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Exhibit 99.1
Execution Copy
SECURITIES PURCHASE
AGREEMENT
SECURITIES PURCHASE AGREEMENT (this " Agreement
"), dated as of December 5, 2006, by and between ZAP, a California
corporation (the " Company "), and each of the
entities whose names appear on the signature pages hereof. Such
entities are each referred to herein as an "
Investor " and, collectively, as the "
Investors ".
A. The Company wishes to sell to each Investor, and each
Investor wishes to purchase, upon the terms and subject to the
conditions set forth in this Agreement, (i) a 8% Senior Convertible
Note in the form attached hereto as Exhibit A (a "
Note " and, collectively with the other Notes
issued hereunder, the " Notes ") and (ii) a warrant
in the form of Exhibit B hereto (a "
Warrant " and, collectively with the other warrants
issued hereunder, the " Warrants "). The Notes will
be convertible under certain conditions into shares of the
Company’s common stock, no par value (the " Common
Stock "). The shares of Common Stock into which the Notes
are convertible are referred to herein as the " Conversion
Shares " and the shares of Common Stock into which the
Warrants are exercisable are referred to herein as the "
Warrant Shares ". The Notes, the Conversion Shares,
the Warrants and the Warrant Shares are collectively referred to
herein as the " Securities ".
B. Each Warrant will (i) entitle an Investor to purchase a
number of Warrant Shares equal to thirty percent (30%) of the
number of Conversion Shares that would be issuable upon conversion
of the Note purchased by such Investor at the Closing (as defined
below), at the Conversion Price (as defined below) in effect on the
date of such Closing and without regard to any restrictions on such
conversion, (ii) have an exercise price equal to one dollar and ten
cents ($1.10), subject to adjustment as provided therein, and (iii)
expire on the fifth (5th) anniversary of the Closing Date.
C. The Company has agreed to effect the registration of the
Conversion Shares and the Warrant Shares for resale by the holders
thereof under the Securities Act of 1933, as amended (the "
Securities Act "), pursuant to a Registration
Rights Agreement in the form attached hereto as Exhibit
C (the " Registration Rights Agreement
").
D. The sale of the Notes and the Warrants by the Company to
the Investors will be effected in reliance upon the exemption from
securities registration afforded by the provisions of Regulation D
(" Regulation D "), as promulgated by the
Commission (as defined below) under the Securities Act.
In consideration of the mutual promises made herein, and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and each Investor hereby
agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
1.1 Closing . Upon the terms and subject to the
satisfaction or waiver of the conditions set forth herein, the
Company agrees to sell and each Investor agrees to purchase (i) a
Note (a " Note ") with a principal amount equal to
the amount set forth below such Investor’s name on the
signature pages hereof and (ii) a Warrant exercisable into the
number of shares of Common Stock set forth below such
Investor’s name on the signature pages hereof. The date on
which the closing of such purchase and sale occurs (the "
Closing ") is hereinafter referred to as the "
Closing Date ". The Closing will be deemed to occur
at the offices of Mazzeo Song LLP, 708 Third Avenue, 19
th Floor, New York, New York 10017
when (A) this Agreement and the other Transaction Documents (as
defined below) have been executed and delivered by the Company and
each Investor, (B) each of the conditions to the Closing described
in this Agreement has been satisfied or waived as specified therein
and (C) payment of each Investor’s Purchase Price (as defined
below) payable with respect to the Note and Warrant being purchased
by such Investor at the Closing has been made by wire transfer of
immediately available funds ( provided , that the
aggregate amount of the Purchase Price paid by all of the Investors
is not less than $1,500,000 and the total number of Investors is
not greater than six (6)). At the Closing, the Company shall
deliver to each Investor duly executed instruments representing the
Note and Warrant purchased by such Investor at the Closing.
1.2 Certain Definitions . When used herein, the
following terms shall have the respective meanings
indicated:
" Affiliate " means, as to any Person (the "
subject Person "), any other Person (a) that
directly or indirectly through one or more intermediaries controls
or is controlled by, or is under direct or indirect common control
with, the subject Person, (b) that directly or indirectly
beneficially owns or holds ten percent (10%) or more of any class
of voting equity of the subject Person, or (c) ten percent
(10%) or more of the voting equity of which is directly or
indirectly beneficially owned or held by the subject Person. For
the purposes of this definition, " control " when
used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, through
representation on such Person’s board of directors or other
management committee or group, by contract or otherwise.
