SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "
Agreement "), dated as of December 21, 2007, by and
among Broadcast International, Inc., a Utah corporation, with
headquarters located at 7050 Union Park Avenue, #600, Salt Lake
City, Utah 84047 (the " Company "), and the
investors listed on the Schedule of Buyers attached hereto
(individually, a " Buyer " and collectively, the "
Buyers ").
WHEREAS :
A.
The Company and each Buyer is executing and
delivering this Agreement in reliance upon the exemption from
securities registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the " 1933 Act "),
and Rule 506 of Regulation D (" Regulation D ") as
promulgated by the United States Securities and Exchange
Commission (the " SEC ") under the 1933 Act.
B.
The Company has authorized a new series of
senior secured convertible notes of the Company which notes
shall be convertible into the Company's common stock, par value
$0.05 per share (the " Common Stock "), in
accordance with the terms of the Notes (as defined below).
C.
Each Buyer wishes to purchase, and the Company
wishes to sell, upon the terms and conditions stated in this
Agreement, (i) that aggregate principal amount of the Notes, in
substantially the form attached hereto as Exhibit A (the
" Notes "), set forth opposite such Buyer's name in
column (3) on the Schedule of Buyers attached hereto (which
aggregate amount for all Buyers shall be $15,000,000, which
Notes are convertible into shares of the Company's Common Stock,
as set forth herein(as converted, collectively, the "
Conversion Shares "), (ii) that aggregate number of
shares (the " Common Shares ") of the Common Stock, set
forth opposite such Buyer's name in column (4) on the Schedule
of Buyers (which aggregate amount for all Buyers shall be one
million (1,000,000)), and (iii) warrants, in substantially the
form attached hereto as Exhibit B (the " Warrants
"), to acquire that number of shares of Common Stock set forth
opposite such Buyer's name in column (5) on the Schedule of
Buyers (as exercised, the " Warrant Shares ").
D.
The Notes bear interest, which at the option of
the Company, subject to certain conditions, may be paid in
shares of Common Stock (the " Interest Shares ").
E.
Contemporaneously with the execution and
delivery of this Agreement, the parties hereto are executing and
delivering a Registration Rights Agreement, substantially in the
form attached hereto as Exhibit C (the " Registration
Rights Agreement "), pursuant to which the Company has
agreed to provide certain registration rights with respect to
the Registrable Securities (as defined in the Registration
Rights Agreement) under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state
securities laws.
F.
The Notes, the Conversion Shares, the Interest
Shares, the Common Shares, the Warrants and the Warrant Shares
collectively are referred to herein as the " Securities
".
G.
The Notes will rank senior to all outstanding
and future indebtedness of the Company and will be secured by a
first priority perfected security interest in all of the assets
of the Company and the stock, equity interests and assets of
each of the Company's subsidiaries, as evidenced by (i) a
security agreement, in the form attached hereto as Exhibit
E (as amended or modified from time to time in accordance
with its terms, the " Security Agreement "), and (ii) the
guaranties of the subsidiaries of the Company in the form
attached hereto as Exhibit F (as amended or modified from
time to time in accordance with its terms, the " Guaranty
" and, together with the Pledge Agreement, the Security
Agreement and any ancillary documents related thereto,
collectively the " Security Documents ").
NOW, THEREFORE , the Company and each
Buyer hereby agree as follows:
1.
PURCHASE AND SALE OF NOTES, COMMON SHARES AND
WARRANTS .
(a)
Purchase of Notes, Common Shares and
Warrants . Subject to the satisfaction (or waiver) of
the conditions set forth in Sections 6 and 7 below, the Company
shall issue and sell to each Buyer, and each Buyer severally,
but not jointly, agrees to purchase from the Company on the
Closing Date (as defined below), (x) a principal amount of Notes
as is set forth opposite such Buyer's name in column (3) on the
Schedule of Buyers, (y) the number of Common Shares as is set
forth opposite such Buyer's name in column (4) on the Schedule
of Buyers, and (z) Warrants to acquire that number of Warrant
Shares as is set forth opposite such Buyer's name in column (5)
on the Schedule of Buyers (the " Closing ").
