Exhibit 10.1
UNIT PURCHASE AGREEMENT
THIS UNIT PURCHASE AGREEMENT
(“ Agreement ”) is made as of the 11th day of
August 2009, by and between Flotek Industries, Inc. (the “
Company ”), a corporation organized under the laws of
the State of Delaware, with its principal offices at 2930 W. Sam
Houston Pkwy N., Suite 300, Houston, Texas 77043, and the purchaser
whose name and address is set forth on the signature page hereof
(the “ Purchaser ”).
IN CONSIDERATION of the mutual
covenants contained in this Agreement, the Company and the
Purchaser agree as follows:
1. Authorization of Sale of the
Securities . Subject to the terms and conditions of the
Agreements (as defined below), the Company has authorized the
issuance and sale of up to 16,000 units (the “ Units
”) comprised of (a) one share of Series A Cumulative
Redeemable Convertible Preferred Stock, par value $0.0001 per share
(a “ Preferred Share ”); (b) one warrant
(an “ Initial Warrant ”) to purchase up to 155
shares of common stock, par value $0.0001 per share (the “
Common Stock ”), at an exercise price of $2.31 per
share of Common Stock; and (c) one contingent warrant (a
“ Contingent Warrant ” and, in the aggregate
with the Initial Warrants, the “ Warrants ”) to
purchase up to 500 shares of Common Stock at an exercise price of
$2.45 per share of Common Stock. We refer to the Preferred Shares
and the Warrants as the “ Securities .” The form
of warrant certificate for the Initial Warrants is attached hereto
as Exhibit D . The form of warrant certificate for the
Contingent Warrants is attached hereto as Exhibit E
.
2. Agreement to Sell and Purchase
the Securities .
2.1 This Agreement . At the
Closing (as defined in Section 3 ), the Company will,
subject to the terms of this Agreement, issue and sell to the
Purchaser and the Purchaser will buy from the Company, upon the
terms and conditions hereinafter set forth, Securities comprising
the number of Units (at the purchase price) shown on the signature
page hereof. The parties hereto understand, acknowledge and agree
that the Units are not separate securities of the Company and will
not be delivered at Closing (defined below) other than through the
delivery of the individual Securities comprising the Units
purchased hereunder.
2.2 Other Purchase Agreements
. The Company is simultaneously entering into with certain other
investors (the “ Other Purchasers ”) this same
form of purchase agreement with respect to Securities comprising
the Units. The Company expects to complete sales of the Securities
comprising the Units to the Other Purchasers. The Purchaser and the
Other Purchasers are hereinafter sometimes collectively referred to
as the “ Purchasers ,” and this Agreement and
the purchase agreements executed by the Other Purchasers are
hereinafter sometimes collectively referred to as the “
Agreements .” The term “ Placement Agent
” shall mean Fig Partners, LLC, as placement
agent.
3. Delivery of the Securities at
the Closing; Termination .
3.1 Closing . The completion
of the purchase and sale of the Securities (the “
Closing ”) shall occur at the offices of Andrews Kurth
LLP, 600 Travis, Suite 4200, Houston, Texas 77002, as soon as
practicable and as agreed to by the parties hereto, on
August 11, 2009 or
on such later date or at such different location
as the parties shall agree in writing, but not prior to the date
that the conditions for Closing set forth below have been satisfied
or waived by the appropriate party (the “ Closing Date
”).
3.2 Closing Deliveries . At
the Closing, the Purchaser shall deliver, in immediately available
funds, the full amount of the purchase price for the Securities
comprising the number of Units being purchased hereunder by wire
transfer to an account designated by the Company and the Company
shall deliver to the Purchaser preferred stock and warrant
certificates registered in the name of the Purchaser, or in such
nominee name(s) as designated by the Purchaser in writing,
representing the number of Securities comprising the Units
described in Section 2.1 above and bearing an
appropriate legend referring to the fact that the Securities were
sold in reliance upon the exemption from registration under the
Securities Act of 1933, as amended (the “ Securities
Act ”), provided by Section 4(2) thereof and Rule
506 thereunder. The name(s) in which such certificates are to be
registered are set forth in the Stock Certificate Questionnaire
attached hereto as part of Appendix I .
