EXHIBIT 10.1
INVESTMENT AGREEMENT
BY AND BETWEEN
WORLDWATER AND POWER CORP.
AND
EMCORE CORPORATION
Dated as of November 29, 2006
TABLE OF CONTENTS
Page
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1. Definitions 1
2. General Rules of Interpretation 9
3. Authorization of the Shares 11
4. Sale and Purchase 11
5. Closing 12
6. Representations and Warranties by the Company 15
6.1 Organization 15
6.2 Authorization and Enforceability 15
6.3 Capitalization 16
6.4 Due Issuance and Authorization of Capital Stock 18
6.5 Consents 19
6.6 Financial Statements 19
6.7 SEC Documents. 20
6.8 No Conflicts 21
6.9 Intellectual Property 21
6.10 Material Contracts 23
6.11 Right of First Refusal; Voting and Registration Rights 24
6.12 Intentionally Omitted 25
6.13 No Integrated Offering; Private Placement 25
6.14 Absence of Certain Developments 25
6.15 Undisclosed Liabilities 26
6.16 Litigation 26
6.17 Compliance with Laws 26
6.18 Taxes 27
6.19 Employee and Benefit Plans 28
6.20 Brokers 30
6.21 Related-Party Transactions 30
6.22 Insurance 30
6.23 Title to Properties 31
6.24 Environmental Matters 31
6.25 Books and Records 32
6.26 Listing and Maintenance Requirements. 32
6.27 Solvency. 33
6.28 Foreign Corrupt Practices 33
6.29 Business Practices. 34
6.30 Disclosure 34
7. Representations and Warranties of the Investor 34
7.1 Organization 34
7.2 Authorization; Enforceability 34
7.3 No Conflicts 35
7.4 Litigation 35
7.5 Available Funds 35
7.6 Brokers 36
8. Covenants 36
8.1 Continuing Covenants of the Company 36
8.2 Auditors 36
8.3 Composition of Board of Directors; Directors and Officers Insurance
Policy 36
8.4 Use of Proceeds 37
8.5 Reservation of Common Stock 38
8.6 Filings 38
8.7 Financial Statements and Other Information 38
8.8 Inspection of Property 40
8.9 Further Assurances 40
8.10 Financing for Entech Acquisition 40
8.11 Strategic Agreement 40
8.12 Right to Participate Pro-Rata in Future Financing 41
8.13 Restrictive Legend 42
8.14 Public Statements. 42
9. Conditions to the Parties' Obligations 43
9.1 Conditions to Each Party's Obligations 43
9.2 Conditions to the Investor's Obligations 43
9.3 Conditions to the Company's Obligations 44
10. Indemnification 45
10.1 Survival of Representations and Warranties 45
10.2 Indemnification 45
10.3 Limits on Indemnification 48
10.4 Effect of Investigation 48
11. Miscellaneous 48
11.1 Notices 48
11.2 Termination of Agreement 49
11.3 Effect of Termination 50
11.4 Successors and Assigns 50
11.5 Headings 50
11.6 Governing Law 51
11.7 Expenses 51
11.8 Jurisdiction 51
11.9 Waiver of Jury Trial 51
11.10 Counterparts; Effectiveness 51
11.11 Entire Agreement 52
11.12 Severability 52
11.13 Change; Waiver 52
INVESTMENT AGREEMENT
This INVESTMENT AGREEMENT (this "Agreement"), dated as of November 29,
2006, by and between WorldWater and Power Corp., a Delaware corporation (the
"Company"), and EMCORE Corporation, a New Jersey corporation (the "Investor").
Certain terms used and not otherwise defined in the text of this Agreement are
defined in Section 1 of this Agreement.
W I T N E S S E T H
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WHEREAS, the Company desires to issue and to sell to the Investor, and the
Investor desires to purchase from the Company, the Securities (as hereinafter
defined) in accordance with the terms and provisions of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:
1. Definitions
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Unless the context otherwise requires, the terms defined in this Section 1
shall have the meanings specified for all purposes of this Agreement.
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly, through one or more intermediaries, controls, or is
controlled by or, is under common control with, such Person. For purposes of
this definition, the term "control" (including the terms "controlling",
"controlled by" and "under common control with") as used with respect to any
Person means the possession, direct or indirect, of the power to direct or cause
the direction of the management and/or policies of such Person, whether through
ownership of voting securities, by Contract or otherwise.
"Agreed Allocation" has the meaning assigned to it in Section 4(c) hereof.
"Balance Sheet" has the meaning assigned to it in Section 6.6 hereof.
"Benefit Plans" has the meaning assigned to it in Section 6.19(a) hereof.
"Board of Directors" means the board of directors of the Company.
"Business Day" means any day, except a Saturday or Sunday or legal holiday on
which banking institutions in The City of New York are authorized or obligated
by Law or executive order to close.
"Business Premises" has the meaning assigned to it in Section 6.24(c) hereof.
"Certificate of Designation" has the meaning assigned to it in Section 3 hereof.
"Certificate of Incorporation" means the Company's Certificate of Incorporation,
as amended.
"Certifications" has the meaning assigned to it in Section 6.7 hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means common stock, par value $0.001 per share, of the Company.
"Company" has the meaning assigned to it in the introductory paragraph of this
Agreement.
"Company Loss" has the meaning assigned to it in Section 10.2(b) hereof.
"Company Permit" means all licenses, registrations, franchises, permits,
certificates and approvals granted by or obtained from any Governmental Entity
and used by the Company or any of its Subsidiaries in connection with the
conduct of their businesses.
"Company Stock Option Plan" has the meaning assigned to it in Section 6.3(b)
hereof.
"Confidentiality Agreement" means the Confidentiality Agreement dated October 9,
2006 between the Company and the Investor.
"Contract" means, with respect to any Person, any agreement, arrangement,
undertaking, contract, commitment, obligation, promise, indenture, deed of trust
or other instrument, document or agreement (whether written or oral) by which
that Person, or any amount of its present or future properties or assets, is
bound or subject.
"Conversion Shares" has the meaning assigned to it in Section 3 hereof.
"Disclosure Schedule" means the disclosure schedule hereto delivered by the
Company to the Investor.
"Entech" has the meaning assigned to in Section 8.10 hereof.
"Entech Financing" has the meaning assigned to it in Section 8.10 hereof.
"Environmental Condition" means the presence of any Hazardous Material or of any
wetland or endangered or threatened species or habitat. However, the presence
in the ordinary course of business of solid waste at the location of its
generation pending its proper disposal to an appropriately licensed third-party
site in the ordinary course of business consistent with all applicable Law does
not, without more, constitute an "Environmental Condition."
"Environmental Requirement" means any federal, state, local or foreign statute,
treaty, ordinance, rule, regulation, policy, common Law, permit or order
relating to any Environmental Subject Matter.
"Environmental Subject Matter" means (a) any Hazardous Material, (b) any release
or threatened Release of a Hazardous Material from, to or through any location,
(c) the generation, treatment, storage, presence, disposal, use, handling,
manufacturing, transporting or shipment by any Person of any Hazardous Material,
(d) natural resources, (e) wetlands, (f) an endangered or threatened species or
habitat, (g) odor, noise, air, water or soil or (h) any OSHA and similar state
Law requirements.
"Environmental Laws" has the meaning assigned to it in Section 6.24(a) hereof.
"ERISA" has the meaning assigned to it in Section 6.19(a) hereof.
"ERISA Affiliate" has the meaning assigned to it in Section 6.19(a) hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
"Financial Statement Losses" means any adverse impact to the Investor's
financial statements, including, without limitation, any increase in costs,
expenses, charges, reserves or liabilities or decrease in profits or assets (not
giving effect to any positive impact arising from matters unrelated to the
Investor Losses); it being the intent of the Parties that if an indemnifiable
event occurs which negatively impacts the Company with the result that the
financial statements of the Investor are adversely impacted, the Company shall
indemnify the Investor for such Financial Statement Losses.
"Financial Statements" has the meaning assigned to it in Section 6.6 hereof.
"Fully-Diluted Basis" has the meaning assigned to it in Section 8.12(d) hereof.
"GAAP" means United States generally accepted accounting principles consistently
applied.
"Governmental Entity" means any national, federal, state, municipal, local,
territorial, foreign or other government or any department, commission, board,
bureau, agency, regulatory authority or instrumentality thereof, or any court,
judicial, administrative or arbitral body or public or private tribunal.
"Hazardous Material" means any hazardous material, hazardous substance,
hazardous waste, toxic substance, toxic pollutant, contaminant, petroleum
(including crude oil and any fractions thereof), natural or synthetic gas or any
mixture thereof, asbestos, asbestos containing material, PCB or materials or
objects containing PCB, medical waste, infectious waste, lead containing paint,
radioactive material and any material or substance defined as a "hazardous
material" or "hazardous substance" or similar term in any Environmental
Requirement.
"Indebtedness" means, with respect to any Person, without duplication, (i) all
obligations of such Person for borrowed money (whether or not the recourse of
the lender is to the whole of the assets of such Person or only to a portion
thereof, but if not to the whole of the assets, a pro rata amount of such
obligations equal to such portion thereof); (ii) all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (iii) all
reimbursement obligations of such Person in respect of letters of credit,
letters of guaranty, bankers' acceptances and similar credit transactions; (iv)
all obligations of such Person to pay the deferred and unpaid purchase price of
property or services; (v) the capitalized portion of any obligations of such
Person to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, (vi) all
obligations of a Person other than the Company or one of its Subsidiaries that
is secured by a Lien on any asset of the Company or one of its Subsidiaries;
(vii) all Indebtedness of others guaranteed by such Person to the extent of such
guarantee; (viii) all obligations of such Person pursuant to hedging agreements,
swap agreements, collar agreements, forward Contracts, commodity swap and option
agreements; (ix) all obligations of such Person under conditional sale or other
title retention agreements relating to assets purchased by such Person; and (x)
any off-balance sheet receivables financing arrangements.
"Indemnified Party" has the meaning assigned to it in Section 10.2(c) hereof.
"Indemnifying Party" has the meaning assigned to it in Section 10.2(a) hereof.
"Intellectual Property" shall mean all intellectual property and industrial
property rights of any kind or nature, including all U.S. and foreign (i)
patents, patent applications, patent disclosures, and all related continuations,
continuations-in-part, divisionals, reissues, re-examinations, substitutions,
and extensions thereof ("Patents"), (ii) trademarks, service marks, names,
corporate names, trade names, domain names, logos, slogans, trade dress, and
other similar designations of source or origin, together with the goodwill
symbolized by any of the foregoing ("Trademarks"), (iii) copyrights,
copyrightable subject matter and mask works ("Copyrights"), (iv) rights of
publicity, (v) moral rights and rights of attribution and integrity, (v)
computer programs (whether in source code, object code, or other form),
algorithms, databases, compilations and data, technology supporting the
foregoing, and all documentation, including user manuals and training materials,
related to any of the foregoing ("Software"), (vi) trade secrets and all other
confidential information, know-how, inventions, proprietary processes, formulae,
models, and methodologies ("Trade Secrets"), (vii) rights of privacy and rights
to personal information, (viii) telephone numbers and Internet protocol
addresses, (ix) all rights in the foregoing and in other similar intangible
assets, (x) all applications and registrations for the foregoing, and (xi) all
rights and remedies against past, present, and future infringement,
misappropriation, or other violation thereof.
"Investor" has the meaning assigned to it in the introductory paragraph of this
Agreement.
"Investor Loss" has the meaning assigned to it in Section 10.2(a) hereof.
"IP Contracts" has the meaning assigned to it in Section 6.9(b) hereof.
"Law" means any law (including common law), ordinance, writ, directive,
judgment, order, decree, injunction, statute, treaty, rule or regulation or
determination of (or an agreement with) an arbitrator or a Governmental Entity.
"Liability" means any debt, liability, commitment, obligation, claim or cause of
action of any kind whatsoever, whether due or to become due, known or unknown,
accrued or fixed, absolute or contingent, or otherwise.
"Lien" means, with respect to any asset or security, any mortgage, lien, pledge,
charge, understanding or arrangement imposing a restriction on title or use,
security interest, encumbrance or restriction on title or transfer of any kind
in respect of such asset or security.
"Loss" has the meaning assigned to it in Section 10.2 (b) hereof.
"Material Adverse Effect" means, with respect to the Company, any fact, event,
circumstance, change, condition or effect that, individually or together with
other facts, events, circumstances, changes, conditions or effects (i) has been
or could reasonably be expected to be material and adverse to the business,
assets, value, properties, liabilities, prospects, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries, taken
as a whole, whether related specifically to the Company and its Subsidiaries or
to more generally applicable facts, events, changes or effects or (ii) has or
could reasonably be expected to materially delay the consummation of the
transactions contemplated hereby or by the Transaction Documents or materially
and adversely affect the ability of the Company and its Subsidiaries, taken as a
whole, to perform timely its obligations under this Agreement or under any of
the Transaction Documents.
"Material Contract" has the meaning assigned to it in Section 6.10(a) hereof.
"Permitted Transferee" has the meaning assigned to it in Section 11.4 hereof.
"Person" means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, incorporated organization, association,
corporation, institution, Governmental Entity or any other entity.
"Preemptive Rights Notice" has the meaning assigned to it in Section 8.12(a)
hereof.
"Preemptive Rights Offer" has the meaning assigned to it in Section 8.12(a)
hereof.
"Preferred Shares" has the meaning assigned to it in Section 3 hereof.
"Purchase Price" has the meaning assigned to it in Section 4(b) hereof.
"Real Property" has the meaning assigned to it in Section 6.23(a) hereof.
"Registration Rights Agreement" means the Registration Rights Agreement in the
form attached hereto as Exhibit A.
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"Release" means any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, migration, leaching, placing, discarding,
dumping or disposing of any Hazardous Material into the environment. However,
the act of disposing of Hazardous Materials in accordance with applicable
Environmental Requirements to a third-party site licensed to accept such
Hazardous Materials for disposal does not, without more, constitute a "Release."
"SEC" means the U.S. Securities and Exchange Commission.
"SEC Documents" has the meaning assigned to it in Section 6.7 hereof.
"Securities" means the Tranche A Securities and the Tranche B Securities.
"Securities Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"Series D Preferred Stock" means Series D preferred stock, par value $0.01, of
the Company.
"SPV" has the meaning assigned to it in Section 8.10 hereof.
"Strategic Agreement" means the Strategic Agreement to be entered into by the
Company and the Investor with respect to the matters set forth on Exhibit B.
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"Subsidiary" means, with respect to any Person, any corporation, association
trust, limited liability company, partnership, joint venture or other business
association or entity (i) at least 50% of the outstanding voting securities of
which are at the time owned or controlled directly or indirectly by such Person
or (ii) with respect to which the Company possesses, directly or indirectly, the
power to direct or cause the direction of the affairs or management of such
Person.
"Tax" or "Taxes" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated or other tax of any kind whatsoever, including any interest, penalties
or additions thereto, whether disputed or not and including any obligations to
indemnify or otherwise assume or succeed to the Tax liability of any other
Person.
"Tax Return" means any return, declaration, report, claim for refund or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claims" has the meaning assigned to it in Section 10.2(c) hereof.
"Trading Day" means a day on which the Common Stock is traded on a Trading
Market.
"Trading Market" means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the Nasdaq
SmallCap Market, the American Stock Exchange, the New York Stock Exchange, the
Nasdaq National Market or the OTC Bulletin Board.
"Tranche A Closing" has the meaning assigned to it in Section 5(a) hereof.
"Tranche A Closing Date" has the meaning assigned to it in Section 5(b) hereof.
"Tranche A Purchase Price" has the meaning assigned to it in Section 4(a)
hereof.
"Tranche A Securities" has the meaning assigned to it in Section 4(a) hereof.
"Tranche A Shares" has the meaning assigned to it in Section 4(a) hereof.
"Tranche A Warrants" has the meaning assigned to it in Section 4(a) hereof.
"Tranche B Closing" has the meaning assigned to it in Section 5(a) hereof.
"Tranche B Closing Date" has the meaning assigned to it in Section 6 hereof.
"Tranche B Purchase Price" has the meaning assigned to it in Section 4(b)
hereof.
"Tranche B Securities" has the meaning assigned to it in Section 4(b) hereof.
"Tranche B Shares" has the meaning assigned to it in Section 4(b) hereof.
"Tranche B Warrants" has the meaning assigned to it in Section 4(b) hereof.
"Transaction Documents" means this Agreement, the Warrant Instrument, the
Registration Rights Agreement, and the Strategic Agreement.
"Unaudited Balance Sheets" has the meaning assigned to it in Section
6.6 hereof.
"Unaudited Financial Statements" has the meaning assigned to it in
Section 6.6 hereof.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of the shares of Series D Preferred Stock.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the primary Trading Market on
which the Common Stock is then listed or quoted as reported by Bloomberg
Financial L.P. (based on a Trading Day from 9:30 a.m. EST to 4:02 p.m. Eastern
Time) using the VAP function; (b) if the Common Stock is not then listed or
quoted on the Trading Market and if prices for the Common Stock are then
reported in the "Pink Sheets" published by the Pink Sheets, LLC (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported; or (c) in all
other cases, the fair market value of a share of Common Stock as determined by a
nationally recognized-independent appraiser selected in good faith by the
Investor.
"Warrant Instrument" has the meaning assigned to it in Section 3 hereof.
"Warrants" has the meaning assigned to it in Section 3 hereof.
2. General Rules of Interpretation
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(a) When a reference is made in this Agreement to "recitals," "Sections,"
"Exhibits" or "Disclosure Schedule," such reference shall be to a recital or
Section of, or Exhibits or Disclosure Schedule to, this Agreement unless
otherwise indicated.
(b) Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed followed by the words "without limitation."
(c) References herein to "transactions contemplated by this Agreement" or to
"transactions contemplated hereby" shall be deemed to include a reference to
each transaction contemplated by or provided for in this Agreement and any
instruments, certificates, documents or agreements, including the Transaction
Documents, entered into or contemplated to be entered into in connection
herewith.
(d) Except as otherwise expressly provided, all accounting terms used in
this Agreement shall be construed in accordance with GAAP.
(e) The Company and the Investor acknowledge that they have been represented
by counsel in connection with this Agreement and the transactions contemplated
by this Agreement. Accordingly, any rule of Law, or any legal decision that
would require interpretation of any claimed ambiguities in this Agreement
against the party that drafted it, has no application and is expressly waived.
The provisions of this Agreement shall be interpreted in a reasonable manner to
affect the intent of the Investor and the Company.
(f) Whenever this Agreement shall require a party to take an action, such
requirement shall be deemed to include an undertaking by such party to use its
reasonable best efforts to cause its representatives to take all necessary and
appropriate action in connection therewith.
(g) A reference to a statute, listing rule, rule, standard, regulation or
other Law includes a reference to the corresponding rules and regulations and
includes a reference to each of them as amended, consolidated, replaced or
rewritten from time to time.
(h) The singular includes the plural and conversely.
(i) If a word or phrase is defined, its other grammatical forms have a
corresponding meaning.
(j) A reference to a party to this Agreement or another agreement or
document includes the party's successors, permitted substitutes and permitted
assigns (and, where applicable, the party's legal personal representatives).
(k) A reference to the "knowledge" of Investor means the actual knowledge of
any of the "officers" (as such term is defined in Rule 16(a)-1(f) promulgated
under the Exchange Act) or directors of the Investor. A reference to the
"knowledge" of the Company means the actual knowledge that was or would
reasonably be expected to be obtained after due inquiry of any employees,
officers or directors of the Company.
(l) The use of "or" is not intended to be exclusive unless expressly so
indicated.
3. Authorization of the Shares
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On or prior to the Tranche A Closing, the Company shall have authorized (a)
the initial sale and issuance to the Investor of six million, five hundred and
twenty-three thousand, eight hundred and ten (6,523,810) shares of Series D
Preferred Stock (the "Preferred Shares"), (b) the issuance of six hundred and
sixty-eight thousand, one hundred and thirty-nine (668,139) warrants to purchase
an aggregate of up to six hundred and sixty-eight thousand, one hundred and
thirty-nine (668,139) shares of Series D Preferred Stock (the "Warrants") and
(c) the reservation for issuance of shares of Common Stock upon exercise and
conversion of the Warrants and conversion of the Preferred Shares of up to
seventy-one million, nine hundred and nineteen thousand, four hundred and ninety
(71,919,490) shares of Common Stock (the "Conversion Shares") based on the
current conversion ratio of 10 shares of Common Stock for each share of Series D
Preferred Stock. The Preferred Shares shall have the rights, preferences,
privileges and restrictions set forth in the Certificate of Designation of the
Series D Preferred Stock of the Company in the form attached hereto as Exhibit C
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(the "Certificate of Designation"). The Warrants shall have the rights,
preferences, privileges and restrictions set forth in the form attached hereto
as Exhibit D (the "Warrant Instrument"). The Conversion Shares shall have the
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rights, preferences, privileges and restrictions set forth in the Certificate of
Incorporation.
4. Sale and Purchase
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(a) Subject to the terms and conditions hereof, at the Tranche A Closing the
Company shall issue and sell to the Investor, and the Investor shall
purchase from the Company four million, eight hundred and ninety two thousand,
eight hundred and fifty seven (4,892,857) shares of Series D Preferred Stock
(the "Tranche A Shares") at a price of $2.76 per share and five hundred and five
thousand and forty-four (505,044) Warrants (the "Tranche A Warrants", and
together with the Tranche A Shares, the "Tranche A Securities") for no
additional consideration for an aggregate consideration of thirteen million five
hundred thousand dollars ($13,500,000) (the "Tranche A Purchase Price"). The
parties agree that five hundred thousand dollars ($500,000) of the Tranche
Purchase Price has already been paid by the Investor to the Company. As such at
the Tranche A Closing the Investor needs to deliver thirteen million dollars
($13,000,000) (the "Remaining Tranche A Purchase Price").
(b) Subject to the terms and conditions hereof, at the Tranche B Closing the
Company shall issue and sell to the Investor and the Investor shall purchase
from the Company one million, six hundred and thirty thousand, nine hundred and
fifty-two (1,630,952) shares of Series D Preferred Stock (the "Tranche B
Shares") at a price per share of $2.76 per share and one hundred and sixty-three
thousand and ninety-five (163,095) Warrants (the "Tranche B Warrants", and
together with the Tranche B Shares, the "Tranche B Securities") for no
additional consideration for an aggregate consideration of four million five
hundred thousand dollars ($4,500,000) (the "Tranche B Purchase Price", and
together with the Tranche A Purchase Price, the "Purchase Price").
(c) The Company will not make any allocation of the Purchase Price paid by
the Investor between the Preferred Shares and the Warrants without the
Investor's concurrence thereto in writing (the "Agreed Allocation") and shall
prepare and file all Tax Returns on a basis consistent with the Agreed
Allocation and shall take no position inconsistent with the Agreed Allocation in
any proceeding before any taxing authority or for any other Tax purpose, unless
otherwise required to do so by applicable Law.
5. Closing.
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(a) Closing. The delivery of the certificates representing the Tranche A
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Securities, payment by the Investor of the Remaining Tranche A Purchase Price
and all other instruments required by this Agreement (the "Tranche A Closing")
shall take place at 10:00 a.m. on the date of execution of the Agreement at the
offices of Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP, Four Times Square, ▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇, or at such other time or place as the Company and the Investor
may mutually agree. The delivery of the certificates representing the Tranche B
Securities, payment by the Investor of the Tranche B Purchase Price and all
other instruments required by this Agreement (the "Tranche B Closing") will
occur on the second Business Day following the satisfaction or waiver of the
conditions set forth in Section 9 hereof or such other date as is mutually
agreed upon by the parties at the offices of Skadden, Arps, Slate, ▇▇▇▇▇▇▇ &
▇▇▇▇ LLP, Four Times Square, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, or at such other time or place
as the Company and the Investor may mutually agree.
(b) Delivery.
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(1) At the Tranche A Closing, subject to the terms and conditions hereof,
the Company will deliver to the Investor the Tranche A Securities, by delivery
of a certificate or certificates evidencing the Tranche A Shares and Tranche A
Warrants, free and clear of any Liens, and the Investor will make payment to the
Company of the Remaining Tranche A Purchase Price by wire transfer of
immediately available funds to an account designated by the Company.
(2) At the Tranche A Closing the Company shall also deliver to the Investor
(i) a true and complete copy, certified by the Secretary of the Company, of the
resolutions duly and validly adopted by the Board of Directors evidencing its
authorization of the execution and delivery of this Agreement, the Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby, including the filing of the Certificate of Designation with the
Secretary of State of the State of Delaware and the issuance of the Securities,
(ii) a duly executed copy of the Registration Rights Agreement, (iii) a duly
executed copy of the Certificate of Designation filed with and certified by the
Secretary of State of the State of Delaware, (iv) a good standing certificate
from the Secretary of State of the state of Delaware and each state in which the
Company is qualified as a foreign corporation to do business, (v) a legal
opinion from Salvo, Landau, Gruen & ▇▇▇▇▇▇ in the form attached hereto as
Exhibit H and (vi) an officer's certificate executed by its chief executive
-
officer certifying that (a) the Company shall have performed in all material
respects each of its obligations hereunder and under each of the Transaction
Documents required to be performed by it at or prior to the date of the Tranche
A Closing (the "Tranche A Closing Date"), and shall have obtained all consents
and approvals required for the consummation of the transactions contemplated to
be consummated at the Tranche A Closing, and (b) the representations and
warranties of the Company contained in this Agreement and in any certificate or
other writing delivered by the Company pursuant hereto shall be true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) at and as of the Tranche A Closing Date as if
made at and as of the Tranche A Closing Date, except where the failure of such
representations and warranties to be true and correct (without giving effect to
any limitation as to "materiality" or "Material Adverse Effect" set forth
therein) would not, individually or in the aggregate, have a Material Adverse
Effect.
(3) At the Tranche A Closing the Investor shall also deliver to the Company
a duly executed copy of the Registration Rights Agreement.
(4) At the Tranche B Closing, subject to the terms and conditions hereof,
the Company will deliver to the Investor the Tranche B Securities, by delivery
of a certificate or certificates evidencing the Tranche B Shares and the Tranche
B Warrants, free and clear of any Liens, and the Investor will make payment to
the Company of the Tranche B Purchase Price by wire transfer of immediately
available funds to an account designated by the Company.
(5) At the Tranche B Closing the Company shall also deliver to the Investor
(i) a duly executed copy of the Strategic Agreement, (ii) a good standing
certificate from the Secretary of State of the state of Delaware and each state
in which the Company is qualified as a foreign corporation to do business, (iii)
a legal opinion from Salvo, Landau, Gruen & ▇▇▇▇▇▇ in the form attached hereto
as Exhibit I and (iv) the certificate referred to in Section 9.2(c) hereof.
---------
(6) At the Tranche B Closing the Investor shall also deliver to the Company
a duly executed copy of the Strategic Agreement and the certificate referred to
in Section 9.3(b) hereof.
6. Representations and Warranties by the Company
---------------------------------------------
Except as specifically set forth in the Disclosure Schedule, the Company
represents and warrants to the Investor that all of the statements contained in
this Section 6 are true and complete as of the date of this Agreement and that
all of the statements contained in this Section 6 will be true and complete as
of the date of the Tranche B Closing (the "Tranche B Closing Date") as though
made on the Tranche B Closing Date (except to the extent expressly made only as
of the earlier date, in which case as of such earlier date).
6.1 Organization
------------
The Company and each of its Subsidiaries (a) is a corporation, limited
liability company or other legal entity duly organized, validly existing and in
good standing under the Laws of its jurisdiction of organization or formation,
(b) is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the nature of the property owned or leased
by it or the nature of the business conducted by it makes such qualification
necessary, except where the failure to be so qualified and in good standing
would not, individually or in the aggregate, reasonably be likely to have a
Material Adverse Effect, (c) has its principal place of business and chief
executive office at ▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, and (d)
has the requisite corporate power and authority to own or lease and operate its
assets and carry on its business as presently being conducted.
6.2 Authorization and Enforceability
--------------------------------
The Company has all requisite corporate power and authority to enter
into this Agreement, the Transaction Documents and to consummate all of the
transactions contemplated hereby and thereby. The execution, delivery and
performance by the Company of this Agreement and each of the other Transaction
Documents to which it is a party, and the consummation by the Company of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action on the part of the Company. This Agreement has been
duly and validly executed and delivered by the Company and, when executed, each
other Transaction Document to which it is a party will be duly and validly
executed and delivered by the Company, and, assuming due and valid execution and
delivery by the Investor, will constitute the legal, valid and binding
obligation of the Company, each enforceable against the Company in accordance
with their respective terms, subject to Laws of general application relating to
bankruptcy, insolvency, and the relief of debtors and other Laws of general
application affecting enforcement of creditors' rights generally, rules of Law
governing specific performance, injunctive relief and other equitable remedies.
The execution, delivery and performance of this Agreement, and the Transaction
Documents to which the Company is a party and all other instruments, agreements,
certificates and documents contemplated hereby and thereby by the Company and
the performance of the transactions contemplated hereby and thereby will not
result in the creation or imposition of any Lien upon the Common Stock, the
Securities or any other security of the Company or any of its Subsidiaries.
6.3 Capitalization
--------------
(a) The authorized capital of the Company consists of (i) two hundred
seventy-five million (275,000,000) shares of Common Stock, $.001 par value per
share; (ii) ten million (10,000,000) shares of Preferred Stock, $.01 par value
per share, of which (A) no shares are designated Series A Preferred Stock, (B)
six hundred eleven thousand, one hundred and eleven (611,111) shares are
designated Series B Convertible Preferred Stock and (C) seven hundred fifty
thousand (750,000) shares are designated Series C Convertible Preferred Stock.
As of the date hereof, without giving effect to the consummation of the
transactions contemplated herein, there are outstanding one hundred forty-six
million, five hundred forty-seven thousand, two hundred seventy-five
(146,547,275) shares of Common Stock, zero (0) shares of Series A Preferred
Stock, six hundred eleven thousand, one hundred and eleven (611,111) shares of
Series B Preferred Stock and seven hundred fifty thousand (750,000) shares of
Series C Preferred Stock, and the Company has no other shares of capital stock
authorized, issued or outstanding.
(b) As of close of business on the date prior to the date hereof: (i)
thirteen million, three hundred thirty-nine thousand, three hundred thirty-one
(13,339,331) shares of Common Stock are issuable upon the exercise of
outstanding options to purchase Common Stock under the 1999 Incentive Stock
Option Plan, as amended (the "Company Stock Option Plan", each option a "Company
Option"), (ii) eleven million, four hundred seventy-nine thousand, five hundred
and fifty (11,479,550) shares of Common Stock are vested and exercisable as of
the date hereof, (iii) six million, nine hundred sixty-five thousand, two
hundred ninety-two (6,965,292) shares of Common Stock are available for future
grants under the Company Stock Option Plan, (iv) twenty-one million, six hundred
eighty thousand, seven hundred four (21,680,704) shares of Common Stock are
issuable upon the exercise of any company warrants (each a "Company Warrant"),
and (v) five million, six hundred eighty-eight thousand, one hundred thirty-six
(5,688,136) shares of Common Stock are issuable upon the exercise of convertible
loans or other debts or similar instruments (each, a "Company Debt Instrument").
Section 6.3(b) of the Company Disclosure Schedule sets forth a list of each
outstanding Company Option, Company Warrant and Company Debt Instrument,
stating: (a) the name of the holder of such Company Option, Company Warrant or
Company Debt Instrument, (b) the number of shares of Common Stock subject to
such Company Option, Company Warrant or Company Debt Instrument, (c) the
exercise price of such Company Option, Company Warrant or Company Debt
Instrument, (d) the date on which such Company Option, Company Warrant or
Company Debt Instrument was granted or issued, (e) the extent to which such
Company Option, Company Warrant or Company Debt Instrument is vested and
exercisable as of the date hereof, and (f) the date on which such Company
Option, Company Warrant or Company Debt Instrument expires.
(c) A correct and complete list of all Subsidiaries of the Company, their
respective jurisdictions of organization and the jurisdictions in which each is
qualified and is required to be qualified to do business is set forth in Section
6.3 (c) of the Disclosure Schedule. Except as set forth in Section 6.3 (c) of
the Disclosure Schedule, (a) each of the Subsidiaries of the Company is
wholly-owned by the Company, directly or indirectly, free and clear of any Liens
and (b) the Company does not own, directly or indirectly, any capital stock of,
or any other securities convertible or exchangeable into or exercisable for
capital stock of, any Person other than the Subsidiaries of the Company.
(d) Except as set forth in Section 6.3(b) of the Disclosure Schedule, (i)
there are no outstanding options, warrants, convertible loans, debt or similar
instruments, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into or
exercisable or exchangeable for, any shares of capital stock of the Company or
any of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock,
nor are any such issuances or arrangements contemplated, (ii) there are no
securities or instruments containing antidilution or similar provisions that
will be triggered by the issuance of the Securities in accordance with the terms
of this Agreement or the issuance of the Warrant Shares in accordance with the
Warrants, (iii) neither the Company nor any of its Subsidiaries has any
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interests therein or to pay any dividend or
make any distribution in respect thereof and (iv) neither the Company nor any of
its Subsidiaries has reserved any shares of capital stock for issuance pursuant
to any stock option plan or similar arrangement. The capitalization of the
Company, including, without limitation, the authorized capital stock, the number
of shares issued and outstanding, the number of shares issuable and reserved for
issuance pursuant to the Company's stock option plans, the number of shares
issuable and reserved for issuance pursuant to securities (other than the
Tranche A Securities and the Tranche B Securities) exercisable for, or
convertible into or exchangeable for any shares of capital stock and the number
of shares that have been reserved for issuance at the Tranche A Closing and the
Tranche B Closing is set forth in Section 6.3(b) of the Disclosure Schedule.
Except as set forth in Section 6.3(b) of the Disclosure Schedule, there are no
voting trusts, stockholder agreements, proxies or other agreements or
understandings in effect with respect to the voting or transfer of any of the
issued and outstanding securities of the Company or any of its Subsidiaries.
(e) As of the date hereof, no Indebtedness or other equity of the Company is
senior to, or pari passu with, the Securities in right of payment, whether with
respect to interest or upon liquidation or dissolution, or otherwise, other than
Indebtedness secured by purchase money security interests (which is senior only
as to underlying assets covered thereby) and capital lease obligations (which is
senior only as to the property covered thereby).
(f) Except as provided in the final sentence of this subparagraph (f), since
January 1, 2003, the exercise price of each Company Option has been no less than
the fair market value of a share of Common Stock as determined on the date of
grant of such Company Option. Since January 1, 2003, all grants of Company
Options were validly issued and properly approved by the Board of Directors (or
a duly authorized committee or subcommittee thereof) in compliance with all
applicable legal requirements and recorded on the Financial Statements (as
defined in Section 6.6) in accordance with GAAP, and to the extent any such
grants involved any "back dating," "forward dating" or similar practices with
respect to the effective date of grant (collectively "Violative Actions"), such
Violative Actions were unintentional and are not material in the aggregate. As
of the date hereof, each Company Option has the exercise price and is held by
the holder set forth on Section 6.3(f) of the Disclosure Schedule.
(g) All of the holders of the Series B Convertible Preferred Stock have
failed to convert such shares of preferred stock into shares of Common Stock in
accordance with the terms of their issuance. The right to convert the shares of
Series B Convertible Preferred Stock into shares of Common Stock expired on
September 8, 2003. The total amount payable by the Company with respect to the
Series B Convertible Preferred Stock is six hundred and seventy-four thousand
and forty-four dollars ($674,044), which includes accrued dividends as of the
date hereof of one hundred and twenty-four thousand and forty-four dollars
($124,044).
6.4 Due Issuance and Authorization of Capital Stock
-----------------------------------------------
All of the outstanding shares of capital stock of the Company and each
of its Subsidiaries have been duly authorized, validly issued and are fully paid
and nonassessable. The Securities have been duly authorized and upon issuance
in accordance with the terms of this Agreement or the Warrants (as applicable),
all such Securities will be duly authorized, validly issued, fully paid and
nonassessable. The sale and delivery of the Preferred Shares and the Warrants
to the Investor pursuant to the terms hereof, and the issuance of the shares of
Series D Preferred Stock to the Investor upon exercise of the Warrants, will
vest in the Investor legal and valid title to such securities, free and clear of
any Lien.
6.5 Consents
--------
Neither the execution, delivery or performance of this Agreement or any
other Transaction Document by the Company, nor the consummation by it of the
obligations and transactions contemplated hereby or thereby (including, without
limitation, the issuance, the reservation for issuance and the delivery of the
Securities and the Conversion Shares) requires any consent of, authorization by,
exemption from, filing with or notice to any Governmental Entity, the
shareholders of the Company or any other Person, other than the filings under
applicable securities Laws required to comply with the Company's registration
obligations under the Registration Rights Agreement.
6.6 Financial Statements
--------------------
The audited consolidated balance sheet of the Company as of December 31,
2005 (the "Balance Sheet"), and audited consolidated statements of income and
retained earnings and cash flows of the Company for the year ended December 31,
2005 (collectively with the Balance Sheet, the "Financial Statements"), together
with an unqualified opinion thereon from the Company's independent accountants,
are contained in the Company's SEC Documents (as defined below). The Company
has caused to be delivered to the Investor unaudited consolidated balance sheets
of the Company as of March 31, 2006, as of June 30, 2006 and as of September 30,
2006 (the "Unaudited Balance Sheets") and unaudited consolidated statements of
income and retained earnings and cash flows of the Company for the three months
ended March 31, 2006, the six months ended June 30, 2006 and the nine months
ended September 30, 2006 (collectively with the Unaudited Balance Sheet, the
"Unaudited Financial Statements"). The Financial Statements and Unaudited
Financial Statements have been prepared from, are in accordance with and
accurately reflect, the books and records of the Company and have been prepared
in accordance with GAAP applied on a consistent basis during the periods
involved (except (x) as may be otherwise indicated in such financial statements
or the notes thereto, or (y) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or summary statements)
and fairly present in all material respects the consolidated financial position
of the Company as of the dates thereof and its consolidated results of
operations and cash flows for the periods then ended (subject, in the case of
Unaudited Financial Statements, to immaterial year-end audit adjustments).
6.7 SEC Documents.
-------------
(a) Except as set forth in Section 6.7 of the Disclosure Schedule, since
January 1, 2003, the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Exchange Act (all of the foregoing filed
prior to the date hereof and after January 1, 2003, and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein, being hereinafter referred to herein as the
"SEC Documents"). The Company has delivered or otherwise made available to the
Investor true and complete copies of the SEC Documents, except the exhibits and
schedules thereto and the documents incorporated therein. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act or the Securities Act, as the case may be,
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The chief executive officer and the chief
financial officer of the Company has each signed, and the Company has furnished
to the SEC, all certifications required by Sections 302 and 906 of the
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 (the "Certifications"). Such Certifications contain
no qualifications or exceptions to the matters certified therein and have not
been modified or withdrawn, and neither the Company nor any of its officers have
received notice from any Governmental Entity questioning or challenging the
accuracy, completeness, content, form or manner of filing or submission of such
Certifications. Since the adoption of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act, the Company has
complied in all material respects with the Laws, rules and regulations
thereunder. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC applicable with respect thereto.
(b) The Company and each of its Subsidiaries maintain a system of internal
accounting controls sufficient to comply with all legal and accounting
requirements applicable to the Company and such Subsidiary. The Company has
disclosed in the SEC Documents, based on its most recent evaluation thereof, any
significant deficiencies in its internal accounting controls which would
reasonably be expected to adversely affect in any material respect the Company's
ability to record, process, summarize and report financial data and neither the
Company nor any of its Subsidiaries nor, to the knowledge of the Company, any
representative of the Company or any of its Subsidiaries has received or
otherwise had or obtained knowledge of any material complaint, allegation,
assertion or claim, whether written or oral, regarding the accounting or
auditing practices, procedures, methodologies or methods of the Company or any
of its Subsidiaries or their respective internal accounting controls, including
any material complaint, allegation, assertion or claim that the Company or any
of its Subsidiaries has engaged in questionable accounting or auditing
practices.
6.8 No Conflicts
------------
The execution, delivery and performance of this Agreement and each other
Transaction Document, and the consummation of the transactions contemplated
hereby and thereby (including, without limitation, the issuance and reservation
for issuance, as applicable, of the Securities and the Conversion Shares) will
not (a) result in a violation of the certificate of incorporation or by-laws of
the Company or any of its Subsidiaries, (b) except as set forth in Section 6.8
of the Disclosure Schedule, materially conflict with or result in the material
breach of the terms, conditions or provisions of or constitute a material
default (or an event which with notice or lapse of time or both would become a
material default) under, or give rise to any right of termination, acceleration
or cancellation under, any Contract to which the Company or any of its
Subsidiaries is a party, (c) result in a material violation of any Law, rule,
regulation, order, judgment or decree (including, without limitation, U.S.
federal and state securities Laws and regulations) applicable to the Company or
any of its Subsidiaries or by which any property or asset of the Company or any
of its Subsidiaries is bound or affected, or (d) result in the creation of any
material Lien upon any of the assets of the Company or any of its Subsidiaries.
Neither the Company nor any of its Subsidiaries is in violation of the
certificate of incorporation or by-laws, and neither the Company nor any of its
Subsidiaries is in default (and no event has occurred which, with notice or
lapse of time or both, would cause the Company or any of its Subsidiaries to be
in material default) under, nor has there occurred any event giving others (with
notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or instrument
to which the Company or any of its Subsidiaries is a party.
6.9 Intellectual Property
---------------------
(a) Section 6.9(a) of the Disclosure Schedule sets forth a true, correct,
and complete list of all U.S. and foreign (i) issued Patents and Patent
applications, (ii) Trademark registrations and applications and material
unregistered trademarks, (iii) copyright registrations and applications and
material unregistered copyrights, and (iv) material Software, in each case which
is owned or purported to be owned by the Company or any of its
Subsidiaries. The Company or one of its Subsidiaries is the sole and exclusive
beneficial and record owner of all of the Intellectual Property items set forth
in Section 6.9(a) of the Disclosure Schedule, and all such Intellectual Property
is subsisting, valid, and enforceable.
(b) Section 6.9(b) of the Disclosure Schedule sets forth a true, correct,
and complete list of all Contracts to which the Company or one of its
Subsidiaries is a party or otherwise bound (i) granting or obtaining any right
to use any material Intellectual Property (other than Contracts granting rights
to use readily available commercial Software that is generally available on
nondiscriminatory pricing terms and having an acquisition price of less than
$20,000 in the aggregate for all such related Contracts) or (ii) restricting the
Company's or its Subsidiaries' rights, or permitting other Persons, to use or
register any material Intellectual Property (collectively, the "IP Contracts").
Each IP Contract is valid, binding upon, and enforceable by or against the
parties thereto in accordance with its terms. The Company and its Subsidiaries
have complied in all material respects with, and is not in breach nor has
received any asserted or threatened claim of breach of, any IP Contract, and the
Company has no knowledge of any breach or anticipated breach by any other Person
to any IP Contract.
(c) Except as set forth in Section 6.9(c) of the Disclosure Schedule: (i)
the Company or one of its Subsidiaries owns, or has a valid right to use, free
and clear of all Liens, all Intellectual Property used or held for use in, or
necessary to conduct, the business of the Company or its Subsidiaries as
currently conducted and as currently proposed to be conducted, (ii) the conduct
of the business of the Company or its Subsidiaries (including the products and
services of the Company) to the knowledge of the Company does not infringe,
misappropriate, or otherwise violate any Person's Intellectual Property rights,
and the Company has not had such a claim asserted or threatened against it in
the past three years and (iii) to the knowledge of the Company, no Person is
infringing, misappropriating, or otherwise violating any Intellectual Property
owned, used, or held for use by the Company in the conduct of the business of
the Company or its Subsidiaries, and no such claims have been asserted or
threatened against any Person by the Company in the past three years.
(d) The Company and its Subsidiaries take reasonable measures to protect the
confidentiality of Trade Secrets, including requiring all Persons having
access thereto to execute written non-disclosure agreements. Such Persons who
have not executed a non-disclosure agreement shall, prior to the Tranche B
Closing, do so, in a form reasonably acceptable to the Investor. Prior to the
Tranche B Closing, all such persons have or will have executed a proprietary
rights assignment, in a form reasonably acceptable to the Investor.
(e) No Affiliate or current or former partner, director, stockholder,
officer, or employee of the Company owns or retains any rights to use any of the
Intellectual Property owned, used, or held for use by the Company in the
conduct of the business of the Company or any of its Subsidiaries.
(f) No funding, facilities or personnel of any Governmental Entity were
used, directly or indirectly, to develop or create, in whole or in part, any
Intellectual Property rights of the Company.
6.10 Material Contracts
------------------
(a) Sections 6.10(a)(i) through (ix) of the Disclosure Schedule contains
lists of each of the following types of Contracts (such Contracts, "Material
Contracts"):
(i) each Contract that involved aggregate payments by or to the Company or
one of its Subsidiaries of more than $100,000 during the year ended September
30, 2006 and that is not cancelable by the Company without liability on thirty
(30) or less days' notice to the other party thereto;
(ii) each Contract for the lease of personal property by or from the Company
or one of its Subsidiaries that involved payments in excess of $100,000 during
the year ended September 30, 2006 and that is not cancelable by the Company or
one of its Subsidiaries without liability on thirty (30) or less days' notice to
the other party thereto;
(iii) each Contract that by its express terms limits the ability of Company
or one of its Subsidiaries to engage in any line of business or compete with any
Person or otherwise conduct its business in any geographic area or during any
period of time;
(iv) all Contracts of the Company or one of its Subsidiaries evidencing
Indebtedness;
(v) all Contracts under which any Person has directly or indirectly
guaranteed the Indebtedness, liabilities or obligations of the Company or one of
its Subsidiaries, or the Company or one of its Subsidiaries has directly or
indirectly guaranteed the Indebtedness, liabilities or obligations of any
Person;
(vi) all Contracts of the Company or one of its Subsidiaries which are joint
venture or partnership agreements;
(vii) all Contracts granting or obtaining Intellectual Property rights that
are material to the Company or one of its Subsidiaries, other than Contracts
relating to computer software, systems or equipment that involved payments by or
to the Company or one of its Subsidiaries of less than $100,000 during the year
ended September 30, 2006;
(viii) all Contracts between the Company or one of its Subsidiaries and the
officers or directors of the Company; and
(ix) all Contracts of the Company or one of its Subsidiaries with any
Governmental Entity.
(b) Each such Contract is a legal, valid and binding obligation of the
Company, enforceable against the Company and/or such Subsidiary, as the case may
be, in accordance with its terms, subject to Laws of general application
relating to bankruptcy, insolvency, and the relief of debtors and other Laws of
general application affecting enforcement of creditors' rights generally, rules
of Law governing specific performance, injunctive relief and other equitable
remedies. There has not occurred any breach, violation or default or any event
that, with the lapse of time, the giving of notice or the election of any
Person, or any combination thereof, would constitute a material breach,
violation or default by the Company or a Subsidiary, as the case may be, under
any such Contract or, to the knowledge of the Company, by any other Person to
any such Contract. Neither the Company nor any of its Subsidiaries has been
notified that any party to any Material Contract intends to cancel, terminate,
not renew or exercise an option under any Material Contract, whether in
connection with the transactions contemplated hereby or otherwise.
6.11 Right of First Refusal; Voting and Registration Rights
------------------------------------------------------
Other than as provided for herein or in any other of the Transaction
Documents, no Person has any right of first refusal, preemptive right, right of
first offer, right of co-sale or other similar right regarding any of the
Company's securities or those of any of its Subsidiaries. There are no
provisions in the certificate of incorporation or the by-laws of the Company or
any of its Subsidiaries, no agreements to which the Company or any of its
Subsidiaries is a party and no agreements by which the Company, any of its
Subsidiaries or the Securities are bound, which (i) may affect or restrict the
voting rights of the Investor with respect to the Securities in its capacity as
a stockholder of the Company, (ii) restrict the ability of the Investor, or any
successor thereto or assignee or transferee thereof, to transfer the Securities,
(iii) require the vote of more than a majority of the Company's issued and
outstanding Common Stock, voting together as a single class, to take or prevent
any corporate action, other than those matters requiring a class vote under
Delaware Law, or (iv) entitle any party to nominate or elect any director of the
Company or require any of the Company's stockholders to vote for any such
nominee or other Person as a director of the Company in each case, except as
provided for in or contemplated by this Agreement. Except as disclosed on
Section 6.11 of the Disclosure Schedule or pursuant to the Registration Rights
Agreement, the Company is not under any obligation, contractual or otherwise, to
register for sale any of its securities under the Securities Act. The Company
has complied with its obligations under Section 4.16 of the Securities Purchase
Agreement (the "Camofi Agreement") dated as of July 21, 2005 between the Company
and Camofi Master LDC ("Camofi") by giving notice to Camofi of the transactions
------
contemplated hereby. Camofi has, in writing, fully waived its right to
participate in the transactions contemplated hereby pursuant to Section 4.16 of
the Camofi Agreement.
6.12 Intentionally Omitted
---------------------
6.13 No Integrated Offering; Private Placement
Neither the Company, nor any of its Affiliates or any other Person
acting on the Company's behalf, has directly or indirectly engaged in any form
of general solicitation or general advertising with respect to the Securities
nor have any of such Persons made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would require
registration of the Securities under the Securities Act or cause this offering
of Securities to be integrated with any prior offering of securities of the
Company for purposes of the Securities Act or any applicable stockholder
approval provisions. No registration under the Securities Act is required for
the offer and sale of the Securities by the Company to the Investor as
contemplated hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of any trading market in which the
Company's securities trade
6.14 Absence of Certain Developments
-------------------------------
Except as disclosed in Section 6.14 of the Disclosure Schedule, since
December 31, 2005, (a) each of the Company and its Subsidiaries has conducted
its business and operations consistent with past practice only in the ordinary
and usual course thereof, (b) there has not occurred any facts, events,
circumstances, changes, conditions or effects (including the incurrence of any
Liabilities of any nature, whether or not accrued, contingent or otherwise) that
have had, or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, (c) neither the Company nor any of its
Subsidiaries has made any material change in its accounting methods, principles
or practices, (d) neither the Company nor any of its Subsidiaries has 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) neither the Company nor any of its
Subsidiaries has issued any equity securities to any officer, director or
Affiliate, except pursuant to existing Company stock option plans
6.15 Undisclosed Liabilities
-----------------------
Except as set forth in Section 6.15 of the Disclosure Schedule, neither
the Company nor any of its Subsidiaries has any Liabilities other than (a) set
forth on the Financial Statements, (b) Liabilities incurred in the ordinary
course of business consistent with past practice since December 31, 2005, (c)
any Liabilities incurred other than in the ordinary course of business not in
excess of $100,000 individually or (d) Liabilities incurred in connection with
this Agreement or the Transaction Documents or the transactions contemplated
hereby or thereby
6.16 Litigation
----------
Except as set forth on Section 6.16 of the Disclosure Schedule and
except as would not be material to the Company or any of its Subsidiaries as of
the date hereof, there is no action, suit, claim or proceeding pending or to the
knowledge of the Company, threatened or reasonably anticipated against the
Company or any of its Subsidiaries. As of the date hereof, there is no material
investigation or other proceeding pending or, to the knowledge of the Company or
threatened or reasonably anticipated against the Company, any of its
Subsidiaries or any of their respective properties (tangible or intangible) by
or before any Governmental Entity. There has not been since January 1, 2003, nor
are there currently, any internal investigations or inquiries being conducted by
the Company or any of its Subsidiaries, the Company's Board of Directors (or any
committee thereof) or any third party, either at the request of any of the
foregoing or otherwise concerning any financial, accounting, tax, conflicts of
interest, illegal activity, fraudulent or deceptive conduct or other misfeasance
or malfeasance issues. As of the date hereof, there is no action, suit,
proceeding, arbitration or, to the knowledge of the Company, investigation
involving the Company or any of its Subsidiaries or that the Company or any of
its Subsidiaries presently intends to initiate.
6.17 Compliance with Laws
--------------------
Neither the Company nor any of its Subsidiaries has received
notification from any Governmental Entity (a) asserting a material violation of
any Law or the terms of any judgment, order, decree, injunction or writ
applicable to the conduct of its business, (b) threatening to revoke any
material, Company Permit, or (c) restricting or in any way limiting its business
as currently conducted. The Company and each of its Subsidiaries has in all
material respects been operated since January 1, 2003 in compliance with all
Laws. The Company and each of its Subsidiaries is in compliance in all material
respects with all Company Permits and each material Company Permit is in full
force and effect.
6.18 Taxes
-----
(a) Filing of Tax Returns and Payment of Taxes. The Company and each of its
------------------------------------------
Subsidiaries has duly and timely filed (or has had duly and timely filed on
its behalf) with the appropriate taxing authorities all Tax Returns required to
be filed under applicable law and regulations through the date hereof, and all
such Tax Returns are true, correct and complete in all respects. The Company
and each of its Subsidiaries have paid on a timely basis all Taxes due and
payable (whether or not shown on any Tax Return). Neither the Company nor any
of its Subsidiaries is currently the beneficiary of any extension of time within
which to file any Tax Return, and no written claim has been made by an authority
in a jurisdiction where the Company or any of its Subsidiaries does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. There
are no Liens for Taxes (other than Taxes not yet due and payable) upon any of
the assets of The Company or any of its subsidiaries.
(b) Audits, Investigations, Disputes or Claims. No deficiencies for Taxes
------------------------------------------
of the Company or any of its Subsidiaries have been claimed, proposed or
assessed in writing against the Company or any of its Subsidiaries by any taxing
or other governmental authority that have not been fully paid or finally
settled. No Seller or director or officer (or employee responsible for Tax
matters) of the Company or any of its Subsidiaries expects any authority to
assess any additional Taxes for any period for which Tax Returns have been
filed. An adequate reserve in accordance with GAAP has been established in the
books of the Company and its Subsidiaries with respect to any unpaid Taxes. No
foreign, federal, state, or local tax audits, investigations, disputes or claims
relating to the Taxes or Tax Returns of the Company or any of its Subsidiaries
or administrative or judicial Tax proceedings currently are pending or being
conducted with respect to the Company or any of its Subsidiaries.
(c) No Waiver of Statute of Limitations. Neither the Company nor any of its
-----------------------------------
Subsidiaries has executed a waiver with respect to any statute of limitations
relating to the assessment or collection of any Taxes.
(d) Tax Sharing Agreements. Neither the Company nor any of its Subsidiaries
----------------------
is a party to any Tax sharing agreements, or similar arrangements (including
indemnity arrangements), or contracts or plans.
(e) No Withholding. The Company and each of its Subsidiaries has, in all
--------------
respects, withheld and paid all Taxes required to have been withheld and paid in
connection with any amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party and has filed all Tax
Returns required to be filed with respect thereto.
(f) Net Operating Losses. As of the date hereof, the Company and each of
--------------------
its Subsidiaries has net operating losses of approximately US$ fifty-six million
($56,000,000) and no net capital losses and is not subject to limitation under
3382 (or any other provision of state, local or foreign Tax law.
(g) Inclusion of Income. Neither the Company nor any of its Subsidiaries
-------------------
will be required to include any material item of income in, or exclude any
material item of deduction from, taxable income for any taxable period (or
portion thereof) ending after the Closing Date that arises as a result of a
transaction that occurred prior to the Closing Date.
(h) Stock Distributions. Neither the Company nor any of its Subsidiaries
-------------------
has distributed stock of another Person, or has had its stock distributed by
another Person, in a transaction that was purported or intended to be governed
in whole or in part by Code 355 or Code 361.
6.19 Employee and Benefit Plans
--------------------------
(a) "Benefit Plan" means each deferred compensation and each incentive
compensation, stock purchase, stock option and other equity compensation plan,
program, agreement or arrangement; each severance or termination pay, medical,
surgical, hospitalization, life insurance and other "welfare" plan, fund or
program (within the meaning of section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")); each profit-sharing, stock bonus or
other "pension" plan, fund or pro-gram (within the meaning of section 3(2)
of ERISA); employment, termination or severance agreement; and each other
material employee benefit plan, fund, program, agreement or arrangement, in each
case, that is sponsored, maintained or contributed to or required to be
contributed to by the Company, any of its Subsidiaries or by any trade or
business, whether or not incorporated (an "ERISA Affiliate"), that together with
the Company or any of its Subsidiaries would be deemed a "single employer"
within the meaning of Section 4001(b) of ERISA, or to which the Company, any of
its Subsidiaries or an ERISA Affiliate would reasonably be expected to have any
liability, for the benefit of any current or former employee or director of the
Company or any of its Subsidiaries. Each Benefit Plan is sponsored or
maintained in the United States. No Benefit Plan has terms requiring assumption
or any guarantee by the Investor.
(b) Each Benefit Plan intended to be "qualified" within the meaning of
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service that it is so qualified and the trust maintained
thereunder is exempt from taxation under Section 501(a) of the Code and to the
Company's knowledge no event has occurred that could reasonably be expected to
cause a loss of such qualification.
(c) Each Benefit Plan has been operated and administered in all material
respects in accordance with the terms of such Benefit Plan and with applicable
Laws, including but not limited to ERISA and the Code.
(d) No Benefit Plan is subject to Title IV or Section 302 of ERISA and, in
the last six years immediately preceding each Closing Date, none of the Company,
any of its subsidiaries or any ERISA Affiliates has sponsored, maintained,
contributed or been required to contribute to any employee benefit plan which
was subject to Title IV of ERISA.
(e) There are no pending, threatened or anticipated material claims by or on
behalf of any Benefit Plan, by any employee or beneficiary covered under any
such Benefit Plan, or otherwise involving any such Benefit Plan (other than
routine claims for benefits).
(f) The consummation of the transactions contemplated by this Agreement will
not, either alone or in combination with any other event, (i) entitle any
current or former employee, officer, director or consultant of the Company, any
of its Subsidiaries or any ERISA Affiliate to severance pay, unemployment
compensation or any other similar termination payment, or (ii) accelerate the
time of payment or vesting, or increase the amount of, or otherwise enhance, any
benefit due to any such employee, officer, director or consultant.
(g) The Company and its Subsidiaries are in material compliance with all
applicable U.S. federal, state and local and foreign Laws, rules and regulations
respecting employment and employment practices, labor, terms and conditions of
employment, wages, hours of work and occupational safety and health, and are not
engaged in any unfair labor practices as defined in the National Labor Relations
Act or other applicable Law. Neither the Company nor any of its Subsidiaries is
bound by or subject to any written or oral, express or implied, commitment or
arrangement, collective bargaining or similar agreement with any labor union,
and, to the knowledge of the Company, no labor union has requested or has sought
to represent any of the employees, representatives or agents of the Company or
any of its Subsidiaries and to the knowledge of the Company, there is no current
union organizing activities among such employees, representatives or agents.
(h) No Benefit Plan provides medical, surgical, hospitalization, death or
similar bene-fits (whether or not insured) for employees or former employees of
the Company or any of its Subsidiaries for periods extending beyond their
retirement or other termination of service, other than (i) coverage mandated by
applicable law, (ii) death benefits under any "pen-sion plan," or (iii) benefits
the full cost of which is borne by the current or former employee (or his
beneficiary).
6.20 Brokers
-------
Except as set forth in Section 6.20 of the Disclosure Schedule, no
broker, investment banker, financial advisor, finder or other Person has been
retained by or is authorized to act on behalf of the Company who might be
entitled to any fee or commission in connection with this Agreement or any of
the Transaction Documents.
6.21 Related-Party Transactions
--------------------------
Except as set forth in Section 6.21 of the Disclosure Schedule, no
employee, officer, director, or Affiliate of the Company or any of its
Subsidiaries or member of his or her immediate family is currently indebted to
the Company or any of its Subsidiaries, nor is the Company or any of its
Subsidiaries indebted (or committed to make loans or extend or guarantee credit)
to any of such individuals. Except as set forth in Section 6.21 of the
Disclosure Schedule, none of such Persons has any direct or indirect ownership
interest in any firm or corporation which is an Affiliate of the Company or with
which the Company or any of its Subsidiaries has a business relationship, or any
firm or corporation that competes with the Company, except that employees,
officers, or directors of the Company and members of their immediate families
may own stock in an amount not to exceed 5% of the outstanding capital stock of
publicly traded companies that may compete with the Company or with which the
Company or one of its Subsidiaries may have a business relationship.
6.22 Insurance
---------
(a) Except as set forth in Section 6.22 of the Disclosure Schedule, the
Company and its Subsidiaries have policies of property and casualty insurance
and bonds of the type and in amounts customarily carried by persons conducting
business or owning assets similar to those of the Company and its Subsidiaries.
There is no material claim pending under any of such policies or bonds as to
which coverage has been, nor any basis for the Company to reasonably believe
that a material claim will be, questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and the Company and its Subsidiaries are
otherwise in compliance in all material respects with the terms of such policies
and bonds.
(b) The Company has a directors' and officers' liability insurance
policy that is in full force and effect in the amount of $3,000,000.
6.23 Title to Properties
-------------------
(a) Neither the Company nor any of its Subsidiaries owns or has owned
any real property. Section 6.23(a) of the Disclosure Schedule sets forth a list
of all material real property currently leased, licensed or subleased by the
Company or any of its Subsidiaries or otherwise used or occupied by the Company
or any of its Subsidiaries (the "Real Property"). All current leases set forth
in Section 6.23(a) of the Disclosure Schedule are in full force and effect, are
valid and effective in accordance with their respective terms there is not,
under any of such leases, any existing material breach, default or event of
default (or event which with notice or lapse of time, or both, would constitute
a material default) by the Company or its Subsidiaries or, to the knowledge of
the Company, any third Person under such leases, in each case subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other Laws
relating to or affecting the rights and remedies of creditors generally. To the
knowledge of the Company, no parties other than the Company or any of its
Subsidiaries have a right to occupy any material Real Property and the Real
Property is used only for the operation of the business of the Company or its
Subsidiaries.
(b) The Company and each of its Subsidiaries have good and valid
leasehold interests in, all of their material tangible properties and assets,
real, personal and mixed, used or held for use in its business, free and clear
of any Liens except (i) Liens for Taxes not yet due and payable and (ii) such
imperfections of title and Liens, if any, which do not in any material respect
detract from the value or interfere with the present use of the property subject
thereto or affected thereby. The rights, properties and assets presently owned,
leased or licensed by the Company and its Subsidiaries include all rights,
properties and assets necessary to permit the Company and its Subsidiaries to
conduct their business in all material respects in the same manner as their
businesses have been conducted prior to the date hereof.
6.24 Environmental Matters
---------------------
(a) The Company and each of its Subsidiaries is, and has been since January
1, 2003, in compliance in all material respects with all applicable federal,
state and local Laws relating to protection of the environment (collectively,
"Environmental Laws").
(b) Since January 1, 2003 neither the Company nor any of its Subsidiaries
has received written notice of, and, to the knowledge of the Company, it is not
subject of, any actions, claims, investigations, demands, or notices by any
Person alleging liability under or non-compliance with any Environmental Law.
(c) To the knowledge of the Company, there has not been, and there is no
Environmental Condition, on or under the Business Premises. As to each location
where the Company or any of its Subsidiaries conducts its business or performs
services (collectively, the "Business Premises"), (i) no Hazardous Materials
have been Released in, on, under, from, to or through the Business Premises,
either by the Company or one of its Subsidiaries or at the request of the
Company or one of its Subsidiaries, or by an agent, employee or contractor of
the Company or one of its Subsidiaries, except in accordance with applicable
Law; (ii) none of the Material Contracts, directly or indirectly, requires the
Company or one of its Subsidiaries to conduct environmental remediation or to
remove Hazardous Materials from the Business Premises in connection with any
such environmental remediation; and (iii) to the knowledge of the Company each
Business Premises is in compliance with all health and safety Environmental
Requirements pertaining to employee safety at job sites and otherwise.
(d) True and complete copies of material reports and investigations
(including sample reports or similar information) conducted at the request of
the Company or one of its Subsidiaries with respect to any Environmental Subject
Matter that relates to the Business Premises, including those related to the
emission or disposition of radioactive materials used in connection with the
practice of dentistry, have been provided to the Investor.
6.25 Books and Records
-----------------
(a) The books of account, minute books, shareholder record books, and other
records of the Company, all of which have been made available to the Investor,
are complete and correct and have been maintained in accordance with sound
business practices. The minute books of the Company contain accurate and
complete records of all meetings held of and corporate action taken by the
shareholders of the Company, the Board of Directors and the committees of the
Board of Directors.
6.26 Listing and Maintenance Requirements.
------------------------------------
(a) The Company's Common Stock is registered pursuant to Section 12(g) of
the Exchange Act, and the Company has taken no action designed to, or which to
its knowledge is likely to have the effect of, terminating the registration of
the Common Stock under the Exchange Act nor has the Company received any
notification that the SEC is contemplating terminating such registration. 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. The Company is, and has no
reason to believe that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance requirements.
6.27 Solvency.
--------
(a) On and as of the date hereof, on a pro forma basis after giving effect
to the transactions contemplated by this Agreement occurring on the date hereof,
(x) the sum of the assets, at a fair valuation, of the Company and its
Subsidiaries (on a consolidated basis) will exceed its debts, (y) the Company
(on a consolidated basis) has not incurred and does not intend to incur, and
does not believe that it will incur, debts beyond its ability to pay such debts
as such debts mature and (z) the Company (on a consolidated basis) has
sufficient capital with which to conduct its business. For purposes of this
Section 6.27, "debt" means any liability on a claim, and "claim" means any (i)
right to payment whether or not such a right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured or (ii) any right to an equitable remedy
for breach of performance if such breach gives rise to a payment, whether or not
such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured or unsecured.
6.28 Foreign Corrupt Practices
-------------------------
(a) Neither the Company nor any of its Subsidiaries, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any corrupt 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 any of its Subsidiaries
(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
6.29 Business Practices.
------------------
(a) No officer, director, employee, agent or representative of the Company
nor any of its Subsidiaries or Affiliates has engaged in any financial,
accounting, tax, conflicts of interest, illegal or unethical activity,
fraudulent or deceptive conduct on behalf of, or for the benefit of, the Company
or any of its Subsidiaries or Affiliates. None of the Company nor any of
its Subsidiaries or Affiliates, nor any of their respective officers, directors,
employees, agents or representatives on behalf of, or for the benefit of, the
Company or any of its Subsidiaries or Affiliates, has used any corporate or
other funds for unlawful contributions, payments, gifts, or entertainment, or
made any unlawful expenditures relating to political or business activity or
established or maintained any unlawful or unrecorded funds in violation of
applicable Law. None of the Company nor any of its Subsidiaries or Affiliates,
nor any of their respective officers, director, employees, agents or
representatives on behalf of the Company or any of its Subsidiaries or
Affiliates, has accepted or received any unlawful contributions, payments,
gifts, or expenditures in violation of applicable Law.
6.30 Disclosure
----------
(a) The Company has not failed to disclose to the Investor any facts
material to the business, results of operations, assets, Liabilities, financial
condition or prospects of the Company or any of its Subsidiaries. No
representation or warranty by the Company or any of its Subsidiaries contained
in this Agreement or the Transaction Documents and no statement contained in any
document (including financial statements and the Disclosure Schedule),
certificate, or other writing furnished or to be furnished by the Company or any
of its Subsidiaries to the Investor or any of its representatives pursuant to
the provisions hereof or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of material fact of omits
or will omit to state any material fact necessary, in light of the circumstances
under which it was made, in order to make the statements herein or therein not
misleading.
7. Representations and Warranties of the Investor
----------------------------------------------
The Investor represents and warrants to the Company as follows:
7.1 Organization
------------
The Investor is a corporation duly organized, validly existing and in
good standing under the Laws of the State of New Jersey and has its principal
place of business and chief executive office at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇.
7.2 Authorization; Enforceability
-----------------------------
The Investor has the requisite corporate power and authority to enter
into this Agreement and the other Transaction Documents to which it is a party.
The execution, delivery and performance by the Investor of this Agreement and
each of the other Transaction Documents to which it is a party, and the
consummation by the Investor of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary corporate action on the part
of the Investor. This Agreement has been duly and validly executed and
delivered by the Investor and, each other Transaction Document to which it is a
party will be duly and validly executed and delivered, on Closing, by the
Investor, and, assuming due and valid execution and delivery by the Company,
constitute valid and binding obligations of the Investor, enforceable against
the Investor in accordance with their respective terms, subject to Laws of
general application relating to bankruptcy, insolvency, and the relief of
debtors and other Laws of general application affecting enforcement of
creditors' rights generally, rules of Law governing specific performance,
injunctive relief and other equitable remedies.
7.3 No Conflicts
------------
The execution, delivery and performance of this Agreement and each of
the Transaction Documents, when executed and delivered at Closing or thereafter
as specified herein, and the consummation of the transactions contemplated
hereby and thereby will not (a) violate or conflict with any Law that is
applicable to or binding on the Investor or (b) violate or conflict with, or
result in a material breach of, or constitute a material default (or an event
which with notice or lapse of time or both would become a material default)
under, or permit cancellation of any material Contract to which the Investor is
a party or by which the Investor is bound.
7.4 Litigation
----------
There are no actions, suits, claims or legal, administrative or
arbitratorial proceedings pending against, or, to the Investor's knowledge,
threatened against the Investor which would adversely affect the Investor's
performance under this Agreement or the Transaction Documents or the
consummation of the transactions contemplated hereby or thereby.
7.5 Available Funds
---------------
Investor has the funds on hand necessary to satisfy its obligation to
pay for the Tranche A Securities on the date hereof. Investor has, or will have
on the Tranche B Closing Date, the funds on hand necessary to satisfy its
obligation to pay for the Tranche B Securities on the Tranche B Closing Date.
7.6 Brokers
-------
No broker, investment banker, financial advisor, finder or other Person
was retained by or is authorized to act on behalf of the Investor who is
entitled to any fee or commission in connection with the execution of this
Agreement.
8. Covenants
---------
8.1 Continuing Covenants of the Company
-----------------------------------
The Company (and each of its Subsidiaries) hereby covenants from the
date of this Agreement until the Tranche B Closing or the termination of this
Agreement in accordance with its terms, except to the extent expressly permitted
by this Agreement or otherwise consented to by an instrument in writing signed
by the Investor, the Company shall (i) keep the Company's business, as it is
currently being conducted, and organization intact and shall not take or permit
to be taken or do or suffer to be done anything other than in the ordinary
course of its business as the same is currently being conducted, (ii) use its
reasonable best efforts to keep available the services of its directors,
officers, employees, independent contractors and agents and retain and maintain
good relationships with its clients and maintain its facilities in good
condition and (iii) maintain the goodwill and reputation associated with its
business, as it is currently being conducted.
8.2 Auditors
---
The Company shall have as its auditors an accounting firm of national
reputation. The parties hereto acknowledge and agree that, for purposes of this
Section 8.2, Amper, Politziner & ▇▇▇▇▇▇ is an accounting firm of national
reputation.
8.3 Composition of Board of Directors; Directors and Officers Insurance
-------------------------------------------------------------------
Policy
------
(a) No later than fifteen days from the date hereof, the Company shall
increase the size of the Board of Directors by two directors designated by the
Investor (the "Investor Directors"). The Board of Directors may, without the
consent of the Investor, appoint one additional director by majority vote so
that upon such increase the Board shall consist of seven directors. Other than
with respect to vacancies in the positions in the Board of Directors held by
either of the Investor Directors or their successors, vacancies on the Board of
Directors shall be filled by a majority vote of the Board of Directors.
Vacancies in the positions in the Board of Directors held by either of the
Investor Directors or their successors shall be filled at the sole discretion of
the Investor. The Board of Directors shall meet at least once every fiscal
quarter, unless otherwise agreed to by a majority of directors.
(b) If the Company desires to increase the number of directors to more than
seven, the Company shall (i) obtain the Investor's consent to any such increase
in the Board of Directors, and (ii) present any proposed director to the
Investor for approval, with respect to (ii) hereto such approval not to be
unreasonably withheld.
(c) The Investor shall have rights with respect to representation on the
Board of Directors as set forth in the Certificate of Designation.
(d) Promptly following the date hereof, the Company shall appoint at least
one of the directors designated by the Investor to the compensation committee of
the Board of Directors.
(e) The Company shall maintain in full force and effect a policy or policies
of insurance, including, without limitation, a directors and officers liability
insurance policy, issued by insurers of recognized responsibility, insuring it,
its directors and officers, its properties and its business against such losses
and risks, and in such amounts, as are customary in the case of corporations of
established reputation engaged in the same or a similar business and in an
amount acceptable to the Board of Directors.
(f) In the event that the Company or any of its respective successors or
assigns (i) consolidates with or merges into any other Person and is not the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all its properties and assets to
any Person, then, and in each such case, the Company shall cause proper
provisions to be made so that the successors and assigns of the Company, may
assume the obligations set forth in this Section 8.3. The obligations of the
Company under this Section 8.3 shall not be terminated or modified in such a
manner as to adversely affect any indemnitee to whom this Section 8.3 applies
without the express written consent of such affected indemnitee (it being
expressly agreed that the indemnitees to whom this Section 8.3 applies shall be
third party beneficiaries of this Section 8.3).
8.4 Use of Proceeds
---------------
The Company shall use the proceeds from the transaction contemplated
hereby solely to pay off certain obligations relating to its securities as set
forth on Exhibit E hereof, to fund the Company's working capital needs as set
forth on Exhibit F hereof and to pay $1.2 million dollars of existing accounts
payable of the Company as set forth on Exhibit G hereof. THE COMPANY EXPRESSLY
AGREES THAT NONE OF THE PROCEEDS FROM THE TRANSACTION CONTEMPLATED HEREBY SHALL
BE USED TO FINANCE THE COMPANY'S PENDING ACQUISITION OF ENTECH.
8.5 Reservation of Common Stock
---------------------------
The Company will at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issuance upon the conversion
of Series D Preferred Stock as provided in the Certificate of Designation and
the issuance and conversion of Warrants as provided in the form of Warrant, such
number of shares of Common Stock as shall then be issuable upon the conversion
of all outstanding shares of Series D Preferred Stock and the issuance and
conversion of the Warrants. The Company covenants that all shares of Common
Stock which shall be so issued shall be duly and validly issued and fully paid
and nonassessable and free from all taxes, Liens and charges with respect to the
issue thereof. The Company will use its best efforts to assure that all such
shares of Common Stock may be so issued without violation of any applicable Law
or regulation, or of any requirement of any national securities exchange or
other market upon which the Common Stock may be listed. The Board of Directors
agrees to submit for shareholder approval at the next meeting of the
shareholders of the Company a proposal to increase the number of authorized
shares of Common Stock of the Company to at least 300,000,000 . The Board of
Directors agrees to recommend shareholder approval of such proposal.
8.6 Filings
-------
The Company shall promptly provide to the Investor (or its counsel)
copies of all filings made by the Company or any Affiliate with any Governmental
Entity in connection with this Agreement, the Transaction Documents and the
transactions contemplated hereby and thereby.
8.7 Financial Statements and Other Information
------------------------------------------
The reports required to be prepared pursuant to this Section 8.7 are to
be prepared solely for internal purposes and are independent of any reports that
must be prepared to satisfy any legal requirements or obligations of the Company
or its Subsidiaries.
(a) Quarterly Reports. The Company shall deliver to the Investor, as soon
-----------------
as available but in any event within forty-five (45) days after the end of each
quarterly accounting period in each fiscal year, unaudited consolidating and
consolidated statements of income and cash flows of the Company and its
Subsidiaries for such quarterly period and for the period from the beginning of
the fiscal year to the end of such quarter, and unaudited consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the end of
such quarterly period, setting forth in each case comparisons to the
Company's annual budget and to the corresponding period in the preceding fiscal
year, and all such statements shall be prepared in accordance with GAAP,
consistently applied, subject to the absence of footnote disclosures and to
normal year-end adjustments for recurring accruals, and shall be certified by
the Company's chief financial officer. The Company shall include with each such
report an up-to-date capitalization table, certified by Company's chief
financial officer. Additionally, the Company shall include a brief summary of
any significant events, developments or trends that transpired during the
quarterly period.
(b) Fiscal Reports. The Company shall deliver to the Investor within ninety
--------------
(90) days after the end of each fiscal year, statements of income and cash flows
for the Company and its Subsidiaries for such fiscal year, and audited
consolidating and audited consolidated balance sheets of the Company and its
Subsidiaries as of the end of such fiscal year, together with, in each case,
comparisons to the Company's annual budget and to the preceding fiscal year, all
prepared in accordance with GAAP, consistently applied, and accompanied by (i)
with respect to consolidated portion of such statements, an audit opinion
containing no exceptions or qualifications (except for qualifications regarding
specified contingent liabilities and except as set forth on Section 8.7(b) of
the Disclosure Schedule) of the Company's auditors or another independent
auditing firm of recognized national standing and (ii) a copy of such firm's
annual management letter, if any, to the Board of Directors.
(c) Additional Accountants' Reports. As determined by the Board of
-------------------------------
Directors, the Company shall deliver to the Investor promptly upon receipt
thereof, any additional reports, management letters or other detailed
information concerning significant aspects of the Company's operations or
financial affairs given to the Company by its independent accountants (and not
otherwise contained in other materials provided hereunder ).
(d) Annual Budget. For 2007 the Company shall deliver to the Investor no
-------------
later than December 15, 2006 and thereafter the Company shall deliver to the
Investor at least thirty (30) days prior to the beginning of each fiscal year,
an annual budget for the Company and its Subsidiaries for such fiscal year and,
promptly upon preparation thereof, any other significant budgets prepared by the
Company and any revisions of such annual or other budgets, and, within
forty-five (45) days after any quarterly period in which there is a material
adverse deviation from the annual budget, a letter from the Company's chief
financial officer explaining the deviation and what actions the Company has
taken and proposes to take with respect thereto. Each annual budget delivered
pursuant to this Section 8.7 shall be prepared in a manner that is consistent
with GAAP.
(e) Other Matters. The Company shall deliver to the Investor promptly (but
-------------
in any event within five (5) Business Days) after the discovery or receipt of
(i) notice of any default under any material Contract to which it or any of its
Subsidiaries is a party or any other material adverse change, event or
circumstance affecting the Company or any Subsidiary thereof (including, without
limitation, the filing of any material litigation against the Company or any
Subsidiary thereof or the existence of any dispute with any Person which
involves a reasonable likelihood of such litigation being commenced). The
Company shall deliver to the Investor with reasonable promptness, such other
information and financial data concerning the Company and its Subsidiaries as it
may reasonably request.
8.8 Inspection of Property
----------------------
. The Company and its Subsidiaries shall permit any authorized
representative of the Investor upon reasonable notice and during normal business
hours to (a) visit and inspect any of the properties or operations of the
Company and its Subsidiaries, (b) examine the corporate and financial records of
the Company and its Subsidiaries and make copies thereof and (c) discuss the
affairs, finances and accounts with the directors, officers, key employees and
independent accountants of the Company and its Subsidiaries.
8.9 Further Assurances
------------------
The Company will cure promptly any defects in the creation and issuance
of the Securities and the execution and delivery of the Transaction Documents.
The Company at its expense will promptly execute and deliver to the Investor,
upon request, all such other documents, agreements and instruments to correct
any omissions in the Transaction Documents or to make any recordings, to file
any notices or obtain any consents, all as may reasonably be necessary or
appropriate in connection therewith.
8.10 Financing for Entech Acquisition
--------------------------------
The Company shall raise all the financing (the "Entech Financing") for
the acquisition of Entech Environmental Technologies, Inc. ("Entech") through a
special purpose vehicle (the "SPV"). None of the securities issued by the SPV
in connection with such acquisition shall be convertible into either the
Company's Common Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or any other class of capital stock which the Company
may authorize or issue in the future. The Company further agrees not to provide
any form of guarantee or surety to the SPV in relation to the Entech Financing
or to secure the Entech Financing with any of its assets or capital stock.
8.11 Strategic Agreement
-------------------
Between the date hereof and the Tranche B Closing Date, the Company and
the Investor shall negotiate in good faith and use commercially reasonable
efforts to enter into the Strategic Agreement as soon as practicable, but no
later than January 31, 2007.
8.12 Right to Participate Pro-Rata in Future Financing
-------------------------------------------------
(a) The Company hereby grants to the Investor a right of first refusal to
purchase, with respect to the issuance by the Company of new or additional debt
or equity securities for cash, that portion of such new or additional debt or
equity securities as may be necessary in order to permit the Investor to
maintain its relative ownership of the aggregate amount of the Company's total
common equity (calculated on a Fully-Diluted Basis). Such right shall be
offered to the Investor (such offer, the "Preemptive Rights Offer") pursuant to
a written notice from the Company offering the Investor such securities on the
same terms and conditions as offered to the other Offeree(s) (such written
notice, the "Preemptive Rights Notice"). The Investor shall have 20 days from
the date of the Company's delivery of the Preemptive Rights Notice to notify the
Company in writing of its binding acceptance of such Preemptive Rights
Offer with respect some or all of the debt or equity securities which are
offered to the Investor pursuant to such Preemptive Rights Offer.
(b) If the Investor accepts the Preemptive Rights Offer in accordance with
the provisions of the preceding sentence, the Company and the Investor shall
have 30 days in which to consummate such binding agreement. In the event that
the Investor does not accept the Preemptive Rights Offer within such 20 day
period in accordance with the provisions of the preceding sentence or fails to
consummate any such purchase within such 30 day period, the Company would have
the right, but not the obligation, to issue such securities on terms and
conditions in the aggregate no more favorable to the other offeree(s) than those
set forth in the Preemptive Rights Notice, pursuant to a definitive agreement to
be entered into no later than 90 days after such date.
(c) Notwithstanding anything to the contrary contained herein, no rights of
first refusal pursuant to this Section 8.12 would apply in the event of (i) the
exercise of any employee or director options or the exercise or conversion of
any options, warrants or convertible securities in existence as of the date
hereof, (ii) an issuance of Common Stock by the Company in connection with a
registered public offering, or (iii) the distribution by the Company of its
securities to all of its stockholders on a pro rata basis.
(d) "Fully-Diluted Basis" shall mean, with respect to any calculation of the
outstanding number of shares of the Company's capital stock or the outstanding
amount of common equity of the Company (as the case may be pursuant to this
Section 8.12), an amount equal to the total outstanding number of shares of
Company capital stock, calculated without duplication and assuming the
conversion of all outstanding shares of convertible stock and securities of the
Company and the exercise of all warrants, options and other rights to purchase
Common Stock.
8.13 Restrictive Legend
------------------
(a) The Investor acknowledges that each certificate evidencing the
Securities shall be stamped or otherwise imprinted with a legend in
substantially the following form, unless prior to exercise of the Warrants or
the Series D Preferred Stock, the Common Stock issuable upon conversion or
exercise thereof shall have been registered under the Securities Act:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT."
(b) Certificates evidencing the Underlying Shares shall not contain any
legend (including the legend set forth in Section 8.13(a) hereof): (i) while a
registration statement covering the resale of such security is effective under
the Securities Act, or (ii) following any sale of such Underlying Shares
pursuant to Rule 144, or (iii) if such Underlying Shares are eligible for sale
under Rule 144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act. The Company agrees that at such time as such
legend is no longer required under this Section 8.13(b), it will, no later
than three Trading Days following the delivery by a Investor to the Company or
the Company's transfer agent of a certificate representing Underlying Shares, as
applicable, issued with a restrictive legend (such third Trading Day, the
"Legend Removal Date"), deliver or cause to be delivered to the Investor a
certificate representing such shares that is free from all restrictive and other
legends.
(c) In addition to the Investor's other available remedies, the Company
shall pay to the Investor, in cash, as partial liquidated damages and not as a
penalty, for each $1,000 of Underlying Shares (based on the VWAP 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 8.13(b),
$5 per Trading Day (increasing to $10 per Trading Day 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. Such liquidated damages
shall not be incurred during any period in which the delay is occasioned by the
Company's transfer agent or other independent party not acting at the Company's
direction to delay the issuance and not as a result of an negligence or
wrongdoing on the Company's part. Nothing herein shall limit the Investor's
right to pursue actual damages for the Company's failure to deliver certificates
representing any Securities as required by the Transaction Documents, and the
Investor 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.
8.14 Public Statements.
-----------------
The initial press release with respect to this Agreement, the
Transaction Documents and the transactions contemplated hereby and thereby shall
be agreed upon by the Company and the Investor. Thereafter, the Company shall
consult with the Investor before issuing any press release or making any public
statement (including any filing with the SEC) with respect to this Agreement,
the Transaction Documents and the transactions contemplated hereby and thereby
and shall not issue any such press release or make any such public statement
without the prior consent of the Investor.
9. Conditions to the Parties' Obligations
--------------------------------------
9.1 Conditions to Each Party's Obligations
--------------------------------------
The respective obligations of each party to consummate the transactions
contemplated hereunder to be consummated at the Tranche B Closing are subject to
the fulfillment prior to or on the Tranche B Closing Date of all of the
following conditions, which may be waived in whole or in part by the Investor to
the extent permitted by Law:
(a) No Statute, Etc. No statute, rule, regulation, executive or other
----------------
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or enforced by any Governmental Entity which prohibits, restrains,
enjoins or restricts the transactions contemplated by this Agreement or any of
the Transaction Documents.
9.2 Conditions to the Investor's Obligations
----------------------------------------
The obligations of the Investor to consummate the transactions
contemplated hereunder to be consummated at the Tranche B Closing are subject to
the fulfillment prior to or on the Tranche B Closing Date of all of the
following conditions, which may be waived in whole or in part by the Investor to
the extent permitted by Law:
(a) Covenants; Representations and Warranties. (i) The Company shall have
-----------------------------------------
performed in all material respects each of its obligations hereunder and under
each of the Transaction Documents required to be performed by it at or prior to
the Tranche B Closing Date, and shall have obtained all consents and approvals
required for the consummation of the transactions contemplated hereby and by
each of the Transaction Documents, and (ii) the representations and warranties
of the Company contained in this Agreement and in any certificate or other
writing delivered by the Company pursuant hereto shall be true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) at and as of the Tranche B Closing Date as if
made at and as of the Tranche B Closing Date, except where the failure of
such representations and warranties to be true and correct (without giving
effect to any limitation as to "materiality" or "Material Adverse Effect" set
forth therein) would not, individually or in the aggregate, have a Material
Adverse Effect.
(b) Laws; Injunctions. No statute, rule, regulation, executive or other
-----------------
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or enforced by any Governmental Entity that would, or would
reasonably be likely to, have a Material Adverse Effect.
(c) Certificate of Officer. The Company shall have delivered to the
----------------------
Investor a certificate dated the date of the Tranche B Closing Date, executed by
its chief executive officer, certifying the satisfaction of the conditions
specified in paragraph (a) of this Section 9.2.
(d) Strategic Agreement. The Company shall have executed and delivered the
-------------------
Strategic Agreement.
(e) No Material Adverse Effect. There shall have been no Material Adverse
--------------------------
Effect from and after the date of this Agreement.
(f) Default. The Company shall not be in default in any material respect
-------
under any Contract evidencing Indebtedness of the Company.
(g) Legal Opinion. The Investor shall have received the legal opinion from
-------------
Salvo, Landau, Gruen & ▇▇▇▇▇▇ in the form attached hereto as Exhibit I.
---------
9.3 Conditions to the Company's Obligations
---------------------------------------
The obligations of the Company to consummate the transactions
contemplated hereunder to be consummated at the Tranche B Closing are subject to
the fulfillment prior to or on the Tranche B Closing Date of all of the
following conditions, which may be waived in whole or in part by the Company to
the extent permitted by Law:
(a) Covenants; Representations and Warranties. (i) The Investor shall have
-----------------------------------------
performed in all material respects each of its obligations hereunder and under
each of the Transaction Documents required to be performed by it at or prior to
the Tranche B Closing Date, and shall have obtained all consents and approvals
required for the consummation of the transactions contemplated hereby and by
each of the Transaction Documents, and (ii) the representations and warranties
of the Investor contained in this Agreement and in any certificate or other
writing delivered by the Investor pursuant hereto shall be true and correct
(without giving effect to any limitation as to "materiality" set forth therein)
at and as of the Tranche B Closing Date as if made at and as of the Tranche B
Closing Date, except where the failure of such representations and warranties to
be true and correct (without giving effect to any limitation as to
"materiality" or "Material Adverse Effect" set forth therein) would not,
individually or in the aggregate, have a material adverse effect on the ability
of the Investor to perform its obligations under this Agreement and the
Transaction Documents.
(b) Certificate of Officer. The Investor shall have delivered to the
----------------------
Company a certificate dated as of the date of such Closing Date, executed by an
authorized officer of the Investor , certifying the satisfaction of the
conditions specified in paragraph (a) of this Section 9.3.
(c) Strategic Agreement. The Investor shall have executed and delivered the
-------------------
Strategic Agreement.
10. Indemnification
---------------
10.1 Survival of Representations and Warranties
------------------------------------------
The representations and warranties of the Company and the Investor contained
in this Agreement shall survive until 18 months after the date hereof, except
that (i) all representations and warranties contained in Sections 6.1, 6.2, 6.3,
and 6.4 shall survive indefinitely; and (ii) all representations and warranties
of the Company set forth in Section 6.18 and 6.24 shall survive until ninety
(90) days after their applicable statutes of limitation (taking into account any
applicable waivers or extensions). The covenants and agreements of the Investor
and the Company contained in this Agreement and the Transaction Documents or in
any certificate or other writing delivered pursuant hereto or thereto or in
connection herewith or therewith shall survive indefinitely unless otherwise set
forth herein or therein. The covenants and agreements of the Company contained
in Sections 8.1, 8.3, 8.6, 8.7, 8.8 and 8.12 of this Agreement shall terminate
if the Investor's beneficial ownership of the Company's capital stock on a
fully-diluted basis falls below five percent (5%) of the then outstanding shares
of Common Stock. If written notice of a claim has been given prior to the
expiration of the applicable representations and warranties by the Company or
the Investor, then the relevant representations and warranties of the other
party shall survive as to such claim, until such claim has been finally
resolved.
10.2 Indemnification
---------------
(a) The Investor, its Affiliates and its successors and assigns and the
officers, directors, employees and agents of the Investor, its Affiliates and
its successors and assigns shall be indemnified and held harmless by the Company
for any and all Liabilities, Financial Statement Losses, losses, damages,
claims, costs and expenses, interest, awards, judgments and penalties
(including, without limitation, reasonable attorneys' fees and expenses)
actually suffered or incurred by them (including, without limitation, any
action, claim or proceeding brought or otherwise initiated by any of them)
(hereinafter, an "Investor Loss") arising out of, or resulting from or based
upon:
(i) the breach of any representation or warranty made by the
Company contained in this Agreement or in any Transaction Document provided,
--------
however, that, in the case of any representation or warranty that is limited by
-------
"knowledge," "material" "Material Adverse Effect" or by any similar term or
limitation, the occurrence of a breach or inaccuracy of such representation or
warranty, as the case may be, and the amount of Losses shall be determined as if
"knowledge," "material" "Material Adverse Effect" or by any similar term or
limitation were not included therein;
(ii) the breach of or failure to perform any covenant or agreement
by the Company contained in this Agreement or in any Transaction Document;
(iii) any action instituted against the Investor, or any of its
Affiliates, by any shareholder of the Company who is not an Affiliate of the
Investor, with respect to any of the transactions contemplated by this Agreement
or any of the Transaction Documents; or
(iv) any Violative Actions.
The amounts of any indemnification pursuant to this Section 10.2(a)
shall be increased by an additional amount to reflect an appropriate gross-up to
compensate the Investor for its indirect participation as a holder of capital
stock of the Company in any indemnification payment made pursuant to this
Section 10.2(a).
(b) The Company, its Affiliates and its successors and assigns and the
officers, directors, employees and agents of the Company, its Affiliates and its
successors and assigns shall be indemnified and held harmless by the
Investor for any and all Liabilities, losses, damages, claims, costs and
expenses, interest, awards, judgments and penalties (including, without
limitation, reasonable attorneys' fees and expenses) actually suffered or
incurred by them (including, without limitation, any action, claim or proceeding
brought or otherwise initiated by any of them) (hereinafter, a "Company Loss",
and each of a Company Loss and an Investor Loss is hereinafter referred to as a
"Loss" with respect to such party) arising out of, resulting from or based upon:
(i) the breach of any representation or warranty made by the
Investor contained in this Agreement or in any Transaction Document provided,
--------
however, that, in the case of any representation or warranty that is limited by
-----
"knowledge," "material" "Material Adverse Effect" or by any similar term or
limitation, the occurrence of a breach or inaccuracy of such representation or
warranty, as the case may be, and the amount of Losses shall be determined as if
"knowledge," "material" "Material Adverse Effect" or by any similar term or
limitation were not included therein; or
(ii) the breach of or any failure to perform any covenant or
agreement by the Investor contained in this Agreement or in any Transaction
Document.
(c) Whenever a claim shall arise for indemnification under this Section 10,
the party entitled to indemnification (the "Indemnified Party") shall give
notice to the other party (the "Indemnifying Party") of any matter that the
Indemnified Party has determined has given or could give rise to a right of
indemnification under this Agreement promptly stating the amount of the Loss, if
known. The obligations and Liabilities of the Indemnifying Party under
this Section 10 with respect to Losses arising from claims of any third party
which are subject to the indemnification provided for in this Section 10 ("Third
Party Claims") shall be governed by and contingent upon the following additional
terms and conditions: if an Indemnified Party shall receive notice of any Third
Party Claim, the Indemnified Party shall give the Indemnifying Party notice of
such Third Party Claim following receipt by the Indemnified Party of such notice
in the time frame provided above; provided, however, that the failure to provide
-------- -------
such notice shall not release the Indemnifying Party from any of its obligations
under this Section 10 and shall not relieve the Indemnifying Party from any
other obligation or Liability that it may have to any Indemnified Party
otherwise than under this Section 10. The Indemnifying Party shall be entitled
to assume and control the defense of such Third Party Claim at its expense and
through counsel of its choice if it gives notice of its intention to do so to
the Indemnified Party within ten days of the receipt of such notice from the
Indemnified Party; provided, however, that, if in the opinion of the Indemnified
-------- -------
Party there exists or is reasonably likely to exist a conflict of interest that
would prevent the same counsel from representing both the Indemnified Party and
the Indemnifying Party, then the Indemnified Party shall be entitled to retain
its own counsel at the expense of the Indemnifying Party. In the event the
Indemnifying Party exercises the right to undertake any such defense against any
such Third Party Claim as provided above, the Indemnified Party shall cooperate
with the Indemnifying Party in such defense and make available to the
Indemnifying Party, at the Indemnifying Party's expense, all witnesses,
pertinent records, materials and information in the Indemnified Party's
possession or under the Indemnified Party's control relating thereto as is
reasonably required by the Indemnifying Party. Similarly, in the event the
Indemnified Party is, directly or indirectly, conducting the defense against any
such Third Party Claim, the Indemnifying Party shall cooperate with the
Indemnified Party in such defense and make available to the Indemnified Party,
at the Indemnifying Party's expense, all such witnesses, records, materials and
information in the Indemnifying Party's possession or under the Indemnifying
Party's control relating thereto as is reasonably required by the Indemnified
Party. No such Third Party Claim may be settled by the Indemnifying Party
without the prior written consent of the Indemnified Party. No party shall be
entitled to indemnification under this Section 10.2 if such party receives
reasonable express written notice of a breach of any representation, warranty,
covenant or agreement and such party would be entitled to terminate this
Agreement pursuant to the terms hereof in respect of such breach and fails to do
so.
10.3 Limits on Indemnification
-------------------------
Notwithstanding anything to the contrary contained in this Agreement, no
claim may be made against the Company for indemnification unless the aggregate
of all Investor Losses shall exceed $250,000 (the "Basket"), in which case the
Company shall then be required to pay or be liable for the full amount of
Investor Losses; provided, however, that the Basket shall not apply to or limit
-------- -------
Investor Losses relating to breaches of the representations contained in
Sections 6.1, 6.2, 6.3, 6.4, 6.11, 6.12, 6.20, 6.28 and 6.29 or to any Violative
Actions.
10.4 Effect of Investigation
-----------------------
The right to indemnification and all other remedies based on any
representation, warranty, covenant or obligation contained in or made pursuant
to this Agreement shall not be affected by any investigation conducted with
respect to, or any knowledge acquired (or capable of being acquired) at any
time, whether before or after the date hereof or the Tranche B Closing Date,
with respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant or obligation.
11. Miscellaneous
-------------
11.1 Notices
-------
All notices, requests, consents and other communications required or
permitted hereunder shall be in writing and shall be hand delivered or mailed
postage prepaid by registered or certified mail or transmitted by facsimile
transmission (with immediate telephonic confirmation thereafter),
(a) If to the Investor:
EMCORE Corporation
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to (which shall not constitute notice):
Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to the Company:
WorldWater and Power Corp.
Pennington Business Park
▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to (which shall not constitute notice):
Salvo Landau Gruen & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
or at such other address as the Company or the Investor may specify by written
notice to the other, and each such notice, request, consent and other
communication shall for all purposes of the Agreement be treated as being
effective or having been given when delivered if delivered personally, upon
receipt of facsimile confirmation if transmitted by facsimile, or, if sent by
mail, at the earlier of its receipt or 72 hours after the same has been
deposited in a regularly maintained receptacle for the deposit of United States
mail, addressed and postage prepaid as aforesaid.
11.2 Termination of Agreement
------------------------
This Agreement may be terminated as follows:
(a) by mutual written consent of the Investor and the Company;
(b) by the Investor, if the Company has breached any representation,
warranty, covenant or agreement contained in this Agreement such that the
condition set forth in Section 9.2(a) hereof is not capable of being fulfilled;
provided, that if such breach is capable of being cured, the Company has not
--------
cured such breach within twenty (20) Business Days after notice by the Investor
to the Company thereof;
(c) by the Company, if the Investor has breached any representation,
warranty, covenant or agreement contained in this Agreement such that the
condition set forth in Section 9.3(a) hereof is not capable of being fulfilled;
provided, that if such breach is capable of being cured, the Investor has not
--------
cured such breach within twenty (20) Business Days after notice by the Company
to the Investor thereof; or
(d) by the Investor, if the Tranche B Closing have not occurred by February
1, 2007.
11.3 Effect of Termination
---------------------
In the event of the termination and abandonment of this Agreement
pursuant to Section 11.2, this Agreement shall forthwith become void and have no
effect, without any liability on the part of either party hereto other than the
provisions of this Section 11.3 and Sections 8.1 through 8.14; provided,
--------
however, that such termination and abandonment shall not result in the prior
sale of any Securities hereunder being rescinded; provided, further, that a
-------- -------
party that has committed fraud or willfully breached its representations,
warranties, covenants or agreements shall be liable for such fraud or breach.
11.4 Successors and Assigns
----------------------
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties. The Investor's rights under this
Agreement may be assigned, in whole or in part, to any Permitted Transferee, and
any Permitted Transferee shall be deemed to be a Investor for all purposes
hereunder. A "Permitted Transferee" is (i) any Affiliate of the Investor,
including, without limitation, directors, executives and officers of the
Investor, (ii) any member of the family of any Affiliate of the Investor,
including any such Person's spouse and descendants and any trust, partnership,
corporation, limited liability company or other entity for the benefit of such
spouse and/or descendants to whom or which any of the Securities have been
transferred by any such Person for estate or tax planning purposes, (iii) any
charity or foundation to which the Securities have been transferred by the
Investor or any Person or entity described in clause (i) or (ii) above for
estate or tax planning or charitable purposes, or (iv) the beneficiary of any
bona fide pledge by the Investor of any of the Securities. Other than Sections
8.3(d) and 8.3(e) hereof, neither this Agreement nor any provision hereof is
intended to confer upon any Person other than the parties hereto and any
Permitted Transferee any rights or remedies hereunder.
11.5 Headings
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The headings of the Sections and paragraphs of this Agreement have been
inserted for convenience of reference only and do not constitute a part of this
Agreement.
11.6 Governing Law
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This Agreement, including all matters of construction, validity and
performance, shall be construed in accordance with and governed by the Laws of
the State of New York (without regard to principles of conflicts of Laws).
11.7 Expenses
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Other than as required by applicable Law, all costs and expenses
incurred in connection with this Agreement, the Transactions Documents and the
transactions contemplated hereby and thereby shall be paid by the party
incurring such costs or expenses.
11.8 Jurisdiction
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Each of the parties hereto: (a) irrevocably consents to submit itself to
the exclusive jurisdiction and venue of the state courts located in New York
County, in the State of New York and the Federal courts located in the Southern
District of the State of New York, for the purpose of any action or proceeding
arising out of this Agreement or any of the transactions contemplated by this
Agreement, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court and (c)
agrees that it will not bring any action relating to this Agreement or any of
the transactions contemplated hereby in any court other than a state or federal
court of competent jurisdiction located in New York, New York, except for the
purpose of enforcing any award or decision.
11.9 Waiver of Jury Trial
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EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
11.10 Counterparts; Effectiveness
---------------------------
This Agreement may be executed in any number of counterparts and by a
different party hereto in separate counterparts, with the same effect as if each
party had signed the same document. All such counterparts shall be deemed an
original, shall be construed together and shall constitute one and the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by each of the parties hereto.
11.11 Entire Agreement
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This Agreement, the Transaction Documents, and the Confidentiality
Agreement contain the entire agreement among the parties hereto with respect to
the subject matter hereof and supersede and replace all other prior agreements,
written or oral, among the parties hereto with respect to the subject matter
hereof.
11.12 Severability
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If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such a determi-nation, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby be consummated as originally
contemplated to the fullest extent possible.
11.13 Change; Waiver
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No change or modification of this Agreement shall be valid unless the
same is in writing and signed by all of the parties hereto. No waiver of any
provision of this Agreement shall be valid unless in writing and signed by the
party waiving its rights. No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by Law.
[Execution Page Follows]
IN WITNESS WHEREOF, the parties hereto have caused this Investment Agreement to
be duly executed as of the day and year first above written.
WorldWater and Power Corp.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chairman
EMCORE Corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Legal Officer and
Executive Vice President
Vice-Presid