SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of May
__, 2006, among DataLogic International, Inc., a Delaware corporation (the
"Company"), and the purchasers identified on the signature pages hereto (each,
a "Purchaser" and collectively, the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act (as defined below) and Rule
506 promulgated thereunder, the Company desires to issue and sell to the
Purchasers, and the Purchasers, severally and not jointly, desire to purchase
from the Company certain securities of the Company, as more fully described in
this Agreement.
WHEREAS, the Purchasers understand and acknowledge that up to an
aggregate of 20,000,000 shares of the Company's Common Stock (as defined
below), 8,000,000 Class A Warrants (as defined below) and 5,000,000 Class B
Warrants (as defined below) are being offered for sale by the Company through
Midtown Partners & Co. LLC, as placement agent, on behalf of the Company
pursuant to this Agreement.
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 the Purchasers
agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms shall have
the meanings indicated in this Section 1.1:
"Action" means any action, suit, inquiry, notice of violation,
proceeding (including any partial proceeding such as a deposition) or
investigation pending or threatened in writing against or affecting the
Company, any Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency, regulatory authority
(federal, state, county, local or foreign), stock market, stock exchange or
trading facility.
"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.
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.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking institutions
in the State of New York are authorized or required by law or other
governmental action to close.
"Change of Control" means the consummation, in one or a series of
related transactions, of a "Rule 13e-3 transaction" as defined in Rule 13e-3
under the Exchange Act with respect to the Company.
"Class A Warrant Exercise Price" means $0.35 per share of Company
Common Stock.
"Class A Warrants" means warrants issued or issuable to the
Purchasers at the Closing pursuant to this Agreement, each of which are
exercisable for a period of five (5) years commencing six (6) months from the
Closing Date.
"Class B Warrant Exercise Price" means $0.45 per share of Company
Common Stock.
"Class B Warrants" means warrants issued or issuable to the
Purchasers at the Closing pursuant to this Agreement, each of which are
exercisable for a period of five (5) years commencing six (6) months from the
Closing Date.
"Closing" means the closing of the purchase and sale of the Shares
and Warrants pursuant to Section 2.
"Closing Date" means the date of the Closing.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, $.001 par
value per share, and any securities into which such common stock may hereafter
be reclassified.
"Common Stock Equivalents" means any securities of the Company or
any Subsidiary which entitle the holder thereof to acquire Common Stock at any
time, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock or other securities that entitle the holder to receive, directly or
indirectly, Common Stock.
"Company Counsel" for the transactions contemplated by this
Agreement means Weed & Co. LLP.
"Effective Date" means the date that the Registration Statement is
first declared effective by the Commission.
"Escrow Agent" means ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP.
"Escrow Agreement" means the Escrow Agreement, dated as of the
date of this Agreement, by and among the Escrow Agent, the Company and the
Purchasers in the form of Exhibit A hereto.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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"Investment Amount" means, with respect to each Purchaser, the
investment amount set forth under such Purchaser's name on the signature pages
hereof next to the label "Investment Amount."
"Lien" means any lien, charge, encumbrance, security interest,
right of first refusal or other restrictions of any kind, but excluding any
restriction imposed under applicable securities laws.
"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.
"Per Share Purchase Price" equals $0.20.
"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.
"Qualified Institutional Buyer" means a "qualified institutional
buyer" as such term is defined in Rule 144A promulgated under the Securities
Act.
"Registration Statement" means a registration statement meeting
the requirements set forth in the Registration Rights Agreement and covering
the resale by the Purchasers of the Shares.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Agreement, among the Company and the
Purchasers, in the form of Exhibit B hereto.
"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.
"Securities" means the Shares and the Warrants. For every one
hundred (100) Shares purchased by Purchaser, Purchaser shall be entitled to
receive forty (40) Class A Warrants and twenty-five (25) Class B Warrants.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of Common Stock issued or issuable to
the Purchasers at the Closing pursuant to this Agreement.
"Subsidiary" means any subsidiary of the Company that would be
required to be listed in an exhibit to the Company's Annual Report on Form
10-KSB covering the period in which the date of this Agreement falls.
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
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"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
OTC Bulletin Board, the American Stock Exchange, the New York Stock Exchange,
the Nasdaq National Market or the Nasdaq SmallCap Market.
"Transaction Documents" means this Agreement, the Registration
Rights Agreement and any other documents or agreements executed in connection
with the transactions contemplated hereunder.
"Warrants" means the Class A Warrants and the Class B Warrants.
"Warrant Shares" mean the Shares of the Company's Common Stock issuable upon
the exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. Subject to the terms and conditions set forth in this
Agreement, at the Closing the Company shall issue and sell to each Purchaser,
and each Purchaser shall, severally and not jointly, purchase from the
Company, the Shares and Warrants representing such Purchaser's Investment
Amount. The Closing shall take place at the offices of ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
LLP, The Chrysler Building, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇ on the date this Agreement is executed and delivered by the parties
or at such other location or time as the parties may agree.
2.2 Closing Deliveries. At the Closing, the Company shall deliver
or cause to be delivered to each Purchaser the following:
(i) a certificate, registered in the name of such Purchaser
evidencing the number of Shares as set forth under such Purchaser's name on
the signature pages hereof next to the label "Shares";
(ii) a certificate, in the form attached hereto as Exhibit
C, registered in the name of such Purchaser evidencing the number of Class A
Warrants as set forth under such Purchaser's name on the signature pages
hereof next to the label "Class A Warrants";
(iii) a certificate, in the form attached hereto as Exhibit
D, registered in the name of such Purchaser evidencing the number of Class B
Warrants as set forth under such Purchaser's name on the signature pages
hereof next to the label "Class B Warrants";
(iv) the legal opinion of Company Counsel, in the form
attached hereto as Exhibit E, addressed to the Purchasers;
(v) the Registration Rights Agreement duly executed by the
Company; and
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(vi) the Escrow Agreement duly executed by the Company.
(b) At the Closing, each Purchaser shall deliver or cause to be
delivered to the Company the following:
(i) such Purchaser's Investment Amount, in United States
dollars and in immediately available funds, by wire transfer to an account
designated in writing by the Company for such purpose;
(ii) the Registration Rights Agreement duly executed by such
Purchaser; and
(iii) the Escrow Agreement duly executed by the 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 accuracy in all material respects when made and on
the Closing Date of the representations and warranties of each Purchaser
contained herein;
(ii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior to the Closing Date shall have
been performed; an
(iii) 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 accuracy in all material respects when made and on
the Closing Date of the representations and warranties of the Company
contained herein;
(ii) all obligations, covenants and agreements of the
Company required to be performed at or prior to the Closing Date shall have
been performed;
(iii) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect (as
hereinafter defined) with respect to the Company since the date hereof; and
(v) 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
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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 nor
shall there have occurred any material outbreak or escalation of hostilities
or other national or international calamity of such magnitude in its effect
on, or any material adverse change in, any financial market which, in each
case, in the reasonable judgment of each Purchaser, makes it impracticable or
inadvisable to purchase the Shares at the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
The Company makes the representations and warranties to the Purchasers
set forth in this Article III, subject to information set forth in the
Disclosure Materials (as defined in Section 3.1(g)). The disclosure set forth
in the Disclosure Materials shall qualify each section in this Article III
where such information is applicable.
3.1 Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to each Purchaser:
(a) Organization and Qualification. Each of the Company and each
Subsidiary 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 corporate
power and authority to own and use its properties and assets and to carry on
its business as currently conducted. Each of the Company and each Subsidiary
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, would not, individually or in the aggregate, have or reasonably be
expected to result in (i) an adverse effect on the legality, validity or
enforceability of any Transaction Document, (ii) a material and adverse effect
on the results of operations, assets, business or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a
material adverse impairment to the Company's ability to perform on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or
(iii), a "Material Adverse Effect"). Neither the Company nor any Subsidiary
is in violation or default of any of the provisions of its respective
certificate or articles of incorporation, by-laws or other organizational or
charter document. All direct and indirect subsidiaries of the Company are set
forth in the Disclosure Materials. Except as set forth in the Disclosure
Materials, 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.
(b) 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 and otherwise to carry out
its obligations thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it
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of the transactions contemplated thereby have been duly authorized by all
necessary corporate action on the part of the Company and no further action is
required by the Company in connection therewith. 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, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles.
(c) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company
of the transactions contemplated thereby 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, or give to
others any rights of termination, amendment, 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) assuming the accuracy of Purchasers' representations and warranties and
compliance by the Purchasers of their respective covenants as set forth in
this Agreement, 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 and regulations), or by which any property or asset
of the Company or a Subsidiary is bound or affected; except in the case of
each of clauses (ii) and (iii), such as would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect.
(d) Filings, Consents and Approvals. 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 the filing with the Commission of one or more
Registration Statements in accordance with the requirements Registration
Rights Agreement.
(e) Issuance of the Securities. The Securities have been duly
authorized and, when issued and paid for in accordance with the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens. The Warrant Shares, when issued and paid for in
accordance with the terms of the Warrants, will be duly and validly issued,
fully-paid and non-assessable and free and clear of all Liens. The Company has
reserved from its duly authorized capital stock the maximum number of shares
of Common Stock issuable pursuant to this Agreement and upon exercise of the
Warrants issuable hereunder.
(f) Capitalization. The number of shares and type of all
authorized, issued and outstanding capital stock of the Company is set forth
in Schedule 3.1(f). Except as set forth in Schedule 3.1(f), no securities of
the Company are entitled to preemptive or similar rights, and
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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 a result of the purchase
and sale of the Securities and except as disclosed in the Disclosure
Materials, there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares of
Common Stock, or securities or rights convertible or exchangeable into shares
of Common Stock. Except as set forth in Schedule 3.1(f), the issue and sale
of the Securities will not, immediately or with the passage of time, obligate
the Company to issue shares of Common Stock or other securities to any Person
(other than the Purchasers and their permitted successors and assigns) 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. 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. 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. 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.
(g) SEC Reports; Financial Statements. Except as set forth in
Schedule 3.1(g), the Company has filed all reports required to be filed by it
under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof
(or such shorter period as the Company was required by law to file such
reports) (the foregoing materials being collectively referred to herein as the
"SEC Reports" and, together with the Schedules to this Agreement, the
"Disclosure Materials"), and for the twelve months preceding the date hereof,
such reports have been filed on a timely basis or the Company 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. Except as may have been
corrected or supplemented in a subsequent SEC Report, as of the date thereof,
the Company's Annual Report on Form 10-KSB for the year ended December 31,
2005 (the "Company 10-KSB") complied with the requirements of the Exchange Act
and the rules and regulations of the Commission promulgated thereunder, and,
when filed, did not contain any untrue statement of a material fact or omit 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. Except as may have been corrected or supplemented
in a subsequent SEC Report, the financial statements of the Company included
in the Company 10-KSB 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. Except as may have been
corrected or supplemented in a subsequent SEC Report, 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, or, in the case of unaudited
financial statements, as permitted by Item 310(b) of Regulation S-B
promulgated under the Securities Act and the Exchange Act, and fairly present
in all material respects the financial position of the Company
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and its consolidated Subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal, year-end audit adjustments and
the lack of footnotes. Except as set forth in Schedule 3.1(g), the Company
has not received any letters of comment from the Staff of the SEC which have
not been satisfactorily resolved as of the date hereof.
(h) Material Changes. Since the date of the latest balance sheet
included within the SEC Reports, except as specifically disclosed in the
Disclosure Materials, (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 material 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 materially altered its method of
accounting or the identity of its auditors, (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, and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to
existing Company equity compensation plans. The Company does not have pending
before the Commission any request for confidential treatment of information.
(i) Litigation. Except as set forth in the SEC Reports, there is
no Action which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or (ii)
would, if there were an unfavorable decision, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect. 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. There has not been and 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. 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.
(j) 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.
(k) Compliance. Except as set forth in Schedule 3.1(k), 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 relating to taxes,
environmental protection, occupational health and safety, product quality and
safety and employment and labor matters, except in each case as would not,
individually or in the aggregate, have or reasonably be expected to result in
a Material Adverse Effect.
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(l) 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 would not, individually or in the aggregate,
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.
(m) Title to Assets. The Company and the Subsidiaries have good
and marketable title in fee simple to all real property owned by them that is
material to their respective businesses and good and marketable title in all
personal property owned by them that is material to their respective
businesses, 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 not delinquent. 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 material compliance.
(n) Patents and Trademarks. To the knowledge of the Company, the
Company and the Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights that are necessary or material
for use in connection with their respective businesses as described in the SEC
Reports as currently conducted and which the failure to so have would,
individually or in the aggregate, have or reasonably be expected to result in
a Material Adverse Effect (collectively, the "Intellectual Property Rights").
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. Except as set forth in the SEC
Reports, to the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another Person
of any of the Intellectual Property Rights.
(o) Transactions With Affiliates and Employees. Except as set
forth in the SEC Reports, none of the officers or directors of the Company and
none of the employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (other than as holders of stock options
and/or warrants, and 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 any entity in which any officer, director, or any
such employee has a substantial interest or is an officer, director, trustee
or partner.
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(p) Internal Control Over Financial Reporting. The Company and
the Subsidiaries maintain a system of internal control over financial
reporting 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 generally accepted accounting principles 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 December 31, 2005 (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 any
other factors that could significantly affect the Company's internal controls.
(q) Certain Fees. Except as described in Schedule 3.1(q), 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. The Purchasers shall have no
obligation with respect to any fees or with respect to any claims (other than
such fees or commissions owed by a Purchaser pursuant to written agreements
executed by such Purchaser which fees or commissions shall be the sole
responsibility of such Purchaser) 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.
(r) Certain Registration Matters. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2(b)-(g), no
registration under the Securities Act is required for the offer and sale of
the Securities by the Company to the Purchasers under the Transaction
Documents. The Company is eligible to register the resale of the Shares and
the Warrant Shares for resale by the Purchasers under Form SB-2 promulgated
under the Securities Act. Except as described in Schedule 3.1(r), the Company
has not granted or agreed to grant to any Person any rights (including
"piggy-back" registration rights) to have any securities of the Company
registered with the Commission or any other governmental authority that have
not been satisfied.
(s) 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. The Company has no 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.
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(t) Listing and Maintenance Requirements. The Company is, and
has no reason to believe that it will not, upon the issuance of the Securities
hereunder and in the foreseeable future, continue to be, in compliance with
the listing and maintenance requirements for continued listing of the Common
Stock on the Over the Counter Bulletin Board. The issuance of the Securities
hereunder does not contravene the rules and regulations of the Over the
Counter Bulletin Board. 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.
(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.
(v) 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 the Purchasers 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 the Purchasers' ownership of the
Securities.
(w) Disclosure. The Company confirms that, neither it nor any
other Person acting on its behalf has provided any of the Purchasers or their
agents or counsel with any information that the Company believes constitutes
or might constitute material, non-public information, except insofar as the
existence and terms of the proposed transactions hereunder may constitute such
information. 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 disclosure provided to the Purchasers
regarding the Company, its business and the transactions contemplated hereby,
including the Disclosure Materials to this Agreement, furnished by or on
behalf of the Company with respect to the representations and warranties made
herein are true and correct with respect to such representations and
warranties 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. The Company acknowledges and agrees that no Purchaser makes or has
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3.2
hereof.
(x) ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act. The Company is in compliance with
applicable requirements of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 and applicable rules
and regulations promulgated by the Commission thereunder in effect as of the
date of this Agreement, except where such noncompliance would not be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect.
12
(y) 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
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 Trading Market on which any of the securities of the
Company are listed or designated.
(z) 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, other than in the ordinary course of its business, 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). The Company has
no knowledge of any facts or circumstances which lead it to believe that it
will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the Closing Date.
The SEC Reports set forth as of the dates thereof all outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments (except where such Indebtedness
would not have a Material Adverse Effect). For the purposes of this
Agreement, "Indebtedness" shall mean (a) any liabilities for borrowed money or
amounts owed in excess of $50,000 (other than trade accounts payable incurred
in the ordinary course of business), (b) all guaranties, endorsements and
other contingent obligations in respect of Indebtedness of others, whether or
not the same are or should be reflected in the Company's balance sheet (or the
notes thereto), except guaranties by endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business; and (c) the present value of any lease payments in excess of $50,000
due under leases required to be capitalized in accordance with GAAP. Neither
the Company nor any Subsidiary is in default with respect to any Indebtedness.
(aa) Tax Status. Except for matters that would not, individually
or in the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, the Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid or
accrued all taxes shown as due thereon, and the Company has no knowledge of a
material tax deficiency which has been asserted or threatened against the
Company or any Subsidiary.
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(bb) No General Solicitation. Neither the Company nor to the
knowledge of the Company any person acting on behalf of the Company has
offered or sold any of the Securities by any form of general solicitation 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.
(cc) Foreign Corrupt Practices. Neither the Company, nor any
agent or other person acting on behalf of the Company, has (i) directly or
indirectly, used any funds for unlawful contributions, gifts, entertainment or
other unlawful expenses related to foreign or domestic political activity,
(ii) 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, or (iv) violated in any material respect
any provision of the Foreign Corrupt Practices Act of 1977, as amended.
(dd) Accountants. The Company's accountants are set forth in the
SEC Reports. To the knowledge of the Company, such accountants, who have
expressed their opinion with respect to the financial statements included in
the Company's Annual Report on Form 10-KSB for the year ending December 31,
2005, are a registered public accounting firm as required by the Securities
Act.
(ee) Acknowledgment Regarding Purchasers' Purchase of Securities.
The Company acknowledges and agrees that 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
further acknowledges that 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 further
represents to each Purchaser that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.
(ff) Acknowledgement Regarding Purchasers' Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding
(except for Section 3.2(j) hereof), it is understood and agreed by the Company
(i) that none of the Purchasers have been asked to agree, nor has any
Purchaser agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or derivative securities based on securities issued
by the Company or to hold the Securities for any specified term; (ii) that
past or future open market or other transactions by any Purchaser, including
short sales, and specifically including, without limitation, short sales or
derivative transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the
Company's publicly-traded securities; (iii) that any Purchaser, and counter
parties in derivative transactions to which any such Purchaser is a party,
directly or indirectly, presently may have a short position in the Common
Stock, and (iv) that each Purchaser shall not be deemed to have any
affiliation with or control over any arm's length counter-party in any
derivative transaction. The Company further understands and acknowledges that
14
(a) one or more Purchasers may engage in hedging activities at various times
during the period that the Securities are outstanding, and (b) such hedging
activities (if any) could reduce the value of the existing stockholders'
equity interests in the Company at and after the time that the hedging
activities are being conducted. The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents.
(gg) Manipulation of Price. The Company has not, and no one
acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result in the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of any
of the Securities, (ii) sold, bid for, purchased, or, paid any compensation
for soliciting purchases of, any of the Securities (other than for the
placement agent's placement of the Securities), or (iii) paid or agreed to pay
to any person any compensation for soliciting another to purchase any other
securities of the Company.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants 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 the requisite corporate, partnership or
limited liability company power and authority to enter into and to consummate
the transactions contemplated by the applicable Transaction Documents and
otherwise to carry out its obligations thereunder. The execution, delivery
and performance by such Purchaser of the Transaction Documents to which it is
a party and the consummation by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or, if such Purchaser is not a corporation, such partnership,
limited liability company or other applicable like action, on the part of such
Purchaser. Each of this Agreement, the Registration Rights Agreement and the
Escrow Agreement has been duly executed by such Purchaser, and when delivered
by such Purchaser in accordance with terms hereof, will constitute the valid
and legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles.
(b) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, an "accredited investor" as
defined in Rule 501(a) under the Securities Act. Such Purchaser is not a
registered broker-dealer under Section 15 of the Exchange Act. If such
Purchaser has checked the box marked "Yes" on the signature page hereto, such
Purchaser is a Qualified Institutional Buyer.
(c) 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.
15
(d) Access to Information. Such Purchaser acknowledges that it
has reviewed the Disclosure Materials and has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Securities and the merits and risks of
investing in the Securities; (ii) access to information about the Company and
the Subsidiaries and their respective financial condition, results of
operations, business, properties, management and prospects sufficient to
enable it to evaluate its investment; and (iii) the opportunity to obtain such
additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed
investment decision with respect to the investment.
(e) Knowledge and 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 is able to afford a complete loss of such investment.
(f) Restrictions on Securities. Such Purchaser understands that
the Securities have not been registered under the Securities Act and may not
be offered, resold, pledged or otherwise transferred except (a) pursuant to an
exemption from registration under the Securities Act or pursuant to an
effective registration statement in compliance with Section 5 under the
Securities Act and (b) in accordance with all applicable securities laws of
the states of the United States and other jurisdictions.
(g) Investment Intent. Such Purchaser is acquiring the Securities
as principal for its own account for investment purposes only and not with a
view to or for distributing or reselling such Securities or any part thereof,
without prejudice, however, to such Purchaser's right at all times to sell or
otherwise dispose of all or any part of such Securities in compliance with
applicable federal and state securities laws. Nothing contained herein shall
be deemed a representation or warranty by such Purchaser to hold the
Securities for any period of time. 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 any of the Securities.
(h) Investment Decision. Such Purchaser is not relying on the
Company, any other potential Purchaser, or on any legal or other opinion in
the materials reviewed by the Purchaser with respect to the financial or tax
considerations of the Purchaser relating to its investment in the Securities.
Such Purchaser has relied solely on the representations and warranties,
covenants and agreements of the Company in this Agreement (including the
Schedules and Exhibits hereto) and on its examination and independent
investigation in making its decision to acquire the Securities. Such
Purchaser has not relied on the business or legal advice of Midtown Partners &
Co., LLC or any of its agents, counsel or Affiliates in making its investment
decision hereunder, and confirms that none of such Persons has made any
representations or warranties to such Purchaser in connection with the
transactions contemplated by the Transaction Documents.
16
(i) No Other Representations. No oral or written representations
have been made to such Purchaser by the Company, or any of its officers,
directors, employees, agents, affiliates or subsidiaries of the Company, in
connection with its acquisition of Securities which were in any way
inconsistent with the representations contained herein. Such Purchaser
acknowledges that no representations or warranties of any type or description
have been made to it by any Person with regard to the Company, any of its
Subsidiaries, any of their respective businesses, properties or prospects or
the investment contemplated herein, other than the representations and
warranties set forth in Article III hereof. Purchaser has not been furnished
with any oral representation or oral information in connection with the
offering of the Securities that is not contained in this Agreement or the SEC
Reports
(j) No Prior Short Selling. At no time during the 30 days prior
to the Closing Date has such Purchaser engaged in or effected, in any manner
whatsoever, directly or indirectly, any sale of Common Stock which such
Purchaser is not deemed to own under the provisions of Rule 200(b) of
Regulation SHO promulgated under the Exchange Act.
(k) Compliance with Laws. Such Purchaser is in compliance with
all securities laws applicable to it in connection with the transactions
contemplated by the Transaction Documents, including all securities laws,
rules and regulations in respect of the stabilization or manipulation of the
price of the Common Stock.
(l) Private Placement. Such Purchaser understands and
acknowledges that (i) the Securities are offered and sold without registration
under the Securities Act in a private placement that is exempt from the
registration provisions of the Securities Act and (ii) the availability of
such exemption depends in part on, and that the Company and its counsel will
rely upon, the accuracy and truthfulness of the foregoing representations and
each Purchaser hereby consents to such reliance.
(m) Registration Statement Questionnaire. Such Purchaser has
completed or caused to be completed the Selling Securityholder Notice and
Questionnaire attached to the Registration Rights Agreement as Annex B, for
use in preparation of the Registration Statement, and the answers thereto are
true and correct as of the date hereof and will be true and correct as of the
effective date of the Registration Statement, or as applicable, any amendment
thereto, and such Purchaser will notify the Company immediately of any
material change in any such information provided in the Selling Securityholder
Notice and Questionnaire until such time as the Registration Statement has
been declared effective.
(n) Commissions. Such Purchaser has not incurred any obligation
for any finder's or broker's or agent's fees or commissions in connection with
the transactions contemplated hereby. Such Purchaser acknowledges that
Midtown Partners & Co., LLC will be paid a cash commission and non-accountable
expense allowance totaling ten percent (10.0%) of the aggregate dollar amount
of the Securities sold to Purchasers. Additionally, the Company will issue
Midtown Partners & Co., LLC at the Closing a warrant to purchase up to ten
percent 10.0% of the number of shares of Common Stock and Warrants sold to
Purchasers pursuant to this Agreement, exercisable at $0.20 per share (with
respect to the Common Stock sold pursuant to this Agreement), $0.35 per share
(with respect to the Class A Warrants sold pursuant to this Agreement) and
$0.45 per share (with respect to the Class B Warrants sold pursuant to this
17
Agreement), each exercisable for a period of five (5) years, commencing six
(6) months from the date of this Agreement.
(o) Residence. If the Purchaser is an individual, such Purchaser
resides in the state identified in the address of such Purchaser set forth on
the signature page hereto; if such Purchaser is a partnership, corporation,
limited liability company or other entity, then the office or offices of such
Purchase in which its investment decision was made is located at the address
or addresses of such Purchaser set forth on the signature page hereto.
(p) Purchaser acknowledges that it will execute and deliver to
the Company the Selling Securityholder Notice and Questionnaire attached as
Annex B to the Registration Rights Agreement in connection with the filing of
the Registration Statement, prior to the filing thereof.
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.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 (a) Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of the
Securities other than pursuant to an effective registration statement, to the
Company, 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 and
reasonably acceptable to the Company, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities under
the Securities Act.
(b) Certificates evidencing each of the Shares, the Warrants and
the Warrant Shares, will contain the following legend, so long as is required
by this Section 4.1(b):
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR 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
OR BLUE SKY LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT.
18
The Company acknowledges and agrees that a Purchaser may from time to
time pledge Securities pursuant to a bona fide margin account and, if required
under the terms of such account, such Purchaser may transfer pledged or
secured Securities to the pledgees or secured parties. Such pledge or
transfer would not be subject to approval or consent of the Company and no
legal opinion of legal counsel to the pledgee, secured party or pledgor shall
be required in connection with the pledge, but the legend shall remain on the
pledged Securities and such legal opinion may be required in connection with a
subsequent transfer following default by the Purchaser transferee of the
pledge. 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 the preparation and filing of any required prospectus supplement
under Rule 424(b)(3) of the Securities Act or other applicable provision of
the Securities Act to appropriately amend the list of Selling Stockholders
thereunder.
(c) Certificates evidencing the Shares and the Warrant Shares
shall not contain any legend (including the legend set forth in Section
4.1(b)): (i) while a registration statement (including the Registration
Statement) covering the resale of such Shares is effective under the
Securities Act, or (ii) following any sale of such Shares pursuant to and in
compliance with Rule 144, or (iii) if such 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). Upon satisfaction of
the conditions specified in the preceding sentence and receipt of any opinion
requested by the Company pursuant to Section 4.1(a), the Company shall cause
its counsel to issue the legal opinion to the Company's transfer agent
promptly after the Effective Date if requested by the Company's transfer agent
to effect the removal of the legend hereunder. Following the Effective Date
or at such earlier time as a legend is no longer required for the Shares under
this Section 4.1(c), the Company will, no later than three (3) Trading Days
following the delivery by a Purchaser to the Company's transfer agent of a
certificate representing Shares or the Warrant Shares, as the case may be,
containing a restrictive legend, 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. Certificates for
Securities subject to legend removal hereunder shall be transmitted by the
transfer agent of the Company to the Purchasers by crediting the account of
the Purchaser's prime broker with the Depository Trust Company System.
(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages and
not as a penalty, for each $1,000 of Shares or the Warrant Shares, as the case
may be, (based on the closing price of the Common Stock on the date such
Securities are submitted to the Company's transfer agent) delivered for
removal of the restrictive legend and subject to Section 4.1(c), $10 per
Trading Day (increasing to $20 per Trading Day five (5) Trading Days after
such damages have begun to accrue) for each Trading Day after the Legend
Removal Date until such certificate is delivered 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.
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4.2 Furnishing of Information. As long as any Purchaser owns the
Securities, the Company covenants to use its best efforts 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 which are required to be filed in order to
satisfy the current public information requirements of Rule 144(c)(1). As
long as any Purchaser owns Securities, if the Company is no longer subject to
the periodic reporting requirements of the Exchange Act and Rule 144(k) is not
available to any Purchaser with respect to any Securities held, the Company
will prepare and furnish to the Purchasers and make publicly available in
accordance with Rule 144(c)(2) such information as is required for the
Purchasers to sell the Shares or the Warrant Shares, as the case may be, under
Rule 144.
4.3 Securities Laws Disclosure; Publicity. The Company shall, by 8:30
a.m. Eastern time on the Trading Day following the date hereof, issue a press
release, disclosing the material terms of the transactions contemplated hereby
and shall promptly thereafter, but in any event prior to 5:30 pm on the same
day file a Current Report on Form 8-K disclosing the material terms of the
transaction and shall attach the Transaction Documents thereto. In addition,
the Company will make such other filings and notices in the manner and time
required by the Commission and the Trading Market on which the Common Stock is
listed. The Company and Midtown Partners & Co., LLC, on behalf of the
Purchasers, shall consult with each other in issuing any press releases with
respect to the transactions contemplated hereby, and neither party shall issue
any such press release without the prior consent of the other, which consent
shall not be unreasonably withheld or delayed, except if such disclosure is
required by law or Trading Market regulations, in which case the disclosing
party shall provide the other party with prior notice of such press release.
The Company shall not publicly disclose the name of any Purchaser, or include
the name of any Purchaser in any filing with the Commission or any regulatory
agency or Trading Market, without the prior written consent of such Purchaser,
except to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure.
4.4 Indemnification.
(a) Reimbursement. If any Purchaser becomes involved in any
capacity in any Proceeding by or against any Person who is a stockholder of
the Company (except as a result of sales, pledges, margin sales and similar
transactions by such Purchaser to or with any current stockholder), solely as
a result of such Purchaser's acquisition of the Securities under this
Agreement, the Company will reimburse such Purchaser for its legal and other
expenses (including the cost of any investigation preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred. The reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliates of the
Purchasers who are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and controlling persons (if any),
as the case may be, of the Purchasers and any such Affiliate, and shall be
binding upon and inure to the benefit of any successors, assigns, heirs and
personal representatives of the Company, the Purchasers and any
20
such Affiliate and any such Person. The Company also agrees that neither the
Purchasers nor any such Affiliates, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or any Person
asserting claims on behalf of or in right of the Company solely as a result of
acquiring the Securities under this Agreement, except to the extent that such
claims are based on a breach of any representations and warranties or
covenants made by the Purchasers in Transaction Documents.
(b) Indemnification of Purchasers. Subject to the provisions of
this Section 4.4, the Company will indemnify and hold the Purchasers and their
directors, officers, stockholders, members, partners, employees and agents
(each, a "Purchaser Party") harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or
in the other Transaction Documents 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 a Purchaser or an Affiliate of any Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser's
representations, 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). 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 a 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.
(c) Indemnification of Company. In addition to the indemnity
provided in the Registration Rights Agreement, the Purchasers will, severally
and not jointly, indemnify and hold the Company and its directors, officers,
shareholders, partners, employees and agents (each, a "Company Party")
harmless from any and all Losses that any such Company Party may suffer or
incur as a result of or relating to any material misrepresentation, breach or
inaccuracy of any representation, warranty, covenant or agreement made by the
Purchasers in any Transaction Document; provided, that such indemnity (other
than as to any indemnity called for under the Registration Rights Agreement)
does not exceed, with respect to each Purchaser, the portion of
21
the Investment Amount of such Purchaser hereunder, together with the Company's
reasonable attorneys' fees and costs of investigation subject to
indemnification above. Except as set forth above, the mechanics and
procedures with respect to the rights and obligations under this Section
4.4(c) will be the same as those set forth in the Registration Rights
Agreement.
4.5 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes, and not for the
satisfaction of debt (other than trade payables in the ordinary course,
consistent with past practices), to redeem any Company equity or
equity-equivalent securities or to settle any outstanding Action with such
proceeds.
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
such that it would require stockholder approval of the sale of the Securities
to the Purchasers unless stockholder approval is obtained before the closing
of such subsequent transaction.
4.7 Stockholder Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any
Purchaser is an "Acquiring Person" under any stockholder 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. The Company shall conduct its business in a manner so that it will
not become subject to the Investment Company Act.
4.8 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any
Purchaser or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto
such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.
4.9 Reservation of Common Stock. As of the date hereof, the Company
has reserved and the Company shall continue to reserve and keep available at
all times, free of preemptive rights, a sufficient number of shares of Common
Stock for the purpose of enabling the Company to issue Shares and Warrant
Shares pursuant to this Agreement.
4.10 Listing of Common Stock. The Company hereby agrees to use best
efforts to maintain the listing of the Common Stock on a Trading Market, and
as soon as reasonably practicable following the Closing (but not later than
the earlier of the Effective Date and the first anniversary of the Closing
Date) to list all of the Shares and Warrant Shares on such Trading Market, if
applicable. The Company further agrees, if the Company applies to have the
Common Stock traded on any other Trading Market, it will include in such
application all of the Shares and Warrant Shares, and will take such other
action as is necessary to cause all of the Shares and Warrant Shares to be
listed on such other Trading Market as promptly as possible. The
22
Company will take all action reasonably necessary to continue the listing and
trading of its Common Stock on a Trading Market and will comply in all
material respects with the Company's reporting, filing and other obligations
under the bylaws or rules of the Trading Market.
4.11 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
(on a pro-rata basis) is also offered to all of the parties to the Transaction
Documents, provided such party holds all or any portion of the Shares
purchased pursuant to this Agreement. 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 to treat
the Purchasers 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.
4.12 Participation in Future Financing. From the date hereof until 12
months after the Closing Date, provided the Purchaser continues to hold all or
any portion of the Shares, upon any financing by the Company or any of its
subsidiaries of Common Stock, Common Stock Equivalents or debt securities (a
"Subsequent Financing"), each Purchaser shall have the right to to exchange
some or all of any of its Shares then held by it for any securities issued in
the Subsequent Financing (such exchange to be made at the same time as, and
pursuant to, the closing of the Subsequent Financing) based on the Per Share
Purchase Price of the Shares. At least 10 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 (which shall be made
within 2 Trading Days of delivery of a Pre-Notice), and only upon a request by
such Purchaser, for a Subsequent Financing Notice, the Company shall promptly,
but no later than 1 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 (subject to
confidentiality), and attached to which shall be a term sheet or similar
document relating thereto. If by 6:30 p.m. (New York City time) on the 10th
Trading Day after all of the Purchasers have received the Pre-Notice,
notifications of the Purchasers of their willingness to exchange their Shares
for securities to be issued in the Subsequent Financing 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 4.12, if the Subsequent Financing subject to the
initial Subsequent Financing Notice is not consummated for any reason
substantially on terms no more favorable to the Purchasers than those set
forth in such Subsequent Financing Notice within 60 Trading Days after the
date of the initial Subsequent Financing Notice.
4.13 Short Sales and Confidentiality After The Date Hereof. Such
Purchaser has not directly or indirectly, nor has any Person acting on behalf
of or pursuant to any understanding with such Purchaser, engaged in any
transactions in the securities of the Company (including,
23
without limitations, any Short Sales involving the Company's securities) since
the time that such Purchaser was first contacted by the Company, Midtown
Partners & Co., LLC or any other Person regarding an investment in the
Company. Such Purchaser covenants that neither it nor any Person acting on
its behalf or pursuant to any understanding with it will engage in any
transactions in the securities of the Company (including Short Sales) prior to
the time that the transactions contemplated by this Agreement are publicly
disclosed by the Company. Such Purchaser has maintained, and covenants that
until such time as the transactions contemplated by this Agreement are
publicly disclosed by the Company such Purchaser will maintain, the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).
Notwithstanding the foregoing, no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in Short Sales in the securities of
the Company after the time that the transactions contemplated by this
Agreement are first publicly announced as described in Section 4.4 to the
extent permitted by applicable rules. Notwithstanding the foregoing, in the
case of a Purchaser that is a multi-managed investment vehicle whereby
separate portfolio managers manage separate portions of such Purchaser's
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Purchaser's assets, the covenant set forth above shall only apply with respect
to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.
ARTICLE V.
MISCELLANEOUS
5.1 Fees and Expenses. At the Closing, the Company shall pay to
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP an aggregate of $10,000 for its legal fees, less any
amounts previously paid, plus expenses incurred in connection with its
preparation and negotiation of the Transaction Documents. Except as expressly
set forth in the Transaction Documents to the contrary, each party shall pay
the fees and expenses of its advisers, counsel, accountants and other experts,
if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all transfer agent fees, stamp taxes and
other taxes and duties levied in connection with the issuance of the
Securities.
5.2 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.
5.3 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 specified in this Section prior to 6:30 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 specified in this Section on a day that is not a Trading
Day or later than 6:30 p.m. (New York City time) on any Trading Day, (c) the
Trading Day following the date of mailing, if sent by U.S. nationally
24
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 follows:
If to the Company: DataLogic International, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, CEO
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: Weed & Co. LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to a Purchaser: To the address set forth under such Purchaser's
name on the signature pages hereof;
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
5.4 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.
5.5 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.
This Agreement shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party
by virtue of the authorship of any provisions of this Agreement or any of the
Transaction Documents.
5.6 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 the Purchasers.
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 transfer is in accordance with this Agreement and the transferee
agrees in writing to be bound, with respect to the transferred Securities, by
the provisions hereof that apply to the "Purchasers."
25
5.7 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 4.5.
5.8 Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement 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 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, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of
New York, Borough of Manhattan (the "New York Courts"). Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the New York
Courts 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 the any of the Transaction Documents), and
hereby irrevocably waives, and agrees not to assert in any Proceeding, any
claim that it is not personally subject to the jurisdiction of any such New
York Court, or that such Proceeding has been commenced in an improper or
inconvenient forum. Each party hereto hereby irrevocably waives personal
service of process and consents to process being served in any such 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. Each party hereto hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all right
to trial by jury in any legal proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby. If either party shall
commence a Proceeding to enforce any provisions of a Transaction Document,
then the prevailing party in such Proceeding shall be reimbursed by the other
party for its attorney's fees and other costs and expenses actually incurred
with the investigation, preparation and prosecution of such Proceeding.
5.9 Survival. The representations, warranties, agreements and
covenants contained herein shall survive the Closing.
5.10 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 or electronic 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 or electronic signature page were an original thereof.
5.11 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
26
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.
5.12 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.
If a replacement certificate or instrument evidencing any Securities is
requested due to a mutilation thereof, the Company may require delivery of
such mutilated certificate or instrument as a condition precedent to any
issuance of a replacement.
5.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.14 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.
5.15 Termination. This Agreement may be terminated by any Purchaser,
as to such Purchaser's obligations hereunder only and without any effect
whatsoever on the obligations between the Company and the other Purchasers, by
written notice to the other parties, if the Closing has not been consummated
on or before May 31, 2006; provided, however, that no such termination will
affect the right of any party to ▇▇▇ for any breach by the other party (or
parties).
5.16 Independent Nature of Purchasers' Obligations and Rights. 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 of the obligations of any other
Purchaser under any Transaction Document. The decision of each Purchaser to
purchase Securities pursuant to this Agreement has been made by such Purchaser
independently of any other Purchaser and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, or condition
(financial or otherwise) of the Company or any Subsidiary which may have been
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have any
liability to any other Purchaser relating to or arising from any such
information, materials, statements or
27
opinions. Nothing contained herein or in any 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 with respect to such obligations or the
transactions contemplated by the Transaction Document. The Company hereby
confirms that it understands and agrees that the Purchasers are not acting as
a "group" as that term is used in Section 13(d) of the Exchange Act. Each
Purchaser acknowledges that no other Purchaser has acted as agent for such
Purchaser in connection with making its investment hereunder and that no other
Purchaser will be acting as agent of such Purchaser in connection with
monitoring its investment hereunder. 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
represents that it has been represented by its own separate legal counsel in
its review and negotiations of this Agreement and the Transaction Documents
5.17 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]
28
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.
DATALOGIC INTERNATIONAL, INC.
_________________________________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: Chief Executive Officer
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
28
IN WITNESS WHEREOF, the parties have executed this Securities Purchase
Agreement as of the date first written above.
[________________________________]
By: ______________________________
Name:
Title:
[PURCHASER SIGNATURE PAGES TO DATALOGIC INTERNATIONAL, INC.
SECURITIES PURCHASE AGREEMENT]
29
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 Purchaser: ________________________________________________________
Signature of Authorized Signatory of Purchaser:____________________________
Name of Authorized Signatory: _____________________________________________
Title of Authorized Signatory: ____________________________________________
Email Address of Purchaser:________________________________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount:
Shares:
Class A Warrants:
Class B Warrants:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
Investment Amount: $[ ]
Shares:
Class A Warrants:
Class B Warrants:
Qualified Institutional Buyer: [ ] Yes
[ ] No
30
Exhibit A
Escrow Agreement
31
Exhibit B
Registration Rights Agreement
32
Exhibit C
Form of Class A Warrant
33
Exhibit D
Form of Class B Warrant
34
Exhibit E
Form of Company Counsel Legal Opinion
35
DISCLOSURE SCHEDULE
This Disclosure Schedule has been prepared in connection with the
Securities Purchase Agreement dated May __, 2006 (the "Agreement") between
DataLogic International, Inc., a Delaware corporation (the "Company") and the
purchasers identified on the signature page to the Agreement (each a
"Purchaser" and, collectively, the "Purchasers"). Capitalized terms not
otherwise defined in this Disclosure Schedule shall have the same meaning as
in the Agreement.
The disclosure of any matter in this Disclosure Schedule should not be
construed as indicating that such matter is necessarily required to be
disclosed in order for any representation or warranty in the Agreement to be
true and correct in all material respects. Any description of any document
included in this Disclosure Schedule is qualified in all respects by reference
to such document.
36
Schedule 3.1(a)
Subsidiaries
DataLogic Consulting, Inc., a Texas corporation (100% owned by Datalogic
International, Inc.)
IPN Communications, Inc., a California corporation (100% owned by Datalogic
International, Inc.)
DataLogic Consulting International, Inc., a Delaware corporation (100% owned
by Datalogic International, Inc.) f/k/a DataLogic New Mexico, Inc., a
Delaware corporation
DataLogic New Mexico, Inc., a New Mexico corporation (100% owned by DataLogic
International, Inc.)
37
Schedule 3.1(f)
Capitalization
Common Stock - Authorized: 100,000,000 shares, par value $.001 per share
Outstanding: 45,482,382 shares
Preferred Stock - None. The Company is in the process of seeking stockholder
approval to amend its Certificate of Incorporation to authorize the issuance
of 5,000,000 shares of "blank check" preferred stock.
Stock Options Outstanding - 9,887,500
Warrants Outstanding - 2,325,000
Convertible Debenture - None
38
Schedule 3.1(g)
SEC Reports
The SEC Reports are currently under review by the Securities and Exchange
Commission (the "SEC").
In connection with the SEC's review, the Company received staff comment
letters dated October 3, 2005 and March 13, 2006. The Company's response to
the most recent comment letter is reflected in the Company 10-KSB.
The resolution of the SEC staff's review may result in further adjustments to
the disclosures and/or the financial statements contained in the SEC Reports.
39
Schedule 3.1(h)
Material Changes
On January 20, 2006, we entered into a Securities Purchase Agreement with
Laurus Master Fund, Ltd. ("Laurus"), pursuant to which we issued to Laurus a
Secured Term Note in the principal amount of $3,250,000 and redeemed our
$3,000,000 original principal amount Secured Convertible Term Note due June
25, 2007 held by Laurus. The transaction is described in more detail in the
Company's Current Report on Form 8-K dated January 25, 2006.
40
Schedule 3.1(i)
Litigation
Digital Packet Licensing Corp has threatened legal action against IPN
Communications, Inc. alleging patent infringement. We are in settlement
discussions and anticipate the settlement amount will be immaterial
41
Schedule 3.1(k)
Compliance
None.
42
Schedule 3.1(n)
Patents and Trademarks
Digital Packet Licensing Corp has threatened legal action against IPN
Communications, Inc. alleging patent infringement. We are in settlement
discussions and anticipate the settlement amount will be immaterial
Prior to the Company's acquisition of the assets of CBSi Holdings, Inc., CBSi
received communications from AirIQ, Inc. informing CBSi of the existence of
certain patents held by AirIQ. The Company is in the process of evaluating
the impact, if any, on the Company's planned operations of these claimed
intellectual property rights.
43
Schedule 3.1(q)
Certain Fees
BROKER: MIDTOWN PARTNERS & CO., LLC
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Cash Fee. The Company has agreed that it will pay the Broker, on
the Closing Date a fee (including a non-accountable expense allowance) of ten
percent (10%) of the Purchase Price ("Broker's Cash Fee").
The Company represents that there are no other parties entitled to
receive fees, commissions, or similar payments in connection with the sale of
the Securities except the Broker.
Broker's Warrants. On the Closing Date, the Company will issue to
the Broker, (a) 10 warrants, each to purchase one share of common stock, for
each one hundred (100) Shares issued to the Purchaser at an exercise price of
$.20 per share, (b) 10 warrants, each to purchase one share of common stock,
for each one hundred (100) shares of common stock issuable upon the exercise
of the Class A Warrants issued to the Purchaser at an exercise price of $.35
per share, and (c) 10 warrants, each to purchase one share of common stock,
for each one hundred (100) shares of common stock issuable upon the exercise
of the Class B Warrants issued to the Purchaser at an exercise price of $.45
per share ("Broker's Warrants")
44
Schedule 3.1(r)
Registration Matters
Registration rights granted pursuant to CBSi Asset Purchase Agreement dated
September 15, 2005 (filed as an exhibit to the Company's Current Report on
Form 8-K dated September 21, 2005).
Registration rights granted to Laurus Master Fund Ltd. pursuant to
Registration Rights Agreement dated January 20, 2006 (filed as an exhibit to
the Company's Current Report on Form 8-K dated January 25, 2006).
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Schedule 3.1(aa)
Tax Status
The Company is in the process of filing the following tax returns:
2002 - 2005 Federal tax returns for DataLogic International, Inc.
2002 - 2005 California Franchise tax returns for DataLogic Consulting, Inc.
2003 - 2005 California Franchise tax returns for IPN Communications, Inc.
State of Tennessee state sales tax lien, current balance $105,000
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