(b)
Closing . The date and time of the
Closing (the " Closing Date ") shall be 10:00 a.m., New
York City time, on the date hereof (or such later date as is
mutually agreed to by the Company and each Buyer) after
notification of satisfaction (or waiver) of the conditions to
the Closing set forth in Sections 6 and 7 below at the offices
of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New
York 10022.
(c)
Prepaid Interest . The Company
shall prepay the interest payable under the Notes through the
one year anniversary of the Closing Date in such amount set
forth opposite such Buyer's name in column (6) of the Schedule
of Buyers (for each Buyer, its " Prepaid Interest "),
which Prepaid Interest shall be nonrefundable.
(d)
Purchase Price .
(i)
The aggregate purchase price for the Notes, the
Common Shares and the Warrants to be purchased by each such
Buyer at the Closing (the " Purchase Price ") shall be
the amount set forth opposite each Buyer's name in column (8) of
the Schedule of Buyers. Each Buyer shall pay $1,000 for
each $1,000 of principal amount of Notes and related Common
Shares and Warrants to be purchased by such Buyer at the
Closing.
(ii)
The Purchase Price consideration shall be
allocated to the Notes, the Common Shares and the Warrants in a
manner consistent with the Company's treatment thereof in
accordance with GAAP.
(e)
Form of Payment . On the Closing
Date, (i) each Buyer shall pay its Purchase Price less its
Prepaid Interest (such net amount as set forth opposite such
Buyer's name in Column (7) of the Schedule of Buyers, its "
Net Purchase Price ") to the Company for the Notes, the
Common Shares and the Warrants to be issued and sold to such
Buyer at the Closing, by wire transfer of immediately available
funds in accordance with the Company's written wire instructions
and (ii) the Company shall deliver to each Buyer the Notes
(allocated in the principal amounts as such Buyer shall request)
which such Buyer is then purchasing hereunder along with the
Common Shares (allocated in the amounts as such Buyer shall
request) and Warrants (allocated in the amounts as such Buyer
shall request) which such Buyer is purchasing, in each case duly
executed on behalf of the Company and registered in the name of
such Buyer or its designee.
2.
BUYER'S REPRESENTATIONS AND WARRANTIES .
Each Buyer, severally and not jointly, represents and
warrants with respect to only itself that:
(a)
No Public Sale or Distribution .
Such Buyer is (i) acquiring the Notes, the Common Shares
and the Warrants and (ii) upon conversion of the Notes and
exercise of the Warrants (other than pursuant to a Cashless
Exercise (as defined in the Warrants)) will acquire the
Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants, for its
own account and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except
pursuant to sales registered or exempted under the 1933 Act;
provided , however , that by making the
representations herein, such Buyer does not agree to hold any of
the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an
exemption under the 1933 Act. Such Buyer is acquiring the
Securities hereunder in the ordinary course of its business.
Such Buyer does not presently have any agreement or
understanding, directly or indirectly, with any Person to
distribute any of the Securities.
(b)
Accredited Investor Status . Such
Buyer is an "accredited investor" as that term is defined in
Rule 501(a) of Regulation D.
(c)
Reliance on Exemptions . Such Buyer
understands that the Securities are being offered and sold to it
in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws
and that the Company is relying in part upon the truth and
accuracy of, and such Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and
understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the
eligibility of such Buyer to acquire the Securities.
(d)
Information . Such Buyer and its
advisors, if any, have been furnished with all materials
relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and
its advisors, if any, have been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any
other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend
or affect such Buyer's right to rely on the Company's
representations and warranties contained herein. Such
Buyer
understands that its investment in the
Securities involves a high degree of risk. Such Buyer has
sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision
with respect to its acquisition of the Securities.
(e)
No Governmental Review . Such Buyer
understands that no United States federal or state agency or any
other government or governmental agency has passed on or made
any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor
have such authorities passed upon or endorsed the merits of the
offering of the Securities.