3.3 Conditions to the
Company’s Obligations . The Company’s obligation to
complete the purchase and sale of the Securities and deliver such
certificates to the Purchaser at the Closing shall be subject to
the following conditions, any one or more of which may be waived by
the Company:
(a) receipt by the Company of
same-day funds in the full amount of the purchase price for the
Securities being purchased hereunder;
(b) completion of the purchases and
sales under the Agreements with the Other Purchasers;
(c) consummation by the Company of
the Credit Facility Amendment (as defined in
Section 4.38 );
(d) the accuracy of the
representations and warranties made by the Purchasers and the
fulfillment of those undertakings of the Purchasers to be fulfilled
prior to the Closing; and
(e) receipt by the Company from the
Purchaser of the fully completed questionnaires attached hereto as
Appendix I .
3.4 Conditions to the
Purchaser’s Obligations . The Purchaser’s
obligation to accept delivery of such certificates and to pay for
the Securities evidenced thereby shall be subject to the following
conditions, any one or more of which may be waived by the
Purchaser:
(a) consummation by the Company of
the Credit Facility Amendment;
(b) each of the representations and
warranties of the Company made herein shall be accurate as of the
Closing Date;
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(c) the delivery to the Purchaser by
counsel to the Company of a legal opinion substantially similar in
substance to the form of opinion attached as Exhibit B
hereto;
(d) receipt by the Purchaser of a
certificate executed by the chief executive officer and the chief
financial or accounting officer of the Company, dated as of the
Closing Date, to the effect that the representations and warranties
of the Company set forth herein are true and correct as of the date
of this Agreement and as of such Closing Date and that the Company
has complied with all the agreements and satisfied all the
conditions herein on its part to be performed or satisfied on or
prior to such Closing Date;
(e) receipt by the Purchaser of a
certificate of the Secretary of the Company, dated as of the
Closing Date:
(i) certifying the resolutions
adopted by the Board of Directors of the Company approving the
transactions contemplated by this Agreement and the issuance of the
Securities;
(ii) certifying the current versions
of the Amended and Restated Certificate of Incorporation and the
Bylaws of the Company; and
(iii) certifying as to the
signatures and authority of the persons signing this Agreement and
related documents on behalf of the Company;
(f) receipt by the Purchaser of a
certificate of good standing for the Company for its jurisdiction
of incorporation and a certificate of qualification as a foreign
corporation for the Company for any jurisdictions in which it is
qualified to transact business as a foreign corporation;
(g) there shall have been no
suspensions in the trading of the Common Stock as of the Closing
Date;
(h) the Common Stock shall continue
to be listed on The New York Stock Exchange as of the Closing Date,
and the shares of Common Stock issuable (i) upon conversion of
the Preferred Shares (the “ Conversion Shares
”), and (ii) upon exercise of the Initial Warrants (the
“ Initial Exercise Shares ”) shall be approved
for listing on The New York Stock Exchange as of the Closing Date,
subject to official notice of issuance; and
(i) the fulfillment in all material
respects of those undertakings of the Company to be fulfilled prior
to the Closing.
3.5 Termination . This
Agreement shall automatically terminate if the Closing has not
occurred prior to August 20, 2009. Without limiting the
generality of the foregoing, in event of such termination, neither
party shall have any obligation to sell or purchase the
Securities.
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4. Representations, Warranties
and Covenants of the Company . The Company hereby represents
and warrants to, and covenants with, the Purchaser as
follows:
4.1 Organization and
Qualification . The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State
of Delaware, and the Company is qualified to transact business as a
foreign corporation in each jurisdiction in which qualification is
required, except where the failure to so qualify would neither have
nor reasonably be expected to have a Material Adverse Effect (as
defined in Section 4.5 ). Each subsidiary (as defined
under Rule 405 promulgated under the Securities Act) of the Company
(each, a “ Subsidiary ” and collectively, the
“ Subsidiaries ”) are listed on Exhibit A
to this Agreement. Each Subsidiary is a direct or indirect wholly
owned subsidiary of the Company. Each Subsidiary is duly organized,
validly existing and in good standing under the laws of its
jurisdiction of organization and is qualified to transact business
as a foreign corporation in each jurisdiction in which
qualification is required, except where failure to so qualify would
neither have nor reasonably be expected to have a Material Adverse
Effect.
