NOTE AND WARRANT
PURCHASE
AGREEMENT
Dated as of October 31,
2006
by and among
DATALOGIC INTERNATIONAL,
INC.
and
THE PURCHASERS LISTED ON EXHIBIT
A
TABLE OF CONTENTS
Page
ARTICLE I
Purchase and Sale of Notes and
Warrants
1
Section 1.1
Purchase and Sale of Notes and
Warrants.
1
Section 1.2
Purchase Price and Closing
2
Section 1.3
Conversion Shares / Warrant
Shares
2
ARTICLE II
Representations and Warranties
3
Section 2.1
Representations and Warranties of the
Company
3
Section 2.2
Representations and Warranties of the
Purchasers
13
ARTICLE III
Covenants
15
Section 3.1
Securities Compliance
15
Section 3.2
Registration and Listing
15
Section 3.3
Inspection Rights
16
Section 3.4
Compliance with Laws
16
Section 3.5
Keeping of Records and Books of
Account
16
Section 3.6
Reporting Requirements
16
Section 3.7
Other Agreements
17
Section 3.8
Use of Proceeds
17
Section 3.9
[Intentionally Omitted.]
17
Section 3.10
Disclosure of Transaction
17
Section 3.11
Disclosure of Material
Information
17
Section 3.12
Pledge of Securities
18
Section 3.13
[Intentionally Omitted.]
18
Section 3.14
Distributions
18
Section 3.15
Reservation of Shares
18
Section 3.16
Transfer Agent Instructions
18
Section 3.17
Disposition of Assets
19
Section 3.18
Acquisition of Assets
19
Section 3.19
Limitations on New Financings;
Registrations; Integration
19
Section 3.20
Subsequent Financings.
21
Section 3.21
Stockholder Approval
22
Section 3.22
D&O Insurance
22
ARTICLE IV
Conditions
23
Section 4.1
Conditions Precedent to the Obligation of
the Company to Close and to Sell the Securities 23
Section 4.2
Conditions Precedent to the Obligation of
the Purchasers to Close and to Purchase the Securities
23
ARTICLE V
Certificate Legend
26
Section 5.1
Legend
26
ARTICLE VI
Indemnification
27
TABLE OF CONTENTS
(continued)
Page
Section 6.1
General Indemnity
27
Section 6.2
Indemnification Procedure
27
ARTICLE VII
Miscellaneous
28
Section 7.1
Fees and Expenses
28
Section 7.2
Specific Performance; Consent to
Jurisdiction; Venue.
29
Section 7.3
Entire Agreement; Amendment
29
Section 7.4
Notices
29
Section 7.5
Waivers
30
Section 7.6
Headings
31
Section 7.7
Successors and Assigns
31
Section 7.8
No Third Party Beneficiaries
31
Section 7.9
Governing Law
31
Section 7.10
Survival
31
Section 7.11
Counterparts
31
Section 7.12
Publicity
31
Section 7.13
Severability
31
Section 7.14
Further Assurances
32
NOTE AND WARRANT PURCHASE
AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT
dated as of October 31, 2006 (this “ Agreement
”) by and among Datalogic International, Inc., a Delaware
corporation (the " Company "), and each of the purchasers of
the series A senior secured convertible promissory notes of the
Company whose names are set forth on Exhibit A attached
hereto (each a " Purchaser " and collectively, the "
Purchasers ").
The parties hereto agree as
follows:
ARTICLE
I
PURCHASE AND SALE OF NOTES AND
WARRANTS
Section 1.1
Purchase and Sale of Notes and
Warrants .
(a)
Upon the following terms and conditions,
the Company shall issue and sell to the Purchasers, and the
Purchasers shall purchase (in the amounts set forth as Exhibit
A hereto) from the Company, 10% secured convertible promissory
notes in the aggregate principal amount of up to Four Million One
Hundred Thousand Dollars ($4,400,000) (the “Purchase
Price”), convertible into shares of the Company's common
stock, par value $.001 per share (the “ Common Stock
”), in substantially the form attached hereto as Exhibit
B (the " Notes ").
Of such Purchase Price, the Company and
the Purchasers agree that up to (i) One Million Six Hundred Twenty
Five Thousand Dollars ($1,625,000) shall be paid by the exchange at
the Closing of Eight Million One Hundred Twenty Five Thousand
shares of the Common Stock (“May Offering Shares”) of
the Company owned by the Purchasers designated on Exhibit A
pursuant to the exchange and release agreement in substantially the
form attached hereto as Exhibit J-1 (the “ Exchange
and Release Agreement ”), (ii) Three Hundred Thousand
Dollars ($300,000) shall be paid by the exchange at the Closing of
a Promissory Note, dated August 16, 2006, of DataLogic Consulting,
Inc., as heretofore amended, owned by the Purchaser designated on
Exhibit A pursuant to the exchange and release agreement in
substantially the form attached hereto as Exhibit J-2 (the
“ DCI Note Exchange and Release Agreement ”),
and (ii) Eight Hundred Fifty Thousand ($850,000) shall be paid in
cash at the Closing by the Purchasers designated on Exhibit A.
