Exhibit 10.72
IMPLANT SCIENCES CORPORATION
SECURITIES PURCHASE AGREEMENT
AUGUST 28, 2003
IMPLANT SCIENCES CORPORATION
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "AGREEMENT") is made and
entered into as of August 28, 2003, by and among IMPLANT SCIENCES CORPORATION, a
Massachusetts corporation (the "COMPANY"), and Laurus Master Fund, Ltd. a Cayman
Islands company (the "PURCHASER").
RECITALS
WHEREAS, the Company has authorized the sale of Series B 5% Convertible
Preferred Stock, $0.10 par value, (the "PREFERRED STOCK"), for the aggregate
purchase price of TWO MILLION DOLLARS ($2,000,000), convertible into shares of
the Company's common stock, $0.10 par value per share (the "Common Stock");
WHEREAS, the Company wishes to issues a warrant (the "WARRANT") to the
Purchaser to purchase shares of the Company's Common Stock in connection with
Purchaser's purchase of the Preferred Stock;
WHEREAS, Purchaser desires to purchase the Preferred Stock and Warrant
on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Preferred Stock and
Warrant to the Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, representations, warranties and covenants hereinafter set forth
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions
set forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company, Preferred Stock in the amount of TWO MILLION DOLLARS
($2,000,000) , convertible in accordance with the terms thereof into shares of
the Company's Common Stock. The Preferred Stock purchased on the Closing Date
shall be known as the "OFFERING." The Certificate of Vote of Directors
Establishing a Class or Series of Stock for the Preferred Stock (the
"CERTIFICATE OF VOTE OF DIRECTORS") is annexed hereto as Exhibit A. The
Preferred Stock will have a Mandatory Redemption Date (as defined in the
Preferred Stock) eighteen months from the date of issuance. Collectively, the
Preferred Stock and Warrant (as defined in Section 2) and Common Stock issuable
upon conversion of the Preferred Stock and exercise of the Warrant are referred
to as the "SECURITIES."
2. FEES AND WARRANT.
(a) The Company will issue and deliver to the Purchaser a Warrant to
purchase 70,000 shares of Common Stock in connection with the Offering (the
"WARRANT") pursuant to Section 1 hereof. The Warrant must be delivered on the
Closing Date. A form of Warrant is annexed hereto as Exhibit B. 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 Warrant and shares of
the Company's Common Stock issuable upon exercise of the Warrant (the "WARRANT
SHARES").
(b) 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
$10,000.
(c) The Company will pay a cash fee in the amount of five percent
(5%) of the aggregate gross purchase price to be paid to the Company from the
sale of the Preferred Stock in the Offering (the "FUND MANAGEMENT FEE") to
Laurus Capital Management, L.L.C., a Delaware limited liability company. The
Fund Management Fee must be paid on the Closing Date. The aforementioned Fund
Management Fee and legal fees will be payable at the Closing out of funds held
pursuant to a Funds Escrow Agreement to be entered into by the Company,
Purchaser and an Escrow Agent.
3. CLOSING, DELIVERY AND PAYMENT.
3.1 CLOSING. Subject to the terms and conditions herein, the closing
of the transactions contemplated hereby (the "CLOSING"), which closing is
comprised of Purchaser's purchase of the Preferred Stock in the aggregate
principal amount of $2,000,000, shall take place on the date hereof, at the
offices of ▇▇▇▇ ▇▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇, or at such other time or place as the Company and Purchaser may
mutually agree (such date is hereinafter referred to as the "CLOSING DATE").
3.2 DELIVERY. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchaser the Certificate of Vote of
Directors in the form attached as Exhibit A representing the principal amount of
$2,000,000 and a Common Stock Purchase Warrant in the form attached as Exhibit B
in the Purchaser's name representing 70,000 Warrant Shares and the Purchaser
will deliver to the Company $2,000,000, less fees and expenses by certified
funds or wire transfer made payable to the order of the Company, cancellation of
indebtedness or any combination of the foregoing.
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. As used herein, the term SEC
REPORTS shall mean the Company's (i) Annual Report on Form 10-KSB for the fiscal
year ended June 30, 2002 and
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(ii) Quarterly Reports on Form 10-QSB for the fiscal quarters ended September
30, 2002, December 31, 2002 and March 31, 2003.
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 Commonwealth of Massachusetts. The Company has all requisite corporate
power and authority to own and operate its properties and assets, to execute and
deliver this Agreement, the Warrant to be issued in connection with this
Agreement, the Funds Escrow Agreement, and all other agreements referred to
herein (collectively, the "RELATED AGREEMENTS"), to issue and sell the Preferred
Stock and the shares of Common Stock issuable upon conversion of the Preferred
Stock (the "CONVERSION SHARES"), to issue and sell the Warrant and the Warrant
Shares, and to carry out the provisions of this Agreement and the Related
Agreements and to carry on its business as presently conducted and as presently
proposed to be 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 would not have a material adverse effect on the Company
or its business.