4.2 Reporting Company; Form
S-3 . The Company is not an “ineligible issuer” (as
defined in Rule 405 promulgated under the Securities Act) and is
eligible to register the resale of the First RS Shares (as defined
in Section 7.1(a) ) and, upon the approval by the
Company’s stockholders of the Stockholder Proposals (the
“ Shareholder Approval ”) and the Charter
Amendment Effectiveness, the shares of Common Stock issuable upon
exercise of the Contingent Warrants (the “ Contingent
Exercise Shares ”) by the Purchaser on a registration
statement on Form S-3 under the Securities Act. The Company is
subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the “ Exchange Act ”),
and has filed all reports required thereby during the past 12
calendar months. Notwithstanding the foregoing, the Company will
not have filed its Quarterly Report on Form 10-Q for the quarter
ended June 30, 2009 (the “ Second Quarter 2009
10-Q ”) by Closing; the Company will comply with Rule
12b-25 under the Exchange Act in respect of the Second Quarter 2009
10-Q, including filing such report within the time period permitted
by such rule. Provided that none of the Purchasers is deemed to be
an underwriter with respect to any shares and, to the
Company’s knowledge, there exist no facts or circumstances
(including any required approvals or waivers) that reasonably could
be expected to prohibit the preparation and filing of the First
Registration Statement (as defined in Section 7.1(a) )
on Form S-3 and, after the occurrence of the Second RS Trigger (as
defined in Section 7.3(a) ), the Second Registration
Statement (as defined in Section 7.3(a) ).
4.3 Authorized Capital Stock
. The Company had duly authorized and validly issued outstanding
capitalization as set forth in the “Capitalization”
section of the Private Placement Memorandum (as defined below) as
of the date set forth therein; the issued and outstanding shares of
Common Stock (a) have been duly authorized and validly issued,
(b) are fully paid and nonassessable, (c) have been
issued in compliance with all federal and state securities laws
and, (d) except for those granted therein by the holders
thereof (other than the Company), are free and clear of all
security interests, liens, pledges, mortgages or other
encumbrances, whether arising voluntarily, involuntarily or by
operation of law (“ Liens ”), (e) were not
issued in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities, and
(f) conform in all material respects to the description
thereof contained in the confidential private placement memorandum
dated July 30, 2009 (together with
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any exhibits, amendments and supplements thereto
and all information incorporated by reference therein, the “
Private Placement Memorandum ”). Except as set forth
in the Private Placement Memorandum and except for the stock
options or other equity incentives that have been issued since
June 30, 2009, the Company does not have outstanding any
options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell,
shares of its capital stock or any such options, rights,
convertible securities or obligations. With respect to each of the
Subsidiaries, (i) all of the issued and outstanding shares of
such Subsidiary’s capital stock (or equity interests in the
case of non-corporate entities) have been duly authorized and
validly issued, are fully paid and nonassessable, have been issued
in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities, and (ii) there
are no outstanding options to purchase, or any preemptive rights or
other rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments to
issue or sell, shares of such Subsidiary’s capital stock or
any such options, rights, convertible securities or
obligations.
4.4 Issuance, Sale and Delivery
of the Securities . The Conversion Shares and the Initial
Exercise Shares have been reserved for issuance by the Company. The
Securities, upon sale and issuance in accordance with the terms of
the this Agreement (including when delivered against the payment by
the Purchaser of the purchase price therefor after the Company has
filed the Certificate of Designations of the Series A Cumulative
Redeemable Convertible Preferred Stock, in substantially the form
attached as Exhibit C hereto, with the Secretary of
State of the State of Delaware (the “ Certificate of
Designations ”)), the Initial Exercise Shares, upon
issuance in accordance with the terms of the Initial Warrants
(including when delivered against the payment of the exercise price
therefor), the Contingent Exercise Shares, upon issuance in
accordance with the terms of the Contingent Warrants (including
when delivered against the payment of the exercise price therefor)
after the (i) the approval by the Company’s stockholders
of the Proposed Charter Amendment and the Contingent Warrant
Approval (as each such term is defined in
Section 4.39(a) ) (together, the “ CW
Approvals ”), and (ii) the filing and the
effectiveness of the First Amendment (the “ First
Amendment ”) to the Company’s Amended and Restated
Certificate of Incorporation with the Secretary of State of the
State of Delaware (the “ Charter Amendment
Effectiveness ”), and the Conversion Shares, upon
conversion and issuance in accordance with the terms of the
Certificate of Designations, will be duly authorized, validly
issued, fully paid and nonassessable, and will conform in all
material respects to the description thereof set forth in the
Private Placement Memorandum. No preemptive rights or other rights
to subscribe for or purchase any Securities, shares of Common Stock
or Series A Cumulative Redeemable Convertible Preferred Stock exist
with respect to the issuance and sale of the Securities, Initial
Exercise Shares, Contingent Exercise Shares or Conversion Shares by
the Company pursuant to this Agreement and the Warrants (together,
the “ Transaction Agreements ”) that have not
been waived or complied with. No stockholder of the Company has any
right (that has not been waived or has not expired by reason of
lapse of time following notification of the Company’s
intention to file the Registration Statements (as hereinafter
defined)) to require the Company to register the sale of any
capital stock owned by such stockholder under the Registration
Statements. No further approval or authority of the Company’s
stockholders or the Board of Directors of the Company will (other
than the CW Approvals and the Charter Amendment Effectiveness with
regard to the Contingent Exercise Shares, the Initial Warrant
Approval with respect to the Initial Warrants and the PIK Approval
with respect to the Preferred Shares) be required for the issuance
and sale of the Securities to be sold by the Company as
contemplated herein.
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4.5 Due Execution, Delivery and
Performance of the Agreements . The Company has full legal
right, corporate power and authority to enter into the Transaction
Agreements and perform the transactions contemplated hereby and
thereby. The Transaction Agreements have been duly authorized,
executed and delivered by the Company. The Transaction Agreements
constitute legal, valid and binding agreements of the Company,
enforceable against the Company in accordance with their respective
terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws and judicial decisions of general application relating to or
affecting the enforcement of creditors’ rights generally and
the application of general equitable principles relating to the
availability of remedies, and except as rights to indemnity or
contribution, including indemnification provisions set forth in
Section 7.7 of this Agreement, may be limited by
federal or state securities law or the public policy underlying
such laws. The execution and performance of the Transaction
Agreements by the Company and the consummation of the transactions
therein contemplated will not violate any provision of the Amended
and Restated Certificate of Incorporation, as amended by the First
Amendment, or the Bylaws of the Company or the organizational
documents of any Subsidiary and will not result in the creation of
any Liens upon any assets of the Company or any Subsidiary pursuant
to the terms or provisions of, or will not conflict with, result in
the breach or violation of, or constitute, either by itself or upon
notice or the passage of time or both, a default under any
agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which any of the Company
or any Subsidiary is a party or by which any of the Company or any
Subsidiary or their respective properties may be bound or affected
and in each case that would have or reasonably be expected to have
a Material Adverse Effect, any statute or any authorization,
judgment, decree, order, rule or regulation of any court or any
regulatory body, administrative agency or other governmental agency
or body applicable to the Company or any Subsidiary or any of their
respective properties. No consent, approval, authorization or other
order of any court, regulatory body, administrative agency or other
governmental agency or body is required for the execution and
delivery of the Transaction Agreements by the Company or the
consummation by the Company of the transactions contemplated
therein, except for compliance with the Blue Sky laws and federal
securities laws applicable to the offering of the Securities and
such as may be required by the bylaws and rules of the Financial
Industry Regulatory Authority, Inc. or The New York Stock Exchange,
Inc. For the purposes of this Agreement, the term “
Material Adverse Effect ” shall mean any material
adverse effect on the business, properties, assets, operations,
results of operations or condition (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole, or on the
transactions contemplated hereby or by the agreements and
instruments to be entered into in connection herewith or therewith,
or on the authority or ability of the Company to perform its
obligations hereunder.
4.6 Accountants . UHY LLP,
who has reported on the consolidated financial statements and
schedules contained in the Company’s Annual Report on Form
10-K for the year ended December 31, 2008 (which are
incorporated by reference into the Private Placement Memorandum),
are registered independent public accountants as required by the
Securities Act and the rules and regulations promulgated thereunder
(the “ 1933 Act Rules and Regulations ”) and by
the rules of the Public Accounting Oversight Board.
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4.7 No Defaults or Consents .
Neither the execution, delivery and performance of the Transaction
Agreements by the Company nor the consummation of any of the
transactions contemplated therein (including the issuance and sale
by the Company of the Securities and the issuance of the Initial
Exercise Shares, Contingent Exercise Shares and the Conversion
Shares) will give rise to a right to terminate or accelerate the
due date of any payment due under, or conflict with or result in
the breach of any term or provision of, or constitute a default (or
an event that with notice or lapse of time or both would constitute
a default) under, except such defaults that individually or in the
aggregate would neither cause nor reasonably be expected to cause a
Material Adverse Effect, or require any consent or waiver under, or
result in the execution or imposition of any Liens upon any
properties or assets of the Company or its Subsidiaries pursuant to
the terms of, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which either the Company or its
Subsidiaries or any of its or their properties or businesses is
bound, or any franchise, license, permit, judgment, decree, order,
statute, rule or regulation applicable to the Company or any of its
Subsidiaries or violate any provision of the charter or by-laws of
the Company or any of its Subsidiaries, except (i) for such
consents or waivers that have already been obtained and are in full
force and effect, and (ii) that the issuance of the Contingent
Exercise Shares cannot be made until after the CW Approvals and the
Charter Amendment Effectiveness.
4.8 Contracts . The material
contracts to which the Company is a party that have been filed as
exhibits to the SEC Documents (as defined in
Section 4.19 ), have been duly and validly authorized,
executed and delivered by the Company and constitute the legal,
valid and binding agreements of the Company, enforceable by and
against it in accordance with their respective terms, except as
such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws and
judicial decisions of general application relating to enforcement
of creditors’ rights generally, and the application of
general equitable principles relating to or affecting the
availability of remedies, and except as rights to indemnity or
contribution may be limited by federal or state securities laws or
the public policy underlying such laws.
4.9 No Actions . There are no
legal or governmental actions, suits or proceedings pending or, to
the Company’s knowledge, threatened against the Company or
any Subsidiary before or by any court, regulatory body or
administrative agency or any other governmental agency or body,
domestic or foreign, which actions, suits or proceedings,
individually or in the aggregate, would have or reasonably be
expected to have a Material Adverse Effect; and no labor
disturbance by the employees of the Company exists or, to the
Company’s knowledge, is imminent, that would have or
reasonably be expected to have a Material Adverse Effect. Neither
the Company nor any Subsidiary is a party to or subject to the
provisions of any injunction, judgment, decree or order of any
court, regulatory body, administrative agency or other governmental
agency or body that would have or reasonably be expected to have a
Material Adverse Effect.
4.10 Properties . The Company
and each Subsidiary has good and valid title to all items of
tangible personal property described as owned by it in the
consolidated financial statements included in the Private Placement
Memorandum that are material to the businesses of the Company and
its Subsidiaries taken as a whole, in each case free and clear of
all Liens except
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for those disclosed in the SEC Documents (as
defined in Section 4.19 ), or those, individually or in
the aggregate, that (i) do not materially interfere with the
use made and proposed to be made of such property by the Company
and its Subsidiaries or (ii) would neither have nor reasonably
be expected to have a Material Adverse Effect. Any real property
described in the Private Placement Memorandum as being leased by
the Company or any Subsidiary that is material to the business of
the Company and its Subsidiaries, taken as a whole, is held by them
under valid, existing and enforceable leases, except those that,
individually or in the aggregate, (A) do not materially
interfere with the use made or proposed to be made of such property
by the Company and its Subsidiaries or (B) would neither have
nor reasonably be expected to have a Material Adverse
Effect.
4.11 No Material Adverse
Change . Except as disclosed in the Private Placement
Memorandum or the SEC Documents, since December 31, 2008
(i) the Company and its Subsidiaries have not incurred any
material liabilities or obligations, indirect or contingent, or
entered into any material agreement or other transaction that is
not in the ordinary course of business or that could reasonably be
expected to result in a material reduction in the future earnings
of the Company; (ii) the Company and its Subsidiaries have not
sustained any material loss or material interference with their
businesses or properties from fire, flood, windstorm, accident or
other calamity not covered by insurance; (iii) the Company and
its Subsidiaries have not paid or declared any dividends or other
distributions with respect to their capital stock and none of the
Company or any Subsidiary is in material default in the payment of
principal or interest on any outstanding long-term debt
obligations; (iv) there has not been any change in the capital
stock of the Company or its Subsidiaries other than the sale of the
Securities pursuant to the Agreements and shares or options issued
pursuant to employee equity incentive plans or purchase plans
approved by the Company’s Board of Directors, or indebtedness
material to the Company or its Subsidiaries (other than in the
ordinary course of business and any required scheduled payments);
and (v) there has not occurred any event that has caused or
would reasonably be expected to cause a Material Adverse
Effect.
4.12 Intellectual Property .
Except as disclosed in the Private Placement Memorandum or the SEC
Documents, (i) the Company and each Subsidiary owns or has
obtained valid and enforceable licenses or options for the
inventions, patent applications, patents, trademarks (both
registered and unregistered), trade names, copyrights and trade
secrets necessary for the conduct of its respective business as
currently conducted (collectively, the “ Intellectual
Property ”); and (ii) (a) there are no third
parties who have any ownership rights or other claims to any
Intellectual Property that is owned by, or has been licensed to,
the Company or any Subsidiary for the products and services of the
Company and its Subsidiaries described in the Private Placement
Memorandum or the SEC Documents that would preclude the Company or
any Subsidiary from conducting its business as currently conducted
and have or reasonably be expected to have a Material Adverse
Effect, except for the ownership rights of the owners of the
Intellectual Property licensed or optioned by the Company or any
Subsidiary; (b) there are currently no sales of any products
or the provision of services that would constitute an infringement
by third parties of any Intellectual Property owned, licensed or
optioned by the Company or any Subsidiary, which infringement would
have or reasonably be expected to have a Material Adverse Effect;
(c) there is no pending or, to the Company’s knowledge,
threatened action, suit, proceeding or claim by others challenging
the rights of the Company or any Subsidiary in or to any
Intellectual Property owned, licensed or optioned by the Company or
any
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Subsidiary, other than claims that would neither
have nor reasonably be expected to have a Material Adverse Effect;
(d) there is no pending or, to the Company’s knowledge,
threatened action, suit, proceeding or claim by others challenging
the validity or scope of any Intellectual Property owned, licensed
or optioned by the Company or any Subsidiary, other than actions,
suits, proceedings and claims that would neither have nor
reasonably be expected to have a Material Adverse Effect; and
(e) there is no pending or, to the Company’s knowledge,
threatened action, suit, proceeding or claim by others that the
Company or any Subsidiaries infringes or otherwise violates any
patent, trademark, copyright, trade secret or other proprietary
right of others, other than actions, suits, proceedings and claims
that would neither have nor reasonably be expected to have a
Material Adverse Effect.
4.13 Compliance . Neither the
Company nor any of its Subsidiaries have been advised, nor do any
of them have any reason to believe, that it is not conducting
business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting
business, including all applicable local, state and federal
environmental laws and regulations, except where failure to be so
in compliance would neither have nor reasonably be expected to have
a Material Adverse Effect.
4.14 Taxes . The Company and
each Subsidiary have filed all required tax returns, and all such
tax returns are true, correct and complete in all material
respects. The Company and each Subsidiary have fully paid all taxes
shown as due thereon. None of the Company or any Subsidiary has
knowledge of any deficiency or assessment with respect to
liabilities for any material taxes that has been or might be
asserted or threatened against it, that has not been fully paid or
finally settled, unless being contested in good faith through
appropriate proceedings and for which adequate reserves are
reflected in the Company’s consolidated financial statements.
All tax liabilities accrued through the date hereof have been
adequately reserved for in the Company’s consolidated
financial statements.
4.15 Transfer Taxes . On the
Closing Date, all stock transfer or other taxes (other than income
taxes) that are required to be paid in connection with the
transactions contemplated by the Transaction Agreements will be, or
will have been, fully paid by the Company and all laws imposing
such taxes will be or will have been fully complied
with.
4.16 Investment Company . The
Company is not an “investment company” or
“promoter” or “principal underwriter” for
an investment company, within the meaning of the Investment Company
Act of 1940, as amended, and the rules and regulations of the
Securities and Exchange Commission (the “ Commission
”) promulgated thereunder.
4.17 Offering Materials .
None of the Company, its directors and officers has distributed or
will distribute prior to the Closing Date any offering material,
including any “free writing prospectus” (as defined in
Rule 405 promulgated under the Securities Act), in connection with
the offering and sale of the Securities other than the summary term
sheets attached hereto as Exhibit F hereto and the Private
Placement Memorandum or any amendment or supplement thereto. The
Company has not in the past nor will it hereafter take any action
independent of the Placement Agent to sell, offer for sale or
solicit offers to buy any securities of the Company that could
result in the initial sale of the Securities hereunder not being
exempt from the registration requirements of Section 5 of the
Securities Act.
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4.18 Insurance . The Company
maintains insurance underwritten by insurers of recognized
financial responsibility, of the types and in the amounts that the
Company reasonably believes is adequate for its business, including
insurance covering all real and personal property owned or leased
by the Company against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, with
such deductibles as are customary for companies in the same or
similar business, all of which insurance is in full force and
effect.
4.19 Additional Information .
The information contained in the following documents (the “
SEC Documents ”), which the Placement Agent has
furnished to the Purchaser (or will furnish prior to the Closing)
or which are otherwise available through the Commission’s
EDGAR system, as of the dates thereof, did not contain an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading:
(a) the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31,
2008;
(b) the Company’s Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31,
2009;
(c) the Company’s Definitive
Proxy Statement for the Annual Meeting of Stockholders held on
June 11, 2009;
(d) the Company’s Current
Reports on Form 8-K filed on March 3, March 16, the
first of the two such reports filed on
March 23, March 27, May 15 and June 8
2009;
(e) the description of the
Company’s common stock contained in its Registration
Statement on Form 8-A filed on December 26, 2007;
(f) all other documents, if any,
filed by the Company (excluding the Current Reports on Form 8-K or
the portions thereof furnished under Item 2.02 or
Item 7.01 of Form 8-K) with the Commission since June 8,
2009 pursuant to the reporting requirements of the Exchange
Act.
The SEC Documents incorporated by
reference in the Private Placement Memorandum or attached as
exhibits thereto, at the time they became effective or were filed
with the Commission, as the case may be, complied in all material
respects with the requirements of the Exchange Act, as applicable,
and the rules and regulations of the Commission thereunder (the
“ 1934 Act Rules and Regulations ” and, together
with the 1933 Act Rules and Regulations, the “ Rules and
Regulations ”). In the past 12 calendar months, the
Company has filed all documents required to be filed by it prior to
the date hereof with the Commission pursuant to the reporting
requirements of the Exchange Act and the 1934 Act Rules and
Regulations.
4.20 Price of Common Stock .
The Company has not taken, and will not take, directly or
indirectly, any action designed to cause or result in, or that has
constituted or that might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of the
Common Stock to facilitate the sale or resale of the
Securities.
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4.21 Use of Proceeds . The
Company shall use the proceeds from the sale of the Securities as
described under “Use of Proceeds” in the Private
Placement Memorandum.
4.22 Non-Public Information .
Except as disclosed in the Private Placement Memorandum, the
Company has not disclosed to the Purchaser information that would
constitute material non-public information as of the Closing Date
other than the existence of the transactions contemplated
hereby.
4.23 Use of Purchaser Name .
Except as otherwise required by applicable law or regulation, the
Company shall not use the Purchaser’s name or the name of any
of its Affiliates (as defined below) in any advertisement,
announcement, press release or other similar public communication
unless it has received the prior written consent of the Purchaser
for the specific use contemplated, which consent shall not be
unreasonably withheld or delayed. For purposes of this Agreement,
“ Affiliate ” means, with respect to any natural
person, firm, partnership, association, corporation, limited
liability company, company, trust, entity, public body or
government (a “ Person ”), any Person that,
directly or indirectly, controls, is controlled by, or is under
common control with, such Person. The term “control”
(including the terms “controlled by” and “under
common control with”) as used in this definition means the
possession, directly or indirectly, of the power to direct or cause
the direction of management and policies of a Person, whether
through the ownership of voting securities, by contract or
otherwise. With respect to any natural person, the term
“Affiliate” means (i) the spouse or children
(including those by adoption) and siblings of such Person; and any
trust whose primary beneficiary is such Person, such Person’s
spouse, such Person’s siblings and/or one or more of such
Person’s lineal descendants, (ii) the legal
representative or guardian of such Person or of any such immediate
family member in the event such Person or any such immediate family
member becomes mentally incompetent and (iii) any Person
controlled by or under common control with any one or more of such
Person and the Persons described in clauses (i) or
(ii) preceding.
4.24 Related-Party
Transactions . Except as described in the Private Placement
Memorandum and for purchases by related parties of Securities in
this offering, no transaction has occurred between or among the
Company, on the one hand, and its Affiliates, officers or directors
on the other hand, that is required to have been described under
applicable securities laws and the rules and regulations
promulgated thereunder in its Exchange Act filings and is not so
described in such filings.
4.25 Off-Balance Sheet
Arrangements . There is no transaction, arrangement or other
relationship between the Company and an unconsolidated or other
off-balance sheet entity that is required to be disclosed by the
Company in its Exchange Act filings and is not so disclosed or that
otherwise would have or would reasonably be expected to have a
Material Adverse Effect. There are no such transactions,
arrangements or other relationships with the Company that may
create any material contingencies or liabilities that are not
otherwise disclosed by the Company in its Exchange Act
filings.
4.26 Governmental Permits,
Etc . The Company and each Subsidiary has all franchises,
licenses, certificates and other authorizations from federal, state
or local governments or governmental agencies, departments or
bodies that are currently necessary for the operation of
11
the business of the Company and its Subsidiaries
as currently conducted, except where the failure to possess
currently such franchises, licenses, certificates and other
authorizations would neither have nor reasonably be expected to
have a Material Adverse Effect. Neither the Company nor any
Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such permit that, if the subject
of an unfavorable decision, ruling or finding, would have or would
reasonably be expected to have a Material Adverse
Effect.
4.27 Financial Statements .
The consolidated financial statements of the Company and the
related notes and schedules thereto included in its Exchange Act
filings present fairly, in all material respects, the financial
condition of the Company and its consolidated Subsidiaries as of
the dates thereof and the results of operations,
stockholders’ equity and cash flows of the Company and its
consolidated Subsidiaries at the dates and for the periods covered
thereby. Such financial statements and the related notes and
schedules thereto have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the
periods involved (except as otherwise noted therein) and all
adjustments necessary for a fair presentation of results for such
periods have been made; provided , however , that the
unaudited financial statements are subject to normal year-end audit
adjustments (which are not expected to be material) and do not
contain all footnotes required under generally accepted accounting
principles.
4.28 Listing Compliance . The
Company is in compliance with the requirements of The New York
Stock Exchange for continued listing of the Common Stock thereon.
The Company has taken no action designed to, or likely to have the
effect of, terminating the registration of the Common Stock under
the Exchange Act or the listing of the Common Stock on The New York
Stock Exchange, nor has the Company received any notification that
the Commission or The New York Stock Exchange is currently
contemplating terminating such registration or listing. The
transactions contemplated by the Transaction Agreements will not
contravene the rules and regulations of The New York Stock
Exchange. The Company will (i) comply with all requirements of
The New York Stock Exchange with respect to the issuance of the
Securities, (ii) cause the Initial Exercise Shares and
Conversion Shares to be listed on The New York Stock Exchange and
listed on any other exchange on which the Common Stock is listed on
or before (subject to official notice of issuance) the Closing
Date, and (iii) cause the Contingent Exercise Shares to be
listed on The New York Stock Exchange or such other exchange on
which the Common Stock is then listed promptly after the CW
Approvals and the Charter Amendment Effectiveness.
4.29 Internal Accounting
Controls . The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with
management’s general or specific authorization;
(ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (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
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences. The Company maintains
disclosure controls and procedures (as defined in Rules 13a-15 and
15d-15 under the Exchange Act) that are designed to ensure that
material information relating to the Company is made known to the
Company’s principal executive officer and the Company’s
principal financial officer or persons
12
performing similar functions. Except as set
forth in the Private Placement Memorandum or the SEC Documents,
there is and has been no failure on the part of the Company, or to
its knowledge after due inquiry, any of the Company’s
directors or officers, in their capacities as such, to comply with
any applicable provisions of the Sarbanes Oxley Act of 2002 and the
rules and regulations promulgated therewith (the “
Sarbanes Oxley Act ”). Each of the principal executive
officer and the principal financial officer of the Company (or each
former principal executive officer of the Company and each former
principal financial officer of the Company as applicable) has made
all certifications required by Sections 302 and 906 of the
Sarbanes-Oxley Act with respect to all reports, schedules, forms,
statements and other documents required to be filed by it with the
Commission. For purposes of the preceding sentence,
“principal executive officer” and “principal
financial officer” shall have the meanings given to such
terms in the Sarbanes-Oxley Act. The Company has taken all
reasonable actions necessary to ensure that it is in compliance
with all provisions of the Sarbanes-Oxley Act that are in effect
and with which the Company is required to comply. Notwithstanding
the foregoing, the Company is currently investigating a series of
potential thefts by an employee occurring over several quarters
that are currently expected to amount to losses ranging from
$100,000 to $200,000, in the aggregate, and in connection with such
investigation has also reviewed and is strengthening its oversight
and internal controls relating primarily to travel and expense
reimbursements. The Company does not expect the foregoing to result
in a material weakness in the Company’s internal control over
financial reporting.
4.30 Foreign Corrupt
Practices . Neither the Company nor any Subsidiary has, nor, to
the knowledge of the Company, has any director, officer, agent or
employee, in the course of its actions for, or on behalf of, the
Company (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.
4.31 Employee Relations .
Neither the Company nor any Subsidiary is a party to any collