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Exhibit 10.1 SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement
(this " Agreement ") is dated as of December 30, 2008,
between T3 Motion, Inc., a Delaware corporation (the "
Company "), and each purchaser identified on the signature
pages hereto (each, including its successors and assigns, a "
Purchaser " and collectively, the " Purchasers ").
WHEREAS, subject to the terms and
conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the "
Securities Act "), and Rule 506 promulgated thereunder,
the Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from the
Company, securities of the Company as more fully described in this
Agreement. NOW, THEREFORE, IN
CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and each
Purchaser agree as follows: ARTICLE I.
DEFINITIONS 1.1
Definitions . In addition to the terms defined elsewhere in
this Agreement: (a) capitalized terms that are not otherwise
defined herein have the meanings given to such terms in the
Debentures (as defined herein), and (b) the following terms
have the meanings set forth in this Section 1.1:
" Acquiring Person " shall
have the meaning ascribed to such term in Section 4.7.
" Action " shall have the
meaning ascribed to such term in Section 3.1(j).
" Affiliate " means any Person
that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 405
under the Securities Act. " Board
of Directors " means the board of directors of the Company.
" Business Day " means any day
except Saturday, Sunday, any day which is a federal legal holiday
in the United States or any day on which banking institutions in
the State of New York are authorized or required by law or other
governmental action to close. "
Closing " means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
" Closing Date " means the
Trading Day when all of the Transaction Documents have been
executed and delivered by the applicable parties thereto, and all
conditions
precedent to (i) the Purchasers’ obligations to pay
the Subscription Amount and (ii) the Company’s obligations to
deliver the Securities have been satisfied or waived.
" Closing Statement " means
the Closing Statement in the form attached hereto as Annex A
. " Commission " means the
United States Securities and Exchange Commission.
" Common Stock " means the
common stock of the Company, par value $0.001 per share, and any
other class of securities into which such securities may hereafter
be reclassified or changed into. "
Common Stock Equivalents " means any securities of the
Company or the Subsidiaries which would entitle the holder thereof
to acquire at any time Common Stock, including, without limitation,
any debt, preferred stock, rights, options, warrants or other
instrument that is at any time convertible into or exercisable or
exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock. " Company
Counsel " means Richardson & Patel LLP, with offices
located at 10900 Wilshire Boulevard, Suite 500, Los Angeles,
CA 90024. " Conversion Price "
shall have the meaning ascribed to such term in the Debentures.
" Debentures " means the 10%
Secured Convertible Debentures due, subject to the terms therein,
12 months from their date of issuance, issued by the Company
to the Purchasers hereunder, in the form of Exhibit A
attached hereto. " Disclosure
Schedules " shall have the meaning ascribed to such term in
Section 3.1. " Discussion Time
" shall have the meaning ascribed to such term in Section 3.2(f).
" Evaluation Date " shall have
the meaning ascribed to such term in Section 3.1(r).
" Exchange Act " means the
Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder. "
Exempt Issuance " means the issuance of (a) shares of
Common Stock or options to employees, consultants (but if to
consultants, not to exceed 500,000 in any 12 month period,
subject to adjustment for reverse and forward stock splits and the
like), officers or directors of the Company pursuant to any stock
or option plan duly adopted for such purpose, by a majority of the
non-employee members of the Board of Directors or a majority of the
members of a committee of non-employee directors established for
such purpose, (b) securities upon the exercise or exchange of or
conversion of any Securities issued hereunder and/or other
securities exercisable or exchangeable for or convertible into
shares of Common Stock issued and outstanding on the date of this
Agreement,
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provided that such securities have not been amended since the
date of this Agreement to increase the number of such securities or
to decrease the exercise, exchange or conversion price of such
securities and (c) securities issued pursuant to acquisitions
or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such
issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company in a business synergistic with
the business of the Company and in which the Company receives
benefits in addition to the investment of funds, but shall not
include a transaction in which the Company is issuing securities
primarily for the purpose of raising capital or to an entity whose
primary business is investing in securities.
" FWS " means Feldman
Weinstein & Smith LLP with offices located at 420 Lexington
Avenue, Suite 2620, New York, New York 10170-0002.
" GAAP " shall have the
meaning ascribed to such term in Section 3.1(h).
" Indebtedness " shall have
the meaning ascribed to such term in Section 3.1(aa).
" Intellectual Property Rights
" shall have the meaning ascribed to such term in
Section 3.1(o). " Legend
Removal Date " shall have the meaning ascribed to such term in
Section 4.1(c). " Liens "
means a lien, charge, security interest, encumbrance, right of
first refusal, preemptive right or other restriction.
" Lock-Up Agreement " means
the Lock-Up Agreement, dated as of the date hereof, by and among
the Company and Ki Nam, the Chief Executive Officer of the Company,
in the form of Exhibit G attached hereto.
" Material Adverse Effect "
shall have the meaning assigned to such term in
Section 3.1(b). " Material
Permits " shall have the meaning ascribed to such term in
Section 3.1(m). " Maximum Rate
" shall have the meaning ascribed to such term in
Section 5.17. " Participation
Maximum " shall have the meaning ascribed to such term in
Section 4.12(a). " Person "
means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
" Pre-Notice " shall have the
meaning ascribed to such term in Section 4.12(b).
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" Pro Rata Portion " shall
have the meaning ascribed to such term in Section 4.12(e).
" Proceeding " means an
action, claim, suit, investigation or proceeding (including,
without limitation, an informal investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
" Public Information Failure "
shall have the meaning ascribed to such term in
Section 4.3(b). " Public
Information Failure Payments " shall have the meaning ascribed
to such term in Section 4.3(b).
" Purchaser Party " shall have
the meaning ascribed to such term in Section 4.10.
" Required Approvals " shall
have the meaning ascribed to such term in Section 3.1(e).
" Required Minimum " means, as
of any date, the maximum aggregate number of shares of Common Stock
then issued or potentially issuable in the future pursuant to the
Transaction Documents, including any Underlying Shares issuable
upon exercise in full of all Warrants or conversion in full of all
Debentures (including Underlying Shares issuable as payment of
interest on the Debentures), ignoring any conversion or exercise
limits set forth therein, and assuming that the Conversion Price is
at all times on and after the date of determination 75% of the then
Conversion Price on the Trading Day immediately prior to the date
of determination. "
Rule 144 " means Rule 144 promulgated by the
Commission pursuant to the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same
effect as such Rule. " SEC
Reports " shall have the meaning ascribed to such term in
Section 3.1(h). "
Securities " means the Debentures, the Warrants, the Warrant
Shares and the Underlying Shares. "
Securities Act " means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
" Security Agreement " means
the Security Agreement, dated the date hereof, among the Company
and the Purchasers, in the form of Exhibit E attached
hereto. " Security Documents "
shall mean the Security Agreement, the Subsidiary Guarantees and
any other documents and filing required thereunder in order to
grant the Purchasers a first priority security interest in the
assets of the Company and the Subsidiaries as provided in the
Security Agreement, including all UCC-1 filing receipts.
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" Short Sales " means all
"short sales" as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the
location and/or reservation of borrowable shares of Common Stock),
nor shall Short Sale include any short sale or hedge against any
basket of securities traded on any public market, whether or not
such basket includes the Common Stock.
" Subscription Amount " means,
as to each Purchaser, the aggregate amount to be paid for
Debentures and Warrants purchased hereunder as specified below such
Purchaser’s name on the signature page of this Agreement and
next to the heading "Subscription Amount," in United States dollars
and in immediately available funds. "
Subsequent Financing " shall have the meaning ascribed to
such term in Section 4.12(a). "
Subsequent Financing Notice " shall have the meaning
ascribed to such term in Section 4.12(b).
" Subsidiary " means any
subsidiary of the Company as set forth on Schedule 3.1(a)
and shall, where applicable, also include any direct or indirect
subsidiary of the Company formed or acquired after the date hereof.
" Subsidiary Guarantee " means
the Subsidiary Guarantee, dated the date hereof, by each Subsidiary
in favor of the Purchasers, in the form of Exhibit F
attached hereto. " To the
knowledge of the Company " means the actual knowledge of the
management of the Company. "
Trading Day " means a day on which the principal Trading
Market is open for trading. "
Trading Market " means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date
in question: the American Stock Exchange, the Nasdaq Capital
Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
the New York Stock Exchange or the OTC Bulletin Board.
" Transaction Documents "
means this Agreement, the Debentures, the Warrants, the Security
Agreement, the Subsidiary Guarantee, the Escrow Agreement, the
Lock-Up Agreement and all exhibits and schedules thereto and hereto
and any other documents or agreements executed in connection with
the transactions contemplated hereunder.
" Transfer Agent " means
Securities Transfer Corporation, the current transfer agent of the
Company, with a mailing address of 2591 Dallas Parkway,
Suite 102, Frisco, Texas 75034 and a facsimile number of
469-633-0088, and any successor transfer agent of the Company.
" Underlying Shares " means
the shares of Common Stock issued and issuable upon conversion or
redemption of the Debentures and upon exercise of the Warrants
and
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issued and issuable in lieu of the cash payment of interest on
the Debentures in accordance with the terms of the Debentures.
" Variable Rate Transaction "
shall have the meaning ascribed to such term in Section 4.13.
" Vision " means Vision
Opportunity Master Fund, Ltd. "
VWAP " means, for any date, the price determined by the
first of the following clauses that applies: (a) if the Common
Stock is then listed or quoted on a Trading Market, the daily
volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted for trading as reported by
Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York
City time) to 4:02 p.m. (New York City time)); (b) if the OTC
Bulletin Board is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding
date) on the OTC Bulletin Board; (c) if the Common Stock is
not then listed or quoted for trading on the OTC Bulletin Board and
if prices for the Common Stock are then reported in the "Pink
Sheets" published by Pink OTC Markets, Inc. (or a similar
organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so
reported; or (d) in all other cases, the fair market value of
a share of Common Stock as determined by an independent appraiser
selected in good faith by the Purchasers of a majority in interest
of the Securities then outstanding and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the
Company. " Warrants " means,
collectively, the Series D Common Stock purchase warrants
delivered to the Purchasers at the Closing in accordance with
Section 2.2(a) hereof, which Warrants shall be exercisable
immediately and have a term of exercise equal to 5 years, in
the form of Exhibit C attached hereto.
" Warrant Shares " means the
shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE 2.1
Closing . On the Closing Date, upon the terms and subject to
the conditions set forth herein, substantially concurrent with the
execution and delivery of this Agreement by the parties hereto, the
Company agrees to sell, and the Purchasers, severally and not
jointly, agree to purchase, up to an aggregate of $2,200,000 in
principal amount of the Debentures. Each Purchaser shall deliver to
the Company via wire transfer or a certified check of immediately
available funds equal to its Subscription Amount and the Company
shall deliver to each Purchaser its respective Debenture and a
Warrant, as determined pursuant to Section 2.2(a), and the
Company and each Purchaser shall deliver the other items set forth
in Section 2.2 deliverable at the Closing. Upon satisfaction
of the covenants and conditions set forth in Sections 2.2 and
2.3, the Closing shall occur at the offices of FWS or such other
location as the parties shall
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mutually agree. 2.2
Deliveries . (a) On or prior
to the Closing Date, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) this Agreement duly executed by
the Company; (ii) a legal opinion of
Company Counsel, substantially in the form of Exhibit D
attached hereto; (iii) a Debenture
with a principal amount equal to such Purchaser’s
Subscription Amount, registered in the name of such Purchaser;
(iv) a Warrant registered in the name
of such Purchaser to purchase up to 303,030 shares of Common Stock
per each $1 million of such Purchaser’s Subscription
Amount (pro-rata for lesser amounts), with an exercise price equal
to $2.00, subject to adjustment therein;
(v) the Security Agreement, duly
executed by the Company and each Subsidiary, along with all of the
Security Documents, including the Subsidiary Guarantee, duly
executed by the parties thereto; and
(vi) the Lock-Up Agreement.
(b) On or prior to the Closing Date,
each Purchaser shall deliver or cause to be delivered to the
Company the following: (i) this
Agreement duly executed by such Purchaser;
(ii) such Purchaser’s
Subscription Amount by wire transfer to the account as specified in
writing by the Company; and (iii) the
Security Agreement duly executed by such Purchaser.
2.3 Closing Conditions .
(a) The obligations of the Company
hereunder in connection with the Closing are subject to the
following conditions being met: (i)
the accuracy in all material respects on the Closing Date of the
representations and warranties of the Purchasers contained herein
(unless as of a specific date therein);
(ii) all obligations, covenants and
agreements of each Purchaser required to be performed at or prior
to the Closing Date shall have been performed; and
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(iii) the delivery by each
Purchaser of the items set forth in Section 2.2(b) of this
Agreement. (b) The respective
obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the accuracy in all material
respects when made and on the Closing Date of the representations
and warranties of the Company contained herein (unless as of a
specific date therein); (ii) all
obligations, covenants and agreements of the Company required to be
performed at or prior to the Closing Date shall have been
performed; (iii) the delivery by the
Company of the items set forth in Section 2.2(a) of this
Agreement; (iv) there shall have been
no Material Adverse Effect with respect to the Company since the
date hereof; and (v) the Company
shall have obtained a written extension and forbearance of any
outstanding Indebtedness such that such Indebtedness does not
become due and is not payable on or before the one year anniversary
of the date hereof or, as to any such debt, such debt shall have
been converted at a conversion price of no less than $1.65 and on
such other terms as is acceptable to Vision; and
(vi) from the date hereof to the
Closing Date, trading in securities generally as reported by
Bloomberg L.P. shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades
are reported by such service, or on any Trading Market, nor shall a
banking moratorium have been declared either by the United States
or New York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each
case, in the reasonable judgment of each Purchaser, makes it
impracticable or inadvisable to purchase the Securities at the
Closing. ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties
of the Company . Except as set forth in the Disclosure
Schedules, which Disclosure Schedules shall be deemed a part hereof
and shall qualify any representation or otherwise made herein to
the extent of the disclosure contained in the corresponding section
of the Disclosure Schedules, the Company hereby makes the following
representations and warranties to each Purchaser:
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(a) Subsidiaries . All of
the direct and indirect subsidiaries of the Company are set forth
on Schedule 3.1(a) . The Company owns, directly or
indirectly, all of the capital stock or other equity interests of
each Subsidiary free and clear of any Liens, and all of the issued
and outstanding shares of capital stock of each Subsidiary are
validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase
securities. (b) Organization and
Qualification . The Company and each of the Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite
power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Neither the Company
nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents.
Each of the Company and the Subsidiaries is duly qualified to
conduct business and is in good standing as a foreign corporation
or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be
expected to result in: (i) a material adverse effect on the
legality, validity or enforceability of any Transaction Document,
(ii) a material adverse effect on the results of operations,
assets, business, prospects or condition (financial or otherwise)
of the Company and the Subsidiaries, taken as a whole, or
(iii) a material adverse effect on the Company’s ability
to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i),
(ii) or (iii), a " Material Adverse Effect ") and no
Proceeding has been instituted in any such jurisdiction revoking,
limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification.
(c) Authorization; Enforcement
. The Company has the requisite corporate power and authority to
enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of
each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the
Company, the Board of Directors or the Company’s stockholders
in connection therewith other than in connection with the Required
Approvals. Each Transaction Document has been (or upon delivery
will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof and thereof, will constitute the
valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except: (i) as limited
by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
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(d) No Conflicts . The
execution, delivery and performance of the Transaction Documents by
the Company and the consummation by the Company of the other
transactions contemplated hereby and thereby do not and will not:
(i) conflict with or violate any provision of the
Company’s or any Subsidiary’s certificate or articles
of incorporation, bylaws or other organizational or charter
documents, (ii) conflict with, or constitute a default (or an
event that with notice or lapse of time or both would become a
default) under, result in the creation of any Lien upon any of the
properties or assets of the Company or any Subsidiary, or give to
others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or
by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) subject to the Required Approvals,
conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset
of the Company or a Subsidiary is bound or affected; except in the
case of each of clauses (ii) and (iii), such as could not have
or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and
Approvals . The Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state,
local or other governmental authority or other Person in connection
with the execution, delivery and performance by the Company of the
Transaction Documents, other than: (i) the filings required
pursuant to Section 4.6 of this Agreement,
(ii) application(s) to each applicable Trading Market for the
listing of the Securities for trading thereon in the time and
manner required thereby and (iii) the filing of Form D
with the Commission and such filings as are required to be made
under applicable state securities laws (collectively, the "
Required Approvals "). (f)
Issuance of the Securities . The Securities are duly
authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens imposed
by the Company other than restrictions on transfer provided for in
the Transaction Documents. The Underlying Shares, when issued in
accordance with the terms of the Transaction Documents, will be
validly issued, fully paid and nonassessable, free and clear of all
Liens imposed by the Company other than restrictions on transfer
provided for in the Transaction Documents. The Company has reserved
from its duly authorized capital stock a number of shares of Common
Stock for issuance of the Underlying Shares at least equal to the
Required Minimum on the date hereof.
(g) Capitalization . The
capitalization of the Company is as set forth on
Schedule 3.1(g) , which Schedule 3.1(g)
shall also include the number of shares of Common Stock owned
beneficially, and of record, by Affiliates of the Company as of the
date hereof. The Company has not issued any capital stock since its
most recently filed periodic report under the Exchange Act, other
than pursuant to the exercise of employee
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stock options under the Company’s stock option plans, the
issuance of shares of Common Stock to employees pursuant to the
Company’s employee stock purchase plans and pursuant to the
conversion and/or exercise of Common Stock Equivalents outstanding
as of the date of the most recently filed periodic report under the
Exchange Act. No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate
in the transactions contemplated by the Transaction Documents.
Except as a result of the purchase and sale of the Securities,
there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into
or exercisable or exchangeable for, or giving any Person any right
to subscribe for or acquire any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue
additional shares of Common Stock or Common Stock Equivalents. The
issuance and sale of the Securities will not obligate the Company
to issue shares of Common Stock or other securities to any Person
(other than the Purchasers) and will not result in a right of any
holder of Company securities to adjust the exercise, conversion,
exchange or reset price under any of such securities. All of the
outstanding shares of capital stock of the Company are validly
issued, fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, and none of
such outstanding shares was issued in violation of any preemptive
rights or similar rights to subscribe for or purchase securities.
No further approval or authorization of any stockholder, the Board
of Directors or others is required for the issuance and sale of the
Securities. There are no stockholders agreements, voting agreements
or other similar agreements with respect to the Company’s
capital stock to which the Company is a party or, to the knowledge
of the Company, between or among any of the Company’s
stockholders. (h) SEC Reports;
Financial Statements . The Company has filed all reports,
schedules, forms, statements and other documents required to be
filed by the Company under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two
years preceding the date hereof (or such shorter period as the
Company was required by law or regulation to file such material)
(the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively
referred to herein as the " SEC Reports ") on a timely basis
or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied
in all material respects with the requirements of the Securities
Act and the Exchange Act, as applicable, and none of the SEC
Reports, when filed, 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. The Company has never been an issuer subject to Rule
144(i) under the Securities Act. The financial statements of the
Company included in the SEC Reports comply in all material respects
with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at
the time of filing. Such financial statements have been prepared in
accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods
involved (" GAAP "), except as may be otherwise
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specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material
respects the financial position of the Company and its consolidated
Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal, immaterial, year-end
audit adjustments. (i) Material
Changes; Undisclosed Events, Liabilities or Developments .
Since the date of the latest audited financial statements included
within the SEC Reports, except as specifically disclosed in a
subsequent SEC Report filed prior to the date hereof: (i) there has
been no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent
or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent
with past practice and (B) liabilities not required to be reflected
in the Company’s financial statements pursuant to GAAP or
disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting, (iv) the
Company has not declared or made any dividend or distribution of
cash or other property to its stockholders or purchased, redeemed
or made any agreements to purchase or redeem any shares of its
capital stock and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant
to existing Company stock option plans. The Company does not have
pending before the Commission any request for confidential
treatment of information. Except for the issuance of the Securities
contemplated by this Agreement or as set forth on
Schedule 3.1(i) , no event, liability or development
has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations
or financial condition, that would be required to be disclosed by
the Company under applicable securities laws at the time this
representation is made or deemed made that has not been publicly
disclosed at least 1 Trading Day prior to the date that this
representation is made. (j)
Litigation . There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge
of the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign)
(collectively, an " Action ") which (i) adversely affects or
challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, if
there were an unfavorable decision, have or reasonably be expected
to result in a Material Adverse Effect. Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of
breach of fiduciary duty. There has not been, and to the knowledge
of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any
current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities
Act.
12
(k) Labor Relations . No
material labor dispute exists or, to the knowledge of the Company,
is imminent with respect to any of the employees of the Company,
which could reasonably be expected to result in a Material Adverse
Effect. None of the Company’s or its Subsidiaries’
employees is a member of a union that relates to such
employee’s relationship with the Company or such Subsidiary,
and neither the Company nor any of its Subsidiaries is a party to a
collective bargaining agreement, and the Company and its
Subsidiaries believe that their relationships with their employees
are good. No executive officer, 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 or non-competition agreement, or any other
contract or agreement or any restrictive covenant in favor of any
third party, 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. The
Company and its Subsidiaries are in compliance with all U.S.
federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of
employment and wages and hours, except where the failure to be in
compliance could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.
(l) Compliance . Neither the
Company nor any Subsidiary: (i) is in default under or in
violation of (and no event has occurred that has not been waived
that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the
Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it
is a party or by which it or any of its properties is bound
(whether or not such default or violation has been waived),
(ii) is in violation of any order of any court, arbitrator or
governmental body or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local
laws applicable to its business and all such laws that affect the
environment, except in each case as could not have or reasonably be
expected to result in a Material Adverse Effect.
(m) Regulatory Permits . The
Company and the Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct
their respective businesses as described in the SEC Reports, except
where the failure to possess such permits could not reasonably be
expected to result in a Material Adverse Effect (" Material
Permits "), and neither the Company nor any Subsidiary has
received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(n) Title to Assets . The
Company and the Subsidiaries have good and marketable title in fee
simple to all real property owned by them and good and marketable
title in all personal property owned by them that is material to
the business of the Company and the Subsidiaries, in each case free
and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the
Company
13
and the Subsidiaries and Liens for the payment of federal, state
or other taxes, the payment of which is neither delinquent nor
subject to penalties. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under
valid, subsisting and enforceable leases with which the Company and
the Subsidiaries are in compliance.
(o) Patents and Trademarks .
The Company and the Subsidiaries have, or have rights to use, all
patents, patent applications, trademarks, trademark applications,
service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights
as described in the SEC Reports as necessary or material for use in
connection with their respective businesses and which the failure
to so have could have a Material Adverse Effect (collectively, the
" Intellectual Property Rights "). Neither the Company nor
any Subsidiary has received a notice (written or otherwise) that
any of the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To
the knowledge of the Company, all such Intellectual Property Rights
are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights. The Company and
its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual
properties, except where failure to do so could not, individually
or in the aggregate, reasonably be expected to have a Material
Adverse Effect. (p) Insurance
. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses
in which the Company and the Subsidiaries are engaged, including,
but not limited to, directors and officers insurance coverage at
least equal to the aggregate Subscription Amount. Neither the
Company nor any 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 without a
significant increase in cost. (q)
Transactions With Affiliates and Employees . Except as set
forth in the SEC Reports, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees
of the Company is presently a party to any transaction with the
Company or any Subsidiary (other than for services as employees,
officers and 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 officer, director or
such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, in each
case in excess of $120,000 other than for: (i) payment of
salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the
Company and (iii) other employee benefits, including stock
option agreements under any stock option plan of the Company.
14
(r) Sarbanes-Oxley; Internal
Accounting Controls . The Company is in material compliance
with all provisions of the Sarbanes-Oxley Act of 2002 which are
applicable to it as of the Closing Date. The Company and the
Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that:
(i) transactions are executed in accordance with
management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain asset
accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Company and designed such disclosure controls and procedures to
ensure that information required to be disclosed by the Company in
the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms. The
Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and
procedures as of the end of the period covered by the
Company’s most recently filed periodic report under the
Exchange Act (such date, the " Evaluation Date "). The
Company presented in its most recently filed periodic report under
the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no changes in the Company’s
internal control over financial reporting (as such term is defined
in the Exchange Act) that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control
over financial reporting. (s)
Certain Fees . No brokerage or finder’s fees or
commissions are or will be payable by the Company to any broker,
financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the
transactions contemplated by the Transaction Documents. The
Purchasers shall have no obligation with respect to any fees or
with respect to any claims made by or on behalf of other Persons
for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by the Transaction
Documents. (t) Private
Placement . Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and
sale of the Securities by the Company to the Purchasers as
contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the
Trading Market. (u) Investment
Company . The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, will not
be or be an Affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended. The
Company shall conduct its business in a manner so that it will not
become subject to the Investment Company Act of 1940, as
amended.
15
(v) Registration Rights .
Other than each of the Purchasers, no Person has any right to cause
the Company to effect the registration under the Securities Act of
any securities of the Company. (w)
Listing and Maintenance Requirements . The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act,
and the Company has taken no action designed to, or which to its
knowledge is likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act nor has the
Company received any notification that the Commission is
contemplating terminating such registration. The Company has not,
in the 12 months preceding the date hereof, received notice
from the Over-the-Counter Bulletin Board to the effect that the
Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no
reason to believe that it will not in the foreseeable future
continue to be, in compliance with all such listing and maintenance
requirements. (x) Application of
Takeover Protections . The Company and the 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 Company’s
certificate of incorporation (or similar charter documents) or the
laws of its state of incorporation that is or could become
applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights
under the Transaction Documents, including without limitation as a
result of the Company’s issuance of the Securities and the
Purchasers’ ownership of the Securities.
(y) Disclosure . Except with
respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents, the Company confirms
that neither it nor any other Person acting on its behalf has
provided any of the Purchasers or their agents or counsel with any
information that it believes constitutes or might constitute
material, non-public information. The Company understands and
confirms that the Purchasers will rely on the foregoing
representation in effecting transactions in securities of the
Company. All disclosure furnished by or on behalf of the Company to
the Purchasers regarding the Company, its business and the
transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, is true and correct and does not
contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made,
not misleading. The press releases disseminated by the Company
during the twelve months preceding the date of this Agreement taken
as a whole do not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made and when made, not
misleading. The Company acknowledges and agrees that no Purchaser
makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically
set forth in Section 3.2 hereof.
16
(z) No Integrated Offering
. Assuming the accuracy of the Purchasers’ representations
and warranties set forth in Section 3.2, neither the Company,
nor any of its Affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to
be integrated with prior offerings by the Company for purposes of
(i) the Securities Act which would require the registration of
any such securities under the Securities Act, or (ii) any
applicable shareholder approval provisions of the Over-the-Counter
Bulletin Board. (aa) Solvency
. Based on the consolidated financial condition of the Company as
of the Closing Date, after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder:
(i) the fair saleable value of the Company’s assets
exceeds the amount that will be required to be paid on or in
respect of the Company’s existing debts and other liabilities
(including known contingent liabilities) as they mature,
(ii) the Company’s assets do not constitute unreasonably
small capital to carry on its business as now conducted and as
proposed to be conducted including its capital needs taking into
account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and
capital availability thereof, and (iii) the current cash flow
of the Company, together with the proceeds the Company would
receive, were it to liquidate all of its assets, after taking into
account all anticipated uses of the cash, would be sufficient to
pay all amounts on or in respect of its liabilities when such
amounts are required to be paid. The Company does not intend to
incur debts beyond its ability to pay such debts as they mature
(taking into account the timing and amounts of cash to be payable
on or in respect of its debt). The Company has no knowledge of any
facts or circumstances which lead it to believe that it will file
for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the
Closing Date. Schedule 3.1(aa) sets forth as of the
date hereof all outstanding secured and unsecured Indebtedness of
the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments. For the purposes of this Agreement, "
Indebtedness " means (x) any liabilities for borrowed
money or amounts owed in excess of $50,000 (other than trade
accounts payable incurred in the ordinary course of business),
(y) all guaranties, endorsements and other contingent
obligations in respect of indebtedness of others, whether or not
the same are or should be reflected in the Company’s balance
sheet (or the notes thereto), except guaranties by endorsement of
negotiable instru
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