4.2 SUBSIDIARIES. Except as set forth in the SEC Reports, 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, immediately
prior to the Closing, consists of (i) 20,000,000 shares of Common Stock, par
value $0.10 per share, 6,650,156 shares of which are issued and outstanding as
of June 30, 2003, and (ii) 5,000,000 shares of Preferred Stock, par value $0.10
per share, 250,000 of which are issued and outstanding.
(b) Other than (i) the shares reserved for issuance under the
Company's stock option plans stock grant agreements and outstanding warrants;
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, except as set
forth in the SEC Reports. Neither the offer, issuance or sale of any of the
Preferred Stock or Warrant, or the issuance of any of the Conversion Shares or
Warrant 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.
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(d) The rights, preferences, privileges and restrictions of the
shares of the Common Stock are as stated in the Amended and Restated Articles of
Organization (the "Charter"). The Conversion Shares and Warrant Shares have been
duly and validly reserved for issuance. 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 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.
(e) Except as set forth in the SEC Reports, no stock plan, stock
purchase, stock option or other agreement or understanding between the Company
and any holder of any equity securities or rights to purchase equity securities
provides for acceleration or other changes in the vesting provisions or other
terms of such agreement or understanding as the result of any merger,
consolidated sale of stock or assets, change in control or any other
transaction(s) by the Company, including the transactions contemplated
hereunder.
4.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for the
authorization of this Agreement and the Related Agreements, the performance of
all obligations of the Company hereunder at each Closing and the authorization,
sale, issuance and delivery of the Securities pursuant hereto and the Related
Agreements has been taken or will be taken prior to the Closing. The Agreement
and the Related Agreements, when executed and delivered, 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 remedies. The sale of the Preferred Stock and the
subsequent conversion of the Preferred Stock into Common Stock are 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 sale of the Warrants and the
subsequent exercise of the Warrants for Common Stock are 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 Certificate of Vote of Directors and the
Warrants, 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 the SEC Reports, the Company
has no material liabilities and, to the best of its knowledge, knows of no
material contingent liabilities, except current liabilities incurred in the
ordinary course of business which have not been, either in any individual case
or in the aggregate, materially adverse.
4.6 AGREEMENTS; ACTION.
(a) Except as set forth in the SEC Reports and Schedule 4.6
hereto, 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
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(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 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.
(b) Except as set forth in the SEC Reports, 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, other than ordinary advances for travel expenses, or
(iv) sold, exchanged or otherwise disposed of any of its assets or rights, other
than the sale of its inventory in the ordinary course of business.
(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 has not engaged in the past two years in any
discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company, or a
transaction or series of related transactions in which more than 50% of the
voting power of the Company is disposed of or (iii) regarding any other form of
acquisition, liquidation, dissolution or winding up of the Company.
4.7 OBLIGATIONS TO RELATED PARTIES. Except as set forth in the SEC
Reports, 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, (b) reimbursement for reasonable expenses incurred on
behalf of the Company and (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). Except as set forth in the SEC Reports, none of the officers,
directors or stockholders of the Company, or any members of their immediate
families, are indebted to the Company. Except as set forth in the SEC Reports,
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 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 set forth in the SEC Reports, 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
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proposed transactions are contemplated between the Company and any such person.
Except as set forth in the SEC Reports, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
4.8 CHANGES. Except as set forth in the SEC Reports, since March 31,
2003 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 on such assets,
liabilities, financial condition, prospects or operations of the Company;
(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 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;
(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;
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(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
in the SEC Reports, liens granted in favor of Purchaser and the liens set forth
on Schedule 4.9 hereto, 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. 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. Except as set forth in the SEC Reports,
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.
(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.
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4.11 COMPLIANCE WITH OTHER INSTRUMENTS. Except as set forth in the
SEC Reports, the Company is not in violation or default of any term of its
Charter or Bylaws, or of any 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,
and the issuance and sale of Securities 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 in the SEC Reports, there is no
action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company that questions the validity
of this Agreement or the Related Agreements or the right of the Company to enter
into any of such agreements, or to consummate the transactions contemplated
hereby or thereby, or which might result, either individually or in the
aggregate, in any material adverse change in the assets, condition, affairs or
prospects of the Company, financially or otherwise, 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. Except as set forth in the SEC Reports,
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. 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. 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. 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, threatened with respect to the Company. Except
as set forth in the SEC Reports, 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
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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 as set forth in the SEC Reports, 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 in
the SEC Reports and on Schedule 4.15 attached hereto, 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. To its knowledge, the Company is
not in violation 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
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which could
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, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation. Except as set forth in the SEC Reports, 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. 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
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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. Neither the Company nor any agent on its behalf has solicited
or will solicit any offers to sell or has offered to sell or will offer to sell
all or any part of the Securities to any person or persons so as to bring the
sale of such Securities by the Company within the registration provisions of the
Securities Act or any 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 Preferred Stock and Warrant, including all information the Company
believes is reasonably necessary to make such investment decision. To the
Company's knowledge, .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 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. As of the date hereof no facts have come to the
attention of the Company that would, in its opinion, require the Company to
revise or amplify in any material respect the assumptions underlying such
projections and other estimates or the conclusions derived therefrom. Any
financial projections are subject to future events and the Company cannot give
any assurance that it will meet its financial projections.
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.
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 of
1934, as amended (the "EXCHANGE ACT"). Each SEC Report was in substantial
compliance with the requirements of its respective form and none of the SEC
Reports, nor the financial statements (and the notes thereto) included in the
SEC Reports, as of their respective 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 NO MARKET MANIPULATION. The Company has not taken, and will not
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price of
the Common Stock of the Company to facilitate the sale or resale of any of the
Securities being offered hereby or affect the price at which any of the
Securities being offered hereby may be issued.
4.23 LISTING. The Company's Common Stock is listed for trading on
the American Stock Exchange and satisfies all requirements for the continuation
of such listing. The
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Company has not received any notice that its Common Stock will be delisted from
the American Stock Exchange or that the Common Stock does not meet all
requirements for the continuation of such listing.
4.24 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 integrated with other
offerings.
4.25 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.
4.26 DILUTION. The Company understands the nature of the Securities
being sold hereby and recognizes that they may have a potential dilutive effect.
The Company specifically acknowledges that its obligation to issue the
Conversion Shares and Warrant 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.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company with
respect to itself or himself 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
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
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.
11
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 registered pursuant to the Securities
Act, or an exemption from registration is available.
5.4 ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the
Preferred Stock for Purchaser's own account for investment only, and not with a
view towards their distribution.
5.5 PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents that by
reason of its, or of its management's, business or financial experience,
Purchaser has the capacity 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.
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 Preferred Stock shall bear the following legend until
the Preferred Stock and Conversion Shares are sold pursuant to an effective
registration statement filed with the Securities and Exchange Commission (the
"SEC"):
"THESE SHARES OF PREFERRED STOCK AND THE COMMON STOCK ISSUABLE UPON
CONVERSION OF THE PREFERRED STOCK HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR, IF APPLICABLE, STATE
SECURITIES LAWS. THESE SHARES OF PREFERRED STOCK AND THE COMMON
STOCK ISSUABLE UPON CONVERSION OF THE PREFERRED STOCK MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE PREFERRED STOCK OR COMMON
STOCK ISSUABLE UPON CONVERSION OF PREFERRED STOCK UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IMPLANT SCIENCES CORPORATION THAT SUCH REGISTRATION
IS NOT REQUIRED."
(b) The Conversion Shares and the Warrant Shares shall bear a
legend which shall be in substantially the following form until such shares are
sold pursuant to 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
12
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IMPLANT SCIENCES CORPORATION THAT SUCH REGISTRATION
IS NOT REQUIRED."
(c) The Warrants shall bear the following legend:
"THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND
THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE
UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IMPLANT SCIENCES CORPORATION THAT SUCH REGISTRATION
IS NOT REQUIRED."
The Purchaser covenants and agrees with the Company as follows:
5.8 SECURITY INTEREST. Purchaser agrees to terminate its security
interest in the assets, as fully described in the Security Agreement between the
Company and Purchaser of even date herewith (the "SECURITY AGREEMENT"), upon the
Company tendering the final payment in satisfaction of the obligations as
defined in the Security Agreement. Purchaser agrees to join with the Company in
executing termination statements and other instruments pursuant to the Uniform
Commercial Code as enacted and in effect from time to time in the Commonwealth
of Massachusetts in form satisfactory to the Company and in executing such other
documents or instruments as may be required or deemed necessary by the Company
for purposes of terminating the security interest in the collateral.
5.9 PROSPECTUS. Purchaser shall furnish copies of the prospectus in
connection with a public sale or disposition of the Common Stock.
5.10 PREFERRED STOCK CERTIFICATE. When Purchaser elects to convert
shares of Preferred Stock in accordance with Section 8 below, Purchaser shall
surrender the Preferred Stock Certificate upon receipt of a credit to the
account of the Purchaser's prime broker through the DWAC system (as defined
below), representing the Conversion Shares or upon complete satisfaction of the
Preferred Stock.
5.11 CERTAIN TRADING RESTRICTIONS. Purchaser agrees that, as long as
it holds any shares of Preferred Stock, neither it nor any of its Affiliates
shall enter into any Short Sales (as defined herein). For purposes of this
Section 5.11, a "SHORT SALE" shall mean a sale of Common Stock by Purchaser that
would be required to be marked as a "short sale" by the broker executing the
sale pursuant to the provisions of Rules 10a-1(c) and 10a-1(d)(1) under the
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Exchange Act if such rules applied to the sale (whether or not they in fact
apply to the sale), and that is made at a time when immediately after the sale,
and giving effect to all other sales by the Purchaser, there would be no
equivalent offsetting long position in Common Stock held by Purchaser. For the
purpose of determining under this Section 5.11 whether there is an equivalent
offsetting long position in Common Stock held by Purchaser, only those
Conversion Shares that are (i) issuable upon conversion of the Preferred Stock
for which a conversion notice has been delivered by Purchaser on or prior to a
trading day or (ii) issuable as a result of the delivery by the Company of a
Repayment Election Notice, as defined in the Certificate of Vote of Directors,
shall be deemed to be held long by Purchaser on such trading day.
5.12 REPORTING REQUIREMENTS. Purchaser will timely file with the SEC
all reports required to be filed pursuant to the Exchange Act. Purchaser will
timely respond timely, accurately and completely to any inquiry by the SEC,
NASD, or any stock exchange upon which the Company maintains a listing, relating
to the offering.
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 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 listing of the
shares of Common Stock issuable upon conversion of the Preferred Stock and upon
the exercise of the Warrant 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 (subject to official notice of issuance) and shall maintain such
listing so long as any other shares of Common Stock shall be so listed. The
Company will maintain the listing 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. The Company will
provide the Purchaser copies of all notices it receives notifying the Company of
the threatened and actual delisting of the Common Stock from any Principal
Market.
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.
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
14
Act or the rules or regulations thereunder would permit such termination. In
addition, within 20 days after the end of each calendar month, the Company will
provide to the Purchaser a monthly cash flow statement, balance sheet and income
statement for the immediately preceding month. Purchaser understands that the
provision of the information described herein may constitute material non-public
information and such information will only be provided upon the execution by
Purchaser of a confidentiality agreement.
6.5 USE OF FUNDS. The Company agrees that it will use the proceeds
of the sale of the Preferred Stock and Warrant for general corporate purposes
only, in the ordinary course of its business and consistent with past practice
and, without limiting the generality of the foregoing, shall not use such
proceeds to make a loan to any employee, officer, director or stockholder of the
Company, to repay any loan or other obligation of the Company or to repurchase
or pay a dividend on shares of Common Stock or other securities of the Company
(in any such case, regardless of whether such loan or payment was authorized by
the Company's Board of Directors prior to the date hereof), other than any such
repurchase or payment explicitly required, permitted or contemplated by the
terms of this Agreement or the other Related Agreements.
6.6 ACCESS TO FACILITIES. The Company will permit any
representatives designated by the Purchaser (or any transferee of the
Purchaser), so long as such person holds any Securities 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.
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. The Company 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 the Company's line of business, in amounts sufficient to prevent
the Company from becoming a co-insurer and not in any event less than 100% of
the insurable value of the property insured; and the Company 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
customary for companies in similar businesses similarly situated and to the
extent available on commercially reasonable terms.
15
6.9 BOOKS AND RECORDS. The Company will keep true records and books
of account in which full, true and correct entries will be made of all dealings
or transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
Purchaser understands that the provision of the information described herein may
constitute material non-public information and such information will only be
provided upon the execution by Purchaser of a confidentiality agreement.
6.10 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.
6.11 CONFIDENTIALITY. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchaser,
unless expressly agreed to by the Purchaser or unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of such
requirement.
6.12 CORPORATE EXISTENCE. The Company shall maintain its corporate
existence, and will not liquidate, dissolve or effect a recapitalization,
reclassification or reorganization in any form of transaction. In addition, the
Company shall not sell all or substantially all of the Company's assets, except
in the event of a merger or consolidation or sale or transfer of all or
substantially all of the Company's assets, where the surviving or successor
entity in such transaction (i) assumes the Company's obligations hereunder and
the Related Agreements and (ii) is a publicly traded company whose common stock
is quoted or listed on a Principal Market or (iii) simultaneously with the
consummation of such transaction irrevocably pays in full all of the obligations
due and owing to Purchaser from the Company under this Agreement and/or the
Securities.
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 has disposed of such
Securities pursuant to an exemption from registration 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 in the form annexed hereto as Exhibit C. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Preferred Stock and exercise of the
Warrants.
6.15 FINANCING RIGHT OF FIRST REFUSAL. The Company hereby grants the
Purchaser a right of first refusal to enter into a financing arrangement with
the Company. The
16
Company shall submit a fully executed term sheet setting out the terms,
conditions and pricing of any proposed financing (such financing to be
negotiated on "arm's length" terms) to be entered into by the Company. Purchaser
shall have the right, but not the obligation, to offer financing, to the Company
on terms no less favorable than those outlined in the previously negotiated term
sheet (which such term sheet shall be negotiated in good faith) within five
business days of receipt of such proposed term sheet. If the provisions of the
Purchaser's term sheet shall be at least as favorable to the Company, the
Company shall enter into the financing arrangement outlined in the Purchaser's
term sheet. If the Purchaser declines to exercise it right of first refusal
hereunder, it hereby agrees to enter into such documentation as shall be
reasonably requested by Company in order to subordinate its rights hereunder or
under the Preferred Stock to the subsequent financier.
7. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.
7.1 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.
7.2 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 of any
covenant or undertaking to be performed by Purchaser hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
7.3 PROCEDURES. The procedures and limitations set forth in Section
9.6 shall apply to the indemnifications set forth in Sections 7.1 and 7.2 above.
8. CONVERSION OF PREFERRED STOCK.
8.1 MECHANICS OF CONVERSION.
(a) Provided the Purchaser has notified the Company of the
Purchaser's intention to sell the Conversion Shares and the Conversion Shares
are included in an effective registration statement or are otherwise exempt from
registration when sold: (i) Upon the conversion of the Preferred Stock or part
thereof, the Company shall, at its own cost and
17
expense, take all necessary action (including the issuance of an opinion of
counsel) to assure that the Company's transfer agent shall issue the Conversion
Shares in the name of the Purchaser (or its nominee) or such other persons as
designated by the Purchaser in accordance with Section 8.1(b) hereof and in such
denominations to be specified representing the number of Conversion Shares
issuable upon such conversion; and (ii) the Company warrants that no
instructions other than these instructions have been or will be given to the
transfer agent of the Company's Common Stock and that after the Effective Date
(as hereinafter defined) the Conversion Shares issued will be freely
transferable subject to the prospectus delivery requirements of the Securities
Act and the provisions of this Agreement, and will not contain a legend
restricting the resale or transferability of the Conversion Shares, other than
as required by law.
(b) Purchaser will give notice of its decision to exercise its
right to convert the Preferred Stock or part thereof by telecopying or otherwise
delivering an executed and completed notice of the number of shares to be
converted to the Company (the "NOTICE OF CONVERSION"). The Purchaser will not be
required to surrender the Preferred Stock Certificate until the Purchaser
receives a credit to the account of the Purchaser's prime broker through the
DWAC system (as defined below), representing the Conversion Shares or until the
Preferred Stock has been fully satisfied. Each date on which a Notice of
Conversion is telecopied or delivered to the Company in accordance with the
provisions hereof shall be deemed a "CONVERSION DATE." The Company will cause
the transfer agent to transmit the Conversion Shares (and a certificate
representing the balance of the Preferred Stock not so converted, if requested
by Purchaser) to the Purchaser by crediting the account of the Purchaser's prime
broker with the Depository Trust Company ("DTC") through its Deposit Withdrawal
Agent Commission ("DWAC") system within three (3) business days after receipt by
the Company of the Notice of Conversion (the "DELIVERY DATE").
(c) The Company understands that a delay in the delivery of the
Conversion Shares in the form required pursuant to Section 8 hereof beyond the
Delivery Date could result in economic loss to the Purchaser. In the event that
the Company fails to direct its transfer agent to deliver the Conversion Shares
to the Purchaser via the DWAC system within the time frame set forth in Section
8.1(b) above and the Conversion Shares are not delivered to the Purchaser by the
Delivery Date through any act or failure to act on the part of the Company, as
compensation to the Purchaser for such loss, the Company agrees to pay late
payments to the Purchaser for late issuance of the Conversion Shares in the form
required pursuant to Section 8 hereof upon conversion of the Preferred Stock in
the amount equal to the greater of (i) $500 per business day after the Delivery
Date or (ii) the Purchaser's actual damages from such delayed delivery. The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand and, in the case of actual damages, accompanied by
reasonable documentation of the amount of such damages. Such documentation shall
show the number of shares of Common Stock the Purchaser is forced to purchase
(in an open market transaction) which the Purchaser anticipated receiving upon
such conversion, and shall be calculated as the amount by which (A) the
Purchaser's total purchase price (including customary brokerage commissions, if
any) for the shares of Common Stock so purchased exceeds (B) the aggregate
Stated Value (as defined in the Certificate of Vote of Directors) and/or
dividend amount of the Preferred Stock, for which such Conversion Notice was not
timely honored.
18
(d) Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
amount permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to a Purchaser and thus refunded to
the Company.
8.2 MAXIMUM CONVERSION. The Purchaser shall not be entitled to
convert on a Conversion Date that amount of the Preferred Stock in connection
with that number of shares of Common Stock which would be in excess of the sum
of (i) the number of shares of Common Stock beneficially owned by the Purchaser
on a Conversion Date, and (ii) the number of shares of Common Stock issuable
upon the conversion of the Preferred Stock with respect to which the
determination of this proviso is being made on a Conversion Date, which would
result in beneficial ownership by the Purchaser of more than 4.99% of the
outstanding shares of Common Stock of the Company on such Conversion Date.
Subject to the foregoing, a Purchaser shall not be limited to aggregate
conversions of only 4.99%. A Purchaser may void the conversion limitation
described in this Section 8.2 upon 75 days prior notice to the Company. Upon an
Event of Default under the Preferred Stock, the conversion limitation in this
Section 8.2 shall automatically become null and void. Notwithstanding the
foregoing, if the Company has elected to make a payment of a Monthly Amount (as
defined in the Certificate of Vote of Directors) in shares of Common Stock and
such issuance would cause Purchaser's beneficial ownership to exceed 4.99%, then
Purchaser shall be required to sell that number of shares of Common Stock that
it beneficially owns in order to permit the Company to make a payment of a
Monthly Amount in shares of Common Stock. Beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act and Regulation
13d-3 thereunder.
8.3 OPTIONAL REDEMPTION. The Company will have the option of
redeeming any outstanding Stated Value of the Preferred Stock ("OPTIONAL
REDEMPTION") by paying to the Purchaser 130% of such amount, together with
accrued but unpaid dividends thereon and any and all other sums due, accrued or
payable to the Purchaser arising under this Agreement, Certificate of Vote of
Directors or any other document delivered herewith ("REDEMPTION AMOUNT")
outstanding on the day notice of redemption ("NOTICE OF REDEMPTION") is
delivered to a Purchaser ("REDEMPTION DATE"). A Notice of Redemption may not be
given in connection with any portion of Preferred Stock for which a Notice of
Conversion has been given by the Purchaser at any time before receipt of a
Notice of Redemption or given pursuant to the following sentence. The Redemption
Amount must be paid in immediately available funds to the Purchaser no later
than the seventh (7th) business day after the Redemption Date ("OPTIONAL
REDEMPTION PAYMENT DATE"). In the event the Company fails to pay the Redemption
Amount by the Optional Redemption Payment Date, then the Redemption Notice will
be null and void. A Notice of Redemption may be given by the Company, provided
no Event of Default as described in the Certificate of Vote of Directors shall
have occurred or be continuing.
9. REGISTRATION RIGHTS.
9.1 REGISTRATION RIGHTS GRANTED. The Company hereby grants the
following registration rights to holders of the securities purchased hereby.
19
(a) The Company shall use its reasonable commercial efforts to
file a Form S-3 registration statement (or such other form that it is eligible
to use) in order to register the Conversion Shares and Preferred Shares (the
"REGISTRABLE SECURITIES") for resale and distribution under the Securities Act
with the SEC by the later to occur of October 15 , 2003 and two days after the
Company files its report on Form 10-K for the fiscal year ended June 30, 2003
with the SEC (the "FILING DATE"), and use its reasonable commercial efforts to
cause such registration statement to be declared effective within 90 days of the
Filing Date (the "EFFECTIVE DATE"). The Company will register (a sufficient
number of shares of Common Stock to cover full conversion of the Preferred Stock
and the Warrant) 470,000 shares of Common Stock in the aforedescribed
registration statement. The Registrable Securities shall be reserved and set
aside exclusively for the benefit of the Purchaser and the holders of the
Warrant, as the case may be, and not issued, employed or reserved for anyone
other than the Purchaser and the holders of the Warrant. If the closing price of
the Common Stock is less than $3.00 per share for five (5) consecutive trading
days, then such registration statement will be promptly amended or additional
registration statements will be promptly filed by the Company as necessary to
register additional shares of Common Stock of the Company to allow the public
resale of all Common Stock included in and issuable by virtue of the Registrable
Securities. No securities of the Company other than the Registrable Securities
will be included in the registration statement described in this Section 9.1(a).
9.2 REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions hereof to effect the registration of any shares of Registrable
Securities under the Securities Act, the Company will, as expeditiously as
possible:
(a) prepare and file with the SEC a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby (determined as herein provided), and promptly provide to
the holders of Registrable Securities copies of all filings and SEC letters of
comment;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until the later of: (i) six months after the latest exercise period of the
Warrants; or (ii) four years after the Closing Date, and comply with the
provisions of the Securities Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance with
the Seller's intended method of disposition set forth in such registration
statement for such period;
(c) furnish to the Seller, and to each underwriter if any, such
number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request to facilitate the public sale or their disposition of the securities
covered by such registration statement;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
20
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f) immediately notify the Seller and each underwriter under
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
of which the Company has knowledge as a result of which the prospectus contained
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing; and
(g) make available for inspection by the Seller, any underwriter
participating in any distribution pursuant to such registration statement, and
any attorney, accountant or other agent retained by the Seller or underwriter,
all publicly available, non-confidential financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all publicly available,
non-confidential information reasonably requested by the seller, underwriter,
attorney, accountant or agent in connection with such registration statement.
9.3 PROVISION OF DOCUMENTS. In connection with each registration
hereunder, the Purchaser will furnish to the Company in writing such information
and representation letters with respect to itself and the proposed distribution
by it as reasonably shall be necessary in order to assure compliance with
federal and applicable state securities laws.
9.4 NON-REGISTRATION EVENTS. If (i) the registration statement on
Form S-3 or such other form as described in Section 9.1(a) is not filed on or
before the Filing Date or not declared effective on or before the sooner of the
Effective Date, or within three business days of receipt by the Company of a
communication from the SEC that the registration statement described in Section
9.1(a) will not be reviewed, or (iii) if the registration statement described in
Section 9.1(a) is filed and declared effective but shall thereafter cease to be
effective (without being succeeded immediately by an additional registration
statement filed and declared effective) for a period of time which shall exceed
30 days in the aggregate per year but not more than 20 consecutive calendar days
(defined as a period of 365 days commencing on the date the Registration
Statement is declared effective) (each such event referred to in this Section
9.4 is referred to herein as a "NON-REGISTRATION EVENT"), then, for so long as
such Non-Registration Event shall continue, the Company shall pay in cash as
Liquidated Damages to each holder of any Registrable Securities an amount equal
to one percent (1%) per month (prorated accordingly for parts thereof) during
the pendency of such Non-Registration Event of the Stated Value of the Preferred
Stock issued in connection with the Offering, whether or not converted, then
owned of record by such holder or issuable as of or subsequent to the occurrence
of such Non-Registration Event, but no in even more than 130% the unpaid Stated
Value of the Preferred Stock. Payments to be made pursuant to this Section shall
be due and payable immediately upon demand in
21
immediately available funds. It shall be deemed a Non-Registration Event to the
extent that all the Common Stock included in the Registrable Securities and
underlying the Securities is not included in an effective registration statement
as of and after the Effective Date at the conversion prices in effect from and
after the Effective Date. Failure by the Company to pay the Liquidated Damages
as and when due shall be deemed an Event of Default for the purposes of this
Section 9.4.
9.5 EXPENSES. All expenses incurred by the Company in complying with
Section 9, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars,
fees of, and up to $2,500 in disbursements incurred by, one counsel for the
Seller, and costs of insurance are called "REGISTRATION EXPENSES". All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities, including any fees and disbursements of any special
counsel to the Seller beyond those included in Registration Expenses, are called
"SELLING EXPENSES."
The Company will pay all Registration Expenses in connection
with the registration statement under Section 9. All Selling Expenses in
connection with each registration statement under Section 9 shall be borne by
the Seller and may be apportioned among the Sellers in proportion to the number
of shares sold by the Seller relative to the number of shares sold under such
registration statement or as all Sellers thereunder may agree.
9.6 INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of a registration of any Registrable Securities
under the Securities Act pursuant to Section 9, the Company will indemnify and
hold harmless each Seller, each officer of each Seller, each director of each
Seller, each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls any such Seller or underwriter within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which the Seller, or such underwriter or
controlling person 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 was registered under the Securities Act
pursuant to Section 9, any 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
Seller, each such underwriter and each such controlling person for any legal or
other expenses reasonably 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 any such Seller, the
underwriter or any such controlling person in writing specifically for use in
such registration statement or prospectus.
22
(b) In the event of a registration of any of the Registrable
Securities under the Securities Act pursuant to Section 9, the Seller will
indemnify and hold harmless the Company, and each person, if any, who controls
the Company within the meaning of the Securities Act, each officer of the
Company who signs the registration statement and each director of the Company,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer or director 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 Section 9, any 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 officer or director for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder 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 made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of the Registrable
Securities sold by the Seller under such registration statement bears to the
total public offering price of all securities sold thereunder, but not in any
event to exceed the net proceeds received by the Seller from the sale of
Registrable Securities covered by such registration statement.
(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 9.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 9.6(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 reasonably
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 9.6(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
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
23
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 Seller, or any controlling person of the Seller, makes a claim
for indemnification pursuant to this Section 9.6 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 9.6 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of the Seller
or controlling person of the Seller in circumstances for which indemnification
is provided under this Section 9.6; then, and in each such case, the Company and
the Seller 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 Seller 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 Seller 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(f) of the
Securities Act) will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.
10. OFFERING RESTRICTIONS. Except as previously disclosed in the SEC
Reports 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 floorless
variable/floating conversion feature, otherwise known as a "floorless
convertible security" which are or could be (by conversion or registration)
free-trading securities prior to the repayment in full or conversion in full of
the Preferred Stock.
11. SECURITY INTEREST. As a condition of Closing, the Company will
grant to the Purchaser a security interest in its assets pursuant to a Security
Agreement. The Company will also execute all such documents reasonably necessary
to memorialize and further protect the security interest described above.
12. MISCELLANEOUS.
12.1 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; provided, however that the Purchaser may
24
choose to waive this provision and bring an action outside 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. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs. 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.
12.2 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. 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.
12.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, 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.
12.4 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.
12.5 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.
12.6 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
holders of the Securities under the Agreement may be waived only with the
written consent of such holders of Securities. The rights of the holder of
Preferred Stock may be waived only with the written consent of such holder.
12.7 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
25
noncompliance thereafter occurring. It is further agreed that any waiver,
permit, consent or approval of any kind or character on the Purchaser's part of
any breach, default or noncompliance under this Agreement, the Preferred Stock
or the Related Agreements or any waiver on such party's part of any provisions
or conditions of the Agreement, the Certificate of Vote of Directors or the
Related Agreements must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, the Preferred Stock or the Related Agreements, by law or otherwise
afforded to any party, shall be cumulative and not alternative.
12.8 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party to be notified, (b) when sent by confirmed telex or 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, with a copy to
Ellenoff ▇▇▇▇▇▇▇▇ and Schole LLP, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq. Facsimile number (▇▇▇) ▇▇▇-▇▇▇▇ and to the
Purchaser at the address set forth on the signature page hereto for such
Purchaser, with a copy in the case of the Purchaser to ▇▇▇▇ ▇▇▇▇▇▇, Esq., ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, facsimile number (212)
541-4434, or at such other address as the Company or the Purchaser may designate
by ten days advance written notice to the other parties hereto.
12.9 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
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
12.10 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.
12.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
12.12 BROKER'S FEES. Each party hereto represents and warrants that
no agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein, except as specified herein with respect to
the Purchaser. Each party hereto further agrees to indemnify each other party
for any claims, losses or expenses incurred by such other party as a result of
the representation in this Section 12.12 being untrue.
26
12.13 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.
[Remainder of page intentionally left blank.]
27
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
IMPLANT SCIENCES CORPORATION LAURUS MASTER FUND, LTD.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ GRIN
------------------------------ ---------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Name:
Title: President Address: LAURUS MASTER FUND, LTD.
Address: c/o Ironshore Corporate Services Ltd.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ #▇ ▇.▇. ▇▇▇ ▇▇▇▇ G.T., Queensgate House,
Wakefield, Massachusetts 01880 ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
28
LIST OF EXHIBITS
Form of Offering Certificate of Vote of Directors Exhibit A
Form of Warrant Exhibit B
Form of Opinion Exhibit C
EXHIBIT A
CERTIFICATE OF VOTE OF DIRECTORS
EXHIBIT B
FORM OF WARRANT
EXHIBIT C
FORM OF OPINION
PLEASE USE FORM OF OPINION DELIVERD IN LAST TRANSACTION
TABLE OF CONTENTS
PAGE
----
1. AGREEMENT TO SELL AND PURCHASE.........................................................................1
2. FEES AND WARRANT.......................................................................................2
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................................................................................9
4.19 Full Disclosure..............................................................................10
4.20 Insurance....................................................................................10
4.21 SEC Reports..................................................................................10
4.22 No Market Manipulation.......................................................................10
4.23 Listing......................................................................................10
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PAGE(S)
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4.24 No Integrated Offering.......................................................................11
4.25 Stop Transfer................................................................................11
4.26 Dilution.....................................................................................11
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER............................................11
5.1 Requisite Power and Authority................................................................11
5.2 Investment Representations...................................................................11
5.3 Purchaser Bears Economic Risk................................................................12
5.4 Acquisition for Own Account..................................................................12
5.5 Purchaser Can Protect Its Interest...........................................................12
5.6 Accredited Investor..........................................................................12
5.7 Legends......................................................................................12
5.8 Security Interest............................................................................13
5.9 Prospectus...................................................................................13
5.10 Preferred Stock Certificate..................................................................13
5.11 Certain Trading Restrictions.................................................................13
5.12 Reporting Requirements.......................................................................14
6. COVENANTS OF THE COMPANY..............................................................................14
6.1 Stop-Orders..................................................................................14
6.2 Listing......................................................................................14
6.3 Market Regulations...........................................................................14
6.4 Reporting Requirements.......................................................................14
6.5 Use of Funds.................................................................................15
6.6 Access to Facilities.........................................................................15
6.7 Taxes........................................................................................15
6.8 Insurance....................................................................................15
6.9 Books and Records............................................................................16
6.10 Intellectual Property........................................................................16
6.11 Confidentiality..............................................................................16
6.12 Corporate Existence..........................................................................16
6.13 Reissuance of Securities.....................................................................16
6.14 Opinion......................................................................................16
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6.15 Financial Covenants................................................ERROR! BOOKMARK NOT DEFINED.
7. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION......................................17
7.1 Company Indemnification......................................................................17
7.2 Purchaser's Indemnification..................................................................17
7.3 Procedures...................................................................................17
8. CONVERSION OF PREFERRED STOCK.........................................................................17
8.1 Mechanics of Conversion......................................................................17
8.2 Maximum Conversion...........................................................................19
8.3 Optional Redemption..........................................................................19
9. REGISTRATION RIGHTS...................................................................................19
9.1 Registration Rights Granted..................................................................19
9.2 Registration Procedures......................................................................20
9.3 Provision of Documents.......................................................................21
9.4 Non-Registration Events......................................................................21
9.5 Expenses.....................................................................................22
9.6 Indemnification and Contribution.............................................................22
10. OFFERING RESTRICTIONS.................................................................................24
11. SECURITY INTEREST.....................................................................................24
12. MISCELLANEOUS.........................................................................................24
12.1 Governing Law................................................................................24
12.2 Survival.....................................................................................25
12.3 Successors and Assigns.......................................................................25
12.4 Entire Agreement.............................................................................25
12.5 Severability.................................................................................25
12.6 Amendment and Waiver.........................................................................25
12.7 Delays or Omissions..........................................................................25
12.8 Notices......................................................................................26
12.9 Attorneys' Fees..............................................................................26
12.10 Titles and Subtitles.........................................................................26
iii
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12.11 Counterparts.................................................................................26
12.12 Broker's Fees................................................................................26
12.13 Construction.................................................................................27
iv