EXHIBIT 10.1
▇▇▇▇▇▇, INC.
SECURITIES PURCHASE AGREEMENT
December 28, 2005
TABLE OF CONTENTS
Page
1. AGREEMENT TO SELL AND PURCHASE..........................................1
2. FEES AND WARRANTS.......................................................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..................3
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.................................5
4.8 Changes........................................................6
4.9 Title to Properties and Assets; Liens, Etc.....................7
4.10 Intellectual Property..........................................7
4.11 Compliance with Other Instruments..............................8
4.12 Litigation.....................................................8
4.13 Tax Returns and Payments.......................................8
4.14 Employees......................................................8
4.15 Registration Rights and Voting Rights..........................9
4.16 Compliance with Laws; Permits..................................9
4.17 Environmental and Safety Laws..................................9
4.18 Valid Offering................................................10
4.19 Full Disclosure...............................................10
4.20 Insurance.....................................................10
4.21 SEC Reports...................................................10
4.22 Listing.......................................................11
4.23 No Integrated Offering........................................11
4.24 Stop Transfer.................................................11
4.25 Dilution......................................................11
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5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.......................12
5.1 Requisite Power and Authority.................................12
5.2 Investment Representations....................................12
5.3 Purchaser Bears Economic Risk.................................13
5.4 Acquisition for Own Account...................................13
5.5 Purchaser Can Protect Its Interest............................13
5.6 Accredited Investor...........................................13
5.7 Legends.......................................................13
6. COVENANTS OF THE COMPANY...............................................14
6.1 Stop-Orders...................................................14
6.2 Listing.......................................................14
6.3 Market Regulations............................................14
6.4 Reporting Requirements.......................................15
6.5 Use of Funds..................................................15
6.6 Access to Facilities..........................................15
6.7 Taxes.........................................................15
6.9 Intellectual Property.........................................16
6.10 Properties....................................................16
6.11 Confidentiality...............................................17
6.12 Required Approvals............................................17
6.13 Reissuance of Securities......................................17
6.14 Opinion.......................................................17
6. COVENANTS OF THE COMPANY...............................................18
6.11 Confidentiality...............................................18
6.14. COVENANTS OF THE COMPANY AND PURCHASERS REGARDING INDEMNIFICATION......18
8.1 Company Indemnification.......................................18
8.2 Purchaser's Indemnification...................................18
8.3 Procedures....................................................19
9. INTENTIONALLY OMITTED..................................................19
10. REGISTRATION RIGHTS....................................................19
0 Registration Rights Granted...................................19
10.2 Indemnification and Contribution..............................19
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11. RIGHT OF FIRST REFUSAL.................................................21
11 Offering Restrictions.........................................21
11. RIGHT OF FIRST REFUSAL.................................................21
11 Offering Restrictions.........................................21
13. MISCELLANEOUS..........................................................24
13.1 Governing Law.................................................24
13.2 Survival......................................................24
13.3 Successors and Assigns........................................24
13.4 Entire Agreement..............................................25
13.5 Severability..................................................25
13.6 Amendment and Waiver..........................................25
13.7 Delays or Omissions...........................................25
13.8 Notices.......................................................25
13.9 Attorneys' Fees...............................................25
13.10 Titles and Subtitles..........................................26
13.11 Counterparts..................................................26
13.12 Broker's Fees.................................................26
13.13 Construction..................................................26
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▇▇▇▇▇▇, INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of December 28, 2005, by and between ▇▇▇▇▇▇, 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
note in the aggregate principal amount of $6,000,000 (the "Note"),;
WHEREAS, the Company wishes to issue 203,774 shares of the Company's
Common Stock, par value $0.01 per share (such stock, the "Common Stock" and such
shares, the "Shares") in connection with Purchaser's purchase of the Note;
WHEREAS, Purchaser desires to purchase the Note and Shares on the
terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Shares to
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 agrees to sell to the Purchaser, and the Purchaser
hereby agrees to purchase from the Company a Note in the amount of $6,000,000.
The Note purchased on the Closing Date shall be known as the "Offering." A form
of the Note is annexed hereto as Exhibit A. The Note will have a Maturity Date
(as defined in the Note) thirty-six (36) months from the date of issuance.
Collectively, the Note and Shares (as defined in Section 2) are referred to as
the "Securities."
2. FEES. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser the
Shares pursuant to Section 1 hereof. The Shares must be delivered on the Closing
Date. All the representations, covenants, warranties, undertakings, and
indemnification, and other rights made or granted to or for the benefit of the
Purchaser by the Company are hereby also made and granted in respect of the
Shares.
(b) Upon execution and delivery of this Agreement by the Company
and Purchaser, the Company shall pay to Laurus Capital Management, manager of
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the Purchaser, (i) a closing payment in an amount equal to one percent (1.00%)
of the aggregate principal amount of the Note. The foregoing fee is referred to
herein as the "Closing Payment".
(c) The Company shall reimburse the Purchaser for its reasonable legal fees for
services rendered to the Purchaser in preparation of this Agreement and the
Related Agreements, and expenses in connection with the Purchaser's due
diligence review of the Company and relevant matters. Amounts required to be
paid hereunder will be paid at the Closing and shall not exceed $15,000.
(d) The feeof $15,000 for legal fees incurred by the Purchaser
shall be netted from total amount funded at close The Closing Payment and legal
fees shall be paid at the Closing out of funds held pursuant to a Funds Escrow
Agreement, of even date herewith among the Company, Purchaser and an Escrow
Agent (the "Funds Escrow Agreement").
(e) The Purchaser shall deliver that certain Promissory Note
issued by the Company to the Purchaser on May 16, 2005 (the "Original Note") and
the Allonge to the Original Note dated June 3, 2005.
(f) The Purchaser shall release the Company from its obligations
under Section 2(b) of the Registration Rights Agreement by and between the
Purchaser and the Company dated May 16, 2005 and hereby agrees that the Warrants
issued in connection with the Securities Purchase Agreement dated May 16, 2005
have been added to the definition of Registrable Securities in the Registration
Rights Agreement dated as of the date hereof by and between the Purchaser and
the Company.
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 Purchaser may
mutually agree (such date is hereinafter referred to as the "Closing Date").
