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NOTE AND WARRANT PURCHASE
AGREEMENT
Dated as of November 30, 2006
by and among
REMOTE DYNAMICS, INC.
and
THE PURCHASERS LISTED ON EXHIBIT A
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TABLE OF CONTENTS
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Page
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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
Closings.........................................................2
Section 1.3 Conversion Shares / Warrant
Shares..................................................2
Section 1.4 Exchange of Promissory
Notes........................................................2
Section 1.5 Share Exchange Transaction
.........................................................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...................................14
ARTICLE III
Covenants....................................................................................16
Section 3.1 Securities
Compliance..............................................................16
Section 3.2 Registration and
Listing...........................................................16
Section 3.3 Inspection
Rights..................................................................17
Section 3.4 Compliance with
Laws...............................................................17
Section 3.5 Keeping of Records and Books of
Account............................................17
Section 3.6 Reporting
Requirements.............................................................17
Section 3.7 Other
Agreements...................................................................17
Section 3.8 Use of
Proceeds....................................................................17
Section 3.9
Distributions......................................................................16
Section 3.10 Disclosure of
Transaction..........................................................18
Section 3.11 Disclosure of Material
Information.................................................18
Section 3.12 Pledge of
Securities...............................................................18
Section 3.13
Amendments.........................................................................17
Section 3.14
Distributions......................................................................18
Section 3.15 Reservation of
Shares..............................................................19
Section 3.16 Transfer Agent
Instructions........................................................19
Section 3.17 Disposition of
Assets..............................................................20
Section 3.18 Acquisition of
Assets..............................................................20
Section 3.19 Share Increase; Reverse
Split......................................................18
Section 3.20 Subsequent
Financings..............................................................20
Section 3.21 D&O
Insurance......................................................................22
ARTICLE IV
Conditions...................................................................................22
Section 4.1 Conditions Precedent to the Obligation of the Company
to Close and
to Sell the
Securities.............................................................22
Section 4.2 Conditions Precedent to the Obligation of the
Purchasers to Close
and to Purchase the
Securities.....................................................22
ARTICLE V Certificate
Legend...........................................................................25
Section 5.1
Legend.............................................................................25
ARTICLE VI
Indemnification..............................................................................26
Section 6.1 General
Indemnity..................................................................26
Section 6.2 Indemnification
Procedure..........................................................26
ARTICLE VII
Miscellaneous................................................................................27
Section 7.1 Fees and
Expenses..................................................................27
Section 7.2 Specific Performance; Consent to Jurisdiction;
Venue...............................28
Section 7.3 Entire Agreement;
Amendment........................................................28
Section 7.4
Notices............................................................................29
Section 7.5
Waivers............................................................................30
Section 7.6
Headings...........................................................................30
Section 7.7 Successors and
Assigns.............................................................30
Section 7.8 No Third Party
Beneficiaries.......................................................30
Section 7.9 Governing
Law......................................................................30
Section 7.10
Survival...........................................................................30
Section 7.11
Counterparts.......................................................................30
Section 7.12
Publicity..........................................................................31
Section 7.13
Severability.......................................................................31
Section 7.14 Further
Assurances.................................................................31
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NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT dated as of November 30,
2006
(this "Agreement") by and among Remote Dynamics, Inc., a Delaware
corporation
(the "Company"), and each of the purchasers of the series B
subordinated 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, (i) series B
subordinated secured
convertible promissory notes in the aggregate principal amount of
up to Two
Million Dollars ($2,000,000), convertible into shares of the
Company's common
stock, par value $.01 per share (the "Common Stock"), in
substantially the form
attached hereto as Exhibit B-1 (the "Series B Notes"), and (ii)
original issue
discount series B subordinated secured convertible promissory notes
in the
aggregate principal amount equal to forty percent (40%) of
aggregate principal
amount of Notes, convertible into shares of Common Stock, in
substantially the
form attached hereto as Exhibit B-2 (the "OID Notes", together with
the Series B
Notes, the "Notes"). 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.
(b) Upon the following terms and conditions, each Purchaser shall
be
issued (i) Series E-7 Warrants, in substantially the form attached
hereto as
Exhibit C-1 (the "Series E-7 Warrants"), to purchase a number of
shares of
Common Stock equal to seventy-five percent (75%) of the number of
Conversion
Shares (as defined in Section 1.3 hereof) issuable upon conversion
of such
Purchaser's Series B Note on the date of issuance of such Note at
an exercise
price per share equal to $0.02 on the Closing Date (as defined in
Section 1.2
hereof) and a term of seven (7) years following the Closing Date
and (ii) Series
F-4 Warrants, in substantially the form attached hereto as Exhibit
C-2 (the
"Series F-4 Warrants" and, together with the E-7 Warrants, the
"Warrants"), to
purchase a number of shares of Common Stock equal to seventy-five
percent (75%)
of the number of Conversion Shares issuable upon conversion of such
Purchaser's
Series B Note on the date of issuance of such Note at an exercise
price per
share equal to $0.03 on the Closing Date and a term of four (4)
years following
the effective date of the Registration Statement (as defined in
Section 1.2
hereof). 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.
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Section 1.2 Purchase Price and Closings. 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 an
aggregate purchase price of up to Two Million Dollars ($2,000,000)
(the
"Purchase Price"). The Notes and Warrants shall be sold and funded
in four
separate closings (each, a "Closing" and collectively, the
"Closings"). The
initial Closing under this Agreement (the "Initial Closing") shall
be funded in
an amount equal to twenty-five percent (25%) of the aggregate
Purchase Price
hereunder and shall take place on or about December 4, 2006 (the
"Initial
Closing Date"). The second Closing under this Agreement (the
"Second Closing")
shall be funded in an amount equal to twenty-five percent (25%) of
the aggregate
Purchase Price hereunder and shall take place no later than five
(5) business
days following the date that the Company files the Proxy Statement
(as defined
in Section 3.19 hereof) with the Securities and Exchange Commission
(the
"Commission") (the "Second Closing Date"). The third Closing under
this
Agreement (the "Third Closing") shall be funded in an amount equal
to
twenty-five percent (25%) of the aggregate Purchase Price hereunder
and shall
take place no later than five (5) business days following the date
that the
Company's stockholders approve the Reverse Split (as defined in
Section 3.19
hereof) and the Share Increase (as defined in Section 3.19 hereof)
and the
Company files the Charter Amendment (as defined in Section 3.19
hereof)
effecting the Share Increase (the "Third Closing Date"). The final
Closing under
this Agreement (the "Final Closing") shall be funded in an amount
equal to
twenty-five percent (25%) of the aggregate Purchase Price hereunder
and shall
take place no later than five (5) business days following the date
that the
Commission declares the initial registration statement (the
"Registration
Statement") providing for the resale of the Conversion Shares and
the Warrant
Shares pursuant to the terms of the Registration Rights Agreement
(as defined in
Section 2.1(b)) effective (the "Final Closing Date"). The Initial
Closing Date,
the Second Closing Date, the Third Closing Date and the Final
Closing Date are
sometimes referred to in this Agreement as the "Closing Date". Each
Closing
under this Agreement shall take place at the offices of Kramer
Levin Naftalis &
Frankel LLP, 1177 Avenue of the Americas, New York, New York 10036
at 10:00 a.m.
New York time; provided, that all of the conditions set forth in
Article IV
hereof and applicable to such Closing shall have been fulfilled or
waived in
accordance herewith. Subject to the terms and conditions of this
Agreement, at
or prior to each 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 each Closing, each
Purchaser
shall deliver its Purchase Price by wire transfer to the escrow
account pursuant
to the Escrow Deposit Agreement (as hereafter defined).
Section 1.3 Conversion Shares / Warrant Shares. The Company has
authorized
and has reserved and covenants to continue to reserve, free of
preemptive rights
and other similar contractual rights of stockholders, a number of
shares of
Common Stock equal to the number of authorized shares of Common
Stock that are
not currently issued or reserved for issuance as of the date
hereof; provided,
however, upon the Company filing the Charter Amendment, the Company
shall
authorize and reserve and 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 one hundred fifty percent
(150%) of the
aggregate number of shares of Common Stock to effect the conversion
of the Notes
and exercise of the Warrants then outstanding. 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
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Section 1.4 Exchange of Promissory Notes. The Company and the
Purchasers
acknowledge and agree that prior to or at the Closing, the holders
of the
Company's Series A senior secured convertible promissory notes (the
"Series A
Notes") issued pursuant to the Note and Warrant Purchase Agreement
dated as of
February 23, 2006 shall surrender to the Company their Series A
Notes for
cancellation and upon the Closing, such Purchasers shall receive
Notes issued
hereunder in the principal amount set forth on Schedule 1.4
attached hereto. In
addition, the Company acknowledges and agrees that a portion of the
Purchase
Price to be delivered by HFS Capital Ltd. ("HFS") hereunder may be
paid by
exchanging the convertible promissory notes held by HFS for the
Notes issued
hereunder in the amounts set forth on Schedule 1.4 attached
hereto.
Section 1.5 Share Exchange Transaction. The parties acknowledge
that
simultaneously with the consummation of the transactions
contemplated by this
Agreement, the Company will be entering into a Share Exchange
Agreement, dated
as of the date hereof, with Bounce Mobile Systems, Inc., a Nevada
corporation
("Bounce"), whereby Bounce will issue to the Company 500,000 shares
of common
stock of BounceGPS, Inc., a Nevada corporation and wholly-owned
subsidiary of
Bounce, and the Company shall issue to Bounce in exchange for such
500,000
shares (a) 5,000 shares of the Company's series C convertible
preferred stock,
(b) series B subordinated secured convertible promissory notes in
substantially
the form of the Series B Notes in the aggregate principal amount of
$660,000,
(c) original issue discount series B subordinated secured
convertible promissory
notes in substantially the form of the OID Notes in the aggregate
principal
amount of $264,000, (d) series E-7 warrants in substantially the
form of the E-7
Warrants for a number of shares of Common Stock equal to
seventy-five percent
(75%) of the number of shares of Common Stock issuable upon
conversion of
Bounce's series B subordinated secured convertible promissory note
and (e)
series F-4 warrants in substantially the form of the F-4 Warrants
for a number
of shares of Common Stock equal to seventy-five percent (75%) of
the number of
shares of Common Stock issuable upon conversion of Bounce's series
B
subordinated secured convertible promissory note (the "Share
Exchange
Transaction").
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 each
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:
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(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 Deposit Agreement by and among
the Company,
the placement agent and the escrow agent named therein, dated as of
the date
hereof, substantially in the form of Exhibit F-1 attached hereto
(the "Escrow
Deposit Agreement"), the Securities Escrow Agreement by and among
the Company,
the placement agent and the escrow agent named therein, dated as of
the date
hereof, substantially in the form of Exhibit F-2 attached hereto
(the
"Securities Escrow Agreement" and together with the Escrow Deposit
Agreement,
the "Escrow Agreements"), 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. 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 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.
4
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(d) Issuance of Securities. The Notes and the Warrants to be issued
at the
Closing have been duly authorized by all necessary corporate action
and, when
paid for or issued in accordance with the terms hereof, the Notes
shall be
validly issued and outstanding, free and clear of all liens,
encumbrances and
rights of refusal of any kind. 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 and the holders shall be entitled to all rights
accorded to a holder
of Common Stock.
(e) No Conflicts. 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) 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).
5
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(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
timely 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-Q for the
fiscal quarters ended November 30, 2005 and February 28, 2006 and
the Form
10-QSB for the fiscal quarter ended May 31, 2006 (collectively, the
"Form 10-Q")
and the Form 10-K for the fiscal year ended August 31, 2005 (the
"Form 10-K")
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-Q and Form 10-K 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 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.
6
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(h) No Material Adverse Change. Since August 31, 2005, 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 August 31, 2005,
except
as disclosed on Schedule 2.1(j) hereto, 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 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 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.
7
<PAGE>
(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 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.
8
<PAGE>
(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, 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. 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.
9
<PAGE>
(u) Material Agreements. Except for the Transaction Documents
(with
respect to clause (i) only), as disclosed in the Commission
Documents or as set
forth on Schedule 2.1(u) hereto, or as would not be reasonably
likely to have a
Material Adverse Effect, (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 and 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
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.
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.
10
<PAGE>
(y) Absence of Certain Developments. Except as set forth in the
Commission
Documents or provided on Schedule 2.1(y) hereto, since August 31,
2005, 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;
(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;
11
<PAGE>
(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 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.
12
<PAGE>
(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
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