Upon exchange of the May Offering Shares and additional
investment of 50% of the May 2006 offering investors amount by such
investors, an additional One Million Six Hundred Twenty Five
Thousand Dollars ($1,625,000) in principal amount of Notes shall be
issued to the May 2006 investors.
The Company and the Purchasers are
executing and delivering this Agreement in accordance with and in
reliance upon the exemption from securities registration afforded
by Section 4(2) of the U.S. Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder (the "
Securities Act "), including Regulation D (" Regulation
D "), and/or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect
to any or all of the investments to be made hereunder.
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(b)
Upon the following terms and conditions,
each Purchaser shall be issued a Warrant, in substantially the form
attached hereto as Exhibit C (the " Warrants "), to
purchase a number of shares of Common Stock equal to one hundred
percent (100%) of the number of Conversion Shares (as defined in
Section 1.3 hereof) issuable upon conversion of such
Purchaser’s Note on the date of issuance of such Note at an
exercise price per share equal to $0.04 and for a term ending on
the day of the month that is the third anniversary following the
effective date of the registration statement providing for the
resale of the Conversion Shares and the Warrant Shares (as defined
in Section 1.3 hereof) under the terms of the Registration Rights
Agreement. The number of shares of Common Stock issuable upon
exercise of the Warrants issuable to each Purchaser is set forth
opposite such Purchaser’s name on Exhibit A attached
hereto. The exercise price and number of Warrant Shares is subject
to adjustment as set forth in the Warrants with respect to certain
events including stock splits, stock combinations and similar
transactions, and certain adjustments, if applicable, upon the
occurrence of a New Transaction (as defined in Section
3.19).
Section 1.2
Purchase and Sale; Closing
. Subject to the terms and
conditions hereof, the Company agrees to issue and sell to the
Purchasers and, in consideration of and in express reliance upon
the representations, warranties, covenants, terms and conditions of
this Agreement, the Purchasers, severally but not jointly, agree to
purchase the Notes and Warrants for the aggregate Purchase Price.
The closing of the purchase and sale of the Notes and
Warrants to be acquired by the Purchasers from the Company under
this Agreement shall take place at the offices of Richardson &
Patel LLP, 405 Lexington Avenue, 26 th floor, New York,
New York 10174 (the “ Closing ”) at 10:00 a.m.,
New York time (i) on or before October 31, 2006; provided ,
that all of the conditions set forth in Article IV hereof and
applicable to the Closing shall have been fulfilled or waived in
accordance herewith, or (ii) at such other time and place or on
such date as the Purchasers and the Company may agree upon (the "
Closing Date "). Subject to the terms and conditions
of this Agreement, at the Closing the Company shall deliver or
cause to be delivered to each Purchaser (x) its Notes for the
principal amount set forth opposite the name of such Purchaser on
Exhibit A hereto, (y) its Warrants to purchase such number
of shares of Common Stock as is set forth opposite the name of such
Purchaser on Exhibit A attached hereto and (z) any other
documents required to be delivered pursuant to Article IV hereof.
At the Closing, each Purchaser shall deliver its Purchase
Price by wire transfer to an account designated by the Company
and/or by surrender of shares of Common Stock.
Section 1.3
Conversion Shares / Warrant
Shares . Upon the
increase in authorized shares of Common Stock as contemplated by
Section 3.21 below, the Company will authorize and will reserve and
thereafter covenants to continue to reserve, free of preemptive
rights and other similar contractual rights of stockholders, a
number of its authorized but unissued shares of Common Stock equal
to at least one hundred percent (100%) of the aggregate number of
shares of Common Stock to effect the conversion of the Notes and
exercise of the Warrants as of, on and after the Closing Date in
accordance with the terms of such instruments. Any shares of Common
Stock issuable upon conversion of the Notes are herein referred to
as the “ Conversion Shares ”. Any shares
of Common Stock issuable upon exercise of the Warrants (and such
shares when issued) are herein referred to as the " Warrant
Shares ". The Notes, the Warrants, the Conversion Shares
and the Warrant Shares are sometimes collectively referred to
herein as the " Securities ".
2
ARTICLE
II
REPRESENTATIONS AND WARRANTIES
Section 2.1
Representations and Warranties of the
Company . The Company
hereby represents and warrants to the Purchasers, as of the date
hereof and the Closing Date (except as set forth on the Schedule of
Exceptions attached hereto with each numbered Schedule
corresponding to the section number herein), as follows:
(a)
Organization, Good Standing and
Power . The Company is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has the
requisite corporate power to own, lease and operate its properties
and assets and to conduct its business as it is now being
conducted. The Company does not have any Subsidiaries (as
defined in Section 2.1(g)) or own securities of any kind in any
other entity except as set forth on Schedule 2.1(g) hereto.
