding clause (b) shall be paid at closing out of funds held pursuant
to the Escrow Agreement (as defined below) and a disbursement letter (the
"Disbursement Letter").
3. Closing, Delivery and Payment.
3.1 Closing. Subject to the terms and conditions herein, the
closing of the transactions contemplated hereby (the "Closing"), shall
take place on the date hereof, at such time or place as the Company and
the Purchaser may mutually agree (such date is hereinafter referred to as
the "Closing Date").
3.2 Delivery. Pursuant to the Escrow Agreement, at the Closing
on the Closing Date, the Company will deliver to the Purchaser, among
other things, the Note and the Purchaser will deliver to the Company,
among other things, the amounts set forth in the Disbursement Letter by
certified funds or wire transfer.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as follows (which representations and
warranties are made as of the date hereof) except as set forth under the
corresponding section of the Disclosure Schedules delivered concurrently
herewith, the Company:
4.1 Organization, Good Standing and Qualification. Each of the
Company and each of its Subsidiaries is a corporation, partnership or
limited liability company, as the case may be, duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. Each of the Company and each of its Subsidiaries has the
corporate, limited liability company or partnership, as the case may be,
power and authority to own and operate its properties and assets and,
insofar as it is or shall be a party thereto, to (1) execute and deliver
(i) this Agreement, (ii) the Note to be issued in connection with this
Agreement, (iii) the Reaffirmation and Ratification Agreement dated as of
the date hereof between the Company and the Purchaser (as amended,
modified and/or supplemented from time to time, the "Reaffirmation
Agreement"), pursuant to which the Company reaffirms its obligations under
that certain Master Security Agreement, dated as of June 29, 2005, by and
between the Company and the Purchaser (as amended, modified and/or
supplemented from time to time, the "Master Security Agreement") (iv) the
Funds Escrow Agreement dated as of the date hereof among the Company, the
Purchaser and the escrow agent referred to therein, substantially in the
form of Exhibit C hereto (as amended, modified and/or supplemented from
time to time, the "Escrow Agreement"), and (v) all other documents,
instruments and agreements entered into in connection with the
transactions contemplated hereby and thereby (the preceding clauses (ii)
through (v), collectively, the "Related Agreements"); (2) issue and sell
the Note; and (3) carry out the provisions of this Agreement and the
Related Agreements and to carry on its business as presently conducted.
Each of the Company and each of its Subsidiaries is duly qualified and is
authorized to do business and is in good standing as a foreign
corporation, partnership or limited liability company, as the case may be,
in all jurisdictions in which the nature or location of its activities and
of its properties (both owned and leased) makes such qualification
necessary, except for those jurisdictions in which failure to do so has
not, or could not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on the business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects of
the Company and its Subsidiaries, taken individually and as a whole (a
"Material Adverse Effect").
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4.2 Subsidiaries. Each direct and indirect Subsidiary of the
Company, the direct owner of such Subsidiary and its percentage ownership
thereof, is set forth on Schedule 4.2. For the purpose of this Agreement,
a "Subsidiary" of any person or entity means (i) a corporation or other
entity whose shares of stock or other ownership interests having ordinary
voting power (other than stock or other ownership interests having such
power only by reason of the happening of a contingency) to elect a
majority of the directors of such corporation, or other persons or
entities performing similar functions for such person or entity, are
owned, directly or indirectly, by such person or entity or (ii) a
corporation or other entity in which such person or entity owns, directly
or indirectly, more than 50% of the equity interests at such time. On the
date hereof, AdAl Engineering, a company organized under the laws of
Czechoslovakia (the "Immaterial Subsidiary"), does not own any assets
(other than immaterial assets) or have any liabilities (other than
immaterial liabilities).
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, as of the date
hereof consists of 101,000,000 shares, of which 100,000,000 are shares of
Common Stock, par value $0.0001 per share, 22,161,832 shares of which are
issued and outstanding as of the date of this Agreement, and 1,000,000 are
shares of preferred stock, par value $0.01 per share of which there are no
shares of preferred stock are issued and outstanding as of the date of
this Agreement. The authorized, issued and outstanding capital stock of
each Subsidiary of the Company is set forth on Schedule 4.3.
(b) Except as disclosed in the Exchange Act Filings (as hereafter
defined), other than, the shares reserved for issuance under the Company's
stock option plans, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal),
proxy or stockholder agreements, or arrangements or agreements of any kind
for the purchase or acquisition from the Company of any of its securities.
Neither the offer, issuance or sale of the Note, nor the consummation of
any transaction contemplated hereby, will result in a change in the price
or number of any securities of the Company outstanding, under
anti-dilution or other similar provisions contained in or affecting any
such securities.
(c) All issued and outstanding shares of the Company's common stock,
par value, $0.0001 (the "Common Stock"): (i) have been duly authorized and
validly issued and are fully paid and nonassessable; and (ii) were issued
in compliance with all applicable state and federal laws concerning the
issuance of securities.
(d) The rights, preferences, privileges and restrictions of the
shares of the Common Stock are as stated in the Company's Certificate of
Incorporation (the "Charter") or as set forth under Delaware corporate
law. When issued in compliance with the provisions of this Agreement and
the Company's Charter, the Note may be subject to restrictions on transfer
under state and/or federal securities laws as set forth herein or as
otherwise required by such laws at the time a transfer is proposed.
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4.4 Authorization; Binding Obligations. All corporate,
partnership or limited liability company, as the case may be, action on
the part of the Company and each of its Subsidiaries (including their
respective officers and directors) necessary for the authorization of this
Agreement and the Related Agreements, the performance of all obligations
of the Company and its Subsidiaries hereunder and under the other Related
Agreements at the Closing and, the authorization, sale, issuance and
delivery of the Note has been taken or will be taken prior to the Closing.
This Agreement and the Related Agreements, when executed and delivered and
to the extent it is a party thereto, will be valid and binding obligations
of each of the Company and each of its Subsidiaries, enforceable against
each such person or entity in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
The sale of the Note is not and will not be subject to any rights of first
refusal that have not been properly waived or complied with.
4.5 Liabilities. Neither the Company nor any of its
Subsidiaries has any liabilities, except current liabilities incurred in
the ordinary course of business and liabilities disclosed in any of the
Company's filings, and any and all exhibits thereto, under the Securities
Exchange Act of 1934 ("Exchange Act") made prior to the date of this
Agreement (collectively, the "Exchange Act Filings"), copies of which have
been provided to the Purchaser, upon written request of the Purchaser.
4.6 Agreements; Action. Except as disclosed in any Exchange
Act Filings:
(a) there are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the
Company or any of its Subsidiaries is a party or by which it is bound
which may involve: (i) obligations (contingent or otherwise) of, the
Company or any of its Subsidiaries in excess of $250,000 (other than
obligations of, the Company or any of its Subsidiaries arising from
purchase or sale agreements entered into in the ordinary course of
business); or (ii) the transfer or license of any patent, copyright, trade
secret or other proprietary right to or from the Company or any of its
Subsidiaries (other than licenses arising from the purchase of "off the
shelf" or other standard products); or (iii) provisions restricting the
development, manufacture or distribution of the Company's or any of its
Subsidiaries products or services; or (iv) indemnification by the Company
or any of its Subsidiaries with respect to infringements of proprietary
rights.
(b) Since December 31, 2004 (the "Balance Sheet Date"), neither the
Company nor any of its Subsidiaries has: (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to
any class or series of its capital stock, except with respect to the stock
dividend paid on October 14, 2005 pursuant to the Form 8-K filed with the
SEC on October 12, 2005; (ii) incurred any indebtedness for money borrowed
or any other liabilities (other than ordinary course obligations)
individually in excess of $100,000 or, in the case of indebtedness and/or
liabilities individually less than $100,000, in excess of $200,000 in the
aggregate; (iii) made any loans or advances to any person or entity not in
excess, individually or in the aggregate, of $100,000, other than ordinary
course advances for travel expenses; or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its
inventory in the ordinary course of business and the sale of obsolete or
worn out equipment.
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(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company or any Subsidiary of the
Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar
amounts of such subsections.
(d) The Company maintains reasonable disclosure controls and
procedures ("Disclosure Controls") designed to ensure that information
required to be disclosed by the Company in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized, and
reported, within the time periods specified in the rules and forms of the
Securities and Exchange Commission ("SEC").
(e) The Company makes and keep books, records, and accounts, that,
in reasonable detail, accurately and fairly reflect any and all
transactions in, and dispositions of, the Company's assets. The Company
maintains reasonable internal control over financial reporting ("Financial
Reporting Controls") designed by, or under the supervision of, the
Company's principal executive and principal financial officers, and
effected by the Company's board of directors, management, and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles ("GAAP"), including that:
(i) transactions are executed in accordance with management's
general or specific authorization;
(ii) unauthorized acquisition, use, or disposition of the
Company's assets that could have a material effect on the financial
statements are prevented or timely detected;
(iii) transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and
that the Company's receipts and expenditures are being made only in
accordance with authorizations of the Company's management and board
of directors;
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(iv) transactions are recorded as necessary to maintain
accountability for assets; and
(v) the recorded accountability for assets is compared with
the existing assets at reasonable intervals, and appropriate action
is taken with respect to any differences.
(f) To the Company's knowledge, there is no weakness in any of the
Company's Disclosure Controls or Financial Reporting Controls that is
required to be disclosed in any of the Exchange Act Filings, except as so
disclosed.
4.7 Obligations to Related Parties. There are no obligations
of the Company or any of its Subsidiaries to officers, directors,
stockholders or employees of the Company or any of its Subsidiaries other
than:
(a) for payment of salary for services rendered and for bonus
payments;
(b) reimbursement for reasonable expenses incurred on behalf of the
Company and its Subsidiaries;
(c) for other standard employee benefits made generally available to
all employees (including stock option agreements outstanding under any
stock option plan approved by the Board of Directors of the Company and
each Subsidiary of the Company, as applicable);
(d) obligations listed in the Company's and each of its Subsidiary's
financial statements or disclosed in any of the Exchange Act Filings; and
(e) obligations to any stockholders required under the Charter, as
in effect on the date hereof, and applicable law.
None of the officers, directors or, to the best of the Company's knowledge, key
employees or stockholders of the Company or any of its Subsidiaries or any
members of their immediate families, are indebted to the Company or any of its
Subsidiaries, individually or in the aggregate, in excess of $50,000 or have any
direct or indirect ownership interest in any firm or corporation with which the
Company or any of its Subsidiaries is affiliated or with which the Company or
any of its Subsidiaries has a business relationship, or any firm or corporation
which competes with the Company or any of its Subsidiaries, other than passive
investments in publicly traded companies (representing less than one percent
(1%) of such company) which may compete with the Company or any of its
Subsidiaries. Except as described above, no officer, director or stockholder of
the Company or any of its Subsidiaries, or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
the Company or any of its Subsidiaries and no agreements, understandings or
proposed transactions are contemplated between the Company or any of its
Subsidiaries and any such person. Neither the Company nor any of its
Subsidiaries is a guarantor or indemnitor of any indebtedness of any other
person or entity.
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4.8 Changes. Since the Balance Sheet Date, except as disclosed
in any Exchange Act Filing or in any Schedule to this Agreement or to any
of the Related Agreements, there has not been:
(a) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of the
Company or any of its Subsidiaries, which individually or in the aggregate
has had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(b) any resignation or termination of any officer, key employee or
group of employees of the Company or any of its Subsidiaries;
(c) any material change, except in the ordinary course of business,
in the contingent obligations of the Company or any of its Subsidiaries by
way of guaranty, endorsement, indemnity, warranty or otherwise;
(d) any damage, destruction or loss, whether or not covered by
insurance, which has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(e) any waiver by the Company or any of its Subsidiaries of a
material right or of a material debt owed to it;
(f) any direct or indirect loans made by the Company or any of its
Subsidiaries to any stockholder, employee, officer or director of the
Company or any of its Subsidiaries, other than advances made in the
ordinary course of business;
(g) any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder of the Company or any
of its Subsidiaries;
(h) any declaration or payment of any dividend or other distribution
of the assets of the Company or any of its Subsidiaries;
(i) any labor organization activity related to the Company or any of
its Subsidiaries;
(j) any debt, obligation or liability incurred, assumed or
guaranteed by the Company or any of its Subsidiaries, except those for
immaterial amounts and for current liabilities incurred in the ordinary
course of business;
(k) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets owned by the Company
or any of its Subsidiaries;
(l) any change in any material agreement to which the Company or any
of its Subsidiaries is a party or by which either the Company or any of
its Subsidiaries is bound which either individually or in the aggregate
has had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
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(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect; or
(n) any arrangement or commitment by the Company or any of its
Subsidiaries to do any of the acts described in subsection (a) through (m)
above.
4.9 Title to Properties and Assets; Liens, Etc. Each of the
Company and each of its Subsidiaries has good and marketable title to its
properties and assets, and good title to its leasehold interests, in each
case subject to no mortgage, pledge, lien, lease, encumbrance or charge,
other than:
(a) those resulting from taxes which have not yet become delinquent;
(b) minor liens and encumbrances which do not materially detract
from the value of the property subject thereto or materially impair the
operations of the Company or any of its Subsidiaries, so long as in each
such case, such liens and encumbrances have no effect on the lien priority
of the Purchaser in such property;
(c) those that have otherwise arisen in the ordinary course of
business, so long as they have no effect on the lien priority of the
Purchaser therein;
(d) liens in favor of Purchaser; and
(e) liens of warehousemen, mechanics, materialmen, workers,
repairmen, common carriers, or landlords, liens for taxes, assessments or
other governmental charges, and other similar liens arising by operation
of law, in each case arising in the ordinary course of business and for
amounts that are not yet due and payable or which are being contested in
good faith by appropriate proceedings promptly instituted and diligently
conducted and for which an adequate reserve or other appropriate provision
shall have been made to the extent required by generally accepted
accounting principals.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in reasonably good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. Except as set forth on Schedule 4.9, the
Company and its Subsidiaries are in compliance with all material terms of each
lease to which it is a party or is otherwise bound.