" Board of Directors " means the Company’s
board of directors.
" Business Day " means any day other than a
Saturday, a Sunday or a day on which the Principal Market is closed
or on which banks in the City of New York are required or
authorized by law to be closed.
" Closing " and " Closing Date "
have the respective meanings specified in Section
1.1 of this Agreement.
" Commission " means the Securities and Exchange
Commission, and any successor regulatory agency.
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" Common Stock " has the meaning specified in
the recitals to this Agreement.
" Conversion Shares " has the meaning specified
in the recitals of this Agreement.
" Debt " means, as to any Person at any time:
(a) all indebtedness, liabilities and obligations of such Person
for borrowed money; (b) all indebtedness, liabilities and
obligations of such Person to pay the deferred purchase price of
Property or services, except trade accounts payable of such Person
arising in the ordinary course of business that are not past due by
more than 90 days; (c) all capital lease obligations of such
Person; (d) all Debt of others guaranteed by such Person; (e) all
indebtedness, liabilities and obligations secured by a Lien (other
than a Permitted Lien) existing on Property owned by such Person,
whether or not the indebtedness, liabilities or obligations secured
thereby have been assumed by such Person or are non-recourse to
such Person; (f) all reimbursement obligations of such Person
(whether contingent or otherwise) in respect of letters of credit,
bankers’ acceptances, surety or other bonds and similar
instruments; and (g) all liabilities and obligations of such Person
to redeem or retire shares of capital stock of such Person (other
than the Company’s obligation to redeem the Securities under
the circumstances specified therein).
" Disclosure Documents " means all SEC Documents
filed with the Commission at least five (5) Business Days prior to
the Execution Date.
" DTC " means The Depositary Trust Company (and
any successor entity).
" Effective Date " has the meaning specified in
the Registration Rights Agreement.
" Environmental Law " means any federal, state,
provincial, local or foreign law, statute, code or ordinance,
principle of common law, rule or regulation, as well as any Permit,
order, decree, judgment or injunction issued, promulgated, approved
or entered thereunder, relating to pollution or the protection,
cleanup or restoration of the environment or natural resources, or
to the public health or safety, or otherwise governing the
generation, use, handling, collection, treatment, storage,
transportation, recovery, recycling, discharge or disposal of
hazardous materials.
" ERISA " means the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder.
" Event of Default " has the meaning specified
in the Notes.
"Exchange" has the meaning specified in
Section 4.16 of this Agreement.
" Exchange Act " means the Securities Exchange
Act of 1934, as amended (or any successor act), and the rules and
regulations thereunder (or respective successors thereto).
"Exchange Closing Date," "Exchange Documents,"
"Exchange Election Notice," "Exchange Notice," and
"Exchange Securities" have the respective meanings
specified in Section 4.16 of this Agreement.
" Execution Date " means the date of this
Agreement.
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" GAAP " means generally accepted accounting
principles, applied on a consistent basis, as set forth in (i)
opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants, (ii) statements of the
Financial Accounting Standards Board and (iii) interpretations of
the Commission and the staff of the Commission. Accounting
principles are applied on a "consistent basis" when the accounting
principles applied in a current period are comparable in all
material respects to those accounting principles applied in a
preceding period.
" Governmental Authority " means any nation or
government, any state, provincial or political subdivision thereof
and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government, including, without limitation, any stock exchange,
securities market or self-regulatory organization.
" Governmental Requirement " means any law,
statute, code, ordinance, order, rule, regulation, judgment,
decree, injunction, franchise, license or other directive or
requirement of any federal, state, county, municipal, parish,
provincial or other Governmental Authority or any department,
commission, board, court, agency or any other instrumentality of
any of them.
" Intellectual Property " means any U.S. or
foreign patents, patent rights, patent applications, trademarks,
trade names, service marks, brand names, logos and other trade
designations (including unregistered names and marks), trademark
and service mark registrations and applications, copyrights and
copyright registrations and applications, inventions, invention
disclosures, protected formulae, formulations, processes, methods,
trade secrets, computer software, computer programs and source
codes, manufacturing research and similar technical information,
engineering know-how, customer and supplier information, assembly
and test data drawings or royalty rights.
" Investment Company Act " has the meaning
specified in Section 3.25 of this Agreement.
" Investor Party " has the meaning specified in
Section 4.10 of this Agreement.
" Key Employee " has the meaning specified in
Section 3.16 of this Agreement.
" Lien " means, with respect to any Property,
any mortgage, pledge, hypothecation, assignment, deposit
arrangement, security interest, tax lien, financing statement,
pledge, charge, or other lien, charge, easement, encumbrance,
preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever on or with respect to
such Property (including, without limitation, any conditional sale
or other title retention agreement having substantially the same
economic effect as any of the foregoing).
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" Material Adverse Effect " means an effect that
is material and adverse to (i) the consolidated business,
properties, assets, operations, results of operations, financial
condition, credit worthiness or prospects of the Company and the
Company Subsidiaries taken as a whole, (ii) the ability of the
Company to perform its obligations under this Agreement or the
other Transaction Documents or (iii) the rights and benefits to
which an Investor is entitled under this Agreement, the Notes and
the other Transaction Documents.
" Material Contracts " means, as to the Company
and the Company Subsidiaries, any agreement required pursuant to
Item 601 of Regulation S-B or Item 601 of Regulation S-K, as
applicable, promulgated under the Securities Act to be filed as an
exhibit to any report, schedule, registration statement or
definitive proxy statement filed or required to be filed by the
Company with the Commission under the Exchange Act or any rule or
regulation promulgated thereunder, and any and all amendments,
modifications, supplements, renewals or restatements thereof.
" NASD " means the National Association of
Securities Dealers, Inc.
" Obligations " means any and
all indebtedness, liabilities and obligations of the Company
to the Investor evidenced by and/or arising pursuant to this
Agreement to pay amounts due on the Notes or to make other cash
payments, now existing or hereafter arising, whether direct,
indirect, related, unrelated, fixed, contingent, liquidated,
unliquidated, joint, several or joint and several, including,
without limitation, the obligations of the Company to repay
principal of the Notes, to pay interest on the Notes (including,
without limitation, interest accruing after any bankruptcy,
insolvency, reorganization or other similar filing) and to pay all
fees, indemnities, costs and expenses (including attorneys’
fees) provided for in this Agreement or the Notes.
" Pension Plan " means an employee benefit plan
(as defined in ERISA) maintained by the Company for employees of
the Company or any of its Affiliates.
" Permitted Debt " means the following:
(a) the Notes;
(b) Debt outstanding on the Execution Date and disclosed on
Schedule 3.5 hereto;
(c) Subordinated Debt;
(d) Debt consisting of capitalized lease obligations and
purchase money indebtedness incurred in connection with acquisition
of capital assets and obligations under sale-leaseback or similar
arrangements provided in each case that such obligations are not
secured by Liens on any assets of the Company or its Subsidiaries
other than the assets so leased; and
(e) Debt obtained from banking or other financial
institutions engaged primarily in the business of lending
transactions, provided that (i) such Debt shall not be
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convertible into any capital stock or other equity securities of
the Company or its Subsidiaries, and (ii) no warrants or other
equity securities of the Company or any of its Subsidiaries shall
be issued in connection with obtaining such Debt.
" Permitted Liens " means each of the
following:
(a) Liens in existence on the Execution Date and disclosed
on Schedule 3.5 hereto;
(b) Liens on (and limited solely to) assets acquired
through purchase money indebtedness to secure such purchase money
indebtedness (and no other Debt);
(c) Liens to secure any Debt described in clause
(e) of the definition of " Permitted Debt
";
(d) encumbrances consisting of easements, rights-of-way,
zoning restrictions or other restrictions on the use of real
Property or imperfections to title that do not (individually or in
the aggregate) materially impair the ability of the Company or any
of its Subsidiaries to use such Property in its businesses, and
none of which is violated in any material respect by existing or
proposed structures or land use;
(e) Liens for taxes, assessments or other governmental
charges (including without limitation in connection with
workers’ compensation and unemployment insurance) that are
not delinquent or which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the Property subject to such
Liens, and for which adequate reserves (as determined in accordance
with GAAP) have been established;
(f) Liens of mechanics, materialmen, warehousemen,
carriers, landlords or other similar statutory Liens securing
obligations that are not yet due and are incurred in the ordinary
course of business or which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the Property subject to such
Liens, for which adequate reserves (as determined in accordance
with GAAP) have been established; and
(g) mortgages on real Property in existence on the
Execution Date and disclosed on Schedule 3.22
hereto, and any replacements thereof, securing amounts not greater
than the amounts secured thereby on the Execution Date.
" Person " means any individual, corporation,
trust, association, company, partnership, joint venture, limited
liability company, joint stock company, Governmental Authority or
other entity.
" Principal Market " means the principal
exchange, market or quotation system on which the Common Stock is
listed, traded or quoted.
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" Property " means property and/or assets of all
kinds, whether real, personal or mixed, tangible or intangible
(including, without limitation, all rights relating thereto).
" Pro Rata Share " means, with respect to an
Investor, the ratio determined by dividing (i) the principal amount
of the Note or Notes purchased hereunder by such Investor at the
Closing by (ii) the aggregate principal amount of the Notes
purchased hereunder by all of the Investors at the Closing.
" Purchase Price " means, with respect to
Securities purchased at the Closing, the original principal amount
of the Note purchased at the Closing.
" Registration Rights Agreement " has the
meaning specified in the recitals to this Agreement.
" Registration Statement " has the meaning
specified in the Registration Rights Agreement.
" Registrable Securities " has the meaning
specified in the Registration Rights Agreement.
" Regulation D " has the meaning specified in
the recitals to this Agreement.
" Reserved Amount " has the meaning specified in
Section 4.3 of this Agreement.
" Restricted Payment " means (a) any dividend or
other distribution (whether in cash, Property or obligations),
direct or indirect, on account of (or the setting apart of money
for a sinking or other analogous fund for the benefit of) any
shares of any class of capital stock of the Company or its
Subsidiaries now or hereafter outstanding, except a dividend
payable solely in shares of that class of stock to all of the
holders of that class; (b) any redemption, exchange, retirement,
sinking fund or similar payment, purchase or other acquisition for
value, direct or indirect, of any shares of any class of capital
stock of the Company or any of its Affiliates now or hereafter
outstanding, except the Securities; (c) any prepayment of
principal of, premium, if any, or interest on, or any redemption,
conversion, exchange, purchase, retirement, sinking fund or
defeasance of, any Debt (whether upon acceleration of such Debt or
otherwise) other than the Securities; and (d) any loan,
advance or payment to any officer, director or stockholder of the
Company or any of its Affiliates, exclusive of reasonable
compensation and reimbursements paid to officers or directors in
the ordinary course of business.
" Rule 144 " means Rule 144 under the Securities
Act or any successor provision.
" SEC Documents " means all reports, schedules,
registration statements and definitive proxy statements filed by
the Company with the Commission.
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" Securities " means the Notes, the Conversion
Shares, the Warrants and the Warrant Shares.
" Securities Act " has the meaning specified in
the recitals of this Agreement.
" Subordinated Debt " means Debt of the Company
which meets each of the following requirements: (a) such Debt
is wholly unsecured; (b) such Debt is contractually
subordinated, as to payment and liquidation, to the payment in full
of the Notes on such terms and pursuant to written agreements in
such form and substance as are reasonably acceptable to the holders
of a majority in principal amount of the Notes, that restrict the
Company from pre-paying any amounts in respect of the principal of
such Debt (upon acceleration or otherwise) prior to the scheduled
maturity thereof, and that restrict the subordinated creditor from
commencing any judicial or other collection efforts or exercising
any other remedies prior to the date that is ninety-one (91) days
following the payment in full of the Notes; and (c) such Debt does
not mature prior to the date that is ninety-one (91) days following
the latest Maturity Date (as defined in the Notes) of the Notes
then outstanding.
"Subsequent Placement " means any issuance, sale
or exchange by the Company or any Subsidiary of the Company at any
time after the Closing Date, or any agreement or obligation of the
Company or any Subsidiary of the Company to issue, sell or
exchange, at any time after the Closing Date, (i) any shares of
common stock of the Company or any Subsidiary of the Company, (ii)
any other equity security of the Company or any Subsidiary of the
Company, including without limitation preferred stock, (iii) any
other security of the Company or any Subsidiary of the Company
which by its terms is convertible into or exchangeable or
exercisable for any equity security of the Company or any
Subsidiary of the Company, (iv) any option, warrant or other right
to subscribe for, purchase or otherwise acquire any such security
described in the foregoing clauses (i) through
(iii) , or (v) any debt instruments or securities,
including promissory notes and convertible debt instruments;
provided, however , that the term " Subsequent
Placement " shall not be deemed to include any issuance,
sale or exchange of Excluded Securities (as defined in the
Notes).
" Subsidiary " means, with respect to any
Person, any corporation or other entity of which at least a
majority of the outstanding shares of stock or other ownership
interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors (or Persons performing
similar functions) of such corporation or entity (regardless of
whether or not at the time, in the case of a corporation, stock of
any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency) is
at the time directly or indirectly owned or controlled by such
Person or one or more of its Subsidiaries or by such Person and one
or more of its Subsidiaries.
" Termination Date " means the first date on
which there are no Notes outstanding.
" Trading Day " means any day on which shares of
Common Stock are purchased and sold on the Principal Market.
" Transaction Documents " means (i) this
Agreement, (ii) the Notes, (iii) the Warrants, (iv) the
Registration Rights Agreement, and (v) all other agreements,
documents and other instruments executed and delivered by or on
behalf of the Company or any of its officers at the Closing.
" Transfer Agent " has the meaning specified in
Section 2.5 of this Agreement.
" Variable Rate Security " means any security
that is convertible into, exchangeable for or that requires the
Company to issue shares of Common Stock at a conversion, exercise
or exchange ratio or price that varies with the market price of the
Common Stock.
" VWAP " on a Trading Day means the volume
weighted average price of the Common Stock for such Trading Day on
the Principal Market as reported by Bloomberg Financial Markets or,
if Bloomberg Financial Markets is not then reporting such prices,
by a comparable
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reporting service of national reputation selected by the
Investors and reasonably satisfactory to the Company. If the VWAP
cannot be calculated for the Common Stock on such Trading Day on
any of the foregoing bases, then the Company shall submit such
calculation to an independent investment banking firm of national
reputation reasonably acceptable to each Investor, and shall cause
such investment banking firm to perform such determination and
notify the Company and each Investor of the results of
determination no later than two (2) Business Days from the time
such calculation was submitted to it by the Company. All such
determinations shall be appropriately adjusted for any stock
dividend, stock split or other similar transaction during such
period.
1.3 Other Definitional Provisions . All definitions
contained in this Agreement are equally applicable to the singular
and plural forms of the terms defined. The words "hereof", "herein"
and "hereunder" and words of similar import contained in this
Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement.
2. REPRESENTATIONS AND WARRANTIES OF EACH
INVESTOR .
Each Investor (with respect to itself only) hereby represents
and warrants to the Company and agrees with the Company that, as of
the Execution Date:
2.1 Authorization; Enforceability . Such Investor
is duly and validly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization as set forth below such Investor’s name on the
signature page hereof with the requisite corporate power and
authority to purchase the Notes and Warrants to be purchased by it
hereunder and to execute and deliver this Agreement and the other
Transaction Documents to which it is a party. This Agreement
constitutes, and upon execution and delivery thereof, each other
Transaction Document to which such Investor is a party will
constitute, such Investor’s valid and legally binding
obligation, enforceable in accordance with its terms, subject to
(i) applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws of general
application relating to or affecting the enforcement of
creditors’ rights generally and (ii) general principles of
equity.
2.2 Accredited Investor . Such Investor (i) is an
"accredited investor" as that term is defined in Rule 501 of
Regulation D, (ii) was not formed or organized for the specific
purpose of making an investment in the Company, and (iii) is
acquiring the Securities solely for its own account and not with a
present view to the public resale or distribution of all or any
part thereof, except pursuant to sales that are registered under,
or exempt from the registration requirements of, the Securities Act
and/or sales registered under the Securities Act; provided,
however, that in making such representation, such Investor
does not agree to hold the Securities for any minimum or specific
term and reserves the right to sell, transfer or otherwise dispose
of the Securities at any time in accordance with the provisions of
this Agreement and with Federal and state securities laws
applicable to such sale, transfer or disposition. Such Investor can
bear the economic risk of a total loss of its investment in the
Securities and has such knowledge and experience in business and
financial matters so as to enable it to understand the risks of and
form an investment decision with respect to its investment in the
Securities.
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2.3 Information . The Company has, prior to the
Execution Date, provided such Investor with information
regarding the business, operations and financial condition of the
Company and has, prior to the Execution Date, granted to such
Investor the opportunity to ask questions of and receive answers
from representatives of the Company, its officers, directors,
employees and agents concerning the Company in order for such
Investor to make an informed decision with respect to its
investment in the Securities. Neither such information nor any
other investigation conducted by such Investor or any of its
representatives shall modify, amend or otherwise affect such
Investor’s right to rely on the Company’s
representations and warranties contained in this Agreement.
2.4 Limitations on Disposition . Such Investor
acknowledges that, except as provided in the Registration Rights
Agreement, the Securities have not been and are not being
registered under the Securities Act and may not be transferred or
resold without registration under the Securities Act or unless
pursuant to an exemption therefrom.
2.5 Legend . Such Investor understands that the
certificates representing the Securities may bear at issuance a
restrictive legend in substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or any state securities laws, and may not be
offered for sale or sold unless a registration statement under the
Securities Act and applicable state securities laws shall have
become effective with respect thereto, or an exemption from
registration under the Securities Act and applicable state
securities laws is available in connection with such offer or sale.
These securities and the securities issuable upon conversion or
exercise hereof (i) may be pledged or hypothecated in connection
with a bona fide margin account or other financing secured by such
securities or (ii) may be transferred or assigned to an affiliate
of the holder hereof without the necessity of an opinion of counsel
or the consent of the issuer hereof."
Notwithstanding the foregoing, it is agreed that, as long as (A)
the resale or transfer (including without limitation a pledge) of
any of the Securities is registered pursuant to an effective
registration statement, (B) such Securities have been sold pursuant
to Rule 144, subject to receipt by the Company of customary
documentation reasonably acceptable to the Company in connection
therewith, or (C) such Securities are eligible for resale under
Rule 144(k) or any successor provision, such Securities shall be
issued without any legend or other restrictive language and, with
respect to Securities upon which such legend is stamped, the
Company shall issue new certificates without such legend to the
holder upon request. The Company shall execute and deliver written
instructions to the transfer agent for its Common Stock (the "
Transfer Agent ") as may be necessary to satisfy
any request by an Investor for removal of such legends no later
than the close of business on the third (3 rd ) Business Day following the receipt of the
request from an Investor to the extent such legends may be removed
in accordance with this Section 2.5 .
2.6 Reliance on Exemptions . Such Investor
understands that the Securities are being offered and sold to it in
reliance upon specific exemptions from the registration
requirements of U.S. federal and state securities laws and that the
Company is relying upon the truth and accuracy of the
representations and warranties of such Investor set forth in this
Section 2 in order
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to determine the availability of such exemptions and the
eligibility of such Investor to acquire the Securities. Such
Investor acknowledges that it did not purchase the Securities based
upon any advertisement in any publication of general circulation.
Such Investor is relying on the representations, acknowledgements
and agreements made by the Company in Section 3 and
elsewhere in this Agreement in making investing, trading and/or
other decisions concerning the Company’s securities.
2.7 Non-Affiliate Status; Common Stock Ownership .
Such Investor is not an Affiliate of the Company or of any other
Investor and is not acting in association or concert with any other
Person in regard to its purchase of the Securities or otherwise in
respect of the Company. Such Investor’s investment in the
Securities is not for the purpose of acquiring, directly or
indirectly, control of, and it has no intent to acquire or exercise
control of, the Company or to influence the decisions or policies
of the Board of Directors.
2.8 Fees . Such Investor has not agreed to pay any
compensation or other fee, cost or related expenditure to any
underwriter, broker, agent or other representative in connection
with the transactions contemplated hereby.
2.9 No Conflicts . The execution and performance of this
Agreement and the other Transaction Documents to which it is a
party do not conflict in any material respect with any agreement to
which such Investor is a party or is bound, any court order or
judgment applicable to such Investor, or the constituent documents
of such Investor.
2.10 No Governmental Review . Such Investor
understands that no U.S. federal or state agency or any other
Governmental Authority has passed on or made any recommendation or
endorsement of the Securities or the fairness or suitability of an
investment in the Securities nor have such authorities passed upon
the accuracy of any information provided to such Investor or made
any findings or determinations as to the merits of the offering of
the Securities.
3. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY . The Company hereby represents and warrants to
each Investor and agrees with each Investor that, as of the
Execution Date:
3.1 Organization, Good Standing and Qualification .
Each of the Company and its Subsidiaries is duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has all
requisite power and authority to carry on its business as now
conducted. Each of the Company and its Subsidiaries is duly
qualified to transact business and is in good standing in each
jurisdiction in which it conducts business except where the failure
so to qualify has not had or would not reasonably be expected to
have a Material Adverse Effect.
3.2 Authorization; Consents . The Company has the
requisite corporate power and authority to enter into and perform
its obligations under the Transaction Documents, to issue and sell
the Notes and the Warrants to the Investors in accordance with the
terms hereof and thereof, and to issue the Conversion Shares upon
conversion of the Notes and the Warrant Shares upon exercise of the
Warrants. All corporate action on the part of the Company by its
officers, directors and shareholders necessary for the
authorization, execution and delivery of, and the performance by
the
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Company of its obligations under, the Transaction Documents has
been taken, and no further consent or authorization of the Company,
its Board of Directors, shareholders, any Governmental Authority or
organization (other than such approval as may be required under the
Securities Act and applicable state laws in respect of the
Registration Rights Agreement, or any other person or entity) is
required (pursuant to any rule of the Principal Market or
otherwise). The Board of Directors has determined that the sale and
issuance of the Securities, and the consummation of the
transactions contemplated hereby and by the other Transaction
Documents (including without limitation the issuance of the Notes
and Warrants, the issuance of Conversion Shares in accordance with
the terms of the Notes and the issuance of Warrant Shares in
accordance with the terms of the Warrants), are in the best
interests of the Company.
3.3 Enforcement . This Agreement has been
and, at or prior to the Closing, each other Transaction Document
required to be delivered by the terms hereof at such Closing will
be, duly executed and delivered by the Company. This Agreement
constitutes and, upon the execution and delivery thereof by the
Company, each other Transaction Document will constitute the valid
and legally binding obligation of the Company, enforceable against
the Company in accordance with their respective terms, subject to
(i) applicable bankruptcy, insolvency, fraudulent transfer,
moratorium, reorganization or other similar laws of general
application relating to or affecting the enforcement of
creditors’ rights generally and (ii) general principles of
equity.
3.4 Disclosure Documents; Agreements; Financial
Statements; Other Information . The Company is subject to the
reporting requirements of the Exchange Act and, except as described
on Schedule 3.4 , the Company has, to the best of
its knowledge, filed with the Commission all SEC Documents that the
Company was required to file with the Commission on or after
December 31, 2005. The Company is not aware of any event occurring
or expected to occur on or prior to the Closing Date (other than
the transactions effected hereby) that would require the filing of,
or with respect to which the Company intends to file, a Form 8-K
after the Closing. Each SEC Document filed on or after December 31,
2005, as of the date of the filing thereof with the Commission (or
if amended or superseded by a filing prior to the Execution Date,
then on the date of such amending or superseding filing), complied,
to the best of the Company’s knowledge, in all material
respects with the requirements of the Securities Act or Exchange
Act, as applicable, and the rules and regulations promulgated
thereunder and, as of the date of such filing (or if amended or
superseded by a filing prior to the Execution Date, then on the
date of such filing), such SEC Document (including all exhibits and
schedules thereto and documents incorporated by reference therein)
did not, to the best of the Company’s knowledge, contain an
untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading. To the best of the Company’s knowledge, all
documents required to be filed as exhibits to the SEC Documents
filed on or after December 31, 2005 have been filed as required.
Except as set forth in the Disclosure Documents, the Company has no
liabilities, contingent or otherwise, other than liabilities
incurred in the ordinary course of business which, under GAAP, are
not required to be reflected in the financial statements included
in the Disclosure Documents and which, individually or in the
aggregate, are not material to the consolidated business or
financial condition of the Company and its Subsidiaries taken as a
whole. As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and
the published rules and regulations of the Commission with respect
thereto. To the
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best of the Company’s knowledge, such financial statements
have been prepared in accordance with GAAP consistently applied at
the times and 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 exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the
results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end
adjustments). The Company will prepare the financial statements to
be included in any reports, schedules, registration statements and
definitive proxy statements that the Company is required to file or
files with the Commission after the date hereof in accordance with
GAAP (except in the case of unaudited interim statements, to the
extent they may exclude footnotes or may be condensed or summary
statements).
3.5 Capitalization; Debt Schedule . The
capitalization of the Company, including its authorized capital
stock, the number of shares issued and outstanding, the number of
shares issuable and reserved for issuance pursuant to the
Company’s stock option plans and agreements, the number of
shares issuable and reserved for issuance pursuant to securities
(other than the Notes and Warrants) exercisable for, or convertible
into or exchangeable for any shares of Common Stock and the number
of shares initially to be reserved for issuance upon conversion of
the Notes and exercise of the Warrants, is set forth on
Schedule 3.5 hereto. All outstanding shares of
capital stock of the Company have been, or upon issuance will be,
validly issued, fully paid and non-assessable. All Subsidiaries of
the Company are disclosed on Schedule 3.5 hereto.
Except as disclosed on Schedule 3.5 hereto, the
Company or a wholly-owned Subsidiary of the Company owns all of the
capital stock of each Subsidiary of the Company, which capital
stock is validly issued, fully paid and non-assessable, and no
shares of the capital stock of the Company or any of its
Subsidiaries are subject to preemptive rights or any other similar
rights of the shareholders of the Company or any such Subsidiary or
any Liens created by or through the Company or any such Subsidiary.
Except as disclosed on Schedule 3.5 or as
contemplated herein, there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of
capital stock of the Company or any of its Subsidiaries, or
arrangements by which the Company or any of its Subsidiaries is or
may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries (whether pursuant to
anti-dilution, "reset" or other similar provisions).
Schedule 3.5 identifies all Debt of the Company
and/or its Subsidiaries currently outstanding in excess of $25,000
as of the date hereof.
3.6 Due Authorization; Valid Issuance . The Notes
are duly authorized and, when issued, sold and delivered in
accordance with the terms of this Agreement, will be duly and
validly issued, free and clear of any Liens imposed by or through
the Company. The Warrants are duly authorized and, when issued,
sold and delivered in accordance with the terms of this Agreement,
will be duly and validly issued, free and clear of any Liens
imposed by or through the Company. The Conversion Shares issuable
under the Notes and the Warrant Shares issuable under the Warrants
are duly authorized and reserved for issuance and, when issued and
delivered in accordance with the terms of the Notes or the
Warrants, as the case may be, will be duly and validly issued,
fully paid and nonassessable, free and clear of any Liens imposed
by or through the Company. Assuming the accuracy of each
Investor’s representations contained herein, the issuance
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and sale of the Notes and Warrants under this Agreement will be
effected in compliance with all applicable Federal and state
securities laws.
3.7 Form SB-2 . The Company is eligible to register
the Conversion Shares and Warrant Shares for resale in a secondary
offering by each Investor on a registration statement on Form SB-2
under the Securities Act. To the Company’s knowledge, as of
the date hereof and as of the Closing Date, there exist no facts or
circumstances (including without limitation any required approvals
or waivers of any circumstances that may delay or prevent the
obtaining of accountant’s consents) that could reasonably be
expected to prohibit or dela
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