The Company and each such Subsidiary (as defined in Section
2.1(g)) is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature
of the business conducted or property owned by it makes such
qualification necessary except for any jurisdiction(s) (alone or in
the aggregate) in which the failure to be so qualified will not
have a Material Adverse Effect. For the purposes of this
Agreement, " Material Adverse Effect " means any material
adverse effect on the business, operations, properties, prospects,
or financial condition of the Company and its Subsidiaries and/or
any condition, circumstance, or situation that would prohibit or
otherwise materially interfere with the ability of the Company to
perform any of its obligations under this Agreement in any material
respect.
(b)
Authorization;
Enforcement . The
Company has the requisite corporate power and authority to enter
into and perform its obligations under this Agreement, the Notes,
the Warrants, the Registration Rights Agreement by and among the
Company and the Purchasers, dated as of the date hereof,
substantially in the form of Exhibit D attached hereto (the
“ Registration Rights Agreement ”), the Security
Agreement by and among the Company and its wholly owned
Subsidiaries, on the one hand, and the Purchasers, on the other
hand, dated as of the date hereof, substantially in the form of
Exhibit E attached hereto (the “ Security
Agreement ”), the Escrow Agreement by and among the
Company, Midtown Partners & Co., LLC (the “Placement
Agent”) and Signature Bank (the “Escrow Agent”),
dated October 12, 2006, substantially in the form of Exhibit
F attached hereto (the “ Escrow Agreement
”), the document escrow agreement (the “ Document
Escrow Agreement ”) by and among the Company, the
Purchasers, the Placement Agent and Richardson & Patel LLP (the
“Document Escrow Agent”) as of the date hereof,
substantially in the form of Exhibit G attached hereto, and
the Irrevocable Transfer Agent Instructions (as defined in Section
3.16 hereof) (collectively, the " Transaction Documents ")
and to issue and sell the Securities in accordance with the terms
hereof, save and except that the Company lacks sufficient
authorized and unissued shares of its capital stock to permit
conversion of the Notes and/or exercise of the Warrants. The
execution, delivery and performance of the Transaction Documents by
the Company and the consummation by it of the transactions
contemplated thereby have been duly and validly authorized by all
necessary corporate action, and, except as set forth on Schedule
2.1(b) , no further consent or
3
authorization of the Company, its Board
of Directors or stockholders is required. When executed and
delivered by the Company, each of the Transaction Documents shall
constitute a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by applicable
bankruptcy, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor's rights and
remedies or by other equitable principles of general
application.
(c)
Capitalization . The authorized capital stock and the issued
and outstanding shares of capital stock of the Company as of the
date hereof is set forth on Schedule 2.1(c) hereto.
All of the outstanding shares of the Common Stock and any
other outstanding security of the Company have been duly and
validly authorized. Except as set forth in this Agreement,
the Commission Documents (as defined in Section 2.1(f)) or as set
forth on Schedule 2.1(c) hereto, no shares of Common Stock
or any other security of the Company are entitled to preemptive
rights or registration rights and there are no outstanding options,
warrants, scrip, rights to subscribe to, call or commitments of any
character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company.
Furthermore, except as set forth in this Agreement and as set
forth on Schedule 2.1(c) hereto, there are no contracts,
commitments, understandings, or arrangements by which the Company
is or may become bound to issue additional shares of the capital
stock of the Company or options, securities or rights convertible
into shares of capital stock of the Company. Except for
customary transfer restrictions contained in agreements entered
into by the Company in order to sell restricted securities or as
provided on Schedule 2.1(c) hereto, the Company is not a
party to or bound by any agreement or understanding granting
registration or anti-dilution rights to any person with respect to
any of its equity or debt securities. Except as set forth on
Schedule 2.1(c) , the Company is not a party to, and it has
no knowledge of, any agreement or understanding restricting the
voting or transfer of any shares of the capital stock of the
Company. For purpose of this Agreement, the term
“knowledge” of the Company shall mean the knowledge of
Keith Moore after due inquiry.
(d)
Issuance of Securities
. The Notes and the Warrants to be
issued at the Closing have been duly authorized by all necessary
corporate action. When the Conversion Shares and Warrant
Shares are issued and paid for in accordance with the terms of this
Agreement and as set forth in the Notes and Warrants, such shares
will be duly authorized by all necessary corporate action and
validly issued and outstanding, fully paid and nonassessable, free
and clear of all liens, encumbrances and rights of refusal of any
kind, subject only to the limitation that the Company lacks
sufficient authorized and unissued shares of its capital stock to
permit conversion of the Notes and/or exercise of the Warrants.
(e)
No Conflicts . Subject to the informed written consent of
The Laurus Master Fund Ltd. and the Purchaser’s waiver of any
default under the transaction documents from May 2006, the
execution, delivery and performance of the Transaction Documents by
the Company, the performance by the Company of its obligations
under the Notes and the consummation by the Company of the
transactions contemplated hereby and thereby, (including the
issuance of the Securities as contemplated hereby) do not and will
not (i) violate or conflict with any provision of the Company's
Certificate of Incorporation (the “ Certificate
”) or Bylaws (the “ Bylaws ”), each as
amended to date, or any Subsidiary's comparable charter documents,
(ii)
4
conflict with, or constitute a default
(or an event which with notice or lapse of time or both would
become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any
agreement, mortgage, deed of trust, indenture, note, bond, license,
lease agreement, instrument or obligation to which the Company or
any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries' respective properties or assets are bound, or
(iii) result in a violation of any federal, state, local or foreign
statute, rule, regulation, order, judgment or decree (including
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 are bound or
affected, except, with respect to clauses (ii) and (iii) above for
such conflicts, defaults, terminations, amendments, acceleration,
cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect (excluding with respect
to federal and state securities laws)). Neither the Company
nor any of its Subsidiaries is required under federal, state,
foreign or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with,
any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under the Transaction
Documents or issue and sell the Securities in accordance with the
terms hereof (other than any filings, consents and approvals which
may be required to be made by the Company under applicable state
and federal securities laws, rules or regulations or any
registration provisions provided in the Registration Rights
Agreement).
(f)
Commission Documents, Financial
Statements . The Common
Stock of the Company is registered pursuant to Section 12(b) or
12(g) of the Securities Exchange Act of 1934, as amended (the "
Exchange Act "), and the Company has filed all reports,
schedules, forms, statements and other documents required to be
filed by it with the Commission pursuant to the reporting
requirements of the Exchange Act (all of the foregoing including
filings incorporated by reference therein being referred to herein
as the " Commission Documents "). At the times of
their respective filings, the Form 10-QSB for the fiscal quarters
ended March 31, 2006 and June 30, 2006 (collectively, the "
Form 10-QSB ") and the Form 10-KSB and 10-KSB/A for the
fiscal year ended December 31, 2005 (collectively the “
Form 10-KSB ”) complied in all material respects with
the requirements of the Exchange Act and the rules and regulations
of the Commission promulgated thereunder, and the Form 10-QSB and
Form 10-KSB did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As
of their respective dates, the financial statements of the Company
included in the Commission Documents complied as to form in all
material respects with applicable accounting requirements and the
published rules and regulations of the Commission. Such
financial statements have been prepared in accordance with
generally accepted accounting principles (" GAAP ") applied
on a consistent basis during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the
notes thereto or (ii) 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 financial position of the Company and its Subsidiaries as of
the dates thereof and the results of operations and cash flows for
the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
(g)
Subsidiaries . Schedule 2.1(g) hereto sets forth each
Subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the
5
percentage of each person's ownership of
the outstanding stock or other interests of such Subsidiary.
For the purposes of this Agreement, " Subsidiary "
shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having
ordinary voting power (absolutely or contingently) for the election
of directors or other persons performing similar functions are at
the time owned directly or indirectly by the Company and/or any of
its other Subsidiaries. All of the outstanding shares of
capital stock of each Subsidiary have been duly authorized and
validly issued, and are fully paid and nonassessable. Except
as set forth on Schedule 2.1(g) hereto, there are no
outstanding preemptive, conversion or other rights, options,
warrants or agreements granted or issued by or binding upon any
Subsidiary for the purchase or acquisition of any shares of capital
stock of any Subsidiary or any other securities convertible into,
exchangeable for or evidencing the rights to subscribe for any
shares of such capital stock. Neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise)
to repurchase or otherwise acquire or retire any shares of the
capital stock of any Subsidiary or any convertible securities,
rights, warrants or options of the type described in the preceding
sentence except as set forth on Schedule 2.1(g) hereto.
Neither the Company nor any Subsidiary is party to, nor has
any knowledge of, any agreement restricting the voting or transfer
of any shares of the capital stock of any Subsidiary.
(h)
No Material Adverse Change
. Since June 30, 2006, the Company
has not experienced or suffered any Material Adverse Effect, except
as disclosed on Schedule 2.1(h) hereto and as disclosed in
its Commission Documents.
(i)
No Undisclosed Liabilities
. Except as disclosed on
Schedule 2.1(i) hereto or in the Commission Documents,
neither the Company nor any of its Subsidiaries has incurred any
liabilities, obligations, claims or losses (whether liquidated or
unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) other than those incurred in the ordinary course of
the Company's or its Subsidiaries respective businesses or which,
individually or in the aggregate, are not reasonably likely to have
a Material Adverse Effect.
(j)
No Undisclosed Events or
Circumstances . Since
June 30, 2006, except as disclosed on Schedule 2.1(j) hereto
or in the Commission Documents, to the knowledge of the Company, no
event or circumstance has occurred or exists with respect to the
Company or its Subsidiaries or their respective businesses,
properties, prospects, operations or financial condition, which,
under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so
publicly announced or disclosed.
(k)
Indebtedness . Schedule 2.1(k) hereto sets forth as
of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or Indebtedness for
which the Company or any Subsidiary has commitments. For the
purposes of this Agreement, “Indebtedness” shall mean
(a) any liabilities for borrowed money from Laurus Master Fund Ltd.
or amounts owed in excess of $100,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all
guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or
should be reflected in the Company’s balance sheet (or the
notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in
the ordinary course of business; and (c) the present value of any
lease payments in excess of $25,000
6
due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor
any Subsidiary is in default with respect to any
Indebtedness.
(l)
Title to Assets
. Each of the Company and the
Subsidiaries has good and valid title to all of its real and
personal property reflected in the Commission Documents, free and
clear of any mortgages, pledges, charges, liens, security interests
or other encumbrances, except for those indicated on Schedule
2.1(l) hereto or such that, individually or in the aggregate,
do not cause a Material Adverse Effect. Any leases of the
Company and each of its Subsidiaries are valid and subsisting and
in full force and effect.
(m)
Actions Pending
. There is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding
or other proceeding pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary which questions
the validity of this Agreement or any of the other Transaction
Documents or any of the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto.
Except as set forth in the Commission Documents or on
Schedule 2.1(m) hereto, there is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding
or other proceeding pending or, to the knowledge of the Company,
threatened against or involving the Company, any Subsidiary or any
of their respective properties or assets, which individually or in
the aggregate, would reasonably be expected, if adversely
determined, to have a Material Adverse Effect. There are no
outstanding orders, judgments, injunctions, awards or decrees of
any court, arbitrator or governmental or regulatory body against
the Company or any Subsidiary or any officers or directors of the
Company or Subsidiary in their capacities as such, which
individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect.
(n)
Compliance with Law
. The business of the Company and
the Subsidiaries has been and is presently being conducted in
accordance with all applicable federal, state and local
governmental laws, rules, regulations and ordinances, except as set
forth in the Commission Documents or on Schedule 2.1(n)
hereto or such that, individually or in the aggregate, the
noncompliance therewith could not reasonably be expected to have a
Material Adverse Effect. The Company and each of its
Subsidiaries have all franchises, permits, licenses, consents and
other governmental or regulatory authorizations and approvals
necessary for the conduct of its business as now being conducted by
it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory
authorizations and approvals, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse
Effect.
(o)
Taxes . The Company and each of the Subsidiaries has
accurately prepared and filed all federal, state and other tax
returns required by law to be filed by it, has paid or made
provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are
reflected in the financial statements of the Company and the
Subsidiaries for all current taxes and other charges to which the
Company or any Subsidiary is subject and which are not currently
due and payable. Except as disclosed on Schedule
2.1(o) hereto or in the Commission Documents, none of the
federal income tax returns of the Company or any Subsidiary have
been audited by the Internal Revenue Service. The Company has
no knowledge of any additional assessments, adjustments or
contingent tax liability (whether federal
7
or state) of any nature whatsoever,
whether pending or threatened against the Company or any Subsidiary
for any period, nor of any basis for any such assessment,
adjustment or contingency.
(p)
Certain Fees . Except as set forth on Schedule 2.1(p)
hereto, the Company has not employed any broker or finder or
incurred any liability for any brokerage or investment banking
fees, commissions, finders' structuring fees, financial advisory
fees or other similar fees in connection with the Transaction
Documents.
(q)
Disclosure . Except for the transactions contemplated by
this Agreement, the Company confirms that neither it nor any other
person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that constitutes or
might constitute material, nonpublic information. To the
Company's knowledge, neither the representations and warranties
contained in Section 2.1 of this Agreement or the Schedules
hereto nor any other documents, certificates or instruments
furnished to the Purchasers by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by this
Agreement contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements
made herein or therein, in the light of the circumstances under
which they were made herein or therein, not misleading.
(r)
Operation of Business
. Except as set forth on
Schedule 2.1(r) hereto, to the knowledge of the Company, the
Company and each of the Subsidiaries owns or possesses the rights
to all patents, trademarks, domain names (whether or not
registered) and any patentable improvements or copyrightable
derivative works thereof, websites and intellectual property rights
relating thereto, service marks, trade names, copyrights, licenses
and authorizations which are necessary for the conduct of its
business as now conducted without any conflict with the rights of
others.
(s)
Environmental Compliance
. Except as set forth on
Schedule 2.1(s) hereto or in the Commission Documents, the
Company and each of its Subsidiaries have obtained all material
approvals, authorization, certificates, consents, licenses, orders
and permits or other similar authorizations of all governmental
authorities, or from any other person, that are required under any
Environmental Laws. “Environmental Laws”
shall mean all applicable laws relating to the protection of the
environment including, without limitation, all requirements
pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or
threatened releases of hazardous substances, chemical substances,
pollutants, contaminants or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface
water, groundwater or land, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances,
pollutants, contaminants or toxic substances, material or wastes,
whether solid, liquid or gaseous in nature. To the
Company’s knowledge, the Company has all necessary
governmental approvals required under all Environmental Laws as
necessary for the Company’s business or the business of any
of its subsidiaries. Except for such instances as would not
individually or in the aggregate have a Material Adverse Effect and
to the knowledge of the Company, there are no past or present
events, conditions, circumstances, incidents, actions or omissions
relating to or in any way affecting the Company or its Subsidiaries
that violate or may violate any Environmental Law after the Closing
Date or that may give rise to any environmental liability, or
otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing,
8
study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including
without limitation underground storage tanks), disposal, transport
or handling, or the emission, discharge, release or threatened
release of any hazardous substance.
(t)
Books and Records; Internal Accounting
Controls . The records
and documents of the Company and its Subsidiaries accurately
reflect in all material respects the information relating to the
business of the Company and the Subsidiaries, the location of their
assets, and the nature of all transactions giving rise to the
obligations or accounts receivable of the Company or any
Subsidiary. Except as set forth on Schedule 2.1(t)
hereto or as disclosed in the Commission Documents, the Company and
each of its Subsidiaries maintain a system of internal accounting
controls sufficient, in the judgment of the Company's board of
directors, to provide reasonable assurance that (i) transactions
are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate actions are
taken with respect to any differences.
(u)
Material Agreements
. Except for the Transaction
Documents, as disclosed in the Commission Documents or as set forth
on Schedule 2.1(u) hereto (i) the Company and each of its
Subsidiaries have performed all obligations required to be
performed by them to date under any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement,
filed or required to be filed with the Commission (the "
Material Agreements "), (ii) neither the Company nor any of
its Subsidiaries has received any notice of default under any
Material Agreement and, (iii) to the Company's knowledge, neither
the Company nor any of its Subsidiaries is in default under any
Material Agreement now in effect.
(v)
Transactions with
Affiliates . Except as
set forth on Schedule 2.1(v) hereto or as disclosed in the
Commission Documents, there are no loans, leases, agreements,
contracts, royalty agreements, management contracts or arrangements
or other continuing transactions between (a) the Company, any
Subsidiary or any of their respective customers or suppliers on the
one hand, and (b) on the other hand, any officer, employee,
consultant or director of the Company, or any of its Subsidiaries,
or any person owning at least 5% of the outstanding capital stock
of the Company or any Subsidiary or any member of the immediate
family of such officer, employee, consultant, director or
stockholder or any corporation or other entity controlled by such
officer, employee, consultant, director or stockholder, or a member
of the immediate family of such officer, employee, consultant,
director or stockholder which, in each case, is required to be
disclosed in the Commission Documents or in the Company’s
most recently filed definitive proxy statement on Schedule 14A,
that is not so disclosed in the Commission Documents or in such
proxy statement.
(w)
Securities Act of 1933
. Based in material part upon the
representations herein of the Purchasers, the Company has complied
and will comply with all applicable federal and state securities
laws in connection with the offer, issuance and sale of the
Securities hereunder. Neither the Company nor anyone acting
on its behalf, directly or indirectly, has or
9
will sell, offer to sell or solicit
offers to buy any of the Securities or similar securities to, or
solicit offers with respect thereto from, or enter into any
negotiations relating thereto with, any person, or has taken or
will take any action so as to bring the issuance and sale of any of
the Securities under the registration provisions of the Securities
Act and applicable state securities laws. Neither the Company
nor any of its affiliates, nor any person acting on its or their
behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the
Securities Act) in connection with the offer or sale of any of the
Securities.
(x)
Employees . Neither the Company nor any Subsidiary has
any collective bargaining arrangements or agreements covering any
of its employees, except as set forth on Schedule 2.1(x)
hereto. Except as set forth on Schedule 2.1(x) hereto,
neither the Company nor any Subsidiary has any employment contract,
agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement,
or any other similar contract or restrictive covenant, relating to
the right of any officer, employee or consultant to be employed or
engaged by the Company or such Subsidiary required to be disclosed
in the Commission Documents that is not so disclosed. Except
as set forth on Schedule 2.1(x) hereto, no officer,
consultant or key employee of the Company or any Subsidiary whose
termination, either individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect, has terminated
or, to the knowledge of the Company, has any present intention of
terminating his or her employment or engagement with the Company or
any Subsidiary.
(y)
Absence of Certain
Developments . Except as
set forth in the Commission Documents or provided on Schedule
2.1(y) hereto, since June 30, 2006, neither the Company nor any
Subsidiary has:
(i)
issued any stock, bonds or other
corporate securities or any right, options or warrants with respect
thereto;
(ii)
borrowed any amount in excess of $100,000
or incurred or become subject to any other liabilities in excess of
$100,000 (absolute or contingent) except current liabilities
incurred in the ordinary course of business which are comparable in
nature and amount to the current liabilities incurred in the
ordinary course of business during the comparable portion of its
prior fiscal year, as adjusted to reflect the current nature and
volume of the business of the Company and its
Subsidiaries;
(iii)
discharged or satisfied any lien or
encumbrance in excess of $100,000 or paid any obligation or
liability (absolute or contingent) in excess of $100,000, other
than current liabilities paid in the ordinary course of
business;
(iv)
declared or made any payment or
distribution of cash or other property to stockholders with respect
to its stock, or purchased or redeemed, or made any agreements so
to purchase or redeem, any shares of its capital stock, in each
case in excess of $50,000 individually or $100,000 in the
aggregate;
10
(v)
sold, assigned or transferred any other
tangible assets, or canceled any debts or claims, in each case in
excess of $100,000, except in the ordinary course of
business;
(vi)
sold, assigned or transferred any patent
rights, trademarks, trade names, copyrights, trade secrets or other
intangible assets or intellectual property rights in excess of
$100,000, or disclosed any proprietary confidential information to
any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;
(vii)
suffered any material losses or waived
any rights of material value, whether or not in the ordinary course
of business, or suffered the loss of any material amount of
prospective business;
(viii)
made any changes in employee compensation
except in the ordinary course of business and consistent with past
practices;
(ix)
made capital expenditures or commitments
therefor that aggregate in excess of $100,000;
(x)
entered into any material transaction,
whether or not in the ordinary course of business which has not
been disclosed in the Commission Documents;
(xi)
made charitable contributions or pledges
in excess of $10,000;
(xii)
suffered any material damage, destruction
or casualty loss, whether or not covered by insurance;
(xiii)
experienced any material problems with
labor or management in connection with the terms and conditions of
their employment; or
(xiv)
entered into an agreement, written or
otherwise, to take any of the foregoing actions.
(z)
Public Utility Holding Company Act and
Investment Company Act Status . The Company is not a “holding
company” or a “public utility company” as such
terms are defined in the Public Utility Holding Company Act of
1935, as amended. The Company is not, and as a result of and
immediately upon the Closing will not be, an “investment
company” or a company “controlled” by an
“investment company,” within the meaning of the
Investment Company Act of 1940, as amended.
(aa)
ERISA . No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan (as defined
below) by the Company or any of its Subsidiaries which is or would
be materially adverse to the Company and its Subsidiaries.
The execution and delivery of this Agreement and the issuance
and sale of the Securities will not involve any transaction which
is subject to the prohibitions of Section 406 of the Employee
Retirement Income Security Act of 1974, as amended
(“ERISA”) or in connection with which a
11
tax could be imposed pursuant to Section
4975 of the Internal Revenue Code of 1986, as amended, provided
that, if any of the Purchasers, or any person or entity that owns a
beneficial interest in any of the Purchasers, is an “employee
pension benefit plan” (within the meaning of Section 3(2) of
ERISA) with respect to which the Company is a “party in
interest” (within the meaning of Section 3(14) of ERISA), the
requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(aa), the
term “Plan” shall mean an “employee pension
benefit plan” (as defined in Section 3 of ERISA) which is or
has been established or maintained, or to which contributions are
or have been made, by the Company or any Subsidiary or by any trade
or business, whether or not incorporated, which, together with the
Company or any Subsidiary, is under common control, as described in
Section 414(b) or (c) of the Code.
(bb)
Independent Nature of
Purchasers . The Company
acknowledges that the obligations of each Purchaser under the
Transaction Documents are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of
any other Purchaser under the Transaction Documents. The
Company acknowledges that the decision of each Purchaser to
purchase Securities pursuant to this Agreement has been made by
such Purchaser independently of any other Purchaser and
independently of any information, materials, statements or opinions
as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of its Subsidiaries which
may have made or given by any other Purchaser or by any agent or
employee of any other Purchaser, and no Purchaser or any of its
agents or employees shall have any liability to any Purchaser (or
any other person) relating to or arising from any such information,
materials, statements or opinions. The Company acknowledges
that nothing contained herein, or in any Transaction Document, and
no action taken by any Purchaser pursuant hereto or thereto, shall
be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create
a presumption that the Purchasers are in any way acting in concert
or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. The Company
acknowledges that for reasons of administrative convenience only,
the Transaction Documents have been prepared by counsel for the
placement agent and such counsel does not represent the
Purchasers. The Company acknowledges that it has elected to
provide all Purchasers with the same terms and Transaction
Documents for the convenience of the Company and not because it was
required or requested to do so by the Purchasers and the Purchasers
have retained their own counsel with respect to the transactions
contemplated hereby. The Company acknowledges that such
procedure with respect to the Transaction Documents in no way
creates a presumption that the Purchasers are in any way acting in
concert or as a group with respect to the Transaction Documents or
the transactions contemplated hereby or thereby.
(cc)
No Integrated Offering
. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or
solicited any offers to buy any security under circumstances that
would cause the offering of the Securities pursuant to this
Agreement to be integrated with prior offerings by the Company for
purposes of the Securities Act in a manner that would prevent the
Company from selling the Securities pursuant to Regulation D and
Rule 506 thereof under the Securities Act, nor will the Company or
any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with
other offerings. The Company does not
12
have any registration statement pending
before the Commission or currently under the Commission’s
review. Except as set forth on Schedule 2.1(cc)
hereto, since May 23, 2006, the Company has not offered or sold any
of its equity securities or debt securities convertible into shares
of Common Stock.
(dd)
Sarbanes-Oxley Act
. The Company is in compliance with
the applicable provisions of the Sarbanes-Oxley Act of 2002 (the
“ Sarbanes-Oxley Act ”), and the rules and
regulations promulgated thereunder, that are effective and
presently applicable to the Company and intends to comply with
other applicable provisions of the Sarbanes-Oxley Act, and the
rules and regulations promulgated thereunder, upon the
effectiveness and applicability of such provisions with respect to
the Company.
(ee)
Dilutive Effect
. The Company understands and
acknowledges that its obligation to issue Conversion Shares upon
conversion of the Notes in accordance with this Agreement and the
Notes and its obligations to issue the Warrant Shares upon the
exercise of the Warrants in accordance with this Agreement and the
Warrants, is, in each case, absolute and unconditional regardless
of the dilutive effect that such issuance may have on the ownership
interest of other stockholders of the Company.
(ff)
DTC Status . The Company’s current transfer agent is
a participant in and the Common Stock is eligible for transfer
pursuant to the Depository Trust Company Automated Securities
Transfer Program. The name, address, telephone number, fax
number, contact person and email address of the Company’s
transfer agent is set forth on Schedule 2.1(ff)
hereto.
Section 2.2
Representations and Warranties of the
Purchasers . Each of the
Purchasers hereby represents and warrants to the Company with
respect solely to itself and not with respect to any other
Purchaser as follows as of the date hereof and as of the Closing
Date:
(a)
Organization and Standing of the
Purchasers . If the
Purchaser is an entity, such Purchaser is a corporation, limited
liability company or partnership duly incorporated or organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization.
(b)
Authorization and Power
. Each Purchaser has the requisite
power and authority to enter into and perform its obligations under
the Transaction Documents and to purchase the Securities being sold
to it hereunder. The execution, delivery and performance of
the Transaction Documents by each Purchaser and the consummation by
it of the transactions contemplated hereby have been duly
authorized by all necessary corporate or partnership action, and no
further consent or authorization of such Purchaser or its Board of
Directors, stockholders, or partners, as the case may be, is
required. When executed and delivered by the Purchasers, the
other Transaction Documents shall constitute valid and binding
obligations of each Purchaser enforceable against such Purchaser in
accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation, conservatorship, receivership or similar
laws relating to, or affecting generally the enforcement of,
creditor's rights and remedies or by other equitable principles of
general application.
13
(c)
No Conflict . The execution, delivery and performance of
the Transaction Documents by the Purchaser and the consummation by
the Purchaser of the transactions contemplated thereby and hereby
do not and will not (i) violate any provision of the
Purchaser’s charter or organizational documents, (ii)
conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration
or cancellation of, any agreement, mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or
obligation to which the Purchaser is a party or by which the
Purchaser’s respective properties or assets are bound, or
(iii) result in a violation of any federal, state, local or foreign
statute, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations) applicable to
the Purchaser or by which any property or asset of the Purchaser
are bound or affected, except, in all cases, other than violations
pursuant to clauses (i) or (iii) (with respect to federal and state
securities laws) above, except, for such conflicts, defaults,
terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate,
materially and adversely affect the Purchaser’s ability to
perform its obligations under the Transaction Documents.
(d)
Acquisition for Investment
. Each Purchaser is purchasing the
Securities solely for its own account and not with a view to, or
for sale in connection with, public sale or distribution thereof.
Each Purchaser does not have a present intention to sell any
of the Securities, nor a present arrangement (whether or not
legally binding) or intention to effect any distribution of any of
the Securities to or through any person or entity; provided
, however , that by making the representations herein, such
Purchaser does not agree to hold the Securities for any minimum or
other specific term and reserves the right to dispose of the
Securities at any time in accordance with Federal and state
securities laws applicable to such disposition. Each
Purchaser acknowledges that it (i) has such knowledge and
experience in financial and business matters such that Purchaser is
capable of evaluating the merits and risks of Purchaser's
investment in the Company, (ii) is able to bear the financial risks
associated with an investment in the Securities and (iii) has been
given full access to such records of the Company and the
Subsidiaries and to the officers of the Company and the
Subsidiaries as it has deemed necessary or appropriate to conduct
its due diligence investigation.
(e)
Rule 144 . Each Purchaser understands that the
Securities