3.2 DELIVERY. Pursuant to the Funds Escrow Agreement, in the form
attached as Exhibit C, at the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Escrow Agent, among other things, a Note
in the form attached as Exhibit A representing the principal amount of
$6,000,000 and the Shares and the Purchaser will deliver to the Escrow Agent,
among other things, $6,000,000, by certified funds or wire transfer made payable
to the order of the Escrow Agent.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as
of the date of this Agreement as set forth below which disclosures are
supplemented by, and subject to the Company's filings and other filings
identifying the Company as issuer under the Securities Exchange Act of 1934 and
the draft of a Quarterly Report on Form 10-Q for the period ended March 31, 2005
(collectively, the "Exchange Act Filings"), copies of which have been provided
to the Purchaser.
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4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has the corporate power and authority
to own and operate its properties and assets, to execute and deliver this
Agreement, and all other documents to be issued in connection with this
Agreement (in the case of the Company only), the agreements set forth on
Schedule 4.1 attached hereto and all other agreements referred to herein
(collectively, the "Related Agreements"), to issue and sell the Note (in the
case of the Company only), to issue and sell the Shares (in the case of the
Company only), and to carry out the provisions of this Agreement and the Related
Agreements and to carry on its business as presently conducted. The Company is
duly qualified and is authorized to do business and is in good standing as a
foreign corporation in all jurisdictions in which the nature 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").
4.2 SUBSIDIARIES. Except as disclosed on Schedule 4.2, the
Company does not own or control any equity security or other interest of any
other corporation, limited partnership or other business entity.
4.3 CAPITALIZATION; VOTING RIGHTS.
(a) The authorized capital stock of the Company, as of December
27, 2005, consists of 30,000,000 shares of Common Stock, par value $0.01 per
share, shares of which 18,923,291 are issued and outstanding and 10,000,000
shares of preferred stock, par value $1.00 per share of which shares 180,000 are
outstanding.
(b) Except as disclosed on Schedule 4.3, other than (i) the
shares reserved for issuance under the Company's stock option plans; and (ii)
shares which may be granted pursuant to this Agreement and the Related
Agreements, 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 any of the Note or Shares, 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 (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"). When issued in compliance with the provisions of
this Agreement and the Company's Charter, the Securities will be validly issued,
fully paid and nonassessable, and will be free of any liens or encumbrances;
provided, however, that the Securities may be subject to restrictions on
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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.
4.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on
the part of the Company, its officers and directors necessary for the
authorization of this Agreement and the Related Agreements, the performance of
all obligations of the Company hereunder at the Closing and, the authorization,
sale, issuance and delivery of the Note and Shares has been taken or will be
taken prior to the Closing. The 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 the Company 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) 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 preemptive rights or rights of first
refusal that have not been properly waived or complied with. The issuance of the
Shares is not and will not be subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with. The Note,
when executed and delivered in accordance with the terms of this Agreement, will
be valid and binding obligations of the Company, enforceable in accordance with
their respective terms.
4.5 LIABILITIES. Except as set forth in Schedule 4.5, the
Company, to the best of its knowledge, knows of no material contingent
liabilities, except current liabilities incurred in the ordinary course of
business and liabilities disclosed in any Exchange Act Filings.
4.6 AGREEMENTS; ACTION. Except as set forth on Schedule 4.6 or 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 is a party or to its knowledge by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $50,000 (other than obligations of, or payments to, the
Company 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 (other than
licenses arising from the purchase or sale of "off the shelf" or other standard
products), or (iii) provisions restricting the development, manufacture or
distribution of the Company's products or services, or (iv) indemnification by
the Company with respect to infringements of proprietary rights (other than
obligations of the Company arising from purchase or sale agreements entered into
in the ordinary course of business).
(b) The Company has not (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, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate, (iii) made any loans or advances to any person not in
excess, individually or in the aggregate, of $100,000, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
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any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.
(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 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 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 the transactions and
dispositions of the Company's assets. The Company maintains 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;
(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) 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. Except as set forth on
Schedule 4.7, there are no obligations of the Company to officers, directors,
stockholders or employees of the Company other than (a) for payment of salary
for services rendered and for bonus payments, (b) reimbursement for reasonable
5
expenses incurred on behalf of the Company, (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 (d) obligations listed in the Company's financial
statements or disclosed in any of its Exchange Act Filings. Except as described
above or set forth on Schedule 4.7, none of the officers, directors or, to the
best of the Company's knowledge, key employees or stockholders of the Company or
any members of their immediate families, are indebted to the Company,
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 is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company, other than passive investments in
publicly traded companies (representing less than 1% of such company) which may
compete with the Company. Except as described above, no officer, director or
stockholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company and no
agreements, understandings or proposed transactions are contemplated between the
Company and any such person. Except as set forth on Schedule 4.7, the Company is
not a guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
4.8 CHANGES. Since December 31, 2004, 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 assets, liabilities, financial condition,
prospects or operations of the Company, other than changes in the ordinary
course of business, none of which individually or in the aggregate has had or is
reasonably expected to have a Material Adverse Effect
(b) Any resignation or termination of any officer, key employee
or group of employees of the Company;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) Any direct or indirect material loans made by the Company to
any stockholder, employee, officer or director of the Company, 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;
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(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity related to the Company;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, 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;
(l) Any change in any material agreement to which the Company is
a party or by which it is bound which may materially and adversely affect the
business, assets, liabilities, financial condition, operations or prospects of
the Company;
(m) Any other event or condition of any character that, either
individually or cumulatively, has or may materially and adversely affect the
business, assets, liabilities, financial condition, prospects or operations of
the Company; or
(n) Any arrangement or commitment by the Company to do any of the
acts described in subsection (a) through (m) above.
4.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. Except as set
forth on Schedule 4.9, the Company has good and marketable title to its
properties and assets, and good title to its leasehold estates, 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, and
(c) those that have otherwise arisen in the ordinary course of business. All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by the Company are in 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 is in compliance with all material
terms of each lease to which it is a party or is otherwise bound.
4.10 INTELLECTUAL PROPERTY.
(a) The Company 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
bound by or a party to any options, licenses or agreements of any kind with
respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and other proprietary rights and processes
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) Except as set forth on Schedule 4.10(b), the Company has not
received any communications alleging that the Company has violated any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity, nor is the Company aware
of any basis therefor.
(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company, except for inventions,
trade secrets or proprietary information that have been rightfully assigned to
the Company.
4.11 COMPLIANCE WITH OTHER INSTRUMENTS. Except as set forth on
Schedule 4.11, the Company is not in violation or default of any term of its
Charter or Bylaws, or of any material provision of any mortgage, indenture,
contract, agreement, instrument or contract to which it is party or by which it
is bound or of any judgment, decree, order or writ. 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 and
the other Securities by the Company each pursuant hereto, 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, encumbrance
or charge upon any of the properties or assets of the Company 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. Except as set forth on Schedule 4.12, there is
no action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company that prevents the Company to
enter into this Agreement or the Related Agreements, or to consummate the
transactions contemplated hereby or thereby, or which might have or result, in
aMaterial Adverse Effect, or any change in the current equity ownership of the
Company, nor is the Company aware that there is any basis for any of the
foregoing. The Company is not a party 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 currently pending or which the Company intends to initiate.
4.13 TAX RETURNS AND PAYMENTS. The Company has timely filed all
tax returns (federal, state and local) required to be filed by it. Except as set
forth on Schedule 4.13, all taxes shown to be due and payable on such returns,
any assessments imposed, and to the Company's knowledge all other taxes due and
payable by the Company on or before the Closing, have been paid or will be paid
prior to the time they become delinquent. Except as set forth on Schedule 4.13,
the Company has not been advised (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
deficiency in assessment or proposed judgment to its federal, state or other
taxes. The Company has no knowledge of any liability of any tax to be imposed
upon its properties or assets as of the date of this Agreement that is not
adequately provided for.
4.14 EMPLOYEES. Except as set forth on Schedule 4.14, the Company
has no collective bargaining agreements with any of its employees. There is no
labor union organizing activity pending or, to the Company's knowledge,
8
threatened with respect to the Company. Except as disclosed in the Exchange Act
Filings, the Company is not 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, nor
any consultant with whom the Company has contracted, is in violation of any 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 because of the nature of the business to be conducted
by the Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's contracts
with its independent contractors, will not result in any such violation. The
Company is not 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 their duties to the Company. The Company has
not received any notice alleging that any such violation has occurred. Except
for employees who have a current effective employment agreement with the
Company, no employee of the Company has been granted the right to continued
employment by the Company or to any material compensation following termination
of employment with the Company. 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, nor does the Company 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 set forth
on Schedule 4.15 and except as disclosed in Exchange Act Filings, the Company is
presently not under any obligation, and has not granted any rights, to register
any of the Company's presently outstanding securities or any of its securities
that may hereafter be issued. To the Company's knowledge, no stockholder of the
Company has entered into any agreement with respect to the voting of equity
securities of the Company.
4.16 COMPLIANCE WITH LAWS; PERMITS. Except as set forth on
Schedule 4.16, to its knowledge, the Company is not in violation in any material
respect of any 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
violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. 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 and the
issuance of any of the Securities, except such as has 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. The Company 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 would
materially and adversely affect the business, properties, prospects or financial
condition of the Company.
4.17 ENVIRONMENTAL AND SAFETY LAWS. The Company is not in
violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, except for any violations that,
9
individually or in the aggregate, have not had and would not reasonably be
expected materially and adversely affect the business, properties, prospects or
financial condition of the Company, 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, to the Company's
knowledge, by any other person or entity on any property owned, leased or used
by the Company, except for any use, storage or disposal that, individually or in
the aggregate, have not had and would not reasonably be expected materially and
adversely affect the business, properties, prospects or financial condition of
the Company. 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 Securities 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.
4.19 FULL DISCLOSURE. The Company has provided the Purchaser with
all information requested by the Purchaser in connection with its decision to
purchase the Note and Shares, including all information the Company believes is
reasonably necessary to make such investment decision. Neither this Agreement,
the exhibits and schedules hereto, the Related Agreements nor any other document
delivered by the Company 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 were
based on the Company's experience in the industry and on assumptions of fact and
opinion as to future events which the Company, at the date of the issuance of
such projections or estimates, believed to be reasonable
4.20 INSURANCE. The Company has general commercial, product
liability, fire and casualty insurance policies with coverage customary for
companies similarly situated to the Company 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 has furnished the Purchaser with copies of (i) its Annual Report on
Form 10-K for the fiscal year ended December 31, 2002, (ii) its quarterly report
on From 10-Q for the period ended March 31, 2003, and (iii) its other filings
including Forms 8-K and Definitive Proxy made in 2003 (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
10
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 Company's Common Stock is traded on the NASDAQ
National Market and satisfies all requirements for the continuation of such
trading. The Company has not received any notice that its Common Stock will be
ineligible to trade on the NASDAQ National Market or that its Common Stock does
not meet all requirements for such continued trading .
4.23 NO INTEGRATED OFFERING. 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 the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities 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 Securities to be so integrated with other
offerings.
4.24 STOP TRANSFER. The Securities are restricted securities as
of the date of this Agreement. The Company will not issue any stop transfer
order or other order impeding the sale and delivery of any of the Securities at
such time as the Securities are registered for public sale or an exemption from
registration is available, except as required by federal securities laws.
4.25 DILUTION. The Company specifically acknowledges that its
obligation to issue the Shares is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of
other shareholders of the Company.
4.26 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 reasonably deems necessary or convenient to
ensure compliance with all applicable laws concerning money laundering and
11
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 reasonable 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.
4.27 ERISA. Based upon the Employee Retirement Income Security
Act of 1974 ("ERISA"), and the regulations and published interpretations
thereunder: (i) 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 or former
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.
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 REQUISITE POWER AND AUTHORITY. 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 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 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.
5.2 INVESTMENT REPRESENTATIONS. Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement, including, without limitation, that the Purchaser is
12
an "accredited investor" within the meaning of Regulation D under the Securities
Act. The Purchaser 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 and the Shares to be purchased by it under this Agreement.
The Purchaser further has had an opportunity to ask questions and receive
answers from the Company regarding the Company's business, management and
financial affairs and the terms and conditions of the Offering, the Note, and
the Shares 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.
5.3 PURCHASER BEARS ECONOMIC RISK. 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. Purchaser must bear the economic risk of
this investment until the Securities are sold pursuant to (i) an effective
registration statement under the Securities Act, or (ii) an exemption from
registration is available.
5.4 ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the Note
and Shares for 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.
5.5 PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents that
by reason of its, or of its management's, business and financial experience,
Purchaser has the capacity to evaluate the merits and risks of its investment in
the Note and the Shares and to protect its own interests in connection with the
transactions contemplated in this Agreement, and the Related Agreements.
Further, Purchaser is aware of no publication of any advertisement in connection
with the transactions contemplated in the Agreement or the Related Agreements.
5.6 ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
5.7 LEGENDS.
(a) The Note shall bear substantially the following legend:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR, IF 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 UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO ▇▇▇▇▇▇, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED."
13
(b) The Shares, if not issued by DWAC system (as hereinafter
defined), shall bear a legend which shall be in substantially the following form
until such shares are covered by an effective registration statement filed with
the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF
APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ▇▇▇▇▇▇, INC.THAT SUCH REGISTRATION IS NOT
REQUIRED."
5.8 NO SHORTING. The Purchaser or any of its affiliates and
investment partners will not and will not cause any person or entity, directly
or indirectly, to engage in "short sales" of the Company's Common Stock or any
other hedging strategies.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Purchaser as follows:
6.1 STOP-ORDERS. The Company will advise the Purchaser, promptly
after it receives notice of issuance by the Securities and Exchange Commission
(the "SEC"), any state securities commission or any other regulatory authority
of any stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 LISTING. The Company shall promptly secure the trading of the
Shares on the Pink Sheets, the NASD OTC Bulletin Board, NASDAQ SmallCap Market,
NASDAQ National Market, American Stock Exchange or New York Stock Exchange (the
"Principal Market") upon which shares of Common Stock are then listed or traded
(subject to official notice of issuance, if applicable) and shall maintain such
listing or trading so long as any other shares of Common Stock shall be so
listed or traded. The Company will maintain the listing (or trading) of its
Common Stock on a 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.
6.3 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 Securities to Purchaser
and promptly provide copies thereof to Purchaser.
14
6.4 REPORTING REQUIREMENTS. The Company will 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.
6.5 USE OF FUNDS. The Company agrees that it will use the
proceeds of the sale of the Note and Shares to finance the construction,
installation and maintenance of its traffic surveillance systems set forth on
Schedule 6.5 attached hereto.
6.6 ACCESS TO FACILITIES. The Company 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, to (a) visit and
inspect any of the properties of the Company, (b) examine the corporate and
financial records of the Company (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 any such
corporations with the directors, officers and independent accountants of the
Company. Notwithstanding the foregoing, the Company will not 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.
6.7 TAXES. The Company will promptly pay and discharge, or cause
to be paid and discharged, when due and payable, all lawful taxes, assessments
and governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company 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.
6.8 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
15
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 or 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 granted pursuant to the Security Agreement and reaffirmed by the
Company pursuant to the Reaffirmation Agreement, any Related Agreement and/or
such other security agreement as shall be required by the Purchaser 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.
6.9 INTELLECTUAL PROPERTY. The Company shall maintain in full
force and effect its corporate 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.
6.10 PROPERTIES. The Company will keep its properties in 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; and the Company will at all times comply
with each provision of all leases to which it is a party or under which it
16
occupies property if the breach of such provision could reasonably be expected
to have a Material Adverse Effect.
6.11 CONFIDENTIALITY. The Company agrees that it will submit the
text of any public announcement using the name of the Purchaser to the Purchaser
prior to its dissemination, unless and until such disclosure is required by law
or applicable regulation, and then only to the extent of such requirement.
Unless the Purchaser shall specify its objections in writing to the Company
within 24 hours of its receipt of such public announcement, the Purchaser shall
be deemed to have given its consent to the to the text of the public
announcement.
6.12 REQUIRED APPROVALS. For so long as 50% of the principal
amount of the Note is outstanding, the Company, without the prior written
consent of the Purchaser, shall not:
(a) directly or indirectly declare or pay any dividends;
(b) liquidate, dissolve or effect a material reorganization;
(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 right to perform the
provisions of this Agreement or any of the agreements contemplated thereby; or
(d) materially alter or change the scope of the business of the
Company.
6.13 REISSUANCE OF SECURITIES. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.7 above at such time as (a) the holder thereof is permitted to dispose
of such Securities pursuant to Rule 144(k) under the Securities Act, or (b) upon
resale subject to an effective registration statement after such Securities are
registered under the Securities Act. The Company agrees to cooperate with the
Purchaser in connection with all resales pursuant to Rule 144(d) and Rule 144(k)
and provide legal opinions necessary to allow such resales provided the Company
and its counsel receive reasonably requested representations from the selling
Purchaser and broker, if any.
6.14 OPINION. On the Closing Date, the Company will deliver to
the Purchaser an opinion acceptable to the Purchaser from the Company's legal
counsel.
6.15 INTENTIONALLY OMITTED..
6.16 MARGIN STOCK. The Company will not permit any of the
proceeds of the sale of the Note or the Shares 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.
6.17 ▇▇▇▇▇▇ TRAFFIC SYSTEMS, INC. ASSIGNMENT OF CONTRACTS TO
PURCHASER.
17
Until the Obligations (as such term is defined in that certain Security
Agreement dated as of the date hereof between ▇▇▇▇▇▇ Traffic Systems, Inc.
("NTSI"). and the Purchaser, the "Security Agreement") have been irrevocably
paid and performed in full, subject only to Section 12.7 hereof, the Company
shall direct and cause its wholly-owned subsidiary, NTSI to irrevocably assign
all of its rights, title and interests in and to the proceeds of contracts set
forth on Schedule 6.17 attached hereto (the "Assigned Contracts") to Purchaser.
Each of the Company, NTSI shall use their respective best efforts to obtain such
consent as provided in Section 12.7 hereof. Purchaser shall be reasonable and
cooperate in obtaining any consent necessary to the collateral assignment of the
Assigned Contracts to it. Until the Obligations have been irrevocably paid and
performed in full, neither the Company nor NTSI shall relinquish any material
rights under, terminate, or repudiate any of the Assigned Contracts without the
prior written consent of Purchaser, which consent shall not be unreasonably
withheld.
7. COVENANTS OF THE PURCHASER. The Purchaser covenants and agrees
with the Company as follows:
7.1 CONFIDENTIALITY. The Purchaser agrees that it 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 agrees not to effect
any sales in the shares of the Company's Common Stock while in possession of
material, non-public information regarding the Company.
8. COVENANTS OF THE COMPANY AND PURCHASER REGARDING
INDEMNIFICATION.
8.1 COMPANY INDEMNIFICATIOn. The Company agrees to indemnify,
hold harmless, reimburse and defend Purchaser, each of Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which results, arises out of or is based upon (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement, or (ii) any breach or default in performance by Company of any
covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
8.2 PURCHASER'S INDEMNIFICATION. 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 claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company which results, arises out of or is based
upon (i) any misrepresentation by Purchaser or breach of any warranty by
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 Purchaser
18
of any covenant or undertaking to be performed by Purchaser hereunder, or any
other agreement entered into by the Company and Purchaser relating hereto.
