EXHIBIT 99.1
EXECUTION COPY
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of April 30, 2003 (the
"Agreement"), is entered into by and among Stronghold Technologies, Inc., a
Nevada corporation (the "Company") and Stanford Venture Capital Holdings, Inc.,
a Delaware corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company and the Purchaser are executing and delivering this
Agreement in reliance upon the exemptions from registration provided by
Regulation D ("Regulation D") promulgated by the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), and/or Section 4(2) of the Securities Act; and
WHEREAS, upon the terms and conditions of this Agreement, the Purchaser
wishes to purchase, and the Company wishes to issue and sell, for an aggregate
purchase price of $2,200,000, shares of the Company's Series B $.90 Convertible
Preferred Stock, $0.0001 par value per share (the "Series B Preferred Stock"),
the terms of which are as set forth in the Certificate of Designation of Series
A $.90 Convertible Preferred Stock attached hereto as Exhibit A (the "Series B
Certificate of Designation"); and
WHEREAS, the Series B Preferred Stock shall be convertible into shares of
Common Stock pursuant to the terms set forth in the Series B Certificate of
Designation;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE
(a) PURCHASE OF PREFERRED STOCK. Subject to the terms and conditions in
this Agreement, the Purchaser hereby agrees to purchase from the Company, and
the Company hereby agrees to issue and sell to the Purchaser, 2,444,444 shares
of Series B Preferred Stock, for an aggregate purchase price of $2,200,000 which
shall be payable on the closing dates set forth in the Table of Closing Dates
(as shown below) in immediately available funds.
(b) CLOSINGS. The Series B Preferred Stock to be purchased by the Purchaser
hereunder, in the number set forth opposite each of the Closing Dates (as
defined below) in the Table of Closing Dates shown below and in definitive form,
and in such denominations and such names (provided any name other than the
Purchaser shall be an affiliate of Purchaser or senior management of an
affiliate of Purchaser) as the Purchaser or its representative, if any, may
request the Company upon at least three business days' prior notice of any
closing, shall be delivered by or on behalf of the Company for the account of
the Purchaser, against payment by the Purchaser of the aggregate purchase price
by wire transfer to an account of the Company, by
5:00 PM, New York time on each of the four Closing Dates as set forth below in
the Table of Closing Dates, the first of such Closing Dates being referred to
herein as the "First Closing Date" and any such closing date being referred to
herein as a "Closing Date."
(c) TABLE OF CLOSING DATES.
NUMBER OF SHARES OF
SERIES B PREFERRED
CLOSING DATE PURCHASE PRICE STOCK TRANSFERRED
------------------ -------------------- -----------------
Five Hundred
Upon the First Thousand United
Closing Date States Dollars
($500,000) 555,556
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Five Hundred
Thousand United
States Dollars
May 15, 2003 ($500,000) 555,556
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Five Hundred
Thousand United
States Dollars
June 13, 2003 ($500,000) 555,556
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Three Hundred
Thousand United
States Dollars
July 15, 2003 ($300,000) 333,332
------------------ -------------------- -----------------
▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ Dollars
August 15, 2003 ($200,000) 222,222
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▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ Dollars
September 15, 2003 ($200,000) 222,222
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2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION
The Purchaser represents and warrants to, and covenants and agrees with,
the Company as follows:
(a) QUALIFIED INVESTOR. The Purchaser is (i) experienced in making
investments of the kind described in this Agreement and the related documents,
(ii) able, by reason of the business and financial experience of its management,
to protect its own interests in connection with the transactions described in
this Agreement and the related documents, (iii) able to afford the entire loss
of its investment in the Series B Preferred Stock, and (iv) an
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"Accredited Investor" as defined in Rule 501(a) of Regulation D and knows of
no reason to anticipate any material change in its financial condition for the
foreseeable future.
(b) RESTRICTED SECURITIES. All subsequent offers and sales by the Purchaser
of the Series B Preferred Stock and the Common Stock issuable upon conversion of
the Series B Preferred Stock shall be made pursuant to an effective registration
statement under the Securities Act or pursuant to an applicable exemption from
such registration.
(c) RELIANCE ON REPRESENTATIONS. The Purchaser understands that the Series
B Preferred Stock are being offered and sold to it in reliance upon exemptions
from the registration requirements of the United States federal securities laws,
and that the Company is relying upon the truthfulness and accuracy of the
Purchaser's representations and warranties, and the Purchaser's compliance with
its covenants and agreements, each as set forth herein, in order to determine
the availability of such exemptions and the eligibility of the Purchaser to
acquire the Series B Preferred Stock.
(d) ACCESS TO INFORMATION. The Purchaser (i) has been provided with
sufficient information with respect to the business of the Company for the
Purchaser to determine the suitability of making an investment in the Company
and such documents relating to the Company as the Purchaser has requested and
the Purchaser has carefully reviewed the same, (ii) has been provided with such
additional information with respect to the Company and its business and
financial condition as the Purchaser, or the Purchaser's agent or attorney, has
requested, and (iii) has had access to management of the Company and the
opportunity to discuss the information provided by management of the Company and
any questions that the Purchaser had with respect thereto have been answered to
the full satisfaction of the Purchaser.
(e) LEGALITY. The Purchaser has the requisite corporate power and authority
to enter into this Agreement.
(f) AUTHORIZATION. This Agreement and any related agreements, and the
transactions contemplated hereby and thereby, have been duly and validly
authorized by the Purchaser, and such agreements, when executed and delivered by
each of the Purchaser and the Company will each be a valid and binding agreement
of the Purchaser, enforceable in accordance with their respective terms, except
to the extent that enforcement of each such agreement may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to creditors rights
generally and to general principles of equity.
(g) ADEQUATE RESOURCES. The Purchaser, or an affiliate of the Purchaser,
has sufficient liquid assets to deliver the aggregate purchase price on each of
the Closing Dates as specified in the Table of Closing Dates.
(h) INVESTMENT. The Purchaser is acquiring the Series B Preferred Stock for
investment for the Purchaser's own account, not as a nominee or agent, and not
with the view to, for resale in connection with, any distribution thereof, nor
with any present intention of distributing or selling such Series B Preferred
Stock. The Purchaser is aware of the limits on
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resale imposed by virtue of the transaction contemplated by this Agreement and
is aware that the Series B Preferred Stock will bear restricted legends.
(i) LITIGATION. There is no action, suit, proceeding or investigation
pending or, to the Knowledge of the Purchaser (as defined herein), currently
threatened against the Purchaser that questions the validity of the Primary
Documents (as defined below) or the right of Purchaser to enter into any such
agreements or to consummate the transactions contemplated hereby and thereby,
nor does Purchaser have any Knowledge that there is any basis for the foregoing.
All references to the "Knowledge of Purchaser" means the actual knowledge of
Purchaser or the knowledge the Purchaser could reasonably be expected to have
each after reasonable investigation and due diligence.
(j) BROKER'S FEES AND COMMISSIONS. Neither the Purchaser nor any of its
officers, partners, employees or agents has employed any investment banker,
broker, or finder in connection with the transactions contemplated by the
Primary Documents.
3. REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to, and covenants and agrees with the
Purchaser that, except as may be set forth on the schedule of exceptions
attached hereto:
(a) ORGANIZATION. The Company is a corporation duly organized and validly
existing and in good standing under the laws of the State of Nevada and has all
requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted. The Company has no other interest in
any other entities, except for those subsidiaries listed on Schedule 3(a)
attached hereto. Each of the Company's subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the state set
forth following the name of such subsidiary on Schedule 3(a). Except as set
forth on Schedule 3(a) attached hereto, each of the Company and its subsidiaries
is duly qualified as a foreign corporation and in good standing in all
jurisdictions in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
qualification. The minute books and stock record books and other similar records
of the Company have been provided or made available to the Purchaser or its
counsel prior to the execution of this Agreement, are complete and correct in
all material respects and have been maintained in accordance with sound business
practices. Such minute books contain true and complete records of all actions
taken at all meetings and by all written consents in lieu of meetings of the
directors, stockholders and committees of the board of directors of the Company
from the date of organization through the date hereof. The Company has, prior to
the execution of this Agreement, delivered to the Purchaser true and complete
copies of the Company's Certificate of Incorporation, and Bylaws, each as
amended through the date hereof. The Company is not in violation of any
provisions of its Certificate of Incorporation or Bylaws.
(b) CAPITALIZATION. On the date hereof, the authorized capital of the
Company consists of: (i) 50,000,000 shares of Common Stock, of which 9,857,000
shares are issued and outstanding, and (ii) 5,000,000 shares of preferred stock,
of which 2,017,200 shares have been designated as Series A $1.50 Convertible
Preferred Stock and are issued and outstanding and 2,444,444 shall be designated
as the Series B Preferred Stock to be issued
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pursuant to this Agreement. Schedule 3(b) attached hereto sets forth a complete
list of all holders of options, warrants, notes, or any other rights or
instruments which would entitle the holder thereof to acquire shares of the
Common Stock or other equity interests in the Company upon conversion or
exercise, setting forth for each such holder the type of security, number of
equity shares covered thereunder, the exercise or conversion price thereof, the
vesting schedule thereof (if any), and the issuance date and expiration date
thereof. Other than as disclosed in Schedule 3(b) attached hereto, there are no
outstanding rights, agreements, arrangements or understandings to which the
Company is a party (written or oral) which would obligate the Company to issue
any equity interest, option, warrant, convertible note, or other types of
securities or to register any shares in a registration statement filed with the
Commission. Other than disclosed in Schedule 3(b) attached hereto, to the
Knowledge of the Company (as defined hereinafter), there is no agreement,
arrangement or understanding between or among any entities or individuals which
affects, restricts or relates to voting, giving of written consents, dividend
rights or transferability of shares with respect to any voting shares of the
Company, including without limitation any voting trust agreement or proxy. All
references to the "Knowledge of the Company" in this Agreement shall mean the
actual knowledge of any of the Company or the knowledge that the Company could
reasonably be expected to have, each after reasonable investigation and due
diligence. Schedule 3(b) attached hereto contains a complete and accurate
schedule of all the shares subject to "lock-up" or similar agreement or
arrangement by which any equity shares are subject to resale restrictions and
the Company has provided the Purchaser complete and accurate copies of all such
agreements, which agreements are in full force and effect. Except as set forth
in Schedule 3(b) attached hereto, there are no outstanding obligations of the
Company or any of its subsidiaries to repurchase, redeem or otherwise acquire
for value any outstanding shares of capital stock or other ownership interests
of the Company or any of its subsidiaries or to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any of
the Company's subsidiaries or any other entity. There are no anti-dilution or
price adjustment provisions regarding any security issued by the Company (or in
any agreement providing rights to security holders) that will be triggered by
the issuance of the Securities (as defined below).
(c) CONCERNING THE COMMON STOCK. The Series B Preferred Stock and the
Common Stock issuable upon conversion of the Series B Preferred Stock when
issued, shall be duly and validly issued, fully paid and non-assessable, and
will not subject the holder thereof to personal liability by reason of being
such a holder.
(d) AUTHORIZED SHARES. The Company shall have available a sufficient number
of authorized and unissued shares of Common Stock as may be necessary to effect
conversion of the Series B Preferred Stock. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock of the issuance
of shares of Common Stock upon the conversion of the Series B Preferred Stock.
The Company further acknowledges that its obligation to issue shares of Common
Stock upon conversion of the Series B Preferred Stock is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
(e) LEGALITY. The Company has the requisite corporate power and authority
to enter into this Agreement, and to issue and deliver the Series A Preferred
Stock, the Warrants
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and the Common Stock issuable upon conversion of the Series A Preferred Stock
and the exercise of the Warrants.
(f) TRANSACTION AGREEMENTS. This Agreement, the Series A Certificate of
Designation, the Warrants, the Registration Rights Agreement (as defined below),
the Lock-Up Agreements (as defined below), and the Stockholders' Agreement (as
defined below) (collectively, the "Primary Documents"), and the transactions
contemplated hereby and thereby, have been duly and validly authorized by the
Company; this Agreement has been duly executed and delivered by the Company and
this Agreement is, and the other Primary Documents, when executed and delivered
by the Company, will each be, a valid and binding agreement of the Company,
enforceable in accordance with their respective terms, except to the extent that
enforcement of each of the Primary Documents may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to creditors' rights generally and to
general principles of equity.
(g) FINANCIAL STATEMENTS. The financial statements and related notes
thereto contained in the Company's filings with the Commission (the "Company
Financials") are correct and complete in all material respects, comply in all
material respects with the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission promulgated
thereunder and have been prepared in accordance with United States generally
accepted accounting principles applied on a basis consistent throughout the
periods indicated and consistent with each other. The Company Financials present
fairly and accurately the financial condition and operating results of the
Company and its subsidiaries in all material respects as of the dates and during
the periods indicated therein and are consistent with the books and records of
the Company and its subsidiaries. Except as set forth in the Company Financials,
the Company has no material liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to December
31, 2002 and (ii) obligations under contracts and commitments incurred in the
ordinary course of business and not required under United States generally
accepted accounting principles to be reflected in the Company Financials, which
in both cases, individually and in the aggregate, are not material to the
Company's financial condition or operating results. Except as disclosed in
Schedule 3(g) attached hereto, since inception, there has been no change in any
accounting policies, principles, methods or practices, including any change with
respect to reserves (whether for bad debts, contingent liabilities or
otherwise), of the Company or any of its subsidiaries.
(h) COMMISSION FILINGS. The Company has made all filings with the
Commission that it has been required to make under the Securities Act and the
Exchange Act and has furnished or made available to the Purchaser true and
complete copies of all the documents it has filed with the Commission since its
inception, all in the forms so filed. As of their respective filing dates, such
filings already filed by the Company or to be filed by the Company after the
date hereof but before the First Closing Date complied or, if filed after the
date hereof, will comply in all material respects with the requirements of the
Securities Act and the Exchange Act, and the rules and regulations of the
Commission promulgated thereunder, as the case may be, and none of the filings
with the Commission contained or will contain any untrue statement of a material
fact or omitted or will omit any material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances in
which they were made, not
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misleading, except to the extent such filings have been all prior to the date of
this Agreement corrected, updated or superseded by a document subsequently filed
with Commission.
(i) NON-CONTRAVENTION. The execution and delivery of this Agreement and
each of the other Primary Documents, and the consummation by the Company of the
transactions contemplated by this Agreement and each of the other Primary
Documents, do not and will not conflict with, or result in a breach by the
Company of, or give any third party any right of termination, cancellation,
acceleration or modification in or with respect to, any of the terms or
provisions of, or constitute a default under, (A) its Certificate of
Incorporation or Bylaws, as amended through the date hereof, (B) any material
indenture, mortgage, deed of trust, lease or other agreement or instrument to
which the Company or its subsidiaries are a party or by which they or any of
their properties or assets are bound, or (C) any existing applicable law, rule,
or regulation or any applicable decree, judgment or order of any court or
federal, state, securities industry or foreign regulatory body, administrative
agency, or any other governmental body having jurisdiction over the Company, its
subsidiaries, or any of their properties or assets (collectively, "Legal
Requirements"), other than those which have been waived or satisfied on or prior
to the First Closing Date.
(j) APPROVALS AND FILINGS. Other than the completion of the filing of the
Series B Certificate of Designation, no authorization, approval or consent of
any court, governmental body, regulatory agency, self-regulatory organization,
stock exchange or market or the stockholders of the Company is required to be
obtained by the Company for the entry into or the performance of this Agreement
and the other Primary Documents.
(k) COMPLIANCE WITH LEGAL REQUIREMENTS. Except as disclosed in Schedule
3(k) attached hereto, neither the Company nor any of its subsidiaries has
violated in any material respect, and is not currently in material default
under, any Legal Requirement applicable to the Company or such subsidiary, or
any of the assets or properties of the Company or such subsidiary, where such
violation could reasonably be expected to have material adverse effect on the
business or financial condition of the Company or such subsidiary.
(l) ABSENCE OF CERTAIN CHANGES. Since December 31, 2002 and except as
previously disclosed to the Purchaser and listed on Schedule 3(l), there has
been no material adverse change nor any material adverse development in the
business, properties, operations, financial condition, prospects, outstanding
securities or results of operations of the Company, and no event has occurred or
circumstance exists that may result in such a material adverse change.
(m) INDEBTEDNESS TO OFFICERS, DIRECTORS AND STOCKHOLDERS. Except as set
forth on Schedule 3(m) attached hereto, neither the Company nor any of its
subsidiaries is indebted to any of such entity's stockholders, officers or
directors (or to members of their immediate families) in any amount whatsoever
(including, without limitation, any deferred compensation or salaries payable).
(n) RELATIONSHIPS WITH RELATED PERSONS. To the Knowledge of the Company,
except as set forth in Schedule 3(n) attached hereto, no officer, director, or
principal stockholder of the Company or any of its subsidiaries nor any Related
Person (as defined below)
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of any of the foregoing has, or since December 31, 1999 has had, any interest in
any property (whether real, personal, or mixed and whether tangible or
intangible) used in or pertaining to the business of the Company or any of its
subsidiaries. Except as set forth in Schedule 3(n) attached hereto, no officer,
director, or principal stockholder of the Company or any of its subsidiaries nor
any Related Person of the any of the foregoing is, or since December 31, 1999
has owned an equity interest or any other financial or profit interest in, a
Person (as defined below) that has (i) had business dealings or a material
financial interest in any transaction with the Company or any of its
subsidiaries, or (ii) engaged in competition with the Company or any of its
subsidiaries with respect to any line of the merchandise or
services of such company (a "Competing Business") in any market presently
------------------
served by such company except for ownership of less than one percent of the
outstanding capital stock of any Competing Business that is publicly traded on
any recognized exchange or in the over-the-counter market. Except as set forth
in Schedule 3(n) attached hereto, no director, officer, or principal stockholder
of the Company or any of its subsidiaries nor any Related Person of any of the
foregoing is a party to any Contract with, or has claim or right against, the
Company or any of its subsidiaries. As used in this Agreement, "Person" means
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any individual, corporation (including any non-profit corporation), general or
limited partnership, limited liability company, joint venture, estate, trust,
association, organization, labor union, or other entity or any governmental
body; "Related Person" means, (X) with respect to a particular individual, (a)
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each other member of such individual's Family (as defined below); (b) any Person
that is directly or indirectly controlled by such individual or one or more
members of such individual's Family; (c) any Person in which such individual or
members of such individual's Family hold (individually or in the aggregate) a
Material Interest (as defined below); and (d) any Person with respect to which
such individual or one or more members of such individual's Family serves as a
director, officer, partner, executor, or trustee (or in a similar capacity); (Y)
with respect to a specified Person other than an individual, (a) any Person that
directly or indirectly controls, is directly or indirectly controlled by, or is
directly or indirectly under common control with such specified Person; (b) any
Person that holds a Material Interest in such specified Person; (c) each Person
that serves as a director, officer, partner, executor, or trustee of such
specified Person (or in a similar capacity); (d) any Person in which such
specified Person holds a Material Interest; (e) any Person with respect to which
such specified Person serves as a general partner or a trustee (or in a similar
capacity); and (f) any Related Person of any individual described in clause (b)
or (c). For purposes of the foregoing definition, (a) the "Family" of an
------
individual includes (i) the individual, (ii) the individual's spouse and former
spouses, (iii) any other natural person who is related to the individual or the
individual's spouse within the second degree, and (iv) any other natural person
who resides with such individual, and (b) "Material Interest" means direct or
-----------------
indirect beneficial ownership (as defined in Rule 13d-3 under the Exchange Act)
of voting securities or other voting interests representing at least 1% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 1% of the outstanding equity securities or
equity securities in a Person.
(o) TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. Each of the Company and
its subsidiaries has good and marketable title to all of its material properties
and assets, both real and personal, and has good title to all its leasehold
interests. Except as disclosed in Schedule 3(o) attached hereto, all material
properties and assets reflected in the Company Financials are free and clear of
all Encumbrances (as defined below) except liens for current Taxes not yet due.
As used in this Agreement, "Encumbrance" means any charge, claim,
-----------
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community property interest, condition, equitable interest, lien, pledge,
security interest, right of first refusal, or restriction of any kind, including
any restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
(p) PATENTS AND OTHER PROPRIETARY RIGHTS. The Company has sufficient title
and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for the conduct of its business as now conducted and as proposed to be
conducted, and to the Knowledge of the Company, such business does not and would
not conflict with or constitute an infringement on the rights of others.
(q) PERMITS. Each of the Company and its subsidiaries has all permits,
licenses and any similar authority necessary for the conduct of its business as
now conducted, the lack of which would materially and adversely affect the
business or financial condition of such company. Neither the Company nor any of
its subsidiaries is in default in any respect under any of such permits,
licenses or similar authority.
(r) ABSENCE OF LITIGATION. Except as disclosed on Schedule 3(r) attached
hereto, there is no action, suit, proceeding, inquiry or investigation before or
by any court, public board or body, or arbitration tribunal pending or, to the
Knowledge of the Company or its subsidiaries, threatened, against or affecting
the Company or its subsidiaries, in which an unfavorable decision, ruling or
finding would have a material adverse effect on the properties, business,
condition (financial or other) or results of operations of the Company and its
subsidiaries, taken as a whole, or the transactions contemplated by the Primary
Documents, or which would adversely affect the validity or enforceability of, or
the authority or ability of the Company to perform its obligations under, the
Primary Documents.
(s) NO DEFAULT. Except as disclosed on Schedule 3(s) attached hereto, none
of the Company and its subsidiaries is in default in the performance or
observance of any obligation, covenant or condition contained in any indenture,
mortgage, deed of trust or other instrument or agreement to which it is a party
or by which it or its property may be bound.
(t) TAXES. Except as disclosed on Schedule 3(t) attached hereto,
(i) All Tax Returns (as defined below) required to have been filed by
or with respect to the Company or any of its subsidiaries (including any
extensions) have been filed. All such Tax Returns are true, complete and correct
in all material respects. All Taxes (as defined below) due and payable by the
Company, or any of its subsidiaries, whether or not shown on any Tax Return, or
claimed to be due by any Taxing Authority (as defined below), have been paid or
accrued on the balance sheet included in the Company's latest filing with the
Commission.
(ii) Neither the Company nor any of its subsidiaries has any material
liability for Taxes outstanding other than as reflected in the balance sheet
included in the Company's latest filing with the Commission or incurred
subsequent to the date of such filing in the ordinary course of business. The
unpaid Taxes of the Company and its subsidiaries (i) did not, as of the most
recent fiscal month end, exceed by any material amount the reserve for
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liability for income tax (other than the reserve for deferred taxes established
to reflect timing differences between book and tax income) set forth on the face
of the balance sheet included in the Company's latest filing with the
Commission, and (ii) will not exceed by any material amount that reserve as
adjusted for operation and transactions through the First Closing Date.
(iii) Neither the Company nor any of its subsidiaries is a party to any
agreement extending the time within which to file any Tax Return. No claim has
ever been made by a Taxing Authority of any jurisdiction in which the Company or
any of its subsidiaries does not file Tax Returns that the Company or such
subsidiary is or may be subject to taxation by that jurisdiction.
(iv) The Company and each of subsidiaries have withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, creditor or independent contractor.
(v) There has been no action by any Taxing Authority in connection with
assessing additional Taxes against or in respect of the Company or any of its
subsidiaries for any past period. There is no dispute or claim concerning any
Tax liability of the Company or any of its subsidiaries either (i) claimed,
raised or, to the Knowledge of the Company, threatened by any Taxing Authority
or (ii) which the Company is otherwise aware. There are no liens for Taxes upon
the assets and properties of the Company or any of its subsidiaries other than
liens for Taxes not yet due. Schedule 3(t) attached hereto indicates those Tax
Returns, if any, of the Company, and each of its subsidiaries that have been
audited or examined by Taxing Authorities, and indicates those Tax returns of
the Company and of its subsidiaries that currently are the subject of audit or
examination. The Company has made available to the Purchaser complete and
correct copies of all federal, state, local and foreign income Tax Returns filed
by, and all Tax examination reports and statements of deficiencies assessed
against or agreed to by, the Company and any of its subsidiaries since the
fiscal year ended December 31, 2002.
(vi) There are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any Tax Returns required to be filed by, or
which include or are treated as including, the Company or with respect to any
Tax assessment or deficiency affecting the Company or any of its subsidiaries.
(vii) The Company has not received any written ruling related to Taxes or
entered into any agreement with a Taxing Authority relating to Taxes.
(viii) The Company does not have any liability for the Taxes of any person
or entity other than the Company (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign Legal
Requirements), (ii) as a transferee or successor, (iii) by contract or (iv)
otherwise.
(ix) The Company (i) has not agreed to make nor is required to make any
adjustment under Section 481 of the Internal Revenue Code by reason of a change
in accounting method and (ii) is not a "consenting corporation" within the
meaning of Section 341(f)(1) of the Internal Revenue Code.
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(x) The Company is not a party to or bound by any obligations under any tax
sharing, tax allocation, tax indemnity or similar agreement or arrangement.
(xi) The Company is not involved in, subject to, or a party to any joint
venture, partnership, contract or other arrangement that is treated as a
partnership for federal, state, local or foreign Tax purposes.
(xii) The Company was not included nor is includible, in the Tax Return of
any other entity.
As used in this Agreement, a "Tax Return" means any return, report, information
----------
return, schedule, certificate, statement or other document (including any
related or supporting information) filed or required to be filed with, or, where
none is required to be filed with a Taxing Authority, the statement or other
document issued by, a Taxing Authority in connection with any Tax; "Tax" means
---
any and all taxes, charges, fees, levies or other assessments, including,
without limitation, income, gross, receipts, excise, real or personal property,
sales, withholding, social security, retirement, unemployment, occupation, use,
service, service use, license, net wroth, payroll, franchise, transfer and
recording taxes, fees and charges, imposed by Taxing Authority, whether computed
on a separate, consolidated, unitary, combined or any other basis; and such term
includes any interest whether paid or received, fines, penalties or additional
amounts attributable to, or imposed upon, or with respect to, any such taxes,
charges, fees, levies or other assessments; and "Taxing Authority" means any
----------------
governmental agency, board, bureau, body, department or authority of any United
States federal, state or local jurisdiction or any foreign jurisdiction, having
or purporting to exercise jurisdiction with respect to any Tax.
(u) CERTAIN PROHIBITED ACTIVITIES. Neither the Company nor any of its
directors, officers or other employees has (i) used any Company funds for any
unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to any political activity, (ii) made any direct or indirect
unlawful payment of Company funds to any foreign or domestic government official
or employee, (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person.
(v) CONTRACTS; NO DEFAULTS. Schedule 3(v) attached hereto contains a
complete and accurate list, and the Company has made available to the Purchaser
true and complete copies, of:
(i) each Applicable Contract (as defined below) that involves
performance of services or delivery of goods or materials of an amount or
value in excess of $25,000;
(ii) each Applicable Contract that was not entered into in the
ordinary course of business or is not cancelable by the Company or a
subsidiary of the Company with no penalty upon advance notice of 30 days or
less and that involves expenditures or receipts of the Company or its
subsidiaries in excess of $5,000;
11
(iii) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property (except personal property leases
and installment and conditional sales agreements having a value per item or
aggregate payments of less than $5,000 and with terms of less than one
year);
(iv) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or
liabilities by the Company or any of its subsidiaries with any other person
or entity;
(v) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of any of the Company and its
subsidiaries or any affiliate of the foregoing or limit the freedom of any
of the Company and its subsidiaries or any affiliate of the foregoing to
engage in any line of business or to compete with any person or entity;
(vi) each employment or consulting agreement of the Company and its
subsidiaries;
(vii) each Applicable Contract providing for payments to or by any
person or entity based on sales, purchases, or profits, other than direct
payments for goods;
(viii) each power of attorney executed by any of the Company and its
subsidiaries that is currently effective and outstanding;
(ix) each Applicable Contract entered into other than in the ordinary
course of business that contains or provides for an express undertaking by
any of the Company and its subsidiaries to be responsible for consequential
damages;
(x) each Applicable Contract for capital expenditures in excess of
$25,000;
(xi) each written warranty, guaranty, and other similar undertaking
with respect to contractual performance extended by any of the Company and
its subsidiaries other than in the ordinary course of business; and
(xii) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
As used in this Agreement, "Contract" means any agreement, contract, obligation,
--------
promise, or undertaking (whether written or oral and whether express or implied)
that is legally binding; "Applicable Contract" means any Contract (a) under
--------------------
which any of the Company or its subsidiaries has or may acquire any rights, (b)
under which any of the Company or its subsidiaries has or may become subject to
any obligation or liability, or (c) by which any of the Company or its
subsidiaries or any of the assets owned or used by it is or may become bound.
Except as set forth in Schedule 3(v) attached hereto, (i) each of the Company
and its subsidiaries is, and has been, in material compliance with all
applicable terms and requirements of each Contract under which such company has
or had any obligation or liability or by which such
12
company or any of the assets owned or used by such company is or was bound; (ii)
each other person or entity that has or had any obligation or liability under
any Contract under which any of the Company and its subsidiaries has or had any
rights is, and has been, in material compliance with all applicable terms and
requirements of such Contract; (iii) no event has occurred or circumstance
exists that (with or without notice or lapse of time) may contravene, conflict
with, or result in a material violation or breach of, or give any of the Company
and its subsidiaries or other person or entity the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Applicable Contract; and (iv) none of the
Company and its subsidiaries has given to or received from any other person or
entity any notice or other communication (whether oral or written) regarding any
actual, alleged, possible, or potential violation or breach of, or default
under, any Contract.
Each Applicable Contract is valid, in full force, and binding on and enforceable
against the other party or parties to such contract in accordance with its terms
and provisions.
Except as disclosed on Schedule 3(v) attached hereto, there are no renegotiation
of, attempts to renegotiate, or outstanding rights to renegotiate any material
amounts paid or payable to any of the Company and its subsidiaries under current
or completed Contracts with any person or entity and, to the Knowledge of the
Company, no such person or entity has made written demand for such
renegotiation.
The Contracts relating to the sale, design, or provision of products or services
by the Company or any of its subsidiaries have been entered into in the ordinary
course of business and have been entered into without the commission of any act
alone or in concert with any other person or entity, or any consideration having
been paid or promised, that is or would be in violation of any Legal
Requirement.
(w) AGENT FEES. The Company has not incurred any liability for any finder's
or brokerage fees or agent's commissions in connection with the transactions
contemplated by this Agreement.
(x) INSURANCE. Schedule 3(x) attached hereto sets forth a true and correct
list of all the insurance policies covering the business, properties and assets
of the Company and its subsidiaries presently in force (including as to each (i)
risk insured against, (ii) name of carrier, (iii) policy number, (iv) amount of
coverage, (v) amount of premium, (vi) expiration date and (vii) the property, if
any, insured). All of the insurance policies set forth on Schedule 3(x) attached
hereto are in full force and effect and all premiums, retention amounts and
other related expenses due have been paid, and neither the Company nor any of
its subsidiaries has received any written notice of cancellation with respect to
any of the policies. Such policies, taken together, provide adequate insurance
coverage for the assets and the operations of the Company and its subsidiaries
for all risks normally insured against by companies carrying on the same
business or businesses as the Company and its subsidiaries.
(y) EMPLOYEES. Schedule 3(y) attached hereto is a true and correct list of
all employees of the Company and its subsidiaries and includes their accrued
vacation and sick pay, the nature of their duties and the amounts of their
compensations (including deferred compensation).
13
(z) EMPLOYEE BENEFITS.
(i) Except as disclosed on Schedule 3(z) and except Plans (as defined
below), administered by third parties, that provide group health coverage
(medical and dental), (i) neither the Company nor any of its ERISA
Affiliates (as defined below) maintains or sponsors (or ever maintained or
sponsored), or makes or is required to make contributions to, any Plans;
(ii) With respect to each Plan which provides health care coverage,
the Company and each of its ERISA Affiliates have complied in all material
respects with (i) the applicable health care continuation and notice
provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA"), and the applicable COBRA regulations and (ii) the applicable
requirements of the Health Insurance Portability and Accountability Act of
1996 and the regulations thereunder, and neither the Company nor any ERISA
Affiliate has incurred any liability under Section 4980B of the Internal
Revenue Code;
(iii) Other than routine claims for benefits under the Plans, there
are no pending, or, to the Knowledge of the Company, threatened, actions or
proceedings involving the Plans, or the fiduciaries, administrators, or
trustees of any of the Plans or the Company or any of its ERISA Affiliates
as the employer or sponsor under any Plan, with any governmental agency,
any participant in or beneficiary of any Plan or any other person
whatsoever. The Company knows of no reasonable basis for any such claim,
lawsuit, dispute, or controversy. As used in this Agreement, "Plan" means
(i) each of the "employee benefit plans" (as such term is defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974
("ERISA")), of which any of the Company or any member of the same
controlled group of businesses as the Company within the meaning of Section
4001(a)(14) of ERISA (an "ERISA Affiliate") is or ever was a sponsor or
participating employer or as to which the Company or any of its ERISA
Affiliates makes contributions or is required to make contributions, and
(ii) any similar employment, severance or other arrangement or policy of
any of the Company or any of its ERISA Affiliates (whether written or oral)
providing for health, life, vision or dental insurance coverage (including
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits or retirement
benefits, fringe benefits, or for profit sharing, deferred compensation,
bonuses, stock options, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits.
(aa) PRIVATE OFFERING. Subject to the accuracy of the Purchaser's
representations and warranties set forth in Section 2 hereof, (i) the offer,
sale and issuance of the Series B Preferred Stock, (ii) the issuance of Common
Stock pursuant to the conversion and/or exercise of such securities into shares
of Common Stock, each as contemplated by the Primary Documents, are exempt from
the registration requirements of the Securities Act. The Company agrees that
neither the Company nor anyone acting on its behalf will offer any of the Series
B Preferred Stock or any similar securities for issuance or sale, or solicit any
offer to acquire any of the same from anyone so as to render the issuance and
sale of such securities subject to the registration requirements of the
Securities Act. The Company has not offered or sold the Series B Preferred Stock
by any form of general solicitation or general advertising, as such terms are
used in Rule 502(c) under the Securities Act.
14
(bb) MERGERS, ACQUISITIONS AND DIVESTITURES. Except as set forth on
Schedule 3(bb) attached hereto, none of the Company and its subsidiaries has
ever acquired any equity interest in or any major assets of any other Person, or
sold the equity interest in any of its subsidiaries or any major asset owned by
it or any of its subsidiaries, in a deal the terms of which were not based on
arms' length negotiations. Except as set forth on Schedule 3(bb) attached
hereto, to the Knowledge of the Company, none of the Company Insider and the
officers and directors of the Company or its subsidiaries has received any
benefit in connection with any of the foregoing transactions or is under any
agreement or understanding with any Person (including agreements or
understandings among themselves) with respect to the receipt of or entitlement
to any such benefit.
(cc) FULL DISCLOSURE. To the Knowledge of the Company, there is no fact
known to the Company (other than general economic conditions known to the public
generally) that has not been disclosed to the Purchaser that could (i)
reasonably be expected to have a material adverse effect upon the condition
(financial or otherwise) or the earnings, business affairs, properties or assets
of the Company or any of its subsidiaries or (ii) reasonably be expected to
materially and adversely affect the ability of the Company to perform the
obligations set forth in the Primary Documents. The representations and
warranties of the Company set forth in this Agreement do not contain any untrue
statement of a material fact or omit any material fact necessary to make the
statements contained herein, in light of the circumstances under which they were
made, not misleading.
4. CERTAIN COVENANTS, ACKNOWLEDGMENTS AND RESTRICTIONS
(a) TRANSFER RESTRICTIONS. The Purchaser acknowledges that (i) neither the
Series B Preferred Stock nor the Common Stock issuable upon conversion of the
Series B Preferred Stock have been registered under the Securities Act, and such
securities may not be transferred unless (A) subsequently registered thereunder
or (B) they are transferred pursuant to an exemption from such registration, and
(ii) any sale of the Series B Preferred Stock or the Common Stock issuable upon
conversion, exercise or exchange thereof (collectively, the "Securities") made
in reliance upon Rule 144 under the Securities Act ("Rule 144") may be made only
in accordance with the terms of said Rule 144. The provisions of Section 4(a)
and 4(b) hereof, together with the rights of the Purchaser under this Agreement
and the other Primary Documents, shall be binding upon any subsequent transferee
of the Series A Preferred Stock.
(b) RESTRICTIVE LEGEND. The Purchaser acknowledges and agrees that, until
such time as the Securities shall have been registered under the Securities Act
or the Purchaser demonstrates to the reasonable satisfaction of the Company and
its counsel that such registration shall no longer be required, such Securities
may be subject to a stop-transfer order placed against the transfer of such
Securities, and such Securities shall bear a restrictive legend in substantially
the following form:
15
THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION SHALL NO LONGER BE
REQUIRED.
(c) FILINGS. The Company undertakes and agrees that it will make all
required filings in connection with the sale of the Securities to the Purchaser
as required by federal and state laws and regulations, or by any domestic
securities exchange or trading market, and if applicable, the filing of a notice
on Form D (at such time and in such manner as required by the rules and
regulations of the Commission), and to provide copies thereof to the Purchaser
promptly after such filing or filings. With a view to making available to the
holders of the Securities the benefits of Rule 144 and any other rule or
regulation of the Commission that may at any time permit such holder to sell
securities of the Company to the public without registration or pursuant to a
registration on Form ▇-▇, ▇▇▇▇ ▇-▇ or Form SB-2, the Company shall (a) at all
times make and keep public information available, as those terms are understood
and defined in Rule 144, (b) file on a timely basis with the Commission all
information that the Commission may require under either of Section 13 or
Section 15(d) of the Exchange Act and, so long as it is required to file such
information, take all actions that may be required as a condition to the
availability of Rule 144 (or any successor exemptive rule hereafter in effect)
with respect to the Common Stock; and (d) furnish to any holder of the
Securities forthwith upon request (i) a written statement by the Company as to
its compliance with the reporting requirements of Rule 144, (ii) a copy of the
most recent annual or quarterly report of the Company as filed with the
Commission, and (iii) any other reports and documents that a holder of the
Securities may reasonably request in order to avail itself of any rule or
regulation of the Commission allowing such holder to sell any such Securities
without registration.
(d) RESERVATION OF COMMON STOCK. The Company will at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the conversion of the Series B Preferred
Stock and the exercise of the Warrants.
(e) REGISTRATION REQUIREMENT. At the time of the First Closing Date, the
Purchaser and the Company shall execute an amended and restated registration
rights agreement in the form attached hereto as Exhibit B (the "Registration
------------
Rights Agreement").
----------------
(f) WARRANT MODIFICATION. At the time of the First Closing Date, the
Company shall have modified the warrants previously issued to the Purchaser and
its assigns to purchase 2,002,750 shares of the Company's Common Stock shall be
modified to reduce the initial exercise price to $0.25 per share and extend the
expiration date to August 1, 2008.
(g) ▇▇▇▇▇ LOANS. Prior to the time of the First Closing Date, all
outstanding loans and unreimbursed expenses due by the Company to ▇▇▇▇▇ ▇▇▇▇▇,
other than a $170,000 loan set forth on the schedule of exceptions and accrued
salary (the "▇▇▇▇▇ Loans") shall be -----------
16
converted into shares of the Company's Common Stock at a price of $.90 per
share. As of the date hereof, the amount of the ▇▇▇▇▇ Loans is $543,000.
(h) EXTENSION OF MATURITY DATES. Prior to the time of the First Closing,
the maturity date of loans in the amount of $730,532 from the ▇▇▇▇▇ family to
the Company shall be extended to December 31, 2004 and the maturity date of
$400,000 in bridge loans to the Company (the "Bridge Facility") and the $170,000
---------------
bridge loan from ▇▇▇▇▇ ▇▇▇▇▇ shall be extended to June 30, 2004.
(i) LOCK-UP. Prior to the First Closing Date, participants in the Bridge
Facility shall have agreed that any shares of Common Stock registered for their
respective accounts upon exercise of the registration rights granted to them in
connection with the Bridge Facility will not be sold prior to June 30, 2004,
without the prior written consent of the Purchaser.
(j) CONSULTING AGREEMENT. At the time of the First Closing Date, the
Purchaser and the Company shall execute a consulting agreement in the form
attached hereto as Exhibit C (the "Consulting Agreement").
--------------------
(k) RETURN OF CERTIFICATES ON CONVERSION. Upon any conversion by the
Purchaser of less than all of the Series B Preferred Stock pursuant to the terms
of the Series B Certificate of Designation, the Company shall issue and deliver
to the Purchaser, within seven business days of the date of conversion, a new
certificate or certificates for, as applicable, the total number of shares of
the Series B Preferred Stock, which the Purchaser has not yet elected to convert
(with the number of and denomination of such new certificate(s) designated by
the Purchaser).
(l) REPLACEMENT CERTIFICATES. The certificate(s) representing the shares of
the Series B Preferred Stock held by the Purchaser shall be exchangeable, at the
option of the Purchaser at any time and from time to time at the office of
Company, for certificates with different denominations representing, as
applicable, an equal aggregate number of shares of the Series B Preferred Stock
as requested by the Purchaser upon surrendering the same. No service charge will
be made for such registration or transfer or exchange.
(m) RIGHT TO MAINTAIN PARTICIPATION.
(i) For so long as any shares of the Series B Preferred Stock shall
remain outstanding and are held by Purchaser, the Company agrees that prior to
any sale and/or issuance by the Company of any shares of Common Stock or any
security exercisable for or, convertible into such Common Stock or any security
with voting rights (the "Common Equivalents") (other than a sale or issuance
excluded from the provisions of this Section 4(m)(i) by the provisions of
Section 4(m)(iii)), the Company shall give the Purchaser written notice (the
"Notice of Issuance") of the Company's intention to sell and/or issue such
Common Stock or Common Equivalents, setting forth the proposed price, quantity
and other material terms and conditions under which the Company proposes to make
such sale and/or issuance. If and when the Company consummates the sale or
issuance of Common Stock or Common Equivalents described in the Notice of
Issuance, the Purchaser shall have the right to purchase or otherwise
17
acquire (the "Right to Maintain Participation") a number of shares of Common
Stock or Common Equivalents on terms which, subject to this Section 4(m), are at
least as favorable to the Purchaser as the terms on which the Company sold or
otherwise issued such Common Stock or Common Equivalents to the persons who
purchased or otherwise acquired the Common Stock or Common Equivalents referred
to in the Notice of Issuance, such that, immediately after the purchase or other
acquisition by the Purchaser, Purchaser's ownership of the total number of
outstanding shares of Common Stock (assuming the exercise for or conversion of
all Common Equivalents into Common Stock) equals the same percentage of the
total shares of Common Stock (assuming the exercise for or conversion of all
Common Equivalents into Common Stock) as the Purchaser held immediately prior to
the sale or issuance described in the Notice of Issuance. The Purchaser shall
have 20 days from the giving of the Notice of Issuance (the "Election Date") to
notify the Company in writing that Purchaser elects to exercise its Right to
Maintain Participation (the date such notice is received by the Company is
hereinafter referred to as the "Notice Date").
(ii) If the Purchaser elects to exercise its Right to
Maintain Participation, the Purchaser and the Company shall use their reasonable
best efforts to consummate the purchase or acquisition and sale or issuance of
such Common Stock or Common Equivalents within 30 days after the Election Date
and, subject to this Section 4(m), the terms of such purchase or acquisition and
sale or issuance shall be at least as favorable to the Purchaser as those set
forth in the Notice of Issuance. The closing of such transaction shall take
place as promptly as practicable after all regulatory approvals required for the
consummation of such purchase have been obtained, at such time, on such date,
and at such location as the parties shall mutually agree. Payment for such
Common Stock or Common Equivalents shall be by wire transfer of immediately
available funds to an account designated by the Company by written notice
delivered to the Purchaser not less than two business days prior to the
scheduled closing of such purchase against delivery of the Common Stock or
Common Equivalents at the executive offices of the Company at the time of the
scheduled closing therefor. The Company shall take all such action as may
reasonably be required by any regulatory authority in connection with the
exercise by the Purchaser of the right to purchase Common Stock or Common
Equivalents as set forth in this Section 4(m).
(iii) The right contained in this Section 4(m) shall not apply to
the following sales and/or issuances by the Company on or after the date hereof
of Common Stock or Common Equivalents:
a. Common Stock or Common Equivalents issued to
employees, officers, directors and consultants pursuant to any stock option
plan, stock incentive or purchase plan or agreement approved by the Company's
Board of Directors or Common Stock issued upon exercise of Common Equivalents so
issued;
b. Common Stock or Common Equivalents issued in connection
with or upon exercise or conversion of securities issued in connection with a
merger, consolidation, share exchange, or other reorganization or business
combination, involving the Company, in which the Company is the acquiring
corporation or stockholders of the Company immediately prior to such merger,
consolidation or other reorganization or business combination and own securities
with a majority of the voting power of the resulting entity;
18
c. Common Stock or Common Equivalents issued pursuant
to rights distributed to all holders of Common Stock generally or Common Stock
issued upon exercise of such Common Equivalents;
d. Common Stock or Common Equivalents issued in
connection with any stock split, stock dividend or recapitalization of the
Company;
e. Common Stock issued pursuant to the exercise
of any currently outstanding stock options, warrants or any other securities
exchangeable for or convertible into or any other right to acquire shares of
Common Stock; and
f. Common Stock or Common Equivalents issued in
connection with a firmly underwritten public offering, which generates aggregate
net proceeds to the Company (after deduction for underwriters' discounts and
expenses relating to the issuance, including without limitation fees to the
Company's counsel) equal to or exceeding $15,000,000.
(iv) In the event the Purchaser exercises its right to
maintain participation and a dispute arises as to the value of the Common Stock
or Common Equivalents that the Purchaser is acquiring to maintain such
participation, an independent third party ("Arbitrator") acceptable to both
parties shall be selected. The Arbitrator shall determine the consideration the
Purchaser will pay for the Common Stock or Common Equivalent and such
determination shall be binding, conclusive and final. The Purchaser shall pay
all the fees and expenses of the Arbitrator.
5. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE THE SHARES
The Purchaser understands that the Company's obligation to issue the Series
B Preferred Stock on each Closing Date to the Purchaser pursuant to this
Agreement is conditioned upon the following, unless waived in writing by the
Company:
(a) The accuracy on each Closing Date of the representations and warranties
of the Purchaser contained in this Agreement as if made on each Closing Date and
the performance by the Purchaser on or before each Closing Date of all covenants
and agreements of the Purchaser required to be performed on or before each
Closing Date.
(b) The absence or inapplicability on each Closing Date of any and all
laws, rules or regulations prohibiting or restricting the transactions
contemplated hereby, or requiring any consent or approval, except for any
stockholder or Board of Director approval or consent contemplated herein, which
shall not have been obtained.
(c) All regulatory approvals or filings, if any, on each Closing Date
necessary to consummate the transactions contemplated by this Agreement shall
have been made as of each Closing Date.
(d) The receipt of good funds as of each Closing Date as scheduled in the
Table of Closings in Section 1(c).
19
(e) The receipt from the Purchaser of the waiver of its anti-dilution rights
through the date hereof pursuant to the terms of the Company's Certificate of
Incorporation and the waiver of the right to receive Default Shares through the
date hereof pursuant to the registration rights agreement entered into by the
Company in connection with the sale of the Series A Preferred Stock and
Warrants.
6. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE THE SHARES
The Company understands that the Purchaser's obligation to purchase the
Series B Preferred Stock on each Closing Date is conditioned upon each of the
following, unless waived in writing by the Purchaser:
(a) The Purchaser shall have completed to its satisfaction its due
diligence review of the Company, the Company's and Stronghold's business, assets
and liabilities, and the Company shall have furnished to the Purchaser and its
representatives, such information as may be reasonably requested by them.
(b) The accuracy on each Closing Date of the representations and warranties
of the Company contained in this Agreement as if made on such Closing Date, and
the performance by the Company on or before the First Closing Date of all
covenants and agreements of the Company required to be performed on or before
the First Closing Date or such other Closing Date.
(c) The Company shall have executed and delivered to the Purchaser the
Series B Preferred Stock as scheduled in the Table of Closings in Section 1(c)
with respect to each Closing Date.
(d) On each Closing Date, the Purchaser shall have received from the
Company such other certificates and documents as it or its representatives, if
applicable, shall reasonably request, and all proceedings taken by the Company
or the Board of Directors of the Company, as applicable, in connection with the
Primary Documents contemplated by this Agreement and the other Primary Documents
and all documents and papers relating to such Primary Documents shall be
satisfactory to the Purchaser.
(e) All regulatory approvals or filings, if any, necessary to consummate
the transactions contemplated by this Agreement shall have been made as of each
Closing Date.
(f) The Purchaser shall have received by the First Closing Date a legal
opinion from ▇▇▇▇ and ▇▇▇▇ substantially in the form attached hereto as Exhibit
D.
(g) The Company shall have received a Closing Certificate substantially in
the form attached hereto as Exhibit E.
(h) At the time of the First Closing Date, the Company shall have
reimbursed the Purchaser the expenses incurred in connection with the
negotiation or performance of this Agreement pursuant to Section 7 hereof.
20
(i) At the time of the First Closing Date, the Company shall have executed
and delivered the Registration Rights Agreement and the Consulting Agreement to
the Purchaser.
7. FEES AND EXPENSES
The Company shall bear its own costs, including attorney's fees, incurred
in the negotiation of this Agreement and of the transactions contemplated
herein. At the First Closing Date, the Company shall reimburse the Purchaser for
all of the Purchaser's reasonable out-of-pocket expenses incurred in connection
with the negotiation or performance of this Agreement, including without
limitation reasonable fees and disbursements of counsel to the Purchaser not to
exceed $25,000.
8. SURVIVAL
The agreements, covenants, representations and warranties of the Company
and the Purchaser shall survive the execution and delivery of this Agreement and
the delivery of the Securities hereunder for a period of two years from the date
of the Final Closing Date, except that:
(a) The Company's representations and warranties regarding Taxes contained
in Section 3(t) of this Agreement shall survive as long as the Company remains
statutorily liable for any obligation referenced in Section 3(t), and
(b) The Company's representations and warranties contained in Section 3(b)
shall survive until the Purchaser and any of its affiliates are no longer
holders of any of the Securities purchased hereunder.
9. INDEMNIFICATION
(a)The Company and the Purchaser (each in such capacity under this section,
the "Indemnifying Party") agrees to indemnify the other party and each
-------------------
officer, director, employee, agent, partner, stockholder, member and affiliate
of such other party (collectively, the "Indemnified Parties") for, and hold each
-------------------
Indemnified Party harmless from and against: (i) any and all damages, losses,
claims, diminution in value and other liabilities of any and every kind,
including, without limitation, judgments and costs of settlement, and (ii) any
and all reasonable out-of-pocket costs and expenses of any and every kind,
including, without limitation, reasonable fees and disbursements of counsel for
such Indemnified Parties (all of which expenses periodically shall be reimbursed
as incurred), in each case, arising out of or suffered or incurred in connection
with any of the following, whether or not involving a third party claim: (a) any
misrepresentation or any breach of any warranty made by the Indemnifying Party
herein or in any of the other Primary Documents, (b) any breach or
non-fulfillment of any covenant or agreement made by the Indemnifying Party
herein or in any of the other Primary Documents, or (c) any claim relating to or
arising out of a violation of applicable federal or state securities laws by the
Indemnifying Party in connection with the sale or issuance of the Series A
Preferred Stock or Warrants by the Indemnifying Party to the Indemnified Party
(collectively, the "Indemnified Liabilities"). To the extent that the foregoing
-----------------------
undertaking by the Indemnifying Party may be
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unenforceable for any reason, the Indemnifying Party shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
(b) No indemnification shall be payable in respect of any Indemnified
Liability (i) where the claiming Indemnified Party had actual knowledge of or
notice of the facts giving rise to (actual knowledge or notice in this Section
9(b) shall mean knowledge or notice arising from the Disclosure Schedules), such
Indemnified Liability prior to the First Closing Date or (ii) where such
Indemnified Party entered into a settlement of an Indemnified Liability without
the prior written consent of the applicable Indemnifying Party.
10. NOTICES
Any notice required or permitted hereunder shall be given in writing
(unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free transmission
and mailing a copy of such confirmation, postage prepaid by certified mail,
return receipt requested) or two business days following deposit of such notice
with an internationally recognized courier service, with postage prepaid and
addressed to each of the other parties thereunto entitled at the following
addresses, or at such other addresses as a party may designate by five days
advance written notice to each of the other parties hereto.
THE COMPANY: Stronghold Technologies, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
WITH A COPY TO: ▇▇▇▇ and ▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
THE PURCHASER: Stanford Venture Capital Holdings, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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11. GOVERNING LAW; JURISDICTION
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Florida, without regard to its principles of conflict of
laws. Any action or proceeding seeking to enforce any provision of, or based on
any right arising out of, this Agreement may be brought against any party in the
federal courts of Florida or the state courts of the State of Florida, and each
of the parties consents to the jurisdiction of such courts and hereby waives, to
the maximum extent permitted by law, any objection, including any objections
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions.
12. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof. This Agreement, together with the other Primary Documents, including any
certificate, schedule, exhibit or other document delivered pursuant to their
terms, constitutes the entire agreement among the parties hereto with respect to
the subject matters hereof and thereof, and supersedes all prior agreements and
understandings, whether written or oral, among the parties with respect to such
subject matters.
(b) AMENDMENTS. This Agreement may not be amended except by an instrument
in writing signed by the party to be charged with enforcement.
(c) WAIVER. No waiver of any provision of this Agreement shall be deemed a
waiver of any other provisions or shall a waiver of the performance of a
provision in one or more instances be deemed a waiver of future performance
thereof.
(d) CONSTRUCTION. This Agreement and each of the Primary Documents have
been entered into freely by each of the parties, following consultation with
their respective counsel, and shall be interpreted fairly in accordance with its
respective terms, without any construction in favor of or against either party.
(e) BINDING EFFECT OF AGREEMENT. This Agreement shall inure to the benefit
of, and be binding upon the successors and assigns of each of the parties
hereto, including any transferees of the Series B Preferred Stock.
(f) SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or unenforceability of this Agreement in any other jurisdiction.
(g) ATTORNEYS' FEES. If any action should arise between the parties hereto
to enforce or interpret the provisions of this Agreement, the prevailing party
in such action shall be reimbursed for all reasonable expenses incurred in
connection with such action, including reasonable attorneys' fees.
(h) HEADINGS. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of this
Agreement.
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(i) COUNTERPARTS. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original and all of which, when taken together,
will be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed by each of the
undersigned.
STANFORD VENTURE CAPITAL HOLDINGS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
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Title: President
---------------------------
STRONGHOLD TECHNOLOGIES, INC.
By: /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------
Title: President and Chief
Executive Officer
---------------------------
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EXHIBIT INDEX
EXHIBIT A CERTIFICATE OF DESIGNATION OF SERIES B
$0.90 CONVERTIBLE PREFERRED STOCK
EXHIBIT B REGISTRATION RIGHTS AGREEMENT
EXHIBIT C FORM OF CONSULTING AGREEMENT
EXHIBIT D FORM OF LEGAL OPINION
EXHIBIT E CLOSING CERTIFICATE
25
SCHEDULE OF EXCEPTIONS INDEX
SCHEDULE DESCRIPTION PAGE NUMBER
-------- ------------- -------------
3(a) Organization
3(b) Capitalization
3(g) Financial Statements
3(k) Compliance With Legal Requirements
3(l) Absence of Certain Changes
3(m) Indebtedness to Officers, Directors and Stockholders
3(n) Relationships With Related Persons
3(o) Title to Properties; Liens and Encumbrances
3(r) Absence of Litigation
3(s) No Default
3(t) Taxes
3(v) Contracts; No Defaults
3(x) Insurance
3(y) Employees
3(z) Employee Benefits
3(bb) Mergers, Acquisitions and Divestitures
26