4.10 Intellectual Property.
(a) Each of the Company and each of its Subsidiaries owns or
possesses sufficient legal rights to all patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information and
other proprietary rights and processes necessary for its business as now
conducted and, to the Company's knowledge, as presently proposed to be
conducted (the "Intellectual Property"), without any known infringement of
the rights of others. There are no outstanding options, licenses or
agreements of any kind relating to the foregoing proprietary rights, nor
is the Company or any of its Subsidiaries bound by or a party to any
options, licenses or agreements of any kind with respect to the
Intellectual Property of any other person or entity other than such
licenses or agreements arising from the purchase of "off the shelf" or
standard products.
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(b) Neither the Company nor any of its Subsidiaries has received any
communications alleging that the Company or any of its Subsidiaries has
violated any of the Intellectual Property of any other person or entity,
nor is the Company or any of its Subsidiaries aware of any basis therefor.
(c) The Company does not believe it is or will be necessary to
utilize any Intellectual Property of any of its employees made prior to
their employment by the Company or any of its Subsidiaries, except for
Intellectual Property that has been rightfully assigned to the Company or
any of its Subsidiaries.
4.11 Compliance with Other Instruments. Neither the Company
nor any of its Subsidiaries is in violation or default of (x) any term of
its Charter or Bylaws, or (y) any provision of any indebtedness, mortgage,
indenture, contract, agreement or instrument to which it is party or by
which it is bound or of any judgment, decree, order or writ, which
violation or default, in the case of this clause (y), has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. The execution, delivery and performance of and
compliance with this Agreement and the Related Agreements to which it is a
party, and the issuance and sale of the Note by the Company pursuant
hereto and thereto, will not, with or without the passage of time or
giving of notice, result in any such material violation, or be in conflict
with or constitute a default under any such term or provision, or result
in the creation of any mortgage, pledge, lien (other than a lien in favor
of Purchaser), encumbrance or charge upon any of the properties or assets
of the Company or any of its Subsidiaries or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization
or approval applicable to the Company, its business or operations or any
of its assets or properties.
4.12 Litigation. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company or any of its Subsidiaries that prevents the Company
or any of its Subsidiaries from entering into this Agreement or the other
Related Agreements, or from consummating the transactions contemplated
hereby or thereby, or which has had, or could reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect
or any change in the current equity ownership of the Company or any of its
Subsidiaries, nor is the Company aware that there is any basis to assert
any of the foregoing. Neither the Company nor any of its Subsidiaries is a
party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality.
There is no action, suit, proceeding or investigation by the Company or
any of its Subsidiaries currently pending or which the Company or any of
its Subsidiaries intends to initiate.
4.13 Tax Returns and Payments. Each of the Company and each of
its Subsidiaries has timely filed all tax returns (federal, state and
local) required to be filed by it under applicable law or has filed all
necessary extensions under applicable law. All taxes shown to be due and
payable on such returns, any assessments imposed, and all other taxes due
and payable by the Company or any of its Subsidiaries on or before the
Closing, have been paid or will be paid prior to the time they become
delinquent. Neither the Company nor any of its Subsidiaries has been
advised:
9
(a) that any of its returns, federal, state or other, have been or
are being audited as of the date hereof; or
(b) of any adjustment, deficiency, assessment or court decision in
respect of its federal, state or other taxes.
The Company has no knowledge of any liability for any tax imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14 Employees. Neither the Company nor any of its
Subsidiaries has any collective bargaining agreements with any of its
employees. There is no labor union organizing activity pending or, to the
Company's knowledge, threatened with respect to the Company or any of its
Subsidiaries. Except as disclosed in the Exchange Act Filings, neither the
Company nor any of its Subsidiaries is a party to or bound by any
currently effective employment contract, deferred compensation
arrangement, bonus plan, incentive plan, profit sharing plan, retirement
agreement or other employee compensation plan or agreement. To the
Company's knowledge, no employee of the Company or any of its
Subsidiaries, nor any consultant with whom the Company or any of its
Subsidiaries has contracted, is in violation of any material term of any
employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by,
or to contract with, the Company or any of its Subsidiaries because of the
nature of the business to be conducted by the Company or any of its
Subsidiaries; and to the Company's knowledge the continued employment by
the Company and its Subsidiaries of their present employees, and the
performance of the Company's and its Subsidiaries' contracts with its
independent contractors, will not result in any such violation. Neither
the Company nor any of its Subsidiaries is aware that any of its employees
is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency that would interfere
with the operations of the Company or any of its Subsidiaries. Neither the
Company nor any of its Subsidiaries has received any notice alleging that
any such violation has occurred. Except for employees who have a current
effective employment agreement with the Company or any of its
Subsidiaries, no employee of the Company or any of its Subsidiaries has
been granted the right to continued employment by the Company or any of
its Subsidiaries or to any material compensation following termination of
employment with the Company or any of its Subsidiaries. The Company is not
aware that any officer, key employee or group of employees intends to
terminate his, her or their employment with the Company or any of its
Subsidiaries, nor does the Company or any of its Subsidiaries have a
present intention to terminate the employment of any officer, key employee
or group of employees.
4.15 Registration Rights and Voting Rights. Except as
disclosed in Exchange Act Filings, neither the Company nor any of its
Subsidiaries is presently under any obligation, and neither the Company
nor any of its Subsidiaries has granted any rights, to register any of the
Company's or its Subsidiaries' presently outstanding securities or any of
its securities that may hereafter be issued. Except as disclosed in
Exchange Act Filings, to the Company's knowledge, no stockholder of the
Company or any of its Subsidiaries has entered into any agreement with
respect to the voting of equity securities of the Company or any of its
Subsidiaries.
10
4.16 Compliance with Laws; Permits. Neither the Company nor
any of its Subsidiaries is in violation of any provision of the
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 or any SEC related regulation or rule or any
rule of the Principal Market (as hereafter defined) promulgated thereunder
or any other applicable statute, rule, regulation, order or restriction of
any domestic or foreign government or any instrumentality or agency
thereof in respect of the conduct of its business or the ownership of its
properties which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No
governmental orders, permissions, consents, approvals or authorizations
are required to be obtained and no registrations or declarations are
required to be filed in connection with the execution and delivery of this
Agreement or any other Related Agreement and the issuance of the Note,
except such as have been duly and validly obtained or filed, or with
respect to any filings that must be made after the Closing, as will be
filed in a timely manner. Each of the Company and its Subsidiaries has all
material franchises, permits, licenses and any similar authority necessary
for the conduct of its business as now being conducted by it, the lack of
which could, either individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
4.17 Environmental and Safety Laws. Neither the Company nor
any of its Subsidiaries is in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety,
except where the failure to be in compliance could not reasonably be
expected to have a Material Adverse Effect, and to its knowledge, no
material expenditures are or will be required in order to comply with any
such existing statute, law or regulation. No Hazardous Materials (as
defined below) are used or have been used, stored, or disposed of by the
Company or any of its Subsidiaries in violation of any applicable
environmental law or, to the Company's knowledge, by any other person or
entity on any property owned, leased or used by the Company or any of its
Subsidiaries. For the purposes of the preceding sentence, "Hazardous
Materials" shall mean:
(a) materials which are listed or otherwise defined as "hazardous"
or "toxic" under any applicable local, state, federal and/or foreign laws
and regulations that govern the existence and/or remedy of contamination
on property, the protection of the environment from contamination, the
control of hazardous wastes, or other activities involving hazardous
substances, including building materials; or
(b) any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the
representations and warranties of the Purchaser contained in this
Agreement, the offer, sale and issuance of the Note will be exempt from
the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act"), and will have been registered or qualified (or are
exempt from registration and qualification) under the registration, permit
or qualification requirements of all applicable state securities laws.
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4.19 Full Disclosure. Each of the Company and each of its
Subsidiaries has provided the Purchaser with all information requested by
the Purchaser in connection with its decision to purchase the Note.
Neither this Agreement, the Related Agreements, the exhibits and schedules
hereto and thereto nor any other document delivered by the Company or any
of its Subsidiaries to Purchaser or its attorneys or agents in connection
herewith or therewith or with the transactions contemplated hereby or
thereby, contain any untrue statement of a material fact nor omit to state
a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances in which they are made, not
misleading. Any financial projections and other estimates provided to the
Purchaser by the Company or any of its Subsidiaries were based on the
Company's and its Subsidiaries' experience in the industry and on
assumptions of fact and opinion as to future events which the Company or
any of its Subsidiaries, at the date of the issuance of such projections
or estimates, believed to be reasonable.
4.20 Insurance. Each of the Company and each of its
Subsidiaries has general commercial, product liability, fire and casualty
insurance policies with coverages which the Company believes are customary
for companies similarly situated to the Company and its Subsidiaries in
the same or similar business.
4.21 SEC Reports. The Company has filed all proxy statements,
reports and other documents required to be filed by it under the Exchange
Act. The Company, upon request of the Purchaser, will furnish copies of:
(i) its Annual Report on Form 10-KSB for its fiscal year ended December
31, 2004; (ii) its Quarterly Reports on Form 10-QSB for its fiscal
quarters ended March 31, 2005 and June 30, 2005; and (iii) the Form 8-K
filings which it has made, to date, during the fiscal year 2005
(collectively, the "SEC Reports"). Each SEC Report was, at the time of its
filing, in substantial compliance with the requirements of its respective
form and none of the SEC Reports, nor the financial statements (and the
notes thereto) included in the SEC Reports, as of their respective filing
dates, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading.
4.22 Listing. The Common Stock is listed or quoted, as
applicable, on a Principal Market (as hereafter defined) and satisfies and
at all times hereafter will satisfy, all requirements for the continuation
of such listing or quotation, as applicable. The Company has not received
any notice that its Common Stock will be delisted from, or no longer
quoted on, as applicable, the Principal Market or that its Common Stock
does not meet all requirements for such listing or quotation, as
applicable. For purposes hereof, the term "Principal Market" means the
NASD Over The Counter Bulletin Board, NASDAQ SmallCap Market, NASDAQ
National Market System, American Stock Exchange or New York Stock Exchange
(whichever of the foregoing is at the time the principal trading exchange
or market for the Common Stock).
12
4.23 No Integrated Offering. Neither the Company, nor any of
its Subsidiaries or affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under circumstances
that would cause the offering of the Note pursuant to this Agreement or
any of the Related Agreements to be integrated with prior offerings by the
Company for purposes of the Securities Act which would prevent the Company
from selling the Note pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions, nor will
the Company or any of its affiliates or Subsidiaries take any action or
steps that would cause the offering of the Note to be integrated with
other offerings.
4.24 Patriot Act. The Company certifies that, to the best of
Company's knowledge, neither the Company nor any of its Subsidiaries has
been designated, nor is or shall be owned or controlled, by a "suspected
terrorist" as defined in Executive Order 13224. The Company hereby
acknowledges that the Purchaser seeks to comply with all applicable laws
concerning money laundering and related activities. In furtherance of
those efforts, the Company hereby represents, warrants and covenants that:
(i) none of the cash or property that the Company or any of its
Subsidiaries will pay or will contribute to the Purchaser has been or
shall be derived from, or related to, any activity that is deemed criminal
under United States law; and (ii) no contribution or payment by the
Company or any of its Subsidiaries to the Purchaser, to the extent that
they are within the Company's and/or its Subsidiaries' control shall cause
the Purchaser to be in violation of the United States Bank Secrecy Act,
the United States International Money Laundering Control Act of 1986 or
the United States International Money Laundering Abatement and
Anti-Terrorist Financing Act of 2001. The Company shall promptly notify
the Purchaser if any of these representations, warranties or covenants
ceases to be true and accurate regarding the Company or any of its
Subsidiaries. The Company shall provide the Purchaser all additional
information regarding the Company or any of its Subsidiaries that the
Purchaser deems necessary or convenient to ensure compliance with all
applicable laws concerning money laundering and similar activities. The
Company understands and agrees that if at any time it is discovered that
any of the foregoing representations, warranties or covenants are
incorrect, or if otherwise required by applicable law or regulation
related to money laundering or similar activities, the Purchaser may
undertake appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or redemption of
the Purchaser's investment in the Company. The Company further understands
that the Purchaser may release confidential information about the Company
and its Subsidiaries and, if applicable, any underlying beneficial owners,
to proper authorities if the Purchaser, in its sole discretion, determines
that it is in the best interests of the Purchaser in light of relevant
rules and regulations under the laws set forth in subsection (ii) above.
4.25 ERISA. Based upon the Employee Retirement Income Security
Act of 1974 ("ERISA"), and the regulations and published interpretations
thereunder: (i) to the extent applicable, neither the Company nor any of
its Subsidiaries has engaged in any Prohibited Transactions (as defined in
Section 406 of ERISA and Section 4975 of the Internal Revenue Code of
1986, as amended (the "Code")); (ii) each of the Company and each of its
Subsidiaries has met all applicable minimum funding requirements under
Section 302 of ERISA in respect of its plans; (iii) neither the Company
nor any of its Subsidiaries has any knowledge of any event or occurrence
which would cause the Pension Benefit Guaranty Corporation to institute
proceedings under Title IV of ERISA to terminate any employee benefit
plan(s); (iv) neither the Company nor any of its Subsidiaries has any
fiduciary responsibility for investments with respect to any plan existing
for the benefit of persons other than the Company's or such Subsidiary's
employees; and (v) neither the Company nor any of its Subsidiaries has
withdrawn, completely or partially, from any multi-employer pension plan
so as to incur liability under the Multiemployer Pension Plan Amendments
Act of 1980.
13
5. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
5.1 No Shorting. The Purchaser or any of its affiliates and
investment partners has not, will not and will not cause any person or
entity, to directly engage in "short sales" of the Common Stock as long as
the Note shall be outstanding.
5.2 Requisite Power and Authority. The Purchaser has all
necessary power and authority under all applicable provisions of law to
execute and deliver this Agreement and the Related Agreements and to carry
out their provisions. All corporate action on the Purchaser's part
required for the lawful execution and delivery of this Agreement and the
Related Agreements have been or will be effectively taken prior to the
Closing. Upon their execution and delivery, this Agreement and the Related
Agreements will be valid and binding obligations of the Purchaser,
enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
5.3 Investment Representations. The Purchaser understands that
the Note is being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon the
Purchaser's representations contained in this Agreement, including,
without limitation, that the Purchaser is an "accredited investor" within
the meaning of Regulation D under the Securities Act. The Purchaser
confirms that it has received or has had full access to all the
information it considers necessary or appropriate to make an informed
investment decision with respect to the Note to be purchased by it under
this Agreement. The Purchaser further confirms that it has had an
opportunity to ask questions and receive answers from the Company
regarding the Company's and its Subsidiaries' business, management and
financial affairs and the terms and conditions of the Offering and the
Note and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort
or expense) necessary to verify any information furnished to the Purchaser
or to which the Purchaser had access.
14
5.4 The Purchaser Bears Economic Risk. The Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it
is capable of evaluating the merits and risks of its investment in the
Company and has the capacity to protect its own interests. The Purchaser
must bear the economic risk of this investment until the full principal
amount of the Note is repaid.
5.5 Acquisition for Own Account. The Purchaser is acquiring
the Note for the Purchaser's own account for investment only, and not as a
nominee or agent and not with a view towards or for resale in connection
with their distribution.
5.6 The Purchaser Can Protect Its Interest. The Purchaser
represents that by reason of its, or of its management's, business and
financial experience, the Purchaser has the capacity to evaluate the
merits and risks of its investment in the Note and to protect its own
interests in connection with the transactions contemplated in this
Agreement and the Related Agreements. Further, the Purchaser is aware of
no publication of any advertisement in connection with the transactions
contemplated in the Agreement or the Related Agreements.
5.7 Accredited Investor. The Purchaser represents that it is
an accredited investor within the meaning of Regulation D under the
Securities Act.
5.8 Legend. The Note shall bear substantially the following
legend:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR
SUCH SHARES UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ADAL GROUP, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED."
6. Covenants of the Company. The Company covenants and agrees with the
Purchaser as follows:
6.1 Listing. The Company will maintain the listing or
quotation, as applicable, of its Common Stock on the Principal Market, and
will comply in all material respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the National
Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
6.2 Market Regulations. The Company shall notify the SEC, NASD
and applicable state authorities, in accordance with their requirements,
of the transactions contemplated by this Agreement, and shall take all
other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of
the Note to the Purchaser and promptly provide copies thereof to the
Purchaser.
15
6.3 Reporting Requirements. The Company shall timely file with
the SEC all reports required to be filed pursuant to the Exchange Act and
refrain from terminating its status as an issuer required by the Exchange
Act to file reports thereunder even if the Exchange Act or the rules or
regulations thereunder would permit such termination.
6.4 Use of Funds. The Company shall use the proceeds of the
sale of the Note for general working capital purposes.
6.5 Access to Facilities. Each of the Company and each of its
Subsidiaries will permit any representatives designated by the Purchaser
(or any successor of the Purchaser), upon reasonable notice and during
normal business hours, at such person's expense and accompanied by a
representative of the Company or any Subsidiary (provided that no such
prior notice shall be required to be given and no such representative of
the Company or any Subsidiary shall be required to accompany the Purchaser
in the event the Purchaser believes such access is necessary to preserve
or protect the Collateral (as defined in the Master Security Agreement) or
following the occurrence and during the continuance of an Event of Default
(as defined in the Note)), to:
(a) visit and inspect any of the properties of the Company or any of
its Subsidiaries;
(b) examine the corporate and financial records of the Company or
any of its Subsidiaries (unless such examination is not permitted by
federal, state or local law or by contract) and make copies thereof or
extracts therefrom; and
(c) discuss the affairs, finances and accounts of the Company or any
of its Subsidiaries with the directors, officers and independent
accountants of the Company or any of its Subsidiaries.
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to the Purchaser unless the
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.
6.6 Taxes. (a) Each of the Company and each of its
Subsidiaries will promptly pay and discharge, or cause to be paid and
discharged, when due and payable, all taxes, assessments and governmental
charges or levies imposed upon the income, profits, property or business
of the Company and its Subsidiaries; provided, however, that any such tax,
assessment, charge or levy need not be paid currently if (i) the validity
thereof shall currently and diligently be contested in good faith by
appropriate proceedings, (ii) such tax, assessment, charge or levy shall
have no effect on the lien priority of the Purchaser in any property of
the Company or any of its Subsidiaries and (iii) if the Company and/or
such Subsidiary shall have set aside on its books adequate reserves with
respect thereto in accordance with GAAP; and provided, further, that the
Company and its Subsidiaries will pay all such taxes, assessments, charges
or levies forthwith upon the commencement of proceedings to foreclose any
lien which may have attached as security therefor.
16
(b) If Company or any of its Subsidiaries shall be required by law
to deduct or withhold in respect of any and all present or future taxes,
levies, imposts, deductions and other governmental charges or
withholdings, and all interest, penalties and other liabilities with
respect thereto, imposed by any jurisdiction (or any political subdivision
thereof) ("Taxes") other than, with respect to the Purchaser, any Taxes
(including income, branch profits or franchise taxes) imposed on or
measured by its net income ("Indemnified Taxes") from or in respect of any
sum payable hereunder to the Purchaser, then:
(c) the sum payable shall be increased by such additional amount
(the "Additional Amount") as necessary so that after making all required
deductions and withholdings (including deductions and withholdings
applicable to such Additional Amount) the Purchaser receives an amount
equal to the sum it would have received had no such deductions or
withholdings been made;
(d) the Company or such Subsidiary shall make the appropriate
deductions or withholdings and shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in accordance
with applicable law;
(e) within thirty (30) days after the date of such payment, upon the
Purchaser's request, the Company or such Subsidiary shall furnish to the
Purchaser the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment reasonably satisfactory to the
Purchaser;
(f) if the Company or such Subsidiary fails to pay amounts in
accordance with paragraph (b) above, the Company or such Subsidiary shall
indemnify the Purchaser for any incremental Indemnified Taxes that is paid
by the Purchaser as a result of the failure;
(g) the Company will indemnify the Purchaser for the full amount of
any Taxes imposed by any jurisdiction and paid by the Purchaser with
respect to any Additional Amount payable pursuant to paragraph (a) above
and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes are correctly
asserted; and
(h) the indemnification contemplated in paragraphs (d) and (e) above
shall be made within 30 days from the date the Purchaser makes written
demand therefor (which demand shall identify the nature and amount of
Taxes for which indemnification is being sought and shall include a copy
of the relevant portion of any written assessment from the governmental
authority demanding payment of such Taxes).
17
6.7 Insurance. Each of the Company and its Subsidiaries will
keep its assets which are of an insurable character insured by financially
sound and reputable insurers against loss or damage by fire, explosion and
other risks customarily insured against by companies in similar business
similarly situated as the Company and its Subsidiaries; and the Company
and its Subsidiaries will maintain, with financially sound and reputable
insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner which the Company
reasonably believes is customary for companies in similar business
similarly situated as the Company and its Subsidiaries and to the extent
available on commercially reasonable terms. The Company, and each of its
Subsidiaries, will jointly and severally bear the full risk of loss from
any loss of any nature whatsoever with respect to the assets pledged to
the Purchaser as security for their respective obligations hereunder and
under the Related Agreements. At the Company's and each of its
Subsidiaries' joint and several cost and expense in amounts and with
carriers reasonably acceptable to the Purchaser, each of the Company and
each of its Subsidiaries shall (i) keep all its insurable properties and
properties in which it has an interest insured against the hazards of
fire, flood, sprinkler leakage, those hazards covered by extended coverage
insurance and such other hazards, and for such amounts, as is customary in
the case of companies engaged in businesses similar to the Company's or
the respective Subsidiary's including business interruption insurance;
(ii) maintain a bond in such amounts as is customary in the case of
companies engaged in businesses similar to the Company's or the respective
Subsidiary's insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly
or jointly with others at any time have access to the assets or funds of
the Company or any of its Subsidiaries either directly or through
governmental authority to draw upon such funds or to direct generally the
disposition of such assets; (iii) maintain public and product liability
insurance against claims for personal injury, death or property damage
suffered by others; (iv) maintain all such worker's compensation or
similar insurance as may be required under the laws of any state or
jurisdiction in which the Company or the respective Subsidiary is engaged
in business; and (v) furnish the Purchaser with (x) copies of all policies
and evidence of the maintenance of such policies at least thirty (30) days
before any expiration date, (y) excepting the Company's workers'
compensation policy, endorsements to such policies naming the Purchaser as
"co-insured" or "additional insured" and appropriate loss payable
endorsements in form and substance satisfactory to the Purchaser, naming
the Purchaser as loss payee, and (z) evidence that as to the Purchaser the
insurance coverage shall not be impaired or invalidated by any act or
neglect of the Company or any Subsidiary and the insurer will provide the
Purchaser with at least thirty (30) days notice prior to cancellation. The
Company and each Subsidiary shall instruct the insurance carriers that in
the event of any loss thereunder, the carriers shall make payment for such
loss to the Company and/or the Subsidiary and the Purchaser jointly. In
the event that as of the date of receipt of each loss recovery upon any
such insurance, the Purchaser has not declared an event of default with
respect to this Agreement or any of the Related Agreements, then the
Company and/or such Subsidiary shall be permitted to direct the
application of such loss recovery proceeds toward investment in property,
plant and equipment that would comprise "Collateral" secured by the
Purchaser's security interest pursuant to the Master Security Agreement,
any other Related Agreement or such other security agreement as shall be
required by the Purchaser, with any surplus funds to be applied toward
payment of the obligations of the Company to the Purchaser. In the event
that the Purchaser has properly declared an event of default with respect
to this Agreement or any of the Related Agreements, then all loss
recoveries received by the Purchaser upon any such insurance thereafter
may be applied to the obligations of the Company hereunder and under the
Related Agreements, in such order as the Purchaser may determine. Any
surplus (following satisfaction of all Company obligations to the
Purchaser) shall be paid by the Purchaser to the Company or applied as may
be otherwise required by law. Any deficiency thereon shall be paid by the
Company or the Subsidiary, as applicable, to the Purchaser, on demand.
18
6.8 Intellectual Property. Each of the Company and each of its
Subsidiaries shall maintain in full force and effect its existence, rights
and franchises and all licenses and other rights to use Intellectual
Property owned or possessed by it and reasonably deemed to be necessary to
the conduct of its business.
6.9 Properties. Each of the Company and each of its
Subsidiaries will keep its properties in reasonably good repair, working
order and condition, reasonable wear and tear excepted, and from time to
time make all needful and proper repairs, renewals, replacements,
additions and improvements thereto to the extent such properties are
necessary to the continued operations of the business; and each of the
Company and each of its Subsidiaries will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could, either individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
6.10 Confidentiality. The Company will not, and will not
permit any of its Subsidiaries to, disclose, and will not include in any
public announcement, the name of the Purchaser, unless expressly agreed to
by the Purchaser or unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
Notwithstanding the foregoing, the Company may disclose the Purchaser's
identity and the terms of this Agreement to its current and prospective
debt and equity financing sources.
6.11 Required Approvals. (i) For so long as twenty-five
percent (25%) of the principal amount of the Note is outstanding, the
Company, without the prior written consent of the Purchaser, shall not,
and shall not permit any of its Subsidiaries to:
(a) (x) directly or indirectly declare or pay any dividends, other
than dividends paid to the Company or any of its wholly-owned
Subsidiaries, (y) issue any preferred stock that is manditorily redeemable
prior to the one year anniversary of Maturity Date (as defined in the Note
or (z) redeem any of its preferred stock or other equity interests;
(b) liquidate, dissolve or effect a material reorganization (it
being understood that in no event shall the Company or any of its
Subsidiaries dissolve, liquidate or merge with any other person or entity
(unless, in the case of such a merger, the Company or, in the case of
merger not involving the Company, such Subsidiary, as applicable, is the
surviving entity);
19
(c) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its
terms would (under any circumstances) restrict the Company's or any of its
Subsidiaries, right to perform the provisions of this Agreement, any
Related Agreement or any of the agreements contemplated hereby or thereby;
(d) materially alter or change the scope of the business of the
Company and its Subsidiaries taken as a whole; or
(e) create, incur, assume or suffer to exist any indebtedness
whether secured or unsecured other than (w) unsecured subordinated
indebtedness of the Company or any Subsidiary thereof in an aggregate
principal amount not to exceed US$3,000,000 at any time outstanding, which
indebtedness referred to in this clause (w) shall be subordinated to the
indebtedness incurred by the Company and its Subsidiaries under this
Agreement and the Related Agreements, and solely with respect to such
subordination, on terms and subject to documentation reasonably
satisfactory to the Purchaser; (x) the Company's obligations owed to the
Purchaser, (y) indebtedness set forth on Schedule 6.11(e) attached hereto
and made a part hereof and any refinancings or replacements thereof on
terms no less favorable to the Purchaser than the indebtedness being
refinanced or replaced, and (z) any indebtedness incurred in connection
with the purchase of assets (other than equipment) in the ordinary course
of business, or any refinancings or replacements thereof on terms no less
favorable to the Purchaser than the indebtedness being refinanced or
replaced, so long as any lien relating thereto shall only encumber the
fixed assets so purchased and no other assets of the Company or any of its
Subsidiaries; (ii) cancel any indebtedness owing to it in excess of
$50,000 in the aggregate during any 12 month period; (iii) assume,
guarantee, endorse or otherwise become directly or contingently liable in
connection with any obligations of any other person or entity, except the
endorsement of negotiable instruments by the Company or any Subsidiary
thereof for deposit or collection or similar transactions in the ordinary
course of business or guarantees of indebtedness otherwise permitted to be
outstanding pursuant to this clause (e); and
(ii) The Company, without the prior written consent of the
Purchaser, shall not, and shall not permit any of its Subsidiaries
to:
(a) create or acquire any Subsidiary after the date hereof unless
(i) such Subsidiary is a wholly-owned Subsidiary of the Company and (ii)
such Subsidiary becomes a party to the Master Security Agreement or the
foreign equivalent thereof in form and substance satisfactory to the
Purchaser and its legal counsel (either by executing a counterpart thereof
or an assumption or joinder agreement in respect thereof) and, to the
extent required by the Purchaser, satisfies each condition of this
Agreement and the Related Agreements as if such Subsidiary were a
Subsidiary on the Closing Date; or
(b) make investments in, make any loans or advances to, or transfer
assets to, the Immaterial Subsidiary or (ii) permit any Subsidiary to make
investments in, make any loans or advances to, or transfer assets to, the
Immaterial Subsidiary.
20
6.12 Opinion. On the Closing Date, the Company will deliver to
the Purchaser an opinion acceptable to the Purchaser from the Company's
external legal counsel.
6.13 Margin Stock. The Company will not permit any of the
proceeds of the Note, the Option or the Warrant to be used directly or
indirectly to "purchase" or "carry" "margin stock" or to repay
indebtedness incurred to "purchase" or "carry" "margin stock" within the
respective meanings of each of the quoted terms under Regulation U of the
Board of Governors of the Federal Reserve System as now and from time to
time hereafter in effect.
6.14 No Limitations on Additional Financing. The Company will
not, and will not permit its Subsidiaries to, agree, directly or
indirectly, to any restriction with any person or entity which limits the
ability of the Purchaser to consummate an Additional Financing with the
Company or any of its Subsidiaries. "Additional Financing" shall mean the
incurrence of any additional indebtedness by the Company, and/or the sale
of any equity interests of the Company or any of its Subsidiaries to the
Purchaser.
7. Covenants of the Purchaser. The Purchaser covenants and agrees with the
Company as follows:
7.1 Confidentiality. The Purchaser will not disclose, and will
not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of
such requirement.
7.2 Non-Public Information. The Purchaser will not effect any
sales in the shares of the Common Stock while in possession of material,
non-public information regarding the Company if such sales would violate
applicable securities law.
7.3 Limitation on Acquisition of Common Stock of the Company.
Notwithstanding anything to the contrary contained in this Agreement, any
Related Agreement or any document, instrument or agreement entered into in
connection with any other transactions between the Purchaser and the
Company, the Purchaser may not acquire stock in the Company (including,
without limitation, pursuant to a contract to purchase, by exercising an
option or warrant, by converting any other security or instrument, by
acquiring or exercising any other right to acquire, shares of stock or
other security convertible into shares of stock in the Company, or
otherwise, and such contracts, options, warrants, conversion or other
rights shall not be enforceable or exercisable) to the extent such stock
acquisition would cause any interest (including any original issue
discount) payable by the Company to Laurus not to qualify as "portfolio
interest" within the meaning of Section 881(c)(2) of the Code, by reason
of Section 881(c)(3) of the Code, taking into account the constructive
ownership rules under Section 871(h)(3)(C) of the Code (the "Stock
Acquisition Limitation"). The Stock Acquisition Limitation shall
automatically become null and void without any notice to the Company upon
the earlier to occur of either (a) the Company's delivery to the Purchaser
of a Notice of Redemption (as defined in the Note) or (b) the existence of
an Event of Default (as defined in the Note) at a time when the average
closing price of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market for the immediately preceding five trading days is
greater than or equal to 150% of the Fixed Conversion Price (as defined in
that certain Secured Convertible Term Note, dated June 29, 2005, issued by
the Company to the Purchaser).
21
7.4 No Shorting. Neither the Purchaser, nor any of its
affiliates and investment partners will, nor will cause any person or
entity, to directly engage in "short sales" of the Common Stock as long as
the Note shall be outstanding.
8. Covenants of the Company and the Purchaser Regarding Indemnification.
8.1 Company Indemnification. The Company agrees to indemnify,
hold harmless, reimburse and defend the Purchaser, each of the Purchaser's
officers, directors, agents, affiliates, control persons, and principal
shareholders, against all claims, costs, expenses, liabilities,
obligations, losses or damages (including reasonable legal fees) of any
nature, incurred by or imposed upon the Purchaser which do not result from
the Purchaser's gross negligence or willful misconduct and which result,
arise out of or are based upon: (i) any misrepresentation by the Company
or any of its Subsidiaries or breach of any warranty by the Company or any
of its Subsidiaries in this Agreement, any other Related Agreement or in
any exhibits or schedules attached hereto or thereto; or (ii) any breach
or default in performance by Company or any of its Subsidiaries of any
covenant or undertaking to be performed by Company or any of its
Subsidiaries hereunder, under any other Related Agreement or any other
agreement entered into by the Company and/or any of its Subsidiaries and
the Purchaser relating hereto or thereto.
8.2 Purchaser's Indemnification. The Purchaser agrees to
indemnify, hold harmless, reimburse and defend the Company and each of the
Company's officers, directors, agents, affiliates, control persons and
principal shareholders, at all times against any claims, costs, expenses,
liabilities, obligations, losses or damages (including reasonable legal
fees) of any nature, incurred by or imposed upon the Company which do not
result from the Company's gross negligence or willful misconduct and,
which result, arise out of or are based upon: (i) any misrepresentation by
the Purchaser or breach of any warranty by the Purchaser in this Agreement
or in any exhibits or schedules attached hereto or any Related Agreement;
or (ii) any breach or default in performance by the Purchaser of any
covenant or undertaking to be performed by the Purchaser hereunder, or any
other Related Agreements or any other agreement entered into by the
Company and the Purchaser relating hereto or thereto.
8.3 Offering Restrictions. Except as previously disclosed in
the SEC Reports or in the Exchange Act Filings, or stock or stock options
granted to employees or directors of the Company (these exceptions
hereinafter referred to as the "Excepted Issuances"), neither the Company
nor any of its Subsidiaries will, prior to the full repayment of the Note
(together with all accrued and unpaid interest and fees related thereto),
(x) enter into any equity line of credit agreement or similar agreement or
(y) issue, or enter into any agreement to issue, any securities with a
variable/floating conversion and/or pricing feature which are or could be
(by conversion or registration) free trading securities (i.e. common stock
subject to a registration statement).
22
9. Miscellaneous.
9.1 Governing Law, Jurisdiction and Waiver of Jury Trial.
(a) THIS AGREEMENT AND THE OTHER RELATED AGREEMENTS SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH
STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
(b) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL
COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN THE COMPANY, ON THE ONE HAND, AND THE PURCHASER, ON THE OTHER
HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE RELATED AGREEMENTS OR TO
ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER
RELATED AGREEMENTS; PROVIDED, THAT THE PURCHASER AND THE COMPANY
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A
COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK. ; AND
FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR
OPERATE TO PRECLUDE THE PURCHASER FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON
THE COLLATERAL (AS DEFINED IN THE MASTER SECURITY AGREEMENT) OR ANY OTHER
SECURITY FOR THE OBLIGATIONS (AS DEFINED IN THE MASTER SECURITY
AGREEMENT), OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE
PURCHASER. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE
COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. THE COMPANY
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN SECTION 9.8 AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE
COMPANY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE
U.S. MAILS, PROPER POSTAGE PREPAID.
(c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES
HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT,
TORT, OR OTHERWISE BETWEEN THE PURCHASER AND/OR THE COMPANY ARISING OUT
OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY OTHER RELATED
AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.
23
9.2 Severability. Wherever possible each provision of this
Agreement and the Related Agreements shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of
this Agreement or any Related Agreement shall be prohibited by or invalid
or illegal under applicable law such provision shall be ineffective to the
extent of such prohibition or invalidity or illegality, without
invalidating the remainder of such provision or the remaining provisions
thereof which shall not in any way be affected or impaired thereby.
9.3 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the
Purchaser and the closing of the transactions contemplated hereby to the
extent provided therein. All statements as to factual matters contained in
any certificate or other instrument delivered by or on behalf of the
Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument. All
indemnities set forth herein shall survive the execution, delivery and
termination of this Agreement and the Note and the making and repayment of
the obligations arising hereunder, under the Note and under the other
Related Agreements.
9.4 Successors. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon,
the successors, heirs, executors and administrators of the parties hereto
and shall inure to the benefit of and be enforceable by each person or
entity which shall be a holder of the Note from time to time. The
Purchaser may not assign its rights hereunder to a competitor of the
Company, unless an Event of Default, as defined in the Note, has occurred
and is continuing.
9.5 Entire Agreement; Maximum Interest. This Agreement, the
Related Agreements, the exhibits and schedules hereto and thereto and the
other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the
subjects hereof and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except
as specifically set forth herein and therein. Nothing contained in this
Agreement, any Related Agreement or in any document referred to herein or
delivered in connection herewith shall be deemed to establish or require
the payment of a rate of interest or other charges in excess of the
maximum rate permitted by applicable law. In the event that the rate of
interest or dividends required to be paid or other charges hereunder
exceed the maximum rate permitted by such law, any payments in excess of
such maximum shall be credited against amounts owed by the Company to the
Purchaser and thus refunded to the Company.
24
9.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the written
consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the Purchaser
under this Agreement may be waived only with the written consent of the
Purchaser.
(c) The obligations of the Purchaser and the rights of the Company
under this Agreement may be waived only with the written consent of the
Company.
9.7 Delays or Omissions. It is agreed that no delay or
omission to exercise any right, power or remedy accruing to any party,
upon any breach, default or noncompliance by another party under this
Agreement or the Related Agreements, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach,
default or noncompliance, or any acquiescence therein, or of or in any
similar breach, default or noncompliance thereafter occurring. All
remedies, either under this Agreement or the Related Agreements, by law or
otherwise afforded to any party, shall be cumulative and not alternative.
9.8 Notices. All notices required or permitted hereunder shall
be in writing and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal business
hours of the recipient, if not, then on the next business day;
(c) three (3) business days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or
(d) one (1) day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of
receipt.
All communications shall be sent as follows:
If to the Company, to: Adal Group, Inc.
Billhurst Studio
P.O. Box 177
Lingfield Common Rd.
Lingfield, Surrey, United Kingdom
RH7 6B7
Attention: Chief Financial Officer
Facsimile: ▇▇-▇▇▇▇-▇▇▇▇▇▇
25
with a copy to:
Loeb & Loeb LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to the Purchaser, to: Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
▇.▇. ▇▇▇ ▇▇▇ ▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇
South Church Street
Grand Cayman, Cayman Islands
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
9.9 Attorneys' Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement or any Related
Agreement, the prevailing party in such dispute shall be entitled to
recover from the losing party all fees, costs and expenses of enforcing
any right of such prevailing party under or with respect to this Agreement
and/or such Related Agreement, including, without limitation, such
reasonable fees and expenses of attorneys and accountants, which shall
include, without limitation, all fees, costs and expenses of appeals.
9.10 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and
are not to be considered in construing this Agreement.
9.11 Facsimile Signatures; Counterparts. This Agreement may be
executed by facsimile signatures and in any number of counterparts, each
of which shall be an original, but all of which together shall constitute
one agreement.
9.12 Broker's Fees. Except as set forth on Schedule 9.12
hereof, each party hereto represents and warrants that no agent, broker,
investment banker, person or firm acting on behalf of or under the
authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection
with the transactions contemplated herein. Each party hereto further
agrees to indemnify each other party for any claims, losses or expenses
incurred by such other party as a result of the representation in this
Section 9.12 being untrue.
26
9.13 Construction. Each party acknowledges that its legal
counsel participated in the preparation of this Agreement and the Related
Agreements and, therefore, stipulates that the rule of construction that
ambiguities are to be resolved against the drafting party shall not be
applied in the interpretation of this Agreement or any Related Agreement
to favor any party against the other.
9.14 Composite and Guarantee Charge. Each party acknowledges
that this Agreement, the Note and the Reaffirmation Agreement are Related
Agreements, as that term is defined in the Composite Guarantee and Charge
dated as of June 29, 2005 by and between the Company and the Purchaser.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
27
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
ADAL GROUP, INC. LAURUS MASTER FUND, LTD.
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ Grin
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Name: ▇▇▇▇▇▇ Grin
Title: Chief Executive Officer and President Title: Director
28
EXHIBIT A
FORM OF TERM NOTE
A-1
EXHIBIT B
FORM OF OPINION
B-1
EXHIBIT C
FORM OF ESCROW AGREEMENT
C-1