(f)
Transfer or Resale . Such Buyer
understands that except as provided in the Registration Rights
Agreement: (i) the Securities have not been and are not being
registered under the 1933 Act or any state securities laws, and
may not be offered for sale, sold, assigned or transferred
unless (A) subsequently registered thereunder, (B) such Buyer
shall have delivered to the Company an opinion of counsel, in a
generally acceptable form, to the effect that such Securities to
be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or
(C) such Buyer provides the Company with reasonable assurance
that such Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A promulgated under the 1933
Act, as amended, (or a successor rule thereto) (collectively, "
Rule 144 "); (ii) any sale of the Securities made in
reliance on Rule 144 may be made only in accordance with the
terms of Rule 144 and further, if Rule 144 is not applicable,
any resale of the Securities under circumstances in which the
seller (or the Person (as defined in Section 3(s)) through whom
the sale is made) may be deemed to be an underwriter (as that
term is defined in the 1933 Act) may require compliance with
some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company
nor any other Person is under any obligation to register the
Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption
thereunder. The Securities may be pledged in connection
with a bona fide margin account or other loan or financing
arrangement secured by the Securities and such pledge of
Securities shall not be deemed to be a transfer, sale or
assignment of the Securities hereunder, and no Buyer effecting a
pledge of Securities shall be required to provide the Company
with any notice thereof or otherwise make any delivery to the
Company pursuant to this Agreement or any other Transaction
Document (as defined in Section 3(b)), including, without
limitation, this Section 2(f).
(g)
Legends . Such Buyer understands
that the certificates or other instruments representing the
Notes and the Warrants and, until such time as the resale of the
Conversion Shares, the Common Shares and the Warrant Shares have
been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the stock certificates
representing the Conversion Shares, the Common Shares and the
Warrant Shares, except as set forth below, shall bear any legend
as required by the "blue sky" laws of any state and a
restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock
certificates):
[ NEITHER THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE [ CONVERTIBLE ]
[ EXERCISABLE ] HAVE BEEN ][ THE SECURITIES
REPRESENTED
BY THIS CERTIFICATE HAVE NOT BEEN ]
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B)
AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
The legend set forth above shall be removed and
the Company shall issue a certificate without such legend to the
holder of the Securities upon which it is stamped or issue to
such holder by electronic delivery at the applicable balance
account at DTC (as defined below), unless otherwise required by
state securities laws, (i) such Securities are registered for
resale under the 1933 Act, (ii) in connection with a sale,
assignment or other transfer, such holder provides the Company
with an opinion of counsel, in a generally acceptable form, to
the effect that such sale, assignment or transfer of the
Securities may be made without registration under the applicable
requirements of the 1933 Act, or (iii) such holder provides the
Company with reasonable assurance that the Securities can be
sold, assigned or transferred pursuant to Rule 144 or Rule
144A.
(h)
Validity; Enforcement . This
Agreement, the Registration Rights Agreement and the Security
Documents to which such Buyer is a party have been duly and
validly authorized, executed and delivered on behalf of such
Buyer and shall constitute the legal, valid and binding
obligations of such Buyer enforceable against such Buyer in
accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or
to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors'
rights and remedies.
(i)
No Conflicts . The execution,
delivery and performance by such Buyer of this Agreement, the
Registration Rights Agreement and the Security Documents to
which such Buyer is a party and the consummation by such Buyer
of the transactions contemplated hereby and thereby will not (i)
result in a violation of the organizational documents of such
Buyer or (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,
indenture or instrument to which such Buyer is a party, or (iii)
result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities
laws) applicable to such Buyer, except in the case of clauses
(ii) and (iii) above, for such conflicts, defaults, rights or
violations which would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the
ability of such Buyer to perform its obligations hereunder.
(j)
Residency . Such Buyer is a
resident of that jurisdiction specified below its address on the
Schedule of Buyers.