8.3 PROCEDURES. The procedures and limitations set forth in
Section 10.2 shall apply to the indemnifications set forth in Sections 8.1 and
8.2 above.
9. [INTENTIONALLY OMITTED]
10. REGISTRATION RIGHTS.
10.1 REGISTRATION RIGHTS GRANTED. The Company hereby grants
registration rights to the Purchaser pursuant to a Registration Rights Agreement
dated as of even date herewith between the Company and the Purchaser.
10.2 INDEMNIFICATION.
(a) In the event of a registration of any Registrable Securities
under the Securities Act pursuant to the Registration Rights Agreement, the
Company will indemnify and hold harmless the Purchaser, and its officers,
directors and each other person, if any, who controls the Purchaser within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which the Purchaser, or such persons may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such Registrable
Securities were registered under the Securities Act pursuant to the Registration
Rights Agreement, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Purchaser, and each such person for any reasonable legal
or other expenses incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by the Purchaser or any such person in
writing specifically for use in any such document.
(b) In the event of a registration of the Registrable Securities
under the Securities Act pursuant to the Registration Rights Agreement, the
Purchaser will indemnify and hold harmless the Company, and its officers,
directors and each other person, if any, who controls the Company within the
meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such persons may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the registration statement under which such Registrable Securities
were registered under the Securities Act pursuant to the Registration Rights
Agreement, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company and each such person for any reasonable legal or
19
other expenses incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action, provided, however, that the
Purchaser will be liable in any such case if and only to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished in writing to the Company by the Purchaser
specifically for use in any such document.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 10.2(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10.2(c) if and to the extent the indemnifying party is prejudiced
by such omission. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 10.2(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof; if the
indemnified party retains its own counsel, then the indemnified party shall pay
all fees, costs and expenses of such counsel, provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties shall have the right to
select one separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees
of such separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in
the event of joint liability under the Securities Act in any case in which
either (i) the Purchaser, or any controlling person of the Purchaser, makes a
claim for indemnification pursuant to this Section 10.2 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 10.2 provides for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of the Purchaser or controlling person of the Purchaser in circumstances
for which indemnification is provided under this Section 10.2; then, and in each
such case, the Company and the Purchaser will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion so that the Purchaser is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears to
the public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (A) the Purchaser will not
be required to contribute any amount in excess of the public offering price of
all such securities offered by it pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 10 of the Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation.
20
11. 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; or equity or debt issued in connection
with an acquisition of a business or assets by the Company; or the issuance by
the Company of stock in connection with the establishment of a joint venture
partnership or licensing arrangement (these exceptions hereinafter referred to
as the "Excepted Issuances"), the Company will not issue any securities with a
continuously variable/floating conversion feature which are or could be (by
conversion or registration) free-trading securities (i.e. common stock subject
to a registration statement) prior to the full repayment or conversion of the
Note (the "Exclusion Period").
12. COLLATERAL.
12.1 Each of the Company and NTSI, as applicable, will direct all
present and future Account Debtors of NTSI set forth on Schedule 6.17 hereof,
and other persons obligated to make payments constituting Accounts of Assigned
Contracts to make such payments directly to the lockbox maintained by the
Company (the "Lockbox") with North Fork Bank pursuant to the terms of the
Lockbox Agreement dated May 16, 2005 or such other financial institution
accepted by the Purchaser in writing as may be selected by the Company (the
"Lockbox Bank"). On or prior to the Closing Date, the Company and NTSI, as
applicable, shall and shall cause the Lockbox Bank to enter into all such
documentation acceptable to the Purchaser pursuant to which, among other things,
the Lockbox Bank agrees to: (a) sweep the Lockbox on a daily basis and deposit
all checks received therein to an account designated by the Company in writing
and (b) comply only with the instructions or other directions of the Purchaser
concerning the Lockbox. All of the NTSI's invoices, account statements and other
written or oral communications directing, instructing, demanding or requesting
payment of any Account of any Assigned Contract shall conspicuously direct that
all payments be made to the Lockbox. Within thirty (30) days of closing, the
Company shall provide copies of all invoices, account statements and other
written or oral communications directing, instructing, demanding or requesting
payment of any Account relating to any Assigned Contract each clearly directing
Account Debtors to make all payments to the Lockbox. If, notwithstanding the
instructions to Account Debtors, the Company and or NTSI, as applicable receives
any payments, the Company and or NTSI, as applicable, shall immediately remit
such payments to the Lockbox in their original form with all necessary
endorsements. Until so remitted, the Company and or NTSI, as applicable shall
hold all such payments in trust for and as the property of the Purchaser and
shall not commingle such payments with any of its other funds or property.
12.2 At the Purchaser's election, (i) if an Event of Default set
forth in Sections 4.2 or 4.3 of the Note has occurred and is continuing for
thirty (30) days or (ii) if an Event of Default specified in Sections 4.1, 4.4,
4.5, 4.7 or 4.9 of the Note has occurred and is continuing beyond any applicable
grace period, the Purchaser may notify Account Debtors of any Assigned Contract
of the Purchaser's security interest in the Accounts, collect them directly and
charge the collection costs and expenses thereof to the Company's account.
12.3 The Purchaser hereby agrees that if no Event of Default
under the Note has occurred and is continuing then all funds contained in the
Lockbox will be transferred daily to such account as shall be designated by the
21
Company pursuant to that certain letter agreement dated as of May 16, 2005 among
the Company, NTSI, Purchaser and North Fork Bank. Upon an Event of Default that
has occurred and is continuing beyond any applicable grace period, the Purchaser
may deliver written instructions to the Lockbox Bank stating that an Event of
Default has occurred and is continuing and directing the Lockbox Bank to
immediately cease wiring funds to accounts designated by the Company and instead
direct the Lockbox Bank to wire all such funds into an account designated by the
Purchaser.
12.4 Upon the occurrence and during the continuance of an Event
of Default (as defined in the Note or the NTSI Security Agreement), the Company
hereby appoints the Purchaser, or any other person whom the Purchaser may
designate as the Company's attorney, with power to: (i) endorse the Company's or
NTSI's name on any checks, notes, acceptances, money orders, drafts or other
forms of payment or security related to the Assigned Contracts that may come
into the Purchaser's possession; (ii) sign the Company's or NTSI.'s name on any
invoice or ▇▇▇▇ of lading relating to any Accounts, drafts against Account
Debtors, schedules and assignments of Accounts, notices of assignment, financing
statements and other public records, verifications of Account and notices to or
from Account Debtors; (iii) verify the validity, amount or any other matter
relating to any Account by mail, telephone, telegraph or otherwise with Account
Debtors; (iv) do all things necessary to carry out this Agreement, any Related
Agreement and all related documents; and (v) on or after the occurrence and
continuation of an Event of Default, notify the post office authorities to
change the address for delivery of the Company's mail to an address designated
by the Purchaser, and to receive, open and dispose of all mail addressed to the
Company or NTSI . The Company and NTSI hereby ratifies and approves all acts of
the attorney. Neither the Purchaser, nor the attorney will be liable for any
acts or omissions or for any error of judgment or mistake of fact or law. This
power, being coupled with an interest, is irrevocable so long as the Purchaser
has a security interest and until all obligations from the Company to the
Purchaser have been fully satisfied. Notwithstanding the immediately foregoing,
the Purchaser shall not exercise any powers granted to it pursuant to this
Section 12.4 unless and until an Event of Default under the Note shall have
occurred and be continuing.
12.5 All terms used in this Agreement and defined in the Uniform
Commercial Code ("UCC"), shall have the meaning given therein unless otherwise
defined herein. The terms below shall be defined as follows:
(a) Account Debtor" means any person who is or may be obligated
with respect to, or on account of, an Account of any Assigned Contract .
(b) "Accounts" means all "accounts", as such term is defined in
the UCC, now owned or hereafter acquired by NTSI constituting Collateral (as
defined in the NTSI Security Agreement.
12.6 Delivery of Additional Collateral. The Company hereby agrees
that it shall execute and deliver, and it shall cause NTSI. to execute and
deliver, as an assignment for security, all documents, including but not limited
to assignment of claims agreements, which Purchaser shall reasonably request in
respect of any Assigned Contract.
22
12.7 Assignment of Proceeds of Assigned Contracts; Consent to
Assignment .
(a) Each of the Company and NTSI hereby jointly and severally represents
and warrants to Purchaser that all action necessary and advisable to
effect a valid, binding and enforceable security interest in all of
the proceeds of each of the Assigned Contracts identified by numbers
1,4,5,6,9,10,11,13,14,15 and 16 (as numbered and set forth on Schedule
6.17 hereto)have been taken and further that such valid assignments
are sufficient to enable the Purchaser to realize the practical
benefits under this Agreement, the Related Agreements and all
applicable law. Notwithstanding the immediately foregoing sentence,
NTSI shall obtain and deliver a consent to assignment, substantially
in the form attached hereto as Exhibit A, for at least 75% of the
Assigned Contracts identified by numbers 1,4,5,6,9,10,11,13,14,15 and
16(as numbered and set forth on Schedule 6.17 hereto), within forty
five (45) days of the date hereof;
(b) Each of the Company and NTSI hereby jointly and severally covenants to
Purchaser that all action necessary and advisable to effect a valid,
binding and enforceable security interest in all of the proceeds of
each of the Assigned Contracts which may be assigned to the Purchaser
on the date hereof only with the additional consent of the municipal
entities party to the Assigned Contracts (Assigned Contracts
identified by numbers 3,7,8,and 12(as numbered and set forth on
Schedule 6.17 hereto),such assignments shall be made promptly upon
obtaining consent to such assignment, substantially in the form
attached hereto as Exhibit A, 75% of which such consents shall be
obtained and delivered to Purchaser within forty five (45) days of the
date hereof, and further that such valid assignments and consents
shall be sufficient to enable the Purchaser to realize the practical
benefits under this Agreement, the Related Agreements and all
applicable law.
(c) Each of the Company and NTSI hereby jointly and severally covenants to
Purchaser that all action necessary and advisable to effect a valid,
binding and enforceable security interest in the proceeds of each of
the Assigned Contracts which may be assigned to the Purchaser upon
their execution and delivery by and to each of the parties thereto
(Assigned Contracts identified by numbers 17,18,19 and 20)(as numbered
and set forth on Schedule 6.17 hereto), will be taken at the time of
their execution and delivery by the parties thereto, such assignments
shall be made promptly upon obtaining consent to such assignment (75%
of which such consents shall be obtained and delivered to Purchaser
within one hundred eighty (180) days of the date hereof, and further
that such valid assignments shall be sufficient to enable the
Purchaser to realize the practical benefits under this Agreement, the
Related Agreements and all applicable law.
23
(d) Each of the Company and NTSI hereby jointly and severally represents
and warrants to Purchaser that all action necessary and advisable to
effect a valid, binding and enforceable security interest in all of
the proceeds of the Assigned Contracts identified by number 2 (as
numbered and set forth on Schedule 6.17 hereto)have been taken and
further that such valid assignments are sufficient to enable the
Purchaser to realize the practical benefits under this Agreement, the
Related Agreements and all applicable law.
(e) Notwithstanding the immediately foregoing Sections 12.7(a), (b) and
(c) above, failure to receive valid, binding and enforceable consents
to assignment of the number of Assigned Contract as required therein
shall not be deemed to be a breach hereunder to the extent that NTSI
shall validly pledge, assign and substitute for the Assigned Contracts
for which no valid consent is obtained and delivered as required
therein, contracts substantially similar in type and tenor for which
consent to assignment of proceeds has been obtained and delivered to
Purchaser, if such substitution contracts are otherwise acceptable to
Laurus in the exercise of its reasonable discretion.
13. MISCELLANEOUS.
13.1 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of laws. Any action brought by either party against
the other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York. Both parties and the individuals executing this Agreement
and other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. In the event that any
provision of this Agreement or any other agreement delivered in connection
herewith is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
of any agreement.
13.2 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.
13.3 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 who shall be a holder
of the Securities from time to time.
24
13.4 ENTIRE AGREEMENT. This Agreement, the exhibits and schedules
hereto, the Related Agreements 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.
13.5 SEVERABILITY. In case any provision of the Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
13.6 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.
13.7 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, the Note or the
Related Agreements, by law or otherwise afforded to any party, shall be
cumulative and not alternative.
13.8 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 telephonically confirmed facsimile
if sent during normal business hours of the recipient, if not, then on the next
business day, (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company at the address as set forth on the signature page hereof, to the
Purchaser at the address set forth on the signature page hereto for such
Purchaser, with a copy in the case of the Company to ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
Esq., and in the case of Purchaser to ▇▇▇▇ ▇. ▇▇▇▇▇▇ , Esq., ▇▇▇ ▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇, or at such
other address as the Company or the Purchaser may designate by ten days advance
written notice to the other parties hereto.
13.9 ATTORNEYS' FEES. In the event that any suit or action is
instituted to enforce any provision in this 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, including, without limitation, such reasonable fees
25
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
13.10 TITLES AND SUBTITLES. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
13.11 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
instrument.
13.12 BROKER'S FEES. The Company represents and warrants that,
any agent, broker, investment banker, person or firm acting on behalf of or
under the authority of the Company 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 will be paid by the Company. The Company
further agrees to indemnify the Purchaser for any claims, losses or expenses
incurred by it as a result of the representation in this Section 13.12 being
untrue. Purchaser represents and warrants that, no agent, broker, investment
banker, person or firm acting on behalf of or under the authority of Purchaser
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,
except the Closing Payment. Purchaser 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 13.12 being untrue
13.13 CONSTRUCTION. Each party acknowledges that its legal
counsel participated in the preparation of this Agreement 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 to favor any party against the other.
26
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:
▇▇▇▇▇▇, INC. LAURUS MASTER FUND, LTD.
By: By:
-------------------------------- ----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Name:
Title: President and CEO Address: c/o M&C Corporate Services Limited
Address: ▇▇▇▇▇▇, Inc. ▇.▇. ▇▇▇ ▇▇▇ G.T., ▇▇▇▇▇▇ House,
42 Oriental Street. ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ Town, Grand Cayman
Cayman Islands
SOLELY WITH RESPECT TO SECTIONS
6.17 AND 12 HEREOF:
▇▇▇▇▇▇, TRAFFIC SYSTEMS, INC.
By: ------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chairman
27
Schedule 4.1
Related Agreements
1. The Securities Purchase Agreement dated as of December 28, 2005
between Purchaser and the Company and NTSI (as amended, modified
and/or supplemented from time to time);
2. the Secured Term Note in the original principal amount of $6,000,000
dated as of December 28, 2005 issued to the Purchaser by the Company
(as amended, modified and/or supplemented from time to time);
3. the Reaffirmation and Ratification Agreement and Amendment dated as of
the date hereof among the Company, ▇▇▇▇▇▇ Traffic Systems, Inc.
("NTSI") and the Purchaser (as amended, modified and/or supplemented
from time to time, the "Reaffirmation Agreement";
4. the Registration Rights Agreement relating to the Securities dated as
of the date hereof between the Company and the Purchaser (as amended,
modified and/or supplemented from time to time, the "Registration
Rights Agreement"),
5. 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 D hereto (as amended, modified
and/or supplemented from time to time, the "Escrow Agreement") and
all other documents, instruments and agreements entered into in connection with
the transactions contemplated hereby and thereby (the preceding items 2 through
8 above, collectively, the "Related Agreements") 1.
28
SCHEDULE 4.2
SUBSIDIARIES
▇▇▇▇▇▇, Inc. subsidiaries:
▇▇▇▇▇▇ Traffic Systems, Inc. Formed 1/1/97 in Delaware as ▇▇▇▇▇▇ IS, Inc.. 100%
owned by ▇▇▇▇▇▇, Inc.
▇▇▇▇▇▇ Interactive, Inc. Formed 1/1/97 in Delaware. 100% owned by ▇▇▇▇▇▇, Inc.
▇▇▇▇▇▇ Traffic Systems, Inc. subsidiaries:
CrossingGuard, Inc. Formed 7/21/03 in Delaware. 100% owned by ▇▇▇▇▇▇ Traffic
Systems, Inc.
SCHEDULE 4.3
CAPITALIZATION
Share Rights (including anti-dilution protections):
Warrants
--------
Exercise Expiration Holder
Holder Price Date Shares
------ -------- ----------- ------
NTS Investors LLC $4.80 1/25/2006 18,331
Sage Investments, Inc. 1.94 7/31/2008 1,320
Sage Investments, Inc. 2.25 7/31/2008 960
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Group 5.21 10/31/2009 60,000
--------
80,611
========
NTS Investors LLC - contingent warrant right 1/25/2006 18,331
========
Conversion Maturity Principal Holder
Convertible Notes Price Date Outstanding Shares
----------------- --------- -------- ----------- ------
Senior Convertible Notes
dated 11/5/04 $5.82 10/31/2007 $5,200,000 893,471
========
SCHEDULE 4.5
LIABILITIES
Material Contingent Liabilities:
None, except current liabilities incurred in the ordinary course of business and
liabilities disclosed in any Exchange Act Filings.
SCHEDULE 4.6
AGREEMENTS: ACTION
None.
SCHEDULE 4.7
OBLIGATIONS TO RELATED PARTIES
See Definitive Proxy dated May 2, 2005 for equity holdings of Directors and
Officers, along with related party disclosures, and employment agreement.
SCHEDULE 4.9
TITLE TO PROPERTIES AND ASSETS: LIENS, ETC.
Assets are subject to various leases obtained in the normal course of business.
Lease compliance: No exceptions.
SCHEDULE 4.10(b)
INTELLECTUAL PROPERTY
None
SCHEDULE 4.11
COMPLIANCE WITH OTHER INSTRUMENTS
None.
SCHEDULE 4.12
LITIGATION
1) ▇▇▇▇▇▇ ▇. ▇▇▇▇, et al., ▇. ▇▇▇▇▇▇ Traffic Systems, Inc., et al.,
Summit County (Ohio) Court of Common Pleas, Case No. 2005 12 7421.
Seeking to enjoin Akron speed program as illegal under Ohio law.
2) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ v. City of Akron., et al., Summit County (Ohio) Court
of Common Pleas, Case No. 2005 12 7513. Seeking to enjoin Akron speed
program as illegal under Ohio law.
3) ▇▇▇▇▇▇▇ Vans of Jacksonville, Inc. ▇. ▇▇▇▇▇▇ Traffic System, Inc.,
Circuit Court (▇▇▇▇▇ County, Florida), Case No.
16-2005-CA-008678-XXXX-MA. Amount in dispute is approximately $40,000.
SCHEDULE 4.13
TAX RETURNS AND PAYMENTS
▇▇▇▇▇▇, Inc. received a corporate franchise tax assessment from the State of
Rhode Island for fiscal 2002 in the amount of $190,000 based upon the number of
outstanding shares of stock of the company at the end of 2001. During 2001, the
company reorganized with ▇▇▇▇▇▇, Inc. becoming an inactive holding company and
NTS assuming operating activities. As such, ▇▇▇▇▇▇ was not active in Rhode
Island in 2002. The company does not believe it is subject to this capital
account tax for the respective period and is disputing the assessment.
SCHEDULE 4.14
EMPLOYEES
None.
SCHEDULE 4.15
REGISTRATION RIGHTS AND VOTING RIGHTS
None.
SCHEDULE 4.16
COMPLIANCE WITH LAWS; PERMITS
None.
SCHEDULE 6.5
USE OF FUNDS
The systems to be supplied pursuant to the Assigned Contracts identified in
Schedule 6.17.
SCHEDULE 6.17
ASSIGNED CONTRACTS
The items identified as Items 17,18,19 and 20 in the following table have not
yet been entered into.
Locale Agreement Assignability
1. Alpharetta, GA Traffic Signal Violation Video-Enforcement No restriction on assignment for
System & Lease Agreement between NTSI and financing
City of Alpharetta, GA dated __ November
2004
2. Baltimore, MD Definitive Subcontract Agreement between ACS Assignment of monies due permitted;
State & Solutions, Inc. ("ACS") and NTSI any other assignment requires
dated 13 April 2004 consent of ACS, not to be unreasonably
withheld
3. Cerritos, CA Automated Traffic Signal Enforcement and Assignment for financing permitted
Citation Processing Pilot Program for the but conditioned upon assignee's
City of Cerritos between City of Cerritos, execution of documents reasonably
CA and NTSI dated 11 July 2002, amended by required by City
Addendum 1 (11 September 2003)
4. Costa Mesa, CA Traffic Signal Violation Video-Monitoring No restriction on assignment for
System Services Agreement between NTSI and financing
City of Costa Mesa, CA dated 15 July 2002,
amended by Addendum 1 (30 April 2003) and
Addendum 2 (31 July 2003)
5. Chatham County, GA Traffic Signal Violation Video-Enforcement No restriction on assignment for
System Lease & Services Agreement between financing
NTSI and the Savannah Economic Development
Authority dated 21 October 2004
6. Falls Church, VA Traffic Signal Violation Photo-Monitoring No restriction on assignment for
System Agreement between NTSI and City of financing
Falls Church, VA dated 16 December 1999
amended by Addendum 1 (11 February 2003),
Addendum 2 (5 September 2003), Addendum 3 (8
October 2003), Addendum 4 (2 March 2004) and
Addendum 5 (12 May 2005)
7. Frederick, MD Agreement for Services between City of Assignment requires consent of
Frederick, MD and NTSI dated 16 December City
2004 amended by First Amendment to Agreement
for Services (16 December 2004)
8. Fresno, CA Contract: Red Traffic Light Enforcement Assignment requires consent of
Program Proposal No. 8262 between City of City
Fresno, CA and NTSI dated 16 November 2000
amended by First Amendment to Contract (16
November 2000)
9. Fullerton, CA Traffic Signal Violation Video-Monitoring No restriction on assignment for
Systems Services Agreement between NTSI and financing
City of Fullerton, CA dated 19 June 2002
amended by Addendum 1 (31 March 2003) and
Addendum 2 (31 December 2003)
10. Germantown, TN Traffic Signal Violation Video-Monitoring No restriction on assignment for
System Services Agreement between NTSI and financing
City of Germantown, TN dated __ October 2001
11. Irvine, CA Traffic Signal Violation Video-Monitoring No restriction on assignment for
System Services Agreement between NTSI and financing
City of Irvine, CA dated 11 December 2001
12. Long Beach, CA Agreement between NTSI and City of Long Assignment of monies due
Beach, CA dated 1 December 2004 permitted; any other assignment
requires consent of City, not to
be unreasonably withheld
13. Montclair, CA Traffic Signal Violation Video-Monitoring No restriction on assignment for
System Agreement between NTSI and financing
Municipality of Montclair, CA dated 4
September 2001
14. Pasadena, CA Traffic Signal Violation Video-Monitoring No restriction on assignment for
System Services Agreement No. 17,712 between financing
NTSI and City of Pasadena, CA dated 24 June
2002
15. Rancho Cucamonga, CA Traffic Signal Violation Photo-Monitoring No restriction on assignment for
System Agreement between NTSI and City of financing
Rancho Cucamonga, CA dated 7 March 2001
amended by Addendum 1 (19 March 2003)
16. Vienna, VA Traffic Signal Violation Video-Monitoring No restriction on assignment for
System Services Agreement between NTSI and financing
Town of Vienna, VA dated 31 October 2002
17. Davis, CA Traffic Signal Violation Video-Enforcement Assignment of monies due
System Lease and Services Agreement between permitted; any other assignment
NTSI and the City of Davis, CA dated August requires consent of City, not to
1, 2005 be unreasonably withheld
18. Los Angeles, CA Any contract subsequently entered into; n/a
currently, no contract exists
19. Murrieta, CA Traffic Signal Violation Video-Enforcement No restriction on assignment for
System Lease and Services Agreement between financing
NTSI and the City of Murrieta, CA dated
October 18, 2005.
20. San Bernadino, CA Any contract subsequently entered into; n/a
currently, no contract exists
LIST OF EXHIBITS
Form of Consent Exhibit A
A-1
EXHIBIT A
FORM OF CONSENT
May __, 2005
[Name]
[Address]
Re: Notice and Acknowledgment
Reference is made to the ________________ Agreement dated _____________ (as
amended, restated, supplemented and modified from time to time, the "Agreement")
by and between [Company] ("Company") and [City] ("City") pursuant to which
Company generates accounts receivable (the "Receivables").
Company hereby gives notice to City that Company has granted a security
interest to Laurus Master Fund, Ltd. ("Laurus") in all of the Receivables now
existing and hereafter arising under the Agreement (the "Security Interest").
All payments owing by City to Company are to be made [directly to Laurus at the
following address]:
-----------------------------
-----------------------------
-----------------------------
-----------------------------
City hereby acknowledges and consents to the grant of the Security Interest
and agrees that: (a) the Agreement is in full force and effect and the grant of
Security Interest does not constitute a breach thereof, (b) no default exists on
the part of the Company in the performance of its obligations under the
Agreement; (c) the payment direction set forth herein may only be modified with
the prior written consent of Laurus, and (d) it will not assert any right of
offset against any Receivables owing to the Company for any claims it may have
against the Company.
Very truly yours,
[COMPANY]
By:________________________________
Name:
Title:
AGREED TO AND ACCEPTED:
[CITY]
By:________________________________
Name:
Title: