EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of July
27, 2006 among Diomed Holdings, Inc., a Delaware corporation (the "Company"),
and each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a "Purchaser").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, Securities of the Company.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
In addition to the terms defined elsewhere in this Agreement, the
following terms shall have the following meanings:
"2005 Annual Report" shall have the meaning set forth in Section
3.1(h).
"2005 Preferred Stock" means the Company's Preferred Stock, par
value $0.001, established under a certificate of designations filed with
the Secretary of State of Delaware on September 30, 2005 and issued by the
Company to the purchasers thereof on September 30, 2005.
"2005 Purchase Agreement" means that certain Securities Purchase
Agreement entered into on September 30, 2005 among the Company and the
purchasers identified on the signature pages thereto.
"2006 Preferred Stock" means the Series 2006 Preferred Stock of the
Company, par value $0.001 per share, to be purchased and sold pursuant to
this Agreement, and any securities into which such preferred stock shall
hereinafter have been reclassified into, which preferred stock shall have
those rights and preferences as are set forth in the Certificate of
Amendment.
"2005 Stockholder Waiver" means, as to any Purchaser that holds 2005
Preferred Stock and elects not to exercise its MFN Rights with respect
thereto, the waiver, in the form attached hereto as Exhibit C, of certain
of such Purchaser's rights in connection with the 2005 Preferred Stock.
"Action" shall have the meaning ascribed to such term in Section
3.1(j).
"Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed
under Rule 144 under the Securities Act. With respect to a Purchaser, any
investment fund or managed account that is managed on a discretionary
basis by the same investment manager as such Purchaser will be deemed to
be an Affiliate of such Purchaser.
"Certificate of Amendment" means the Certificate of Amendment to the
Company's Certificate of Incorporation, authorizing the 2006 Preferred
Stock and setting forth the powers, designations, preferences and rights
of the 2006 Preferred Stock, substantially in the form of Exhibit A.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers' obligations
to pay the Issue Amount and (ii) the Company's obligations to deliver the
Securities have been satisfied or waived.
"Closing Price" means, for any date, the price determined by the
first of the following clauses that applies: (a) if the Common Stock is
then listed or quoted on a Trading Market, the closing bid price of the
Common Stock for such date (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by
Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern
Time to 4:00 p.m. Eastern Time); (b) if the Common Stock is not then
listed or quoted on a Trading Market and if prices for the Common Stock
are then quoted on the OTC Bulletin Board, the closing bid price of the
Common Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board; (c) if the Common Stock is not then listed or quoted on
the OTC Bulletin Board and if prices for the Common Stock are then
reported in the "Pink Sheets" published by the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (d) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser
selected in good faith by the Purchasers and reasonably acceptable to the
Company.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value
$0.001 per share, and any securities into which such common stock shall
hereinafter have been reclassified into.
"Company Counsel" means McGuireWoods LLP, with offices at 1345
Avenue of the ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇.
"DB&R" shall have the meaning set forth in Section 5.18.
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"Debentures" means the Company's Variable Rate Convertible
Debentures due October 25, 2008.
"Disclosure Schedules" shall have the meaning ascribed to such term
in Section 3.1 hereof.
"Distributions" shall have the meaning ascribed to such term in the
Certificate of Amendment.
"Effective Date" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"8-K Filing" shall have the meaning set forth in Section 4.8.
"Evaluation Date" shall have the meaning set forth in Section
3.1(t).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Price" shall mean One Dollar Fifteen Cents ($1.15) per
share of Common Stock when Exchanged for 2006 Preferred Stock under the
Certificate of Amendment (subject to adjustment as provided thereunder).
"Exempt Issuance" means the issuance of: (a) shares of Common Stock
or options to employees, officers, directors or consultants of the Company
pursuant to any stock or option plan duly adopted by the stockholders of
the Company in any amount or outside of any such plan in an amount not to
exceed 100,000 shares of Common Stock (or the equivalent thereof) in any
fiscal year of the Company; (b) securities issued by the Company upon the
exercise, exchange or conversion of or adjustment in respect of (i) any
securities issued hereunder or as contemplated by this Agreement, (ii) any
Existing Securities Rights or (iii) antidilution adjustments and
adjustments in the event of stock splits, stock dividends,
recapitalizations and similar events in respect of the 2006 Preferred
Stock or any other securities hereafter issued by the Company; (c)
securities issued pursuant to acquisitions or strategic transactions;
provided, that any such issuance shall only be to a Person which is,
itself or through its subsidiaries, an operating company in a business
synergistic with the business of the Company and in which the Company
receives benefits in addition to the investment of funds, but shall not
include a transaction in which the Company is issuing securities primarily
for the purpose of raising capital or to an entity whose primary business
is investing in securities; and (d) securities issued as consideration for
investment banking, financial advisory and/or brokerage services in
connection with the purchase and sale of the 2006 Preferred Stock
hereunder.
"Existing Securities Rights" means (i) the rights, as of the date of
this Agreement, of the holders of any exchangeable or convertible
securities, options or warrants issued and outstanding on the date of this
Agreement in respect of antidilution adjustments and adjustments in the
event of stock splits, stock dividends, recapitalizations and similar
events; (ii) the rights, as of the date of this Agreement, of the holders
of 2005 Preferred Stock to exchange their shares of 2005 Preferred Stock
for shares of 2006 Preferred Stock hereunder, in accordance with Section
4.16 of the 2005 Purchase Agreement (the "MFN Rights"); and (iii) any
right of first refusal, preemptive right, right of participation, or any
similar right, in each case as of the date of this Agreement, but only, in
each such case, to the extent that such rights are described in Schedule
3.1(g).
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"GAAP" shall have the meaning ascribed to such term in Section
3.1(h) hereof.
"Hazardous Substances" shall have the meaning set forth in Section
3.1(ii).
"Inspectors" shall have the meaning set forth in Section 4.26.
"Intellectual Property Rights" shall have the meaning set forth in
Section 3.1(o).
"Issue Amount" means, as to each Purchaser, the aggregate amount to
be paid by such Purchaser (including through the exchange of shares of
2005 Preferred Stock as contemplated in Section 2.1) for the 2006
Preferred Stock purchased hereunder as specified on Schedule 1 hereto (as
the same may be adjusted as of the Closing Date to reflect exercises of
Existing Securities Rights after the date hereof, as contemplated by
Section 2.1(b)) under the column with the heading "Total Issue Amount,"
which amount is stated in United States Dollars.
"Issue Price" means $11,500 per share of 2006 Preferred Stock.
"Key Employee" shall have the meaning set forth in Section 3.1(k).
"Knowledge" (including any derivation thereof) means, (i) with
respect to an individual, that (A) such individual is actually aware of a
particular fact or other matter and (B) a prudent Person could be expected
to discover or otherwise become aware of a particular fact or other matter
in the course of conducting a reasonably comprehensive investigation
concerning the existence of such fact or other matter, and (ii) with
respect to a Person other than an individual, that any individual who is
serving, or who at any relevant time pertaining to a particular fact or
other matter served, as a director or officer of such Person has, or at
such relevant time had, Knowledge of a particular fact or other matter.
"Legend Removal Date" shall have the meaning set forth in Section
4.1(d).
"Liens" means a lien, charge, security interest, encumbrance, right
of first refusal, preemptive right or other restriction of any kind or
nature.
"Limitation(s) on Ownership" shall have the meaning set forth in
Section 4.17.
"Liquidated Damages Cap" means 25% of the aggregate Issue Amount
paid by the Purchasers for the 2006 Preferred Stock issued and sold
hereunder.
"Liquidating Event" shall have the meaning assigned to such term in
the Certificate of Amendment.
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"MFN Rights" shall have the meaning assigned to such term in the
definition of the term "Existing Securities Rights."
"Material Adverse Change" shall mean any of the matters set forth in
clauses (i) through (xi) of Section 3.1(i) hereof.
"Material Adverse Effect" shall have the meaning assigned to such
term in Section 3.1(b) hereof.
"Material Contract" shall have the meaning set forth in Section
3.1(h).
"Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).
"Observer" shall have the meaning set forth in Section 4.7.
"Par Warrant" shall have the meaning set forth in Section 4.17.
"Participation Maximum" shall have the meaning set forth in Section
4.15.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind. "Preferred Stock
Participating Purchasers" shall have the meaning ascribed to such term in
Section 4.15.
"Pre-Notice" shall have the meaning set forth in Section 4.15.
"Press Release" shall have the meaning set forth in Section 4.8.
"Pro Rata Portion" shall have the meaning set forth in Section 4.15.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Proceeds" shall have the meaning ascribed to such term in the
Certificate of Amendment.
"Purchaser Party" shall have the meaning set forth in Section 4.13.
"Qualified Equity Financing" means any transaction undertaken by the
Company to raise funds for general working capital purposes in exchange
for the sale of its equity securities or any other securities that may be
converted into or exchanged for its equity securities or on the exercise
of which its equity securities may be purchased, with or without
additional consideration. For the avoidance of doubt, a Qualified Equity
Financing shall not include any issuance of shares by the Company where
such issuance either (i) constitutes an Exempt Issuance, (ii) is made upon
the exercise of warrants, conversion of Debentures or exchange of shares
of 2005 Preferred Stock outstanding on the date hereof, (iii) is made in
exchange for services provided to the Company or its Subsidiaries, so long
as the value of the shares issued do not exceed $500,000 for any one
service provider or $2,000,000 in the aggregate, (iv) to any underwriter
or financial advisor to the Company or its Subsidiaries or (v) in any
transaction the purpose of which shall be for the Company or any
Subsidiary to acquire the business of another entity and not for the
primary purpose of raising additional capital.
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"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Closing Date, by and among the Company and the
Purchasers, in the form of Exhibit B attached hereto.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering
the resale of the Underlying Shares by each Purchaser as provided for in
the Registration Rights Agreement.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Required Minimum" means, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in
the future pursuant to the Transaction Documents, including any Underlying
Shares issuable upon the exchange of all 2006 Preferred Stock, ignoring
any exchange, conversion or exercise limits set forth therein, determined
on the basis of the Exchange Rate (as defined in the Certificate of
Amendment), in each case as in effect on the Trading Day immediately prior
to the date of determination.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h) hereof.
"Securities" means the 2006 Preferred Stock and the Underlying
Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Select SEC Reports" shall have the meaning set forth in Section
3.1(h).
"Stockholder Approval" means, to the extent such approval is
determined to be required in the Company's reasonable discretion upon the
advice of its counsel, (i) the approval of the stockholders of the Company
pursuant to the applicable rules and regulations of the applicable Trading
Market (or any successor entity) with respect to the transactions
contemplated by the Transaction Documents, including without limitation
(i) the issuance of all of the Underlying Shares in excess of 19.9% for
less than the greater of book or market value of the Common Stock and (ii)
the amendment of the Company's Certificate of Incorporation to (a)
authorize the Preferred Stock having the powers, designations, preferences
and rights set forth in the Certificate of Amendment and (b) increase the
number of shares of Common Stock that the Company is authorized to issue
from the current 50,000,000 shares to 60,000,000 shares and (iii) any
other matters that may reasonably be determined necessary in order to
comply with the rules of the applicable Trading Market.
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"Subsequent Financing" shall have the meaning ascribed to such term
in Section 4.15.
"Subsequent Financing Notice" shall have the meaning set forth in
Section 4.15.
"Subsidiary" means any subsidiary of the Company as set forth on
Schedule 3.1(a).
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the Nasdaq SmallCap Market, the American Stock Exchange, the New York
Stock Exchange or the Nasdaq National Market.
"Transaction Documents" means this Agreement, the Certificate of
Amendment, the Registration Rights Agreement, the Par Warrants and any
other documents or agreements executed in connection with the transactions
contemplated hereunder.
"Underlying Shares" means the shares of Common Stock issuable upon
exchange of the 2006 Preferred Stock pursuant to the Certificate of
Amendment and upon exercise of the Par Warrants pursuant to the terms
thereof.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing.
(a) On the Closing Date, upon the terms and subject to the conditions set
forth herein, concurrent with the execution and delivery of this Agreement by
the parties hereto, the Company agrees to sell, and each Purchaser agrees to
purchase in the aggregate, severally and not jointly, its respective Issue
Amount of 2006 Preferred Stock, at the purchase price of Eleven Thousand Five
Hundred Dollars ($11,500.00) per share. 2006 Preferred Stock shall be purchased
and sold hereunder. Each Purchaser shall deliver to the Company: (i) immediately
available funds equal to the "Purchased Issue Amount" set forth on Schedule 1
for such Purchaser, via wire transfer or certified check, (ii) the number of
shares of 2005 Preferred Stock set forth on Schedule 1 for such Purchaser for
exchange pursuant to the MFN Rights of such Purchaser, or (iii) both of the
foregoing, as applicable; and the Company shall deliver to each Purchaser its
respective shares of 2006 Preferred Stock at the Closing. There shall be a
single Closing at which all purchases and sales of shares hereunder shall be
made concurrently on the same Trading Date. Upon satisfaction of the conditions
set forth in Section 2.2, the Closing shall occur at the offices of Company
Counsel, McGuireWoods LLP, located in New York, New York, or at such other
location as the parties shall mutually agree.
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(b) In the event that a holder of shares of 2005 Preferred Stock (whether
or not a Purchaser hereunder) delivers notice to the Company, pursuant to
Section 4.16 of the 2005 Purchase Agreement, of its election to exercise its MFN
Rights at any time after the date of this Agreement and prior to the Closing,
(i) Schedule 1 shall be modified accordingly to reflect the additional Issue
Amount to be purchased by such holder and (ii) if such holder was not previously
a Purchaser under this Agreement, such holder shall execute and deliver to the
Company a counterpart to this Agreement and thereby be deemed a Purchaser
hereunder. Within one Business Day following its receipt of the election notice
from such holder of its MFN Rights, the Company shall provide notice to SDS
Capital Group SPC, Ltd. of the terms of such exercise of MFN Rights (including
the Issue Amount to be purchased by such holder in connection therewith). In the
event that the Issue Amount to be purchased by SDS Capital Group SPC, Ltd. at
the Closing would constitute less than 51% of the aggregate Issue Amount to be
purchased at the Closing for cash (excluding shares of 2006 Preferred Stock
issued upon exchange of 2005 Preferred Stock pursuant to MFN Rights) by all
Purchasers, then SDS Capital Group SPC, Ltd. shall have the option to purchase
for cash such number of additional shares of 2006 Preferred Stock as would
permit SDS Capital Group SPC, Ltd. to purchase for cash at least 51% of the
aggregate Issue Amount to be purchased at the Closing for cash (excluding shares
of 2006 Preferred Stock issued upon exchange of 2005 Preferred Stock pursuant to
MFN Rights) by all Purchasers.
2.2 Deliveries.
(a) On the Closing Date, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) certificates evidencing the shares of 2006 Preferred Stock
purchased by each Purchaser (including through the exchange of
shares of 2005 Preferred Stock pursuant to the MFN Rights of
such Purchaser);
(iii) the Registration Rights Agreement duly executed by the
Company;
(iv) a copy of the Certificate of Amendment as filed with the
Secretary of State of the State of Delaware on or prior to the
Closing Date, certified by the Secretary of State of Delaware;
(v) a legal opinion of Company Counsel, substantially in the form
of Exhibit D attached hereto; and
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(vi) a copy of resolutions, duly adopted by the Board of Directors
of the Company, which shall be in full force and effect at the
time of the Closing, authorizing the execution, delivery and
performance by the Company of this Agreement and the other
Transaction Documents and the consummation by the Company of
the transactions contemplated hereby and thereby, certified as
such by the Secretary or Assistant Secretary of the Company,
and such other documents they reasonably request in connection
with the Closing.
(b) On the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's "Purchased Issue Amount" by wire transfer to
the account as specified in writing by the Company and, if
such Purchaser is a holder of 2005 Preferred Stock and has
elected to exercise its MFN Rights, the share certificate
representing the shares of 2005 Preferred Stock being
exchanged for shares of 2006 Preferred Stock pursuant to such
MFN Rights;
(iii) if such Purchaser is a holder of 2005 Preferred Stock and has
not elected to exercise its MFN Rights, the 2005 Stockholder
Waiver, duly executed by such Purchaser; and
(iv) the Registration Rights Agreement duly executed by such
Purchaser.
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the Company shall have obtained written confirmations and
waivers from holders of Existing Securities Rights as
described in Schedule 2.3(a)(i);
(ii) the representations and warranties of the Purchasers contained
herein shall be true and correct;
(iii) all obligations, covenants and agreements of the Purchasers
required to be performed, satisfied or complied with at or
prior to the Closing Date shall have been performed, satisfied
or complied with;
(iv) Stockholder Approval shall have been obtained; and
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(v) the delivery by the Purchasers of the items set forth in
Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in connection
with the Closing are subject to the following conditions being met:
(i) the representations and warranties of the Company contained
herein shall be true and correct;
(ii) all obligations, covenants and agreements of the Company
required to be performed, satisfied or complied with at or
prior to the Closing Date shall have been performed, satisfied
or complied with;
(iii) the Company shall have duly adopted the Certificate of
Amendment and filed the Certificate of Amendment with the
Secretary of State of the State of Delaware;
(iv) the delivery by the Company of the items set forth in Section
2.2(a) of this Agreement;
(v) there shall have been no Material Adverse Change with respect
to the Company since the date hereof; and
(vi) from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission
(except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated
prior to the Closing), and, at any time prior to the Closing
Date, trading in securities generally as reported by Bloomberg
Financial Markets shall not have been suspended or limited, or
minimum prices shall not have been established on securities
whose trades are reported by such service, or on any Trading
Market, nor shall a banking moratorium have been declared
either by the United States or New York State authorities;
(vii) the Company shall have obtained written confirmations and
waivers from holders of Existing Securities Rights as
described in Schedule 2.3(a)(i); and
(viii) Stockholder Approval shall have been obtained.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the "Disclosure Schedules"), which Disclosure
Schedules shall be deemed a part hereof, the Company hereby represents and
warrants as of the date hereof and as of the Closing Date to each Purchaser as
follows:
(a) Subsidiaries. All of the direct and indirect Subsidiaries of the
Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are
fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities. If the Company has no Subsidiaries,
then references in the Transaction Documents to the Subsidiaries will be
disregarded.
(b) Organization and Qualification. Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization (as applicable), with the requisite
power and authority to own and use its properties and assets and to carry
on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing
as a foreign corporation or other entity in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in
good standing, as the case may be, could not have or reasonably be
expected to result in a Material Adverse Effect. For purposes of this
Agreement, "Material Adverse Effect" means any effect which, individually
or in the aggregate with all other effects reasonably would be expected to
be materially adverse to (i) the legality, validity or enforceability of
any Transaction Document, (ii) the results of operations, assets,
business, prospects or financial condition of the Company and the
Subsidiaries, taken as a whole, or (iii) the Company's ability to perform
on a timely basis its obligations under any Transaction Document. To the
Company's Knowledge, no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit
or curtail such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents to issue
and sell the 2006 Preferred Stock in accordance with the terms hereof and
to issue the Underlying Shares upon exchange of the 2006 Preferred Stock
in accordance with the terms thereof; and otherwise to carry out its
obligations thereunder. The execution, delivery and performance of each of
the Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby (including, without limitation, the
issuance of the 2006 Preferred Stock and the issuance and reservation for
issuance of the Underlying Shares) have been duly authorized by all
necessary action on the part of the Company and no further action is
required by the Company, its board of directors or any committee of the
board of directors, in connection therewith other than in connection with
the Required Approvals. Each Transaction Document has been (or upon
delivery will have been) duly executed by the Company and, when delivered
in accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance
with its terms. Neither the execution, delivery or performance by the
Company of its obligations under the Transaction Documents, nor the
consummation by it of the transactions contemplated thereby (including,
without limitation, the issuance of the 2006 Preferred Stock or the
issuance or reservation for issuance of the Underlying Shares) requires
any consent or authorization of the Company's stockholders.
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(d) No Conflicts. Except as described in Schedule 3.1(d), the
execution, delivery and performance of the Transaction Documents by the
Company and the consummation by the Company of the other transactions
contemplated thereby (including, without limitation, the issuance of the
2006 Preferred Stock and the issuance and reservation for issuance of the
Underlying Shares) do not and will not: (i) conflict with or violate any
provision of the Company's or any Subsidiary's certificate or articles of
incorporation, bylaws or other organizational or charter documents, or
(ii) conflict with, or constitute a default (or an event that with notice
or lapse of time or both would become a default) under, result in the
creation of any Lien upon any of the properties or assets of the Company
or any Subsidiary, or give to others any rights of termination, amendment
(including, without limitation, the triggering of any anti-dilution
provisions), acceleration or cancellation (with or without notice, lapse
of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) to which
the Company or any Subsidiary is a party or by which any property or asset
of the Company or any Subsidiary is bound or affected, or (iii) subject to
the Required Approvals, conflict with or result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction
of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws, rules
and regulations and rules and regulations of any self-regulatory
organizations to which either the Company or its securities are subject),
or by which any property or asset of the Company or a Subsidiary is bound
or affected, or (iv) conflict with or violate the terms of any agreement
by which the Company or any Subsidiary is bound or to which any property
or asset of the Company or any Subsidiary is bound or affected; except in
the case of each of clauses (ii) through (iv), such as could not have or
reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. Except as set forth on Schedule
3.1(e), the Company is not required to obtain any consent, waiver,
authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents,
other than (i) Stockholder Approval; (ii) the filing of the Certificate of
Amendment, (iii) filings required pursuant to Section 4.8, (iv) the filing
with the Commission of the Registration Statement, (v) the notice and/or
application(s) to each applicable Trading Market for the issuance and sale
of the 2006 Preferred Stock and the listing of the Underlying Shares and
(vi) the filing of Form D with the Commission and such filings as are
required to be made under applicable state securities or "blue sky" laws
(collectively, the "Required Approvals").
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(f) Issuance of the Securities. Except as described in Schedule
3.1(f), the Securities are duly authorized and, when issued and paid for
in accordance with the applicable Transaction Documents, (i) will be duly
and validly issued, fully paid and nonassessable, free and clear of all
Liens other than restrictions on transfer provided for in the Transaction
Documents, (ii) except as described on Schedule 3.1(f), will not be
subject to preemptive rights, rights of first refusal or other similar
rights of stockholders of the Company or any other person and (iii) will
not impose personal liability on the holder thereof. As of the Closing
Date, the Company will have reserved from its duly authorized capital
stock a number of shares of Common Stock for issuance of the Underlying
Shares at least equal to 125% of the Required Minimum on the date hereof.
The Company has not, and to the Knowledge of the Company, no Affiliate of
the Company has sold, offered for sale or solicited offers to buy or
otherwise negotiated in respect of any security (as defined in Section 2
of the Securities Act) that would be integrated with the offer or sale of
the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers, or that
would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Trading Market.
(g) Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares
issued and outstanding, the number of shares issuable and reserved for
issuance pursuant to the Company's stock option plans, the number of
shares issuable and reserved for issuance pursuant to securities (other
than the 2006 Preferred Stock) exercisable or exchangeable for, or
convertible into, any shares of capital stock and the number of shares to
be reserved for issuance upon exchange of the 2006 Preferred Stock is set
forth in Schedule 3.1(g). Schedule 3.1(g) describes all Existing
Securities Rights as of the date of this Agreement and identifies the
holders (or class or similar description of holders similarly situated) of
such Existing Securities Rights. Except as described in Schedule 3.1(g),
no Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as described in Schedule
3.1(g), and except as a result of the purchase and sale of the Securities,
there are no outstanding options, warrants, script, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or
acquire, any shares of capital stock of the Company or any Subsidiary, or
contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional
shares of capital stock of the Company or any Subsidiary, or securities or
rights convertible or exchangeable into shares of capital stock of the
Company or any Subsidiary nor are any such issuances, contracts,
commitments, understandings or arrangements contemplated. Except for the
Securities and as set forth in Schedule 3.1(g), (i) there are no
contracts, commitments, understandings or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of
any of its or their securities under the Securities Act (except the
Registration Rights Agreement); and (ii) there are no outstanding
securities or instruments of the Company or any of its Subsidiaries which
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of
its Subsidiaries is or may become bound to redeem or otherwise acquire any
security of the Company or any of its Subsidiaries. The issuance and sale
of the Securities will not obligate the Company to issue shares of Common
Stock or other securities to any Person (other than the Purchasers) and
will not result in a right of any holder of Company securities to adjust
the exercise, conversion, exchange or reset price under such securities,
and all such securities or instruments are set forth on Schedule 3.1(g).
All of the outstanding shares of capital stock of the Company are validly
issued, fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws, and none of such outstanding shares
was issued in violation of any preemptive rights or similar rights to
subscribe for or purchase securities. Except as contemplated by the
Transaction Documents with respect to the applicable rules and regulations
of the American Stock Exchange (or any successor entity), no further
approval or authorization of any stockholder, the Board of Directors of
the Company or others is required for the issuance and sale of the
Securities. Except as disclosed in the SEC Reports, there are no
stockholders agreements, voting agreements or other similar agreements
with respect to the Company's capital stock to which the Company is a
party or, to the Knowledge of the Company, between or among any of the
Company's stockholders.
13
(h) SEC Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be
filed by it under the Securities Act and the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, since February 14, 2002 (the
foregoing materials, including the exhibits thereto, being collectively
referred to herein as the "SEC Reports") on a timely basis or has received
a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. The SEC Reports,
after giving effect to all amendments filed thereon, complied in all
material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
None of the statements made in any such SEC Report is, or has been,
required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings made
prior to the date hereof). The financial statements of the Company
included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
during the periods involved ("GAAP"), except as may be otherwise specified
in such financial statements or the notes thereto and except that
unaudited financial statements may not contain all footnotes required by
GAAP, and fairly present in all material respects the consolidated
financial position of the Company and its consolidated Subsidiaries as of
and for the dates thereof and the consolidated results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments. To the
extent required by the rules and regulations of the Commission applicable
thereto, the Select SEC Reports contain a complete and accurate list of
all material undischarged written or oral contracts, agreements, leases or
other instruments to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary is bound or to which any of the
properties or assets of the Company or any Subsidiary is subject (each, a
"Material Contract"). Except as set forth in the Select SEC Reports, none
of the Company, its Subsidiaries or, to the best Knowledge of the Company,
any of the other parties thereto is in breach or violation of any Material
Contract, which breach or violation would have a Material Adverse Effect.
For purposes of this Agreement, "Select SEC Reports" means the Company's
(A) Proxy Statement for its 2006 Annual Meeting, (B) Annual Report on Form
10-KSB/A for the fiscal year ended December 31, 2005 (the "2005 Annual
Report"), (C) Quarterly Report on Form 10-QSB for the fiscal quarter ended
▇▇▇▇▇ ▇▇, ▇▇▇▇, (▇) Quarterly Report on Form 10-QSB for the fiscal quarter
ended June 30, 2006 (if the same has been filed by the Company with the
Commission on or prior to the execution and delivery of this Agreement);
and (E) Current Reports on Form 8-K filed with the Commission since March
31, 2006.
14
(i) Material Changes. Except as described in the SEC Reports or
Schedule 3.1(i), since the date of the latest audited financial statements
included within the SEC Reports, except as specifically disclosed in the
SEC Reports:
(i) there has been no event, occurrence or development that
has had or that could reasonably be expected to result
in a Material Adverse Effect;
(ii) the Company has not incurred any liabilities (contingent
or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not
required to be reflected in the Company's financial
statements pursuant to GAAP or required to be disclosed
in filings made with the Commission;
(iii) the Company has not altered its method of accounting;
(iv) the Company has not declared or made any dividend or
distribution of cash or other property to its
stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its
capital stock;
(v) the Company has not issued any equity securities to any
officer, director or Affiliate, except pursuant to
existing Company stock option plans;
(vi) there has been no material damage, destruction or loss,
whether or not covered by insurance to any assets or
properties of the Company or its Subsidiaries;
(vii) there has been no waiver by the Company or any
Subsidiary of a material right or of a material debt
owed to it;
15
(viii) there has been no change or amendment to the Company's
Certificate of Incorporation or by-laws, or material
change to any material contract or arrangement by which
the Company or any subsidiary is bound or to which any
of their respective assets or properties is subject;
(ix) there has been no loss of services of any key employee,
or material change in the composition or duties of the
senior management of the Company or any Subsidiary;
(x) there has been no loss or threatened loss of any
customer which has had or could reasonably be expected
to have a Material Adverse Effect; and
(xi) there has been no material transaction entered into by
the Company or a Subsidiary other than in the ordinary
course of business.
The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy or
receivership law, nor does the Company or any of its Subsidiaries have any
Knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings with respect to the Company or any or
its Subsidiaries.
(j) Litigation. Except as described in the SEC Reports or Schedule
3.1(j), there is no action, suit, inquiry, notice of violation, proceeding
or investigation pending or, to the Knowledge of the Company, threatened
against or affecting the Company, any Subsidiary or any of their
respective properties, or any of their respective directors or officers in
the capacity as such before or by any court, public board, arbitrator,
governmental or administrative agency or regulatory authority (federal,
state, county, local or foreign) (collectively, an "Action"). Except as
described in Schedule 3.1(j), neither the Company nor any Subsidiary, nor
any director or officer thereof, is or has been the subject of any Action
involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. Except as
described in Schedule 3.1(j), there has not been, and to the Knowledge of
the Company, there is not pending or contemplated, any investigation by
the Commission involving the Company or any current or former director or
officer of the Company. Except as described in Schedule 3.1(j), the
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act. Except with
respect to Intellectual Property Rights of the Company, the Company's
representations and warranties as to which are set forth exclusively in
Section 3.1(o), to the Company's Knowledge, there are no facts which, if
known by a potential claimant or governmental authority, could give rise
to a claim or proceeding which, if asserted or conducted with results
unfavorable to the Company or any of its Subsidiaries, could reasonably be
expected to have a Material Adverse Effect.
16
(k) Labor Relations. No material labor dispute exists or, to the
Knowledge of the Company, is imminent with respect to any of the employees
of the Company which could reasonably be expected to result in a Material
Adverse Effect.
Each of the Company's directors and officers and any Key Employee
(as defined below) is currently serving the Company in the capacity
disclosed in the Select SEC Documents or Schedule 3.1(k). No Key Employee
is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary
information agreement, non-competition agreement, or any other contract or
agreement with the Company or any of its Subsidiaries or any restrictive
covenant, and the continued employment of each Key Employee does not
subject the Company or any of its Subsidiaries to any material liability
with respect to any of the foregoing matters. Other than ▇▇▇▇▇ ▇▇▇▇▇▇, who
resigned from the Company's Subsidiary, Diomed, Ltd., on July 10, 2006, as
disclosed in the SEC Reports, no Key Employee has, to the Knowledge of the
Company and its Subsidiaries, any intention to terminate or limit his
employment with, or services to, the Company or any of its Subsidiaries,
nor is any such Key Employee subject to any constraints which would cause
such employee to be unable to devote his full time and attention to such
employment or services. For purposes of this Agreement, "Key Employee"
means the persons listed in Schedule 3.1(k).
(l) Compliance. Except as described in Schedule 3.1(l), neither the
Company nor any Subsidiary (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse
of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice
of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument
to which it is a party or by which it or any of its properties is bound
(whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or
(iii) is or has been in violation of any statute, rule or regulation of
any governmental authority, including without limitation all foreign,
federal, state and local laws applicable to its business except in each
case as could not have a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not have or
reasonably be expected to result in a Material Adverse Effect ("Material
Permits"), and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any
Material Permit.
(n) Title to Assets. Except as described in Schedule 3.1(n), the
Company and the Subsidiaries have good and marketable title in fee simple
to all real property owned by them that is material to the business of the
Company and the Subsidiaries and good and marketable title in all personal
property owned by them that is material to the business of the Company and
the Subsidiaries, in each case free and clear of all Liens, except for
Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent
nor subject to penalties. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the
Subsidiaries are in compliance.
17
(o) Patents and Trademarks. The Company and the Subsidiaries own, or
have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses,
permits, inventions, discoveries, processes, scientific, technical,
engineering and marketing data, object and source codes, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures) and other
similar rights and proprietary knowledge necessary or material for use in
connection with their respective businesses as described in the SEC
Reports (collectively, the "Intellectual Property Rights"). Except as
described in Schedule 3.1(o), neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by
the Company or any Subsidiary violates or infringes upon the rights of any
Person. To the Knowledge of the Company, except as described in Schedule
3.1(o), there is no existing infringement by another Person of any of the
Company's Intellectual Property Rights. Neither the Company nor any of its
Subsidiaries has entered into any consent agreement, indemnification
agreement, forbearance to ▇▇▇ or settlement agreement with respect to the
validity of the Company's or its Subsidiaries' ownership of or right to
use its Intellectual Property Rights and there is no reasonable basis for
any such claim to be successful. Except as described on Schedule 3.1(o),
to the Knowledge of the Company, the Intellectual Property Rights are
valid and enforceable and no registration relating thereto has lapsed,
expired or been abandoned or canceled or is the subject of cancellation or
other adversarial proceedings, and all applications therefor are pending
and in good standing, the failure of which could have or reasonably be
expected to result in a Material Adverse Effect. The Company and its
Subsidiaries have complied, in all material respects, with their
respective contractual obligations relating to the protection of the
Intellectual Property Rights used pursuant to licenses.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which the Company and the Subsidiaries are engaged. No default or event
has occurred that could give rise to a default under any of its insurance
policies. To the best of Company's Knowledge, such insurance contracts and
policies are accurate and complete. Neither the Company nor any Subsidiary
has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as set forth
in the SEC Reports, none of the officers, directors or employees of the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any
officer, director or such employee, or, to the Knowledge of the Company,
any entity in which any officer, director, or employee has a substantial
interest or is an officer, director, trustee or partner, other than (i)
for reimbursement for expenses incurred on behalf of the Company and (ii)
for other employee benefits, including stock option agreements under any
stock option plan of the Company.
18
(r) ▇▇▇▇▇▇▇▇-▇▇▇▇▇; Internal Accounting Controls. The Company is in
material compliance with all provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002
which are applicable to it as of the Closing Date. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed
such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made
known to the certifying officers by others within those entities,
particularly during the period in which the Company's most recently filed
periodic report under the Exchange Act, as the case may be, is being
prepared. The Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures as of the date
prior to the filing date of the most recently filed periodic report under
the Exchange Act (such date, the "Evaluation Date"). The Company presented
in its most recently filed periodic report under the Exchange Act the
conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company's internal controls (as such term is defined in
Item 307(b) of Regulation S-K under the Exchange Act) or, to the Company's
Knowledge, in other factors that could significantly affect the Company's
internal controls.
(s) Certain Fees. Except as described in Schedule 3.1(s), no
brokerage or finder's fees or commissions are or will be payable by the
Company to any broker, financial advisor or consultant, finder, placement
agent, investment banker, bank or other Person with respect to the
transactions contemplated by this Agreement. Except as described in
Schedule 3.1(s), the Purchasers shall have no obligation with respect to
any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement.
19
(t) Private Placement. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, no registration
under the Securities Act or any state securities laws is required for the
offer and sale of the Securities by the Company to the Purchasers as
contemplated hereby. The issuance and sale of the Securities hereunder
does not contravene the rules and regulations of the Trading Market or any
state securities laws.
(u) Investment Company. The Company is not, and is not an Affiliate
of, an "investment company" within the meaning of the Investment Company
Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act.
(v) Registration Rights. Except as described in Schedule 3.1(v), no
Person has any right to cause the Company to effect the registration under
the Securities Act of any securities of the Company.
(w) Listing and Maintenance Requirements. The Company's Common Stock
is registered pursuant to Section 12(b) of the Exchange Act, and the
Company has taken no action designed to, or which to its Knowledge is
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that the Commission is contemplating terminating such registration. The
Company's Common Stock is currently listed for trading on the American
Stock Exchange. Except as described in Schedule 3.1(w), the Company is not
in violation of the listing requirements of the American Stock Exchange.
Except as described in Schedule 3.1(w), the Company has not, in the 12
months preceding the date hereof, received notice from any Trading Market
on which the Common Stock is or has been listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. Except as described in Schedule
3.1(w), the Company is, and has no reason to believe that it will not
continue to be, in compliance with all such listing and maintenance
requirements.
(x) Application of Takeover Protections. The Company and its Board
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other
similar anti-takeover provision under the Company's Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to any Purchaser as a
result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including without
limitation, as a result of the Company's issuance of the Securities and
any and all Purchasers' ownership of the Securities.
(y) Disclosure. The Company confirms that neither it nor, to its
Knowledge, any other Person acting on its behalf has provided any of the
Purchasers or their agents or counsel with any information that
constitutes or might constitute material, nonpublic information, other
than with respect to the specific terms of the transactions contemplated
hereby. The Company understands and confirms that the Purchasers will rely
on the foregoing representations and covenants in effecting transactions
in securities of the Company. All disclosures provided to the Purchasers
regarding the Company, its business and the transactions contemplated
hereby, including the Disclosure Schedules to this Agreement, furnished by
or on behalf of the Company are true and correct and do not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. No event or
circumstance has occurred or exists with respect to the Company or its
Subsidiaries or their respective businesses, properties, prospects,
operations or financial conditions, which has not been publicly disclosed
but, under applicable law, rule or regulation, would be required to be
disclosed by the Company in a registration statement filed on the date
hereof by the Company under the Securities Act with respect to a primary
issuance of the Company's securities.
20
(z) No Integrated Offering. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, neither the
Company, nor any of its Affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances
that would require registration of the Securities or that would cause this
offering of the Securities to be integrated with prior offerings by the
Company for purposes of the Securities Act or any applicable stockholder
approval provisions, including, without limitation, under the rules and
regulations of any exchange or automated quotation system on which any of
the securities of the Company are listed or designated.
(aa) Solvency. Based on the financial condition of the Company as of
the Closing Date after giving effect to the receipt by the Company of the
proceeds from the sale of the Securities hereunder, (i) the Company's fair
saleable value of its assets exceeds the amount that will be required to
be paid on or in respect of the Company's existing debts and other
liabilities (including known contingent liabilities) as they mature; (ii)
the Company's assets do not constitute unreasonably small capital to carry
on its business for the current fiscal year as now conducted and as
proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the
Company, and projected capital requirements and capital availability
thereof; and (iii) the current cash flow of the Company, together with the
proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its debt when such
amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be payable on or in respect of
its debt).
(bb) Tax Status. Except for matters that would not, individually or
in the aggregate, have or reasonably be expected to have a Material
Adverse Effect, the Company and each of its Subsidiaries has made or filed
all foreign, U.S. federal, state, provincial and local income and all
other tax returns, reports and declarations required by any jurisdiction
to which it is subject (unless and only to the extent that the Company and
each of its Subsidiaries has set aside on its books provisions reasonably
adequate for the payment of all unpaid and unreported taxes) and has paid
all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside
on its books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim. The Company
has not executed a waiver with respect to any statute of limitations
relating to the assessment or collection of any foreign, federal, state,
provincial or local tax. None of the Company's income tax returns and,
except to the extent described on Schedule 3.1(bb), to the Company's
Knowledge, none of the Company's other tax returns is presently being
audited by any taxing authority.
21
(cc) No General Solicitation. Neither the Company nor any person
acting on behalf of the Company (including any distributor participating
on the Company's behalf in the transactions contemplated hereby (if any))
has offered or sold any of the Securities by any form of "general
solicitation" (as such term is defined in Regulation D) or general
advertising. The Company has offered the Securities for sale only to the
Purchasers and certain other "accredited investors" within the meaning of
Rule 501 under the Securities Act.
(dd) Foreign Corrupt Practices. Neither the Company, nor any of the
Subsidiaries, nor any director, officer, agent, employee or to the
Knowledge of the Company, other Person acting on behalf of the Company or
any Subsidiary has (i) directly or indirectly, used any corporate funds
for unlawful contributions, gifts, entertainment or other unlawful
expenses related to foreign or domestic political activity, (ii) directly
or indirectly made any unlawful payment to foreign or domestic government
officials or employees or to any foreign or domestic political parties or
campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its
behalf of which the Company is aware) which is in violation of law, (iv)
made any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or
employee, or (v) violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended, where such violations would, individually or in
the aggregate, have or reasonably be expected to have a Material Adverse
Effect.
(ee) Accountants. The Company's accountants are set forth on
Schedule 3.1(ee) of the Disclosure Schedule. Such accountants, who the
Company expects will express their opinion with respect to the financial
statements to be included in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 2006, are independent accountants as
required by the Securities Act.
(ff) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the accountants and lawyers formerly or
presently employed by the Company which individually or in the aggregate
could reasonably be expected to result in a Material Adverse Effect and
the Company is current with respect to any fees owed to its accountants
and lawyers.
22
(gg) Environmental Matters. There is no environmental litigation or
other environmental proceeding pending or, to the Knowledge of the Company
or any of its Subsidiaries, threatened by any governmental regulatory
authority or others with respect to the current or any former business of
the Company or any of its Subsidiaries or any partnership or joint venture
currently or at any time affiliated with the Company or any of its
Subsidiaries. No state of facts exists as to environmental matters or
Hazardous Substances (as defined below) that involves the reasonable
likelihood of a material capital expenditure by the Company or any of its
Subsidiaries that may otherwise have a Material Adverse Effect. The
Company has not, and to the Company's Knowledge no prior Person has
treated, stored or disposed of, or otherwise deposited any Hazardous
Substances in or on the properties owned or leased by the Company or any
of its Subsidiaries or by any partnership or joint venture currently or at
any time affiliated with the Company or any of its Subsidiaries in
violation of any applicable environmental laws. The environmental
compliance programs of the Company and each of its Subsidiaries comply in
all material respects with all applicable environmental laws, whether
foreign, federal, state, provincial or local, currently in effect. For
purposes of this Agreement, "Hazardous Substances" means any substance,
waste, contaminant, pollutant or material that has been determined by any
governmental authority to be capable of posing a risk of injury to health,
safety, property or the environment.
(hh) Form SB-2 Eligibility. The Company is eligible to register the
resale of its Common Stock on a registration statement on Form SB-2 under
the Securities Act. There exist no facts or circumstances that would
prohibit or delay the preparation and filing of a registration statement
on Form SB-2 with respect to the Registrable Securities (as defined in the
Registration Rights Agreement). The Company has no basis to believe that
its past or present independent public auditors will withhold their
consent to the inclusion, or incorporation by reference, of their audit
opinion concerning the Company's financial statements which are included
in the Registration Statement required to be filed pursuant to the
Registration Rights Agreement.
(ii) Acknowledgment Regarding Each Purchaser's Purchase of the
Securities. The Company acknowledges and agrees that, except for those
Purchasers specified in Schedule 3.1(ii), each Purchaser is acting solely
in the capacity of arm's length purchaser with respect to this Agreement
and the other Transaction Documents and the transactions contemplated
hereby and thereby, and that no Purchaser is (i) an officer or director of
the Company, (ii) an "affiliate" of the Company (as defined in Rule 144)
or (iii) a "beneficial owner" of more than 5% of the Common Stock (as
defined for purposes of Rule 13d-3 of the Exchange Act). The Company
further acknowledges that, except for those Purchasers specified in
Schedule 3.1(ii), no Purchaser is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement or the other Transaction Documents and the transactions
contemplated hereby and thereby, and any advice given by a Purchaser or
any of its representatives or agents in connection with this Agreement or
the other Transaction Documents and the transactions contemplated hereby
and thereby is merely incidental to such Purchaser's purchase of the
Securities. The Company further represents to each Purchaser that the
Company's decision to enter into this Agreement and the other Transaction
Documents has been based solely on the independent evaluation by the
Company and its representatives (including its financial advisors engaged
in connection with the transactions contemplated hereby).
23
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by such
Purchaser of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate or similar action on the part
of such Purchaser. Each Transaction Document to which it is a party has
been duly executed by such Purchaser, and when delivered by such Purchaser
in accordance with the terms hereof, will constitute the valid and legally
binding obligation of such Purchaser, enforceable against it in accordance
with its terms, except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(b) Purchaser Representations. Such Purchaser understands that the
Securities are "restricted securities" and have not been registered under
the Securities Act or any applicable state securities law and is acquiring
the Securities as principal for its own account and not with a view to or
for distributing, reselling or offering such Securities or any part
thereof, has no present intention of distributing or offering any of such
Securities and has no arrangement or understanding with any other persons
regarding the distribution of such Securities (this representation and
warranty not limiting such Purchaser's right to sell the Securities
pursuant to the Registration Statement or otherwise in compliance with
applicable federal and state securities laws). Such Purchaser is acquiring
the Securities hereunder in the ordinary course of its business. Such
Purchaser does not have any agreement or understanding, directly or
indirectly, with any Person to distribute or sell any of the Securities.
Each Purchaser further represents and warrants that such Purchaser had a
business relationship with either ▇▇▇▇ Capital Partners LLC or Musket
Research Associates, Inc. prior to its being solicited to purchase
Securities hereunder.
Notwithstanding anything in this Section 3.2(b) to the contrary, by
making the representations herein, such Purchaser does not agree to hold
the Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with or
pursuant to a registration statement or an exemption from the registration
requirements under the Securities Act.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on
which it exchanges any 2006 Preferred Stock it will be either: (i) an
"accredited investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7)
or (a)(8) under the Securities Act or (ii) a "qualified institutional
buyer" as defined in Rule 144A(a) under the Securities Act. Such Purchaser
is not required to be registered as a broker-dealer under Section 15 of
the Exchange Act.
24
(d) Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
(e) Short Sales. Each Purchaser, other than a Purchaser who holds or
has previously held shares of 2005 Preferred Stock, represents that during
the 30 days prior to the execution of this Agreement, neither it nor any
of its Affiliates has made any short sales of, or granted any option for
the purchase of or entered into any hedging or similar transaction with
the same economic effect as a short sale, in the Common Stock. (f) No
General Solicitation. Such Purchaser is not purchasing the Securities as a
result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar
media or broadcast over television or radio or presented at any seminar or
any other general solicitation or general advertisement.
(g) Limit to Representations and Warranties of Purchaser. The
Company acknowledges and agrees that each Purchaser does not make or has
not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth
in this Section 3.2.
(h) Certain Laws. To the Knowledge of such Purchaser, neither the
Purchaser nor (if the Purchaser is an individual) any Person who is a
member of the Purchaser's household or immediate family, nor any Person
who otherwise may have an indirect interest in securities or other
property owned by the Purchaser has been designated as, and that neither
you or any of the foregoing is under the control of, a "suspected
terrorist" as defined in Executive Order 13224. The Purchaser acknowledges
that the Company seeks to comply with all applicable laws covering money
laundering and related activities. In furtherance of those efforts, the
Purchaser hereby represents, warrants and agrees that: to the Knowledge of
such Purchaser (i) none of the cash or property that Purchaser will pay or
will contribute to the Company has been or shall be derived from, or
related to, any activity that is deemed criminal under United States law;
and (ii) no contribution or payment by the Purchaser to the Company, to
the extent that they are within Purchaser's control, shall cause the
Company to be in violation of the Untied States Bank Secrecy Act, the
United States Money Laundering Control Act of 1986 or the Untied States
International Money Laundering Abatement and Anti-Terrorist Financing Act
of 2001.
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Each Purchaser's representations and warranties made in Sections
3.2(b), (c), (d) and (f) are made solely for the purpose of permitting the
Company to make a determination that the offer and sale of the Securities
pursuant to this Agreement comply with applicable U.S. federal and state
securities laws and not for any other purpose. Accordingly, the Company
may not rely on such representations and warranties for any other purpose.
No Purchaser has made or hereby makes any other representations or
warranties, express or implied, to the Company in connection with the
transactions contemplated hereby.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to
the Company or to an Affiliate of a Purchaser or in connection with a
pledge as contemplated in Section 4.1(b), the Company may require the
transferor thereof to provide to the Company an opinion of counsel
selected by the transferor which opinion shall be in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that such transfer does not require registration of such
transferred Securities under the Securities Act. As a condition of
transfer, any such transferee shall agree in writing to be bound by the
terms of this Agreement and shall have the rights of a Purchaser under
this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required
by this Section 4.1(b), of a legend on the 2006 Preferred Stock and the
Underlying Shares in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR WITH THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT
IF SO REQUIRED BY THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
The Company shall, contemporaneously with a registration statement
covering the Securities (including, without limitation, the Registration
Statement contemplated by the Registration Rights Agreement) being
declared effective, deliver to its transfer agent an opinion letter of
counsel, opining that at any time such registration statement is
effective, the transfer agent shall issue, in connection with the issuance
of the Underlying Shares, certificates representing such Underlying Shares
without the restrictive legend above, provided such Underlying Shares are
to be sold pursuant to the prospectus contained in such registration
statement. Upon receipt of such opinion, the Company shall use
commercially reasonable efforts to cause the transfer agent to confirm,
for the benefit of the holders, that no further opinion of counsel is
required at the time of transfer in order to issue such shares without
such restrictive legend and, if such transfer agent requires a further
opinion, the Company shall provide an opinion of its counsel to that
effect, in connection with which each Purchaser hereby agrees that should
the registration statement, the basis for which such non-legended
reissuances were reissued, no longer be effective, such Purchaser will
promptly upon the Company's written request return its shares for
re-legending and reissuance.
26
The Company acknowledges and agrees that a Purchaser may from time
to time pledge, pursuant to a bona fide margin agreement with a registered
broker-dealer, or grant a security interest in, some or all of the Common
Stock to a financial institution that is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and who agrees to be bound
by the provisions of the Transaction Documents and, if required under the
terms of such arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or transfer
would not be subject to approval of the Company and no legal opinion of
legal counsel of the pledgee, secured party or pledgor shall be required
in connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser's expense, the Company will execute
and deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer
of the Securities, including, if the Securities are subject to
registration pursuant to the Registration Rights Agreement, the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of selling stockholders
thereunder.
(c) Certificates evidencing the Underlying Shares shall not contain
any legend (including the legend set forth in Section 4.1(b) hereof): (i)
while a registration statement (including the Registration Statement)
covering the resale of such security is effective under the Securities
Act, or (ii) following any sale of such Underlying Shares pursuant to Rule
144, or (iii) if such Underlying Shares are eligible for sale under Rule
144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission); provided, however,
in connection with the issuance of the Underlying Shares, each Purchaser,
severally and not jointly with the other Purchasers, hereby agrees to
adhere to and abide by all prospectus delivery requirements under the
Securities Act and rules and regulations of the Commission. The Company
shall cause its counsel to issue a legal opinion to the Company's transfer
agent promptly after the Effective Date if required by the Company's
transfer agent to effect the removal of the legend hereunder. If all or
any portion of the 2006 Preferred Stock is exchanged or exercised (as
applicable) at a time when there is an effective registration statement to
cover the resale of the Underlying Shares, or if such Underlying Shares
may be sold under Rule 144(k) or if such legend is not otherwise required
under applicable requirements of the Securities Act (including judicial
interpretations thereof) then such Underlying Shares shall be issued free
of all legends. The Company agrees that at such time as such legend is no
longer required under this Section 4.1(c), it will, no later than three
(3) Trading Days following the delivery by a Purchaser to the Company's
transfer agent of a certificate representing Underlying Shares, issued
with a restrictive legend, together with stock powers that comply with the
requirements of the transfer agent in accordance with its standard
requirements, deliver or cause to be delivered to such Purchaser a
certificate representing such shares that is free from all restrictive and
other legends. The Company may not make any notation on its records or
give instructions to any transfer agent of the Company that enlarge the
restrictions on transfer set forth in this Section. Notwithstanding the
foregoing, the Purchasers agree that, if at any time after the Legend
Removal Date (as defined in Section 4.1(d)) a legend would be legally
required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the
Commission) to be placed upon the certificates evidencing the Underlying
Shares, then, upon reasonable advance written notice to such Purchaser,
the Company may require that the above legend be placed on any such
Security that cannot then be sold pursuant to an effective registration
statement or under Rule 144 and such Purchaser shall cooperate in the
replacement of such legend. Such legend shall thereafter be removed when
such Security may again be sold pursuant to an effective registration
statement or under Rule 144.
27
(d) In addition to such Purchaser's other available remedies,
subject to the Liquidated Damages Cap, the Company shall pay to a
Purchaser, in cash, as partial liquidated damages and not as a penalty,
one percent (1%) of the Issue Amount of the Underlying Shares that are the
subject of such Purchaser's Legend Removal Request for each Trading Day
after the fifth Trading Day following the delivery by such Purchaser to
the Company's transfer agent of a certificate representing the Underlying
Shares, issued with a restrictive legend, together with stock powers that
comply with the requirements of the transfer agent (such fifth Trading Day
being referred to as the "Legend Removal Date"), until the transfer agent
has issued such certificate without a legend. Nothing herein shall limit
such Purchaser's right to pursue actual damages for the Company's failure
to deliver certificates representing any Securities as required by the
Transaction Documents, and such Purchaser shall have the right to pursue
all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company's reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery requirements,
or an exemption therefrom.
4.2 Acknowledgment of Dilution. The transactions contemplated hereby shall
cause the Company to become obligated to issue additional shares of Common Stock
pursuant to the Existing Securities Rights. Additionally, the number of
Underlying Shares issuable upon exchange of the 2006 Preferred Stock may
increase in certain circumstances. The Company's directors and executive
officers have studied and fully understand the nature of the Securities being
sold hereunder. The Company acknowledges that the issuance of the Securities may
result in dilution of the outstanding shares of Common Stock, which dilution may
be substantial if the Company undertakes another financing which triggers the
anti-dilution protections of the 2006 Preferred Stock. The Company further
acknowledges that its obligations under the Transaction Documents, including
without limitation its obligation to issue the Underlying Shares pursuant to the
Transaction Documents, are unconditional and absolute and not subject to any
right of set off, counterclaim, delay or reduction, regardless of the effect of
any such dilution or any claim the Company may have against any Purchaser and
regardless of the dilutive effect that such issuance may have on the ownership
of the other stockholders of the Company. Taking the foregoing into account, the
Company's Board of Directors has determined in its good faith business judgment
that the issuance of the 2006 Preferred Stock hereunder and the consummation of
the other transactions contemplated hereby are in the best interests of the
Company and its stockholders.
28
4.3 Furnishing of Rule 144 Information. As long as any Purchaser (or any
Purchaser's Affiliates) beneficially owns Securities, the Company covenants to
timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act, and the Company shall not
terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations thereunder would
permit such termination. As long as any Purchaser owns Securities, if the
Company is not required to file reports pursuant to the Exchange Act, it will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) such information as is required for the Purchasers to sell the
Securities under Rule 144. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell such Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144.
4.4 Financial Information. So long as any Purchasers (or any of their
respective Affiliates) beneficially own any of the Securities, the Company shall
make available (via electronic transmission or otherwise) the following reports
to each such Purchaser: (i) within ten days after the filing with the
Commission, a copy of Current Reports on Form 8-K; and (ii) within one day after
release, copies of all press releases issued by the Company or any of its
Subsidiaries.
4.5 Information. So long as any Purchasers (or any of their respective
Affiliates) beneficially own any of the Securities, the Company shall furnish to
each such Purchaser the information the Company must deliver to any holder or to
any prospective transferee of Securities in order to permit the sale or other
transfer of such Securities pursuant to Rule 144A of the Commission or any
similar rule then in effect.
4.6 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
29
4.7 Board of Directors Observer. From the Closing Date and continuing
thereafter for so long as the Purchasers (or any of their respective affiliates)
beneficially own, in the aggregate, at least 25% of the 2006 Preferred Stock
issued hereunder, the Purchasers shall have the right, but not the obligation,
to appoint one Person to serve as an observer of meetings of the Board of
Directors (the "Observer"), who shall be afforded notice of and the right to
participate, as an observer only, in meetings of the Board of Directors,
provided, that the Company may exclude the Observer from participation in
meetings of the Board of Directors if and to the extent that the Board of
Directors, as determined in the discretion of its Chairman, determines in good
faith that such exclusion is appropriate to preserve the Company's
attorney-client privilege with respect to matters before the Board of Directors,
and provided, further, that the Observer shall have executed and delivered to
the Company a written confidentiality agreement, in a form determined by the
Company, with respect to matters discussed by the Board of Directors and the
Observer's compliance with Company policies and procedures and applicable
securities laws. The Observer shall be determined from time-to-time by the
Purchasers holding at least 65% of the shares of 2006 Preferred Stock then
outstanding, and the Purchasers shall notify the Company of the identity of and
contact information for the Observer, and shall promptly notify the Company in
the event that the Observer ceases for any reason to so act or shall be
replaced. The Company reserves the right to object to any Person selected by the
Purchasers to serve as an Observer, or to exclude an Observer from participation
in relevant meetings of the Board of Directors, if and to the extent that such
Person is engaged in a business which is or may be in competition with the
Company in any market in which the Company currently operates, provided,
however, that the Company acknowledges that certain of the Purchasers may be
investment or similar funds that may from time to time invest in competitors of
the Company and that any such investment shall not be a reason to object to or
exclude an Observer.
4.8 Securities Laws Disclosure; Publicity. The Company shall file with the
Commission a Form D with respect to the Securities as required under Regulation
D. The Company shall, on or before the Closing Date, take such action as the
Company shall reasonably determine is necessary to qualify the Securities for
sale to each Purchaser pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States or obtain exemption
therefrom, and shall provide evidence of any such action so taken to each
Purchaser on or prior to the Closing Date (or such later date as such actions
are required, under applicable law, to be taken). The Company shall issue on or
before the next business day following the date hereof a press release (the
"Press Release") announcing the entry into the transactions contemplated hereby
and shall within two (2) Trading Days following the date hereof file a Current
Report on Form 8-K disclosing the material terms of the transactions
contemplated hereby and attaching the Transaction Documents thereto as exhibits
(the "8-K Filing"). The Company hereby acknowledges that, as of the date of the
8-K Filing, no Purchaser shall be in possession of any material nonpublic
information received from the Company, any of its Subsidiaries or any of its
respective officers, directors, employees or agents, that is not disclosed in
the 8-K Filing. The Company and each Purchaser shall consult with each other in
issuing any other press releases with respect to the transactions contemplated
hereby, and neither the Company nor any Purchaser shall issue any such press
release or otherwise make any such public statement without the prior consent of
the Company, with respect to any press release of any Purchaser, or without the
prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication.
30
4.9 Stockholders Rights Plan. No claim will be made or enforced by the
Company or any director, officer, employee, representative or other Person
acting on behalf of the Company that any Purchaser is an "Acquiring Person"
under any stockholders rights plan or similar plan or arrangement in effect or
hereafter adopted by the Company, or that any Purchaser could be deemed to
trigger the provisions of any such plan or arrangement, by virtue of receiving
Securities under the Transaction Documents or under any other agreement between
the Company and the Purchasers. The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act.
4.10 Non-Public Information. Except to the extent that information that is
(i) provided to the Observer in connection with the Observer's role as such and
(ii) included in notices to the Purchasers which the Company is required to
deliver pursuant to this Agreement may be deemed material nonpublic information,
the Company shall not, and shall cause each of its Subsidiaries and its and each
of their respective officers, directors, employees and agents not to, provide
any Purchaser with any material nonpublic information regarding the Company or
any of its Subsidiaries from and after the date hereof without the express
written consent of such Purchaser; provided, however, that a Purchaser that
exercises its rights under Section 4.26 shall be deemed to have given such
express written consent. In the event of a breach of the foregoing covenant by
the Company, any of its Subsidiaries or any of its or their respective officers,
directors, employees and agents, in addition to any other remedy provided herein
or in the other Transaction Documents, a Purchaser shall have the right to make
a public disclosure, in the form of a press release, public advertisement or
otherwise, of such material nonpublic information without the prior approval by
the Company, its Subsidiaries or any of its or their respective officers,
directors, employees or agents. No Purchaser shall have any liability to the
Company, its Subsidiaries or any of its or their respective officers, directors,
employees, stockholders or agents for any such disclosure.
4.11 Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes. Such proceeds shall
not be used (i) to pay dividends (other than in respect of the 2005 Preferred
Stock or the 2006 Preferred Stock); (ii) to pay for any increase in executive
compensation or make any loan or other advance to any officer, employee,
stockholder, director or other affiliate of the Company, without the express
approval of the Board of Directors acting in accordance with past practice;
(iii) to purchase debt or equity securities of any entity (including redeeming
the Company's own securities (other than the 2006 Preferred Stock or the 2005
Preferred Stock)); (iv) to make any investment not directly related to the
current business of the Company (other than acquisitions, joint ventures,
strategic alliances and similar strategic transactions approved by the Board of
Directors in good faith); or (v) for the satisfaction of any portion of the
Company's debt (other than payment of trade payables in the ordinary course of
the Company's business and prior practices).
4.12 Reimbursement of Purchaser Expenses. The Company shall pay or
reimburse the Purchasers for all costs and expenses incurred in connection with
the negotiation, preparation and execution of the Transaction Documents
(including due diligence performed by or on behalf of the Purchasers), including
attorney's fees and expenses, in an aggregate amount of up to $50,000 upon
presentation, at or after the Closing, of invoices or other evidence reasonably
satisfactory to the Company of the incurrence of such expenses.
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4.13 Indemnification of Purchasers. Subject to the provisions of this
Section 4.13, the Company will indemnify and hold the Purchasers and their
directors, officers, stockholders, partners, members, direct investors,
employees and agents (each, a "Purchaser Party") harmless from any and all
losses, liabilities, obligations, claims, suits, causes of actions, penalties,
fees, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any misrepresentation or breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents, or any other certificate,
instrument or document contemplated thereby, or (b) any action instituted
against a Purchaser, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser (including
for these purposes a derivative action brought on behalf of the Company), with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser's representation,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance), any disclosure made by such Purchaser pursuant to Section 4.8
or Section 4.26 hereof, or the status of such Purchaser or holder of the
Securities as an investor in the Company in such Person's capacity as a
Purchaser of Securities purchased and sold pursuant to the Transaction
Documents. If any action shall be brought against any Purchaser Party in respect
of which indemnity may be sought pursuant to this Agreement, such Purchaser
Party shall promptly notify the Company in writing, and the Company shall have
the right to assume the defense thereof with counsel of its own choosing. Any
Purchaser Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Purchaser Party except to the extent
that (i) the employment thereof has been specifically authorized by the Company
in writing, (ii) the Company has failed after a reasonable period of time to
assume such defense and to employ counsel, or (iii) in such action there is, in
the reasonable opinion of such separate counsel, a material conflict on any
material issue between the position of the Company and the position of such
Purchaser Party. The Company will not be liable to any Purchaser Party under
this Agreement (i) for any settlement by an Purchaser Party effected without the
Company's prior written consent, which shall not be unreasonably withheld or
delayed, or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party's breach of any of
the representations, warranties, covenants or agreements made by the Purchasers
in this Agreement or in the other Transaction Documents.
4.14 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction Documents
in such amount as may be required to fulfill its obligations in full under
the Transaction Documents.
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(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than the Required
Minimum on such date, then the Board of Directors of the Company shall
amend the Company's certificate or articles of incorporation to increase
the number of authorized but unissued shares of Common Stock to at least
the Required Minimum at such time, as soon as possible and in any event
not later than the 90th day after such date.
(c) The Company shall, if applicable: (i) in the time and manner
required by the Trading Market, but in any event within 10 days after the
Closing Date, prepare and file with such Trading Market an additional
shares listing application covering a number of shares of Common Stock at
least equal to the Required Minimum on the date of such application, (ii)
take all steps necessary to cause such shares of Common Stock to be
approved for listing on the Trading Market as soon as possible thereafter,
(iii) provide to the Purchasers evidence of such listing, and (iv)
maintain the listing of such Common Stock on any date at least equal to
the Required Minimum on such date on such Trading Market or another
Trading Market; provided, that notwithstanding any other provision of this
Agreement to the contrary, the breach by the Company of its obligations
under this clause (iv) of Section 4.14(c) shall entitle the Purchasers to
the remedies to which they are entitled upon a breach of Section 4.1(d) as
if the Company's breach of this clause (iv) were a breach of the Company's
obligations in connection with a Legend Removal Request, subject to the
Liquidated Damages Cap.
4.15 Participation in Subsequent Qualified Equity Financings; Merger of
Existing Securities Rights.
(a) From the Closing Date until the date that Purchaser ceases to
own at least 25% of the 2006 Preferred Stock purchased by it hereunder,
upon any Qualified Equity Financing by the Company or any of its
Subsidiaries (a "Subsequent Financing"), each Purchaser shall have the
right to participate in such financing up to the greater of (i) 50% of the
Issue Amount and (ii) the amount that equals the Issue Price multiplied by
the number of issued and outstanding shares of 2006 Preferred Stock held
by such Purchaser, plus all accrued and unpaid dividends thereon, if any
(the "Participation Maximum"), all on the same terms and conditions as the
participant or participants in such Qualified Equity Financing whose terms
and conditions are least favorable to the Company; provided, that, if the
amount to be purchased by the holders of the 2005 Preferred Stock and the
2006 Preferred Stock (collectively, the "Preferred Stock Participating
Purchasers") exceeds, in the aggregate, the amount sought to be raised in
the Subsequent Financing, the Company shall increase the amount to be
raised in the Subsequent Financing to permit the Preferred Stock
Participating Purchasers to purchase the full amount they elect (and which
they would otherwise be entitled, up to the Participation Maximum
applicable to each such Preferred Stock Participating Purchaser) to
purchase in the Subsequent Financing. Unless the Company is specifically
instructed in writing by an individual Purchaser to suspend such notices,
at least five (5) Trading Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Purchaser a written notice of
its intention to effect a Subsequent Financing ("Pre-Notice"), which
Pre-Notice shall ask such Purchaser if it wants to review the details of
such financing (such additional notice, a "Subsequent Financing Notice").
Upon the request of a Purchaser, and only upon a request by such
Purchaser, for a Subsequent Financing Notice, the Company shall promptly,
but no later than one Trading Day after such request, deliver a Subsequent
Financing Notice to such Purchaser. The Subsequent Financing Notice shall
describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder, the
Person with whom such Subsequent Financing is proposed to be effected, and
attached to which shall be a term sheet or similar document relating
thereto. If by 5:30 p.m. (New York City time) on the fifth (5th) Trading
Day after all of the Purchasers have received the Pre-Notice,
notifications by the Purchasers of their willingness to participate in the
Subsequent Financing (or to cause their designees to participate) is, in
the aggregate, less than the total amount of the Participation Maximum,
then the Company may effect the remaining portion of such Subsequent
Financing on the terms and to the Persons set forth in the Subsequent
Financing Notice. If the Company receives no notice from a Purchaser as of
such fifth (5th) Trading Day, such Purchaser shall be deemed to have
notified the Company that it does not elect to participate. The Company
must provide the Purchasers with a second Subsequent Financing Notice, and
the Purchasers will again have the right of participation set forth above
in this Section 4.15, if the Subsequent Financing subject to the initial
Subsequent Financing Notice is not consummated for any reason on the terms
set forth in such Subsequent Financing Notice within 60 Trading Days after
the date of the initial Subsequent Financing Notice. If the Company
receives responses to Subsequent Financing Notices from Purchasers seeking
to purchase more than the aggregate amount of the Participation Maximum,
each such Purchaser shall have the right to purchase their Pro Rata
Portion (as defined below) of the Participation Maximum. "Pro Rata
Portion" is the ratio of (x) the Issue Amount of Securities purchased by a
participating Purchaser and (y) the sum of the aggregate Issue Amount of
all participating Purchasers.
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(b) For the avoidance of doubt, each Purchaser who is acquiring 2006
Preferred Stock in exchange for 2005 Preferred Stock pursuant to such
Purchaser's MFN Rights hereby acknowledges and agrees that as of the
Closing, automatically and without any separate action by the Company or
any other Person (i) the shares of 2005 Preferred Stock exchanged for
shares of 2006 Preferred Stock by such Purchaser shall be fully and
irrevocably terminated and shall cease to be issued and outstanding, (ii)
the 2005 Purchase Agreement shall terminate with respect to such Purchaser
and all rights of such Purchaser with respect to the 2005 Preferred Stock
(including without limitation the Existing Securities Rights of such
Purchaser) shall be merged with and into the rights of the Purchaser
hereunder and under the 2006 Preferred Stock and (iii) the separate
existence of any and all rights of such Purchaser with respect to the 2005
Preferred Stock shall be extinguished.
4.16 Permitted Transfers and Assignments. Subject to Section 4.1 and
Section 5.7, a Purchaser may transfer or assign without the prior consent of the
Company any or all of the shares of 2006 Preferred Stock held by such Purchaser;
provided, that the transferee or assignee of such Purchaser shall not, after
giving effect to such transfer or assignment, beneficially own in excess of
9.99% of the then outstanding shares of Common Stock. For purposes of this
Section 4.16, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13D-G thereunder.
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4.17 Limitation of Purchasers' Ownership of Common Stock. Unless a
Purchaser delivers to the Company written notice prior to the Closing Date or at
least sixty-one (61) days prior to the effective date of such notice that this
Section 4.17 shall not apply to such Purchaser, in no event shall a holder of
shares of 2006 Preferred Stock have the right to exchange shares of 2006
Preferred Stock into, nor shall the Company issue to such holder, shares of
Common Stock, or to dispose of or vote any shares of 2006 Preferred Stock, to
the extent that such exchange, voting or disposition would result in the holder
and its affiliates together beneficially owning more than (a) with respect to
those holders identified on Schedule 4.17A, 4.99% of the then issued and
outstanding shares of Common Stock, or (b) with respect with respect to those
holders identified on Schedule 4.17B, 9.99% of the then issued and outstanding
shares of Common Stock (each, a "Limitation on Ownership," and together, the
"Limitations on Ownership"); provided, that, if and to the extent that the
Limitation on Ownership applicable to any Purchaser would otherwise be violated
by the issuance of shares of Common Stock as aforesaid, the Company may issue to
such Purchaser a Common Stock purchase warrant (a "Par Warrant"), in
substantially the form attached hereto as Exhibit E, exercisable for the
purchase at $0.001 per share (or the then-current par value of the Common Stock,
if other than $0.001 per share) of that number of shares of Common Stock
constituting the excess of the amount which would otherwise be issuable but for
the Limitations on Ownership less that number of shares of Common Stock issued
to such Purchaser in compliance with the applicable Limitation on Ownership.
Notwithstanding the foregoing, in no event shall SDS Capital Group SPC, Ltd.
have the right to exchange shares of 2006 Preferred Stock into, and in no event
shall the Company issue to SDS Capital Group SPC, Ltd., shares of Common Stock,
or to dispose of or vote shares of Common Stock, to the extent that such
exchange, disposition or voting would result in SDS Capital Group SPC, Ltd. and
its affiliates together beneficially owning more than 9.99% of the then
outstanding shares of Common Stock. For purposes of this Section 4.17,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder.
4.18 Purchaser Approval for Certain Securities Issuances. From the date
hereof until the Closing Date and continuing thereafter for so long as any
Purchasers (or any of their respective affiliates) beneficially own, in the
aggregate, at least 25% of the 2006 Preferred Stock issued hereunder, other than
an Exempt Issuance, the Company shall not, without first obtaining the written
approval of the holders of at least 65% of the shares of 2006 Preferred Stock
then outstanding (which approval may be given or withheld by such holders in
their sole and absolute discretion), (i) issue or sell any rights, warrants or
options to subscribe for or purchase Common Stock, or any other securities
directly or indirectly convertible into or exchangeable or exercisable for
Common Stock, at an effective conversion, exchange or exercise price that varies
or may vary with the market price of the Common Stock, including by way of one
or more reset(s) to any fixed price, (ii) incur any indebtedness (other than
trade payables and installment loans in the ordinary course of business and
other than as permitted under Section 4.20) that by its terms is to be repaid
under an amortization schedule or contains sinking fund redemption provisions or
(iii) issue any securities or debt obligations (other than as a result of the
character of such obligations as debt and not equity) having liquidation
preference senior to or at parity with the liquidation preference of the 2006
Preferred Stock. For purposes of this Section 4.18, antidilution adjustments and
proportional adjustments for stock splits, recapitalizations and similar events
with respect to currently outstanding securities, shall not require prior
approval.
35
4.19 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended for the Company to treat the 2006 Preferred Stock holders as a class
and shall not in any way be construed as the Purchasers acting in concert or as
a group with respect to the purchase, disposition or voting of Securities or
otherwise.
4.20 Issuance of Debt. Without the prior written approval of holders of at
least 65% of the 2006 Preferred Stock, from the date hereof through the Closing,
and continuing thereafter for so long as any Purchasers (or any of their
respective affiliates) beneficially own, in the aggregate, at least 25% of the
2006 Preferred Stock issued hereunder, the Company shall not authorize or issue,
or obligate itself to issue, any debt obligations of the Company, or increase
any other existing indebtedness, other than trade payables and installment loans
incurred in the ordinary course of business and consistent with past practice
and advances under the line of credit currently maintained with Barclay's Bank.
Notwithstanding the foregoing, the Company shall be permitted to establish, on
terms and conditions determined in the discretion of the Company, a line of
credit or other credit facility secured by United States accounts receivable in
an amount not to exceed $1,000,000 (inclusive of the line of credit currently
maintained with Barclay's Bank).
4.21 No Short Sales. For the period commencing on the date that the
Purchaser was notified of the terms of the transactions contemplated by the
Transaction Documents through the earlier of (i) one hundred twenty (120) days
after the Closing Date and (ii) the Effective Date, neither the Purchaser nor
any of the funds over which the manager of the Purchaser has investment
discretion, if applicable, shall make any short sales of, or grant any option
for the purchase of or enter into any hedging or similar transaction with the
same economic effect as a short sale, in the Common Stock.
4.22 Acknowledgments Regarding Purchasers' Purchase of Securities. The
Company and each Purchaser acknowledges and agrees that, except for those
Purchasers identified in Schedule 3.1(ii), each of the Purchasers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby. The Company and
each Purchaser further acknowledges and agrees that, except for those Purchasers
identified in Schedule 3.1(ii), no Purchaser is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by any
Purchaser or any of their respective representatives or agents in connection
with this Agreement and the transactions contemplated hereby is merely
incidental to the Purchasers' purchase of the Securities. The Company and each
Purchaser further acknowledges and agrees that their respective decision to
enter into this Agreement has been based solely on the independent evaluation of
the transactions contemplated hereby by the Company and such Purchaser, as the
case may be, and its respective representatives (including, as to the Company,
the financial advisors to the Company identified on Schedule 3.1(ii)).
36
4.23 Corporate Existence. So long as any Purchasers (or any of their
respective affiliates) beneficially own any of the Securities, the Company shall
maintain its corporate existence, and in the event of a merger, consolidation or
sale of all or substantially all of the Company's assets, the Company shall
ensure that the surviving or successor entity in such transaction (i) assumes
the Company's obligations under this Agreement and the other Transaction
Documents and the agreements and instruments entered into in connection herewith
and therewith regardless of whether or not the Company would have had a
sufficient number of shares of Common Stock authorized and available for
issuance in order to effect the exchange of all the 2006 Preferred Stock
outstanding as of the date of such transaction and (ii) except in the event of a
merger, consolidation of the Company into any other corporation, or the sale or
conveyance of all or substantially all of the assets of the Company where the
consideration consists solely of cash, the surviving or successor entity is a
publicly traded corporation whose common stock is listed for trading on the
Nasdaq SmallCap Market, the Nasdaq National Market, the NYSE or the AMEX.
4.24 Legal Compliance. The Company shall conduct its business and the
business of its Subsidiaries in compliance with all laws, ordinances or
regulations of governmental entities applicable to such businesses, except where
the failure to do so would not have a Material Adverse Effect.
4.25 Redemptions, Dividends and Repayments of Indebtedness. Except as
permitted by this Agreement or the Certificate of Amendment, from the date
hereof until the Closing Date, and continuing thereafter for so long as any
Purchasers (or any of their respective affiliates) beneficially own any of the
2006 Preferred Stock, except in respect of the 2005 Preferred Stock, the Company
shall not, without first obtaining the written approval of the holders of at
least 65% of the shares of 2006 Preferred Stock then outstanding (which approval
may be given or withheld by such holders in their sole and absolute discretion),
repurchase, redeem or declare or pay any cash dividend or distribution on any
shares of capital stock of the Company or repay or prepay any indebtedness of
the Company other than as expressly required pursuant to the terms of such
indebtedness as in effect on the date hereof.
4.26 Inspection of Properties and Books. So long as any Purchasers (or any
of their respective affiliates) beneficially own any of the Securities, each
such Purchaser and its representatives and agents (collectively, the
"Inspectors") shall have the right, at such Purchaser's expense, to visit and
inspect any of the properties of the Company and of its Subsidiaries, to examine
the books of account and records of the Company and of its Subsidiaries, to make
or be provided with copies and extracts therefrom, to discuss the affairs,
finances and accounts of the Company and of its Subsidiaries with, and to be
advised as to the same by, its and their officers, employees and independent
public accountants (and by this provision the Company authorizes such
accountants to discuss such affairs, finances and accounts, whether or not a
representative of the Company is present) all at such reasonable times and
intervals and to such reasonable extent as the Purchasers may desire; provided,
however, that each Inspector shall hold in confidence and shall not make any
disclosure (except to such Purchaser) of any such information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (i) the disclosure of such information is
necessary to avoid or correct a misstatement or omission in any Registration
Statement filed pursuant to the Registration Rights Agreement, (ii) the release
of such information is ordered pursuant to a subpoena or other order from a
court or government body of competent jurisdiction, or (iii) such information
has been made generally available to the public other than by disclosure in
violation of this or any other agreement. Each Purchaser agrees that it shall,
upon learning that disclosure of such information is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the information deemed confidential.
37
4.27 Protection Provisions. From the date hereof until the Closing Date
and continuing thereafter for so long as any shares of 2006 Preferred Stock are
outstanding, other than the exchange of 2005 Preferred Stock for 2006 Preferred
Stock hereunder pursuant to the MFN Rights, the Company shall not take any of
the following corporate actions (whether by merger, consolidation or otherwise)
without first obtaining the written approval the holders of at least 65% of the
shares of 2006 Preferred Stock then outstanding:
(a) alter or change the rights, preferences or privileges of the
2006 Preferred Stock, or increase the authorized number of shares of 2006
Preferred Stock;
(b) alter or change the rights, preferences or privileges of any
capital stock of the Company so as to affect adversely the 2006 Preferred
Stock or otherwise alter or change the rights, preferences or privileges
of the 2006 Preferred Stock in relation to the shares of the Common Stock;
(c) create or issue any class or series of capital stock of the
Company specifically ranking, by its terms, on parity with or senior to
the 2006 Preferred Stock, in each case as to distribution of assets upon a
Liquidation Event (as defined in the Certificate of Amendment) (it being
understood, acknowledged and agreed by the Purchaser that the 2005
Preferred Stock is senior to the 2006 Preferred Stock in respect of
distribution of assets upon a Liquidation Event);
(d) issue any shares of 2006 Preferred Stock other than pursuant to
the Securities Purchase Agreement;
(e) redeem, repurchase or otherwise acquire, or declare or pay any
cash dividend or distribution on, any class or series of capital stock of
the Company, other than the 2006 Preferred Stock or the 2005 Preferred
Stock;
(f) increase the par value of the Common Stock;
(g) redeem, repurchase, prepay or otherwise acquire any outstanding
debt securities or indebtedness of the Company, except as expressly
required by the terms of such securities or indebtedness;
(h) enter into any agreement, commitment, understanding or other
arrangement to take any of the foregoing actions;
(i) cause or authorize any Subsidiary of the Company to engage in
any of the foregoing actions; or
38
(j) consummate a transaction that would constitute a Dilutive
Issuance (as defined in the Certificate of Amendment).
Notwithstanding the foregoing, no action set forth in subsections (a) through
(j) above that is approved by the holders of at least 51% of the shares of 2006
Preferred Stock then outstanding pursuant to this Section 4.27 shall be
permitted to the extent that, by its terms, such action applies to less than all
of the holders of 2006 Preferred Stock then outstanding.
The Company shall not amend, restate or file any certificate of designation in
respect of, its certificate of incorporation prior to the Closing, except
through the filing of the Certificate of Amendment substantially in the form
attached hereto as Exhibit A as contemplated hereby.
4.28 Stockholder Approval.
(a) Subject to Section 4.28(c), following the date hereof, the
Company shall take all measures reasonably determined by the Company to be
necessary and appropriate in order to obtain Stockholder Approval as
promptly as practicable, which Stockholder Approval shall be obtained on
or before October 31, 2006. Without limiting the foregoing, promptly
following the date hereof, the Company and its Board of Directors shall,
subject to Section 4.28(c): (i) prepare proxy materials and solicit
proxies requesting Stockholder Approval, (ii) call an annual or special
meeting of the Company's stockholders for the purpose of obtaining
Stockholder Approval, (iii) recommend that the Company's stockholders vote
in favor of such approval and (iv) otherwise use its commercially
reasonable efforts to solicit proxies and obtain Stockholder Approval. The
Company shall request each member of the Company's Board of Directors and
shall cause each of the Company's executive officers to vote any and all
shares of Common Stock beneficially owned by them in favor of Stockholder
Approval at the Company's meeting of stockholders.
(b) Except as permitted by Section 4.28(c), the Company shall not,
and the Company shall cause its officers, directors, employees,
representatives and agents not to:
(i) withdraw or modify its recommendation to the
stockholders;
(ii) directly or indirectly, encourage, solicit, participate
in or initiate discussions or negotiations with, or
provide any information to, any Person (other than the
Purchasers and their respective Affiliates or
representatives) in connection with a proposal for, a
Qualified Equity Financing, except as permitted by
Section 4.28(c); or
(iii) approve or recommend to the stockholders any proposal or
offer received by the Company from any Person other than
a Purchaser or any Affiliate of a Purchaser to purchase
securities of the Company in a Qualified Equity
Financing (a "Qualified Equity Financing Proposal"), or
enter into any agreement with respect to any Qualified
Equity Financing Proposal.
39
(c) Notwithstanding anything in this Section 4.28 to the contrary, prior
to the date as of which Stockholder Approval is obtained:
(i) the Company may participate in discussions and
negotiations with any Person concerning a Qualified
Equity Financing Proposal if such Person has on an
unsolicited basis submitted a bona fide written proposal
(a "Superior Equity Financing Proposal") to the
Company's Board of Directors relating to any such
transaction which the Board determines in good faith
represents a transaction on better economic terms (a
"Superior Equity Financing") than the transactions
contemplated hereby; provided, that the Company notifies
each Purchaser of the existence and terms of such
Superior Equity Financing Proposal and the identity of
the Person making such proposal within two (2) Business
Days after the Company's receipt thereof and in any
event at least two (2) Business Days prior to agreeing
to the terms of any such Superior Equity Financing; and
(ii) the Company and its Board of Directors may withdraw or
modify its approval or recommendation of the
transactions contemplated by this Agreement and approve
or recommend a Superior Equity Financing Proposal, or
enter into an agreement with respect to a Superior
Equity Financing Proposal, in each case at any time
after the fifth Business Day following the Purchaser's
receipt of written notice of the Superior Equity
Financing Proposal from the Company, but only if the
Company agrees to pay to each Purchaser upon
consummation of the Superior Equity Financing an amount
of cash equal to the sum of (I) the product of (x) the
number of shares of Common Stock (without giving effect
to the Limitations on Ownership) underlying the shares
of 2006 Preferred Stock that would have been issuable to
such Purchaser upon payment of the Issue Price to be
paid by such Purchaser at the Closing hereunder,
multiplied by (y) the excess of (1) the effective
purchase price of the Common Stock issued (or issuable
upon exercise, exchange or conversion of the Common
Stock Equivalents that are issued) to the purchasers in
the Superior Equity Financing, in excess of (2) $1.15,
plus (II) the Purchasers' reasonable expenses (subject
to a maximum of $50,000 per Section 4.12) incurred in
connection with the transactions contemplated; provided,
however, that, in the event the securities sold by the
Company in the Superior Equity Financing include shares
of Common Stock, the effective purchase price of Common
Stock in the Superior Equity Financing shall be
increased by $0.15 per share for purposes of this
Section 4.28(c)(ii).
40
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, by
written notice to the other parties, if the Closing has not been consummated on
or before the date which is ten (10) days after Stockholders' Approval is
obtained or November 20, 2006, whichever is earlier; provided, that no such
termination will affect the right of any party to ▇▇▇ for any breach by the
other party (or parties).
5.2 Fees and Expenses. The Company shall also pay all transfer agent fees,
stamp taxes and other taxes and duties levied in connection with the issuance of
any Securities.
5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each Purchaser or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.7 Equitable Adjustments. References herein to specific amounts or
numbers of shares of 2006 Preferred Stock shall, automatically and without
amendment of this Agreement, be equitably adjusted to reflect any adjustments to
the number of shares of 2006 Preferred Stock to give effect to stock splits,
stock dividends, recapitalizations or similar events.
41
5.8 Certain Approval Requirements. Prior to the Closing Date, each
requirement set forth herein for the approval of an action by the holders of all
or a portion of the outstanding shares of 2006 Preferred Stock shall be
interpreted and given effect as if all of the shares of 2006 Preferred Stock
proposed to be issued at the Closing had been issued and were outstanding and
held by the Purchasers according to the allocations set forth in Schedule 1
hereto.
5.9 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided, that such transferee
agrees in writing to be bound, with respect to the transferred Securities, by
the provisions hereof that apply to the "Purchasers."
5.10 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.13.
5.11 Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
5.12 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, stockholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
County of New York, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The parties hereby waive all
rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
42
5.13 Survival. The representations and warranties of the parties and the
agreements and covenants contained herein shall survive the Closing and the
delivery, exercise and/or conversion of the Securities, as applicable for the
applicable statue of limitations notwithstanding any due diligence investigation
conducted by or on behalf of any Purchaser. Moreover, none of the
representations and warranties made by the Company herein shall act as a waiver
of any rights or remedies any Purchaser may have under applicable U.S. federal
or state securities laws.
5.14 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.15 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.16 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided, that in
the case of a rescission of any exchange of the 2006 Preferred Stock, the
Purchaser shall be required to return any shares of Common Stock subject to any
such rescinded conversion or exercise notice.
5.17 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
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5.18 Remedies. No provision of this Agreement or any other Transaction
Document providing for any remedy to a Purchaser shall limit any other remedy
which would otherwise be available to such Purchaser at law, in equity or
otherwise. Nothing in this Agreement or any other Transaction Document shall
limit any rights any Purchaser may have under any applicable federal or state
securities laws with respect to the investment contemplated hereby. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Purchasers by vitiating the intent and purpose of the
transactions contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations hereunder (including, but not
limited to, its obligations pursuant to Article 4 hereof) will be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Agreement (including, but not limited to, its obligations
pursuant to Article 4 hereof), that each Purchaser shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer of the Securities, without
the necessity of showing economic loss and without any bond or other security
being required.
5.19 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.20 Exculpation Among Purchasers; No "Group". The obligations of each
Purchaser under any Transaction Document are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in any
way for the performance or non-performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
other Transaction Document, and no action taken by any Purchaser pursuant
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a "group"
for purposes of Section 13(d) of the Exchange Act with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
party to this Agreement confirms that it has had the opportunity to
independently participate in the negotiation and drafting of this Agreement and
the other Transaction Documents with the advice of its own counsel and advisors,
that it has independently determined to enter into the transactions contemplated
hereby and thereby, that it is not relying on any advice from or evaluation by
any other Purchaser, and that it is not acting in concert with any other
Purchaser in making its purchase of Securities hereunder or in monitoring its
investment in the Company. The Purchasers have not agreed to act together for
the purpose of acquiring, holding, voting or disposing of equity securities of
the Company. Each Purchaser shall be entitled to independently protect and
enforce its rights, including without limitation the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser acknowledges that SDS Capital Group
SPC, Ltd. has retained Drinker ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP ("DB&R") to act as its counsel
in connection with the transactions contemplated by this Agreement and the other
Transaction Documents and that DB&R has not acted as counsel for any of the
other Purchasers in connection therewith and none of the other Purchasers have
the status of a client of DB&R for conflict of interest or other purposes as a
result thereof. The Company has elected to provide all Purchasers with the same
terms and Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by the Purchasers. The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Purchasers are in any way acting in concert
or as a "group" for purposes of Section 13(d) of the Exchange Act with respect
to the Transaction Documents or the transactions contemplated hereby or thereby.
44
5.21 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
Notwithstanding the foregoing and for the avoidance of doubt and without
limiting the Purchasers' rights to pursue other damages claims, the Company
shall in no event be liable for the payment of liquidated damages under the
Transaction Documents to any Purchaser (or affiliate thereof) in excess of the
Liquidated Damages Cap applicable to such Purchaser.
(SIGNATURE PAGES FOLLOW)
45
[COMPANY SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
DIOMED HOLDINGS, INC. Address for Notice:
By:___________________________ One Dundee Park
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇. ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Title: Chief Executive Officer Attn: Chief Executive Officer
(▇▇▇) ▇▇▇-▇▇▇▇ Telephone
(▇▇▇) ▇▇▇-▇▇▇▇ Facsimile
With a copy (which shall not constitute notice) to:
McGuireWoods LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
(▇▇▇) ▇▇▇-▇▇▇▇ Telephone
(▇▇▇) ▇▇▇-▇▇▇▇ Facsimile
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
46
[PURCHASER SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Investing Entity: ______________________________________________________
By: __________________________________
(Signature of Authorized Signatory)
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Email Address of Authorized Signatory: _________________________________________
Telephone Number of Authorized Signatory: ______________________________________
Address (including facsimile number) for Notice to Investing Entity:
Address for Delivery of Securities to Investing Entity (if not same as above):
US Tax ID Number: _________________________
Total Number Shares of 2006 Preferred Stock Purchased: ____________________
Issue Amount in Cash (at $11,500 per Share): $___________________
No. Shares 2005 Preferred Stock exchanged through MFN Rights:
____________________
No. Shares Purchased for Cash: ____________________
No. Shares Purchased via MFN Rights: ____________________
47
EXHIBITS
Exhibit A Form of Certificate of Amendment
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of 2005 Stockholder Waiver
Exhibit D Form of Company Counsel Opinion
Exhibit E Form of Par Warrant
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SCHEDULES
Company Disclosure Schedules
Schedule 4.17A
Schedule 4.17B
49
SCHEDULE 4.17A
Purchasers Subject to 4.99% Limitations on Ownership
50
SCHEDULE 4.17B
Purchasers Subject to 9.99% Limitations on Ownership
51