SECURITIES PURCHASE
AGREEMENT
This SECURITIES
PURCHASE AGREEMENT (the “ Agreement ”),
dated as of May 27, 2009, is by and among Valley Forge Composite
Technologies, Inc., a Florida corporation with offices located at
50 East River Center Blvd., Suite 820, Covington, Kentucky 41011
(the “ Company ”), and the investors listed on
the Schedule of Buyers attached hereto (individually, a “
Buyer ” and collectively, the “ Buyers
”).
RECITALS
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 U.S.
Securities and Exchange Commission (the “ SEC ”)
under the 1933 Act.
B.
Each Buyer wishes to
purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate number of
shares of the Company’s common stock, par value $.001 per
share (the “ Common Stock ”), set forth opposite
such Buyer’s name in column (3) on the Schedule of Buyers
(which aggregate amount for all Buyers together shall be 1,600,000
shares of Common Stock and shall collectively be referred to herein
as the “ Common Shares ”), and (ii) a warrant to
acquire up to that number of additional shares of Common Stock set
forth opposite such Buyer’s name in column (4) on the
Schedule of Buyers, in the form attached hereto as Exhibit
A (the “ Warrants ”) (as exercised,
collectively, the “ Warrant Shares ”). The
Common Shares, the Warrants and the Warrant Shares are collectively
referred to herein as the “ Securities
.”
AGREEMENT
NOW, THEREFORE, in
consideration of the premises and the mutual covenants contained
herein and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Company and
each Buyer hereby agree as follows:
1.
PURCHASE AND SALE OF
COMMON SHARES AND WARRANTS.
(a)
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,
shall purchase from the Company on the Closing Date (as defined
below), the number of Common Shares as is set forth opposite such
Buyer’s name in column (3) on the Schedule of Buyers, along
with the Warrants to acquire up to that number of Warrant Shares as
is set forth opposite such Buyer’s name in column (4) on the
Schedule of Buyers.
(b)
Closing
. The closing (the
“ Closing ”) of the purchase of the Common
Shares and the Warrants by the Buyers shall occur at the offices of
Greenberg Traurig, LLP, The MetLife Building, 200 Park Avenue, 15
th Floor, New York, New York 10166. The date and
time of the Closing (the “ Closing Date ”) shall
be 10:00 a.m., New York time, on the first (1 st )
Business Day on which the conditions to the Closing set forth in
Sections 6
and 7 below are satisfied or waived (or
such later date as is mutually agreed to by the Company and each
Buyer). As used herein, “ Business Day ” means
any day other than a Saturday,
Sunday or other day on
which commercial banks in New York, New York are authorized or
required by law to remain closed.
(c)
Purchase
Price
. The aggregate
purchase price for the Common Shares and the Warrants to be
purchased by each Buyer (the “ Purchase Price ”)
shall be the amount set forth opposite such Buyer’s name in
column (5) on the Schedule of Buyers. Each Buyer shall pay $0.125
for each Common Share and related Warrants to be purchased by such
Buyer at the Closing.
(d)
Form of
Payment
. On the Closing Date,
(i) each Buyer shall deliver its respective Purchase Price to the
Company for 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
(A) one or more stock certificates, free and clear of all
restrictive and other legends (except as expressly provided in
Section 5(c) hereof), evidencing the number of Common Shares such
Buyer is purchasing as is set forth opposite such Buyer’s
name in column (3) of the Schedule of Buyers, and (B) a Warrant
pursuant to which such Buyer shall have the right to acquire up to
such number of Warrant Shares as is set forth opposite such
Buyer’s name in column (4) of the Schedule of Buyers, in all
cases, 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 to the Company with
respect to only itself that:
(a)
Organization;
Authority
. Such Buyer is an
entity duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization with the requisite
power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents (as defined
below) to which it is a party and otherwise to carry out its
obligations hereunder and thereunder.
(b)
No Public Sale or
Distribution
. Such Buyer is (i)
acquiring the Common Shares and the Warrants, and (ii) upon
exercise of its Warrants will acquire the Warrant Shares issuable
upon exercise thereof, in each case, 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, or make any
representation or warranty, 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.
(c)
Accredited Investor
Status
. Such Buyer is
an “accredited investor” as that term is defined in
Rule 501(a) of Regulation D.
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(d)
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.
(e)
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 or any representations and
warranties contained in any other Transaction Document or any other
document or instrument executed and/or delivered in connection with
this Agreement or the consummation of the transaction contemplated
hereby. 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.
(f)
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.
(g)
Transfer or
Resale
. Such Buyer
understands that except as provided in Sections 4(h) and 4(n) hereof: (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 (if
requested by the Company) an opinion of counsel to such Buyer, in a
form reasonably acceptable to the Company, 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 (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 promulgated
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.
(h)
Validity;
Enforcement
3
. This Agreement
has been duly and validly authorized, executed and delivered on
behalf of such Buyer and constitutes 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 and the
consummation by such Buyer of the transactions contemplated hereby
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
. Such Buyer has
not directly or indirectly, nor has any Person acting on behalf of
or pursuant to any understanding with such Buyer, engaged in any
transactions in the securities of the Company (including, without
limitation, any Short Sales involving the Company’s
securities) since the time that such Buyer was first contacted by
the Company regarding the investment in the Company contemplated
herein. “Short Sales” include, without limitation, all
“short sales” as defined in Rule 200 promulgated under
Regulation SHO under the 1934 Act (“Regulation SHO”)
and all types of direct and indirect stock pledges, forward sale
contracts, options, puts, calls, swaps and similar arrangements
(including on a total return basis), and sales and other
transactions through non-U.S. broker dealers or foreign regulated
brokers (but shall not be deemed to include the location and/or
reservation of borrowable shares of Common Stock). Such Buyer does
not as of the date hereof, and will not immediately following the
Closing, own 10% or more of the Company’s issued and
outstanding shares of Common Stock (calculated based on the
assumption that all Equivalents (as defined below) owned by such
Buyer, whether or not presently exercisable or convertible, have
been fully exercised or converted (as the case may be) but taking
into account any limitations on exercise or conversion (including
“blockers”) contained therein).
(l)
General
Solicitation
. Such Buyer is not
purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities
published in any newspaper, magazine or similar media or broadcast
over television or radio or presented at any seminar.
4
3.
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY.
The Company represents
and warrants to each of the Buyers that:
(a)
Organization and
Qualification
. Each of the Company
and each of the Subsidiaries are entities duly organized and
validly existing and 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 and as presently proposed to be
conducted. Each of the Company and each of the 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 (i)
the business, properties, assets, liabilities, operations
(including results thereof), condition (financial or otherwise) or
prospects of the Company or any Subsidiary, individually or taken
as a whole, (ii) the transactions contemplated hereby or in the
other Transaction Documents or (iii) the authority or ability of
the Company or any of the Subsidiaries to perform their respective
obligations under the Transaction Documents (as defined below).
Other than the Subsidiaries, there is no Person in which the
Company, directly or indirectly, owns capital stock or holds an
equity or similar interest. For purposes of this Agreement, Valley
Forge Detection Systems, Inc., Valley Forge Aerospace, Inc., Valley
Forge Imaging, Inc. and Valley Forge Imaging Technologies, Inc. are
collectively referred to herein as the “ Subsidiaries
” and each individually as a “ Subsidiary
.”
(b)
Authorization;
Enforcement; Validity
. The Company has the
requisite power and authority to enter into and perform its
obligations under this Agreement and the other Transaction
Documents to which it is a party and to issue the Securities in
accordance with the terms hereof and thereof. Each Subsidiary
has the requisite power and authority to enter into and perform its
obligations under the Transaction Documents to which it is a party.
The execution and delivery of this Agreement and the other
Transaction Documents by the Company and the Subsidiaries and the
consummation by the Company and the Subsidiaries of the
transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Common Shares, the issuance of the
Warrants and the reservation for issuance and issuance of the
Warrant Shares issuable upon exercise of the Warrants) have been
duly authorized by the Company’s board of directors or other
governing body, as applicable, and (other than the filing with the
SEC of a Notice on Form D and one or more registration statements
in accordance with Section 4(n) hereof and any other filings as may
be required by any state securities agencies) no further filing,
consent or authorization is required by the Company, the
Subsidiaries, their respective Boards of Directors or their
stockholders or other governing body. This Agreement and the other
Transaction Documents to which it is a party have been duly
executed and delivered by the Company and constitutes 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
and except as rights to indemnification and to contribution may be
limited by federal or state securities law. The Transaction
Documents to which each Subsidiary is a party have been duly
executed and delivered by each such Subsidiary, and constitutes the
legal, valid and binding obligations of such Subsidiary 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
and except as rights to indemnification and to
contribution
5
may be limited by
federal or state securities law. “ Transaction
Documents ” means, collectively, this Agreement, the
Warrants, the Irrevocable Transfer Agent Instructions (as defined
in Section 5(b) ) and each of the other agreements
and instruments entered into by the parties hereto in connection
with the transactions contemplated hereby and thereby.
(c)
Issuance of
Securities
. The issuance of the
Common Shares and the Warrants are duly authorized and upon
issuance in accordance with the terms of the Transaction Documents
shall be validly issued, fully paid and non-assessable and free
from all taxes, liens, charges and other encumbrances with respect
to the issue thereof. As of the Closing, the Company shall have
reserved from its duly authorized capital stock not less than 120%
of the maximum number of shares of Common Stock issuable upon
exercise of the Warrants (without regard to any limitations on the
exercise of the Warrants set forth therein). Upon exercise in
accordance with the Warrants, the Warrant Shares, respectively,
when issued, will be validly issued, fully paid and nonassessable
and free from all preemptive or similar rights, taxes, liens,
charges and other encumbrances with respect to the issue thereof,
with the holders being entitled to all rights accorded to a holder
of Common Stock. Subject to the accuracy of the representations and
warranties of the Buyers in this Agreement, the offer and issuance
by the Company of the Securities is exempt from registration under
the 1933 Act.
(d)
No
Conflicts
. The execution,
delivery and performance of the Transaction Documents by the
Company and the Subsidiaries and the consummation by the Company
and the Subsidiaries of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Common
Shares, the Warrants and Warrant Shares and the reservation for
issuance of the Warrant Shares) will not (i) result in a violation
of the Articles of Incorporation (as defined in Section
3(r) ) or other organizational documents
of the Company or any of the Subsidiaries, any capital stock of the
Company or any of the Subsidiaries or Bylaws (as defined in
Section 3(r) ) of the Company or any of the
Subsidiaries, (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 the Company or any of the
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 of the Over-the-Counter Bulletin Board (the
“Principal Market ”)) applicable to the Company
or any of the Subsidiaries or by which any property or asset of the
Company or any of the Subsidiaries is bound or affected except, in
the case of clause (ii) or (iii) above, to the extent such
violations that could not reasonably be expected to have a Material
Adverse Effect.
(e)
Consents
. Neither the
Company nor any Subsidiary 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 respective 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 or any Subsidiary is
required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the Closing Date, and neither
the Company nor any of the Subsidiaries are aware of any facts or
circumstances which might prevent the Company or any Subsidiary
from obtaining or effecting any of the registration, application or
filings pursuant to the preceding sentence. The Company is not
in
6
violation of the
requirements of the Principal Market and has no knowledge of any
facts or circumstances which could 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 an 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 or any of the Subsidiaries, (ii) an “affiliate”
(as defined in Rule 144) of the Company or any of the Subsidiaries
or (iii) to its knowledge, 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 the 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; No Placement Agent’s Fees
. Neither the Company,
nor any of the 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. Neither the Company nor any
of the Subsidiaries has engaged any placement agent or other agent
in connection with the sale of the Securities.
(h)
No Integrated
Offering
. None of the Company,
the Subsidiaries or any of their affiliates, nor 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 the issuance
of any of the Securities under the 1933 Act, whether through
integration with prior offerings or otherwise, or cause this
offering of the Securities to require approval of stockholders of
the Company under 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, the Subsidiaries, their affiliates nor any Person acting
on their behalf will take any action or steps referred to in the
preceding sentence that would require registration of the issuance
of any of the Securities under the 1933 Act or cause the offering
of any of the Securities to be integrated with other
offerings.
(i)
Dilutive
Effect
. The Company
understands and acknowledges that the number of Warrant Shares will
increase in certain circumstances. The Company further acknowledges
that its obligation to issue the Warrant Shares upon exercise of
the Warrants in accordance with this Agreement and the Warrants is,
absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other
stockholders of the Company.
7
(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 other organizational document or
the laws of the jurisdiction of its incorporation or otherwise
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 and its
board of directors have taken all necessary action, if any, in
order to render inapplicable any stockholder rights plan or similar
arrangement relating to accumulations of beneficial ownership of
shares of Common Stock or a change in control of the Company or any
of the Subsidiaries.
(k)
SEC Documents;
Financial Statements
. During the two (2)
years prior to the date hereof, the Company has timely 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 each 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 as in effect as of the time of filing.
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 which will not be material, either individually
or in the aggregate). 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(e) 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 not
misleading, in the light of the circumstance under which they are
or were made.
(l)
Absence of Certain
Changes
. Since the date of the
Company’s most recent audited or reviewed financial
statements contained in a Form 10-K, there has been no material
adverse change and no material adverse development in the business,
assets, liabilities, properties, operations (including results
thereof), condition (financial or otherwise) or prospects of the
Company or any of the Subsidiaries, except as may be disclosed in
the SEC Documents filed after the date of such Form 10-K but prior
to the date hereof. Since the date of the Company’s most
recent audited financial statements contained in a Form 10-K,
neither the Company nor any of the Subsidiaries has (i) declared or
paid any dividends, (ii) sold any assets, individually or in
the
8
aggregate, outside of
the ordinary course of business or (iii) made any material capital
expenditures, individually or in the aggregate. Neither the Company
nor any of the Subsidiaries has taken any steps to seek protection
pursuant to any law or statute relating to bankruptcy, insolvency,
reorganization, liquidation or winding up, nor does the Company or
any Subsidiary have any knowledge or reason to believe that any of
their respective 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 and the
Subsidiaries, individually and on a consolidated basis, are 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, (I) with respect to the Company and the Subsidiaries, on a
consolidated basis, (i) the present fair saleable value of the
Company’s and the Subsidiaries’ assets is less than the
amount required to pay the Company’s and the
Subsidiaries’ total Indebtedness (as defined in
Section 3(s) ), (ii) the Company and the
Subsidiaries are unable to pay their debts and liabilities,
subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured or (iii) the Company and
the Subsidiaries intend to incur or believe that they will incur
debts that would be beyond their ability to pay as such debts
mature; and (II) with respect to the Company and each Subsidiary,
individually, (i) the present fair saleable value of the
Company’s or any of the Subsidiaries’ assets is less
than the amount required to pay each of their respective total
Indebtedness, (ii) the Company or any of the Subsidiaries are
unable to pay their respective debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become
absolute and matured or (iii) the Company or any of the
Subsidiaries intend to incur or believe that they will incur debts
that would be beyond their respective ability to pay as such debts
mature. Neither the Company nor any of the Subsidiaries has engaged
in business or in any transaction, and is not about to engage in
business or in any transaction, for which the Company’s or
such Subsidiary’s remaining assets constitute unreasonably
small capital.
(m)
No Undisclosed
Events, Liabilities, Developments or Circumstances
. No event, liability,
development or circumstance has occurred or exists, or is
reasonably expected to exist or occur with respect to the Company,
any of the Subsidiaries or their respective business, properties,
liabilities, prospects, operations (including results thereof) or
condition (financial or otherwise), that would be required to be
disclosed by the Company under applicable securities laws on a
registration statement on Form S-1 filed with the SEC relating to
an issuance and sale by the Company of its Common Stock and which
has not been publicly announced or which would have a material
adverse effect on any Buyer’s investment
hereunder.
(n)
Conduct of Business;
Regulatory Permits
. Neither the Company
nor any of the Subsidiaries is in violation of any material term of
or in default under its Articles of Incorporation, any certificate
of designation, preferences or rights of any other outstanding
series of preferred stock of the Company or any of the Subsidiaries
or Bylaws or their organizational charter, certificate of formation
or articles or certificate of incorporation or bylaws,
respectively. Neither the Company nor any of the Subsidiaries is in
violation of any judgment, decree or order or any statute,
ordinance, rule or regulation applicable to the Company or any of
the Subsidiaries, and neither the Company nor any of the
Subsidiaries will conduct its business in violation of any of the
foregoing, except in all cases for possible violations which could
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 that could reasonably lead to delisting or
suspension of the Common Stock by the Principal Market in the
foreseeable future. Since January 1, 2007, (i) the Common
Stock has been designated for quotation on the Principal Market,
(ii) trading in the Common Stock has not been suspended by the SEC
or the Principal Market and (iii) the Company has received no
communication,
9
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 each of the 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 the Subsidiaries, nor to the Company’s
knowledge, any director, officer, agent, employee or other Person
acting on behalf of the Company or any of the Subsidiaries has, in
the course of its actions for, or on behalf of, the Company or any
of the 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 and each
Subsidiary is in material compliance with all applicable
requirements of the Sarbanes-Oxley Act of 2002 that are effective
as of the date hereof, and all applicable rules and regulations
promulgated by the SEC thereunder that are effective as of the date
hereof.
(q)
Transactions With
Affiliates
. Other than the grant
of stock options disclosed on Schedule
3(q)
and except as disclosed
in the SEC Documents, none of the officers, directors or employees
of the Company or any of the Subsidiaries is presently a party to
any transaction with the Company or any of the 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 the
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
100,000,000 shares of Common Stock, of which 51,415,349 shares are
issued and outstanding and ______ shares are reserved for issuance
pursuant to securities (other than the Warrants) exercisable or
exchangeable for, or convertible into, Common Stock. No
shares of Common Stock are held in treasury. All of such
outstanding shares are duly authorized and have been, or upon
issuance will be, validly issued and are fully paid and
non-assessable. 37,790,000 shares of the Company’s
issued and outstanding Common Stock on the date hereof are as of
the date hereof owned by Persons who are “affiliates”
(as defined in Rule 405 of the 1933 Act and calculated based on the
assumption that only officers, directors and holders of at least
10% of the Company’s issued and
outstanding Common Stock are “affiliates” without
conceding that any such Persons are “affiliates” for
purposes of federal securities laws) of the Company or any of the
Subsidiaries. To the Company’s knowledge, as
of the date hereof no Person owns 10% or
10
more of the
Company’s issued and outstanding shares of Common Stock
(calculated based on the assumption that all Equivalents, whether
or not presently exercisable or convertible, have been fully
exercised or converted (as the case may be) taking
account of any limitations on exercise or conversion (including
“blockers”) contained therein without conceding that
such identified Person is a 10% stockholder for purposes of federal
securities laws). Except as disclosed in Schedule
3(r)
: (i) none of the
Company’s or any Subsidiary’s capital stock is subject
to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company or any
Subsidiary; (ii) except as disclosed in the SEC Documents, 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 the
Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of the Subsidiaries is or
may become bound to issue additional capital stock of the Company
or any of the 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 the Subsidiaries; (iii) there are no outstanding debt
securities, notes, credit agreements, credit facilities or other
agreements, documents or instruments evidencing Indebtedness (as
defined in Section 3(s) ) of the Company or any of the
Subsidiaries or by which the Company or any of the Subsidiaries is
or may become bound; (iv) there are no financing statements
securing obligations in any amounts filed in connection with the
Company or any of the Subsidiaries; (v) there are no agreements or
arrangements under which the Company or any of the Subsidiaries is
obligated to register the sale of any of their securities under the
1933 Act (except pursuant to Section 4(n) hereof); (vi) there are
no outstanding securities or instruments of the Company or any of
the Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings
or arrangements by which the Company or any of the Subsidiaries is
or may become bound to redeem a security of the Company or any of
the 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) neither the
Company nor any Subsidiary has any stock appreciation rights or
“phantom stock” plans or agreements or any similar plan
or agreement; and (ix) neither the Company nor any of the
Subsidiaries have any liabilities or obligations required to be
disclosed in the SEC Documents which are not so disclosed in the
SEC Documents, other than those incurred in the ordinary course of
the Company’s or the Subsidiaries’ respective
businesses and which, individually or in the aggregate, do not or
could not have a Material Adverse Effect. The Company has
furnished 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 the 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
that have not been disclosed in the SEC Documents.
(s)
Indebtedness and
Other Contracts
. Except as disclosed
on Schedule 3(s) or in the SEC Documents, neither
the Company nor any of the 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 could reasonably be expected to 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. 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
11
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,
any other entity and a government or any department or agency
thereof.
(t)
Absence of
Litigation
. Except as set forth
on Schedule 3(t) or in the SEC Documents, 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 the Subsidiaries, the Common Stock or any of the Company’s
or the Subsidiaries’ officers or directors which is outside
of the ordinary course of business or individually or in the
aggregate could have a Material Adverse Effect.
(u)
Insurance
. The Company and each
of the 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 the 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 be unable 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
. Neither the
Company nor any of the Subsidiaries is a party to any collective
bargaining agreement or employs any member of a union. The Company
believe that its and its Subsidiaries’ relations with their
respective employees are good. No executive officer (as defined in
Rule 501(f) promulgated under the 1933 Act) or other key employee
of the Company or any of the Subsidiaries has
12
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