(k)
Certain Trading Activities . Other
than with respect to the transactions contemplated herein, since
the time that such Buyer was first
contacted by the Company, the Placement Agent or any other
Person regarding the transactions contemplated hereby, neither
the Buyer nor any Affiliate of such Buyer which (x) had
knowledge of the transactions contemplated hereby, (y) has or
shares discretion relating to such Buyer’s investments or
trading or information concerning such Buyer’s
investments, including in respect of the Securities, and (z) is
subject to such Buyer’s review or input concerning such
Affiliate’s investments or trading (collectively,
“Trading Affiliates”) has directly or indirectly,
nor has any Person acting on behalf of or pursuant to any
understanding with such Buyer or Trading Affiliate, effected or
agreed to effect any purchases or sales of the securities of the
Company (including, without limitation, any Short Sales
involving the Company’s securities). Notwithstanding the
foregoing, in the case of a Buyer and/or Trading Affiliate that
is, individually or collectively, a multi-managed investment
bank or vehicle whereby separate portfolio managers manage
separate portions of such Buyer's or Trading Affiliate’s
assets and the portfolio managers have no direct knowledge of
the investment decisions made by the portfolio managers managing
other portions of such Buyer's or Trading Affiliate’s
assets, the representation set forth above shall apply only with
respect to the portion of assets managed by the portfolio
manager that have knowledge about the financing transaction
contemplated by this Agreement. Other than to officers,
directors, partners, members, advisors and affiliates of Buyer
and other Persons party to this Agreement, such Buyer has
maintained the confidentiality of all disclosures made to it in
connection with this transaction (including the existence and
terms of this transaction).
3.
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY .
The Company represents and warrants to each of
the Buyers that:
(a)
Organization and Qualification .
Except as set forth on Schedule 3(a)(i) , each of
the Company and its " Subsidiaries " (which for purposes
of this Agreement means any entity in which the Company,
directly or indirectly, owns any of the capital stock or holds
an equity or similar interest) are entities duly organized and
validly existing in good standing under the laws of the
jurisdiction in which they are formed, and have the requisite
power and authorization to own their properties and to carry on
their business as now being conducted. Each of the Company
and its Subsidiaries is duly qualified as a foreign entity to do
business and is in good standing in every jurisdiction in which
its ownership of property or the nature of the business
conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good
standing would not have a Material Adverse Effect. As used
in this Agreement, " Material Adverse Effect " means any
material adverse effect on the business, properties, assets,
operations, results of operations, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries,
taken as a whole, or on the transactions contemplated hereby and
the other Transaction Documents or by the agreements and
instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to
perform its obligations under the Transaction Documents (as
defined below). The Company has no Subsidiaries except as
set forth on Schedule 3(a)(ii) .
(b)
Authorization; Enforcement; Validity .
The Company has the requisite power and authority to enter
into and perform its obligations under this Agreement, the
Notes, the Registration Rights Agreement, the Security
Documents, the Irrevocable Transfer Agent Instructions (as
defined in Section 5(b)), the Warrants, and each of the other
agreements entered into by the parties hereto in connection with
the transactions contemplated by this Agreement (collectively,
the " Transaction Documents ") and to issue the
Securities in accordance with the terms hereof and thereof.
The execution and delivery of the Transaction Documents by
the Company and the consummation by the Company of the
transactions contemplated hereby and thereby, including, without
limitation, the issuance of the Notes, the Common Shares and the
Warrants, the reservation for issuance and the issuance of the
Conversion Shares issuable upon conversion of the Notes, the
reservation for issuance and issuance of Warrant Shares issuable
upon exercise of the Warrants, the reservation for issuance and
the issuance of Interest Shares, if any, and the granting of a
security interest in the Collateral (as defined in the Security
Documents) have been duly authorized by the Company's Board of
Directors and (other than (i) the filing of appropriate UCC
financing statements with the appropriate states and other
authorities pursuant to the Security Agreement , (ii) the filing with the SEC and applicable
state securities commissions of Form D and related filings,
(iii) the filings with the U.S. Patent and Trademark Office and
the U.S. Copyright Office as may be required with respect to the
perfection of a security interest against the Company’s
patents, trademarks and copyrights, and (iv ) the filing with the SEC of one or more
Registration Statements in accordance with the requirements of
the Registration Rights Agreement) no further filing, consent,
or authorization is required by the Company, its Board of
Directors or its stockholders. This Agreement and the
other Transaction Documents of even date herewith have been duly
executed and delivered by the Company, and constitute the legal,
valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms,
except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating
to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
(c)
Issuance of Securities . The
issuance of the Notes, the Common Shares and the Warrants are
duly authorized and are free from all taxes, liens and charges
with respect to the issue thereof. As of the Closing, a
number of shares of Common Stock shall have been duly authorized
and reserved for issuance which equals or exceeds 130% of the
aggregate of the maximum number of shares of Common Stock (i)
issuable upon conversion of the Notes, (ii) as Interest Shares
pursuant to the terms of the Notes (assuming the Notes are held
until the Maturity Date (as defined in the Notes) without
conversion), and (iii) upon exercise of the Warrants, (in the
case of clauses (i) and (iii) without taking into account any
limitations on the conversion of the Notes or exercise of the
Warrants set forth in the Notes and Warrants, respectively).
Upon conversion or payment in accordance with the Notes or
exercise in accordance with the Warrants, as the case may be,
the Conversion Shares, the Interest Shares and the Warrant
Shares, respectively, will be validly issued, fully paid and
nonassessable and free from all preemptive or similar rights,
taxes, liens and charges with respect to the issue thereof, with
the holders being entitled to all rights accorded to a holder of
Common Stock. The offer and issuance by the Company of the
Securities is exempt from registration under the 1933 Act.
(d)
No Conflicts . Except as set forth
on Schedule 3(d) , the execution, delivery and
performance of the Transaction Documents by the Company and the
consummation
by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance
of the Notes, the Common Shares and the Warrants, the granting
of a security interest in the Collateral and reservation for
issuance and issuance of the Conversion Shares, the Interest
Shares and the Warrant Shares) will not (i) result in a
violation of any articles of incorporation, certificate of
formation, any certificate of designations or other constituent
documents of the Company or any of its Subsidiaries, any capital
stock of the Company or any of its Subsidiaries or the bylaws of
the Company or any of its Subsidiaries or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of
time or both would become a default) in any respect under, or
give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a
party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including foreign,
federal and state securities laws and regulations and the rules
and regulations The OTC Bulletin Board (the " Principal
Market ")) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or
any of its Subsidiaries is bound or affected.
(e)
Consents . Except as set forth in
Section 3(b) the Company nor any of its Subsidiaries is required
to obtain any consent, authorization or order of, or make any
filing or registration with, any court, governmental agency or
any regulatory or self-regulatory agency or any other Person in
order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents,
in each case in accordance with the terms hereof or thereof.
All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant
to the preceding sentence have been obtained or effected on or
prior to the Closing Date, and the Company and its Subsidiaries
are unaware of any facts or circumstances which might prevent
the Company from obtaining or effecting any of the registration,
application or filings pursuant to the preceding sentence.
The Company is not in violation of the listing
requirements of the Principal Market and has no knowledge of any
facts which would reasonably lead to delisting or suspension of
the Common Stock in the foreseeable future.
(f)
Acknowledgment Regarding Buyer's Purchase of
Securities . The Company acknowledges and agrees that
each Buyer is acting solely in the capacity of arm's length
purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer
is (i) an officer or director of the Company, (ii) an
"affiliate" of the Company or any of its Subsidiaries (as
defined in Rule 144) or (iii) to the knowledge of the Company, a
"beneficial owner" of more than 10% of the shares of Common
Stock (as defined for purposes of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended (the " 1934 Act ")).
The Company further acknowledges that no Buyer is acting
as a financial advisor or fiduciary of the Company or any of its
Subsidiaries (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated hereby
and thereby, and any advice given by a Buyer or any of its
representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby
is merely incidental to such Buyer's purchase of the Securities.
The Company further represents to each Buyer that the
Company's decision to enter into the Transaction Documents has
been based solely on the independent evaluation by the Company
and its representatives.
(g)
No General Solicitation; Placement Agent's
Fees . Neither the Company, nor any of its
Subsidiaries or 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) in
connection with the offer or sale of the Securities. The
Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or brokers' commissions
(other than for persons engaged by any Buyer or its investment
advisor) relating to or arising out of the transactions
contemplated hereby. The Company shall pay, and hold each
Buyer harmless against, any liability, loss or expense
(including, without limitation, attorney's fees and
out-of-pocket expenses) arising in connection with any such
claim. The Company acknowledges that it has engaged BMO
Capital Markets Corp. as placement agent (the " Placement
Agent ") in connection with the sale of the Securities.
Other than the Placement Agent, the Company has not
engaged any placement agent or other agent in connection with
the sale of the Securities.
(h)
No Integrated Offering . None of
the Company, its Subsidiaries, any of their affiliates, and any
Person acting on 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 require
registration of any of the Securities under the 1933 Act or
cause this offering of the Securities to be integrated with
prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of any
exchange or automated quotation system on which any of the
securities of the Company are listed or designated. None
of the Company, its Subsidiaries, their affiliates and any
Person acting on their behalf will take any action or steps
referred to in the preceding sentence that would require
registration of any of the Securities under the 1933 Act or
cause the offering of the Securities to be integrated with other
offerings.
(i)
Dilutive Effect . The Company
understands and acknowledges that the number of Conversion
Shares issuable upon conversion of the Notes and the Warrant
Shares issuable upon exercise of the Warrants will increase in
certain circumstances. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion
of the Notes in accordance with this Agreement and the Notes and
its obligation to issue the Warrant Shares upon exercise of the
Warrants in accordance with this Agreement and the Warrants is,
in each case, is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company.
(j)
Application of Takeover Protections; Rights
Agreement . The Company and its board of directors
have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a
rights agreement) or other similar anti-takeover provision under
the Articles of Incorporation or the laws of the jurisdiction of
its formation which is or could become applicable to any Buyer
as a result of the transactions contemplated by this Agreement,
including, without limitation, the Company's issuance of the
Securities and any Buyer's ownership of the Securities.
The Company has not adopted a stockholder rights plan or
similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company
.
(k)
SEC Documents; Financial Statements .
Except as disclosed in Schedule 3(k) , during the
two (2) years prior to the date hereof, the Company has filed
all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC
pursuant to the reporting requirements of the
1934 Act (all of the foregoing filed prior to the date hereof
and all exhibits included therein and financial statements,
notes and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the " SEC
Documents "). The Company has delivered to the Buyers
or their respective representatives true, correct and complete
copies of the SEC Documents not available on the EDGAR system.
As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the 1934 Act
and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents,
at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the 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 SEC Documents complied as to form in all
material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles,
consistently applied, 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 audit adjustments).
No other information provided by or on behalf of the
Company to the Buyers which is not included in the SEC
Documents, including, without limitation, information referred
to in Section 2(d) of this Agreement, contains any untrue
statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light
of the circumstance under which they are or were made, not
misleading.
(l)
Absence of Certain Changes . Except
as disclosed in Schedule 3(l) , since December 31, 2006,
there has been no material adverse change and no material
adverse development in the business, properties, operations,
condition (financial or otherwise), results of operations or
prospects of the Company or its Subsidiaries. Except as
disclosed in Schedule 3(l) , since December 31, 2006, the
Company has not (i) declared or paid any dividends, (ii) sold
any assets, individually or in the aggregate, in excess of
$100,000 outside of the ordinary course of business or (iii) had
capital expenditures, individually or in the aggregate, in
excess of $300,000. Neither the Company nor any of its
Subsidiaries has taken any steps to seek protection pursuant to
any bankruptcy law nor does the Company have any knowledge or
reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings or any actual knowledge of
any fact which would reasonably lead a creditor to do so.
The Company is not as of the date hereof, and after giving
effect to the transactions contemplated hereby to occur at the
Closing, will not be Insolvent (as defined below). For
purposes of this Section 3(l), " Insolvent " means, with
respect to any Person (as defined in Section 3(s), (i) the
present fair saleable value of such Person's assets is less than
the amount required to pay such Person's total Indebtedness (as
defined in Section 3(s)), (ii) such Person is unable to pay its
debts and liabilities, subordinated, contingent or otherwise, as
such debts and liabilities become absolute and matured, (iii)
the Company intends to incur or believes that it will incur
debts that would be beyond its ability to pay as such debts
mature or (iv) such Person has unreasonably small capital with
which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted.
(m)
No Undisclosed Events, Liabilities,
Developments or Circumstances . No event, liability,
development or circumstance has occurred or exists, or to the
knowledge of the Company is contemplated to occur with respect
to the Company, its Subsidiaries or their respective business,
properties, prospects, operations or financial condition, that
would be required to be disclosed by the Company under
applicable securities laws and which has not been publicly
disclosed.
(n)
Conduct of Business; Regulatory Permits .
Neither the Company nor its Subsidiaries is in violation
of any term of or in default under any certificate of
designations of any outstanding series of preferred stock of the
Company, its Articles of Incorporation or Bylaws or their
organizational charter or articles of incorporation or bylaws,
respectively. Neither the Company nor any of its
Subsidiaries is in violation of any judgment, decree or order or
any statute, ordinance, rule or regulation applicable to the
Company or its Subsidiaries, and neither the Company nor any of
its Subsidiaries will conduct its business in violation of any
of the foregoing, except for possible violations which would
not, individually or in the aggregate, have a Material Adverse
Effect. Without limiting the generality of the foregoing,
the Company is not in violation of any of the rules, regulations
or requirements of the Principal Market and has no knowledge of
any facts or circumstances which would reasonably lead to
delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future. During the two years
prior to the date hereof, the Common Stock has been designated
for quotation on the Principal Market. During the two
years prior to the date hereof, (i) trading in the Common Stock
has not been suspended by the SEC or the Principal Market and
(ii) the Company has received no communication, written or oral,
from the SEC or the Principal Market regarding the suspension or
delisting of the Common Stock from the Principal Market.
The Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate regulatory
authorities necessary to conduct their respective businesses,
except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the
aggregate, a Material Adverse Effect, and neither the Company
nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such
certificate, authorization or permit.
(o)
Foreign Corrupt Practices . Neither
the Company, nor any of its Subsidiaries, nor any director,
officer, agent, employee or other Person acting on behalf of the
Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its
Subsidiaries (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses
relating to political activity; (ii) made any direct or indirect
unlawful payment to any foreign or domestic government official
or employee from corporate funds; (iii) violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices
Act of 1977, as amended; or (iv) made any unlawful bribe,
rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or
employee.
(p)
Sarbanes-Oxley Act . The Company is
in compliance in all material respects with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that
are effective as of the date hereof, and any and all applicable
rules and regulations promulgated by the SEC thereunder that are
effective as of the date hereof.
(q)
Transactions With Affiliates .
Except as set on Schedule 3(q) , none of the
officers, directors or employees of the Company is presently a
party to any transaction with the Company or any of its
Subsidiaries (other than for ordinary course services as
employees, officers or directors), including any contract,
agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from
any such officer, director or employee or, to the knowledge of
the Company or any of its Subsidiaries, any corporation,
partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an
officer, director, trustee or partner.
(r)
Equity Capitalization . As of the
date hereof, the authorized capital stock of the Company
consists of (i) 180,000,000 shares of Common Stock, of which as
of the date hereof, 36,499,658 are issued and outstanding
, 5,770,540 shares are reserved for issuance pursuant to
the Company's stock option and purchase plans and 9,851,800
shares are reserved for issuance pursuant to securities (other
than the aforementioned options, the Notes and the Warrants)
exercisable or exchangeable for, or convertible into, shares of
Common Stock and (ii) 20,000,000 shares of preferred stock, no
par value, of which as of the date hereof, none are issued and
outstanding. All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and
nonassessable. Except as disclosed in Schedule 3(r)
: (i) none of the Company's capital stock is subject to
preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company; (ii) 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 capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is
or may become bound to issue additional capital stock of the
Company or any of its Subsidiaries or 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 capital stock of
the Company or any of its Subsidiaries; (iii) there are no
outstanding debt securities, notes, credit agreements, credit
facilities or other agreements, documents or instruments
evidencing Indebtedness of the Company or any of its
Subsidiaries or by which the Company or any of its Subsidiaries
is or may become bound; (iv) there are no financing statements
securing obligations in any material amounts, either singly or
in the aggregate, filed in connection with the Company or any of
its Subsidiaries; (v) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated
to register the sale of any of their securities under the 1933
Act (except pursuant to the Registration Rights Agreement); (vi)
there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption
or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of
its Subsidiaries is or may become bound to redeem a security of
the Company or any of its Subsidiaries; (vii) there are no
securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the
Securities; (viii) the Company does not have any stock
appreciation rights or "phantom stock" plans or agreements or
any similar plan or agreement; and (ix) the Company and its
Subsidiaries have no liabilities or obligations required to be
disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of
the Company's or its Subsidiaries' respective businesses and
which, individually or in the aggregate, do not or would not
have a Material Adverse Effect. The Company has furnished
or made available to the Buyers true,
correct and complete copies of the Company's
Articles of Incorporation, as amended and as in effect on the
date hereof (the " Articles of Incorporation "), and the
Company's Bylaws, as amended and as in effect on the date hereof
(the " Bylaws "), and as set forth on Schedule
3(r) , the material terms of all securities convertible
into, or exercisable or exchangeable for, shares of Common Stock
and the material rights of the holders thereof in respect
thereto.
(s)
Indebtedness and Other Contracts .
Except as disclosed in Schedule 3(s) , neither the
Company nor any of its Subsidiaries (i) has any outstanding
Indebtedness (as defined below), (ii) is a party to any
contract, agreement or instrument, the violation of which, or
default under which, by the other party(ies) to such contract,
agreement or instrument would result in a Material Adverse
Effect, (iii) is in violation of any term of or in default under
any contract, agreement or instrument relating to any
Indebtedness, except where such violations and defaults would
not result, individually or in the aggregate, in a Material
Adverse Effect, or (iv) is a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of
which, in the judgment of the Company's officers, has or is
expected to have a Material Adverse Effect. Schedule
3(s) provides a description of the material terms of any
such outstanding Indebtedness. For purposes of this
Agreement: (x) " Indebtedness " of any Person
means, without duplication (A) all indebtedness for borrowed
money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services, including
(without limitation) "capital leases" in accordance with
generally accepted accounting principles (other than trade
payables entered into in the ordinary course of business), (C)
all reimbursement or payment obligations with respect to letters
of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or
businesses, (E) all indebtedness created or arising under any
conditional sale or other title retention agreement, or incurred
as financing, in either case with respect to any property or
assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such
agreement in the event of default are limited to repossession or
sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with
generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through
(F) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to
be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has
not assumed or become liable for the payment of such
indebtedness, and (H) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to
in clauses (A) through (G) above; (y) " Contingent
Obligation " means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect
to any indebtedness, lease, dividend or other obligation of
another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to
provide assurance to the obligee of such liability that such
liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of
such liability will be protected (in whole or in part) against
loss with respect thereto; and (z) " Person " means an
individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization
and a government or any department or agency thereof.
(t)
Absence of Litigation . There is no
action, suit, proceeding, inquiry or investigation before or by
the Principal Market, any court, public board, government
agency, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the
Company or any of its Subsidiaries, the Common Stock or any of
the Company's Subsidiaries or any of the Company's or its
Subsidiaries' officers or directors in their capacities as such,
except as set forth in Schedule 3(t) .
(u)
Insurance . The Company and each of
its Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts
as management of the Company believes to be prudent and
customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such
Subsidiary has been refused any insurance coverage sought or
applied for and neither the Company nor any such Subsidiary has
any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have
a Material Adverse Effect.
(v)
Employee Relations . i)
Neither the Company nor any of its Subsidiaries is a party
to any collective bargaining agreement or employs any member of
a union. The Company and its Subsidiaries believe that
their relations with their employees are good. No
executive officer of the Company or any of its Subsidiaries (as
defined in Rule 501(f) of the 1933 Act) has notified the Company
or any such Subsidiary that such officer intends to leave the
Company or any such Subsidiary or otherwise terminate such
officer's employment with the Company or any such Subsidiary.
No executive officer of the Company or any of its
Subsidiaries, to the knowledge of the Company, is, or is now
expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary
information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the
continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability
with respect to any of the foregoing matters.
(ii)
The Company and its Subsidiaries are in
compliance with all federal, state, local and foreign laws and
regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and
wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.
(w)
Title . Except as set forth on
Schedule 3(w) , the Company and its Subsidiaries have
good and marketable title in fee simple to all real property and
good and marketable title to all personal property owned by them
which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as do not materially affect
the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and
any of its Subsidiaries. Any real property and
facilities held under lease by the Company and any of its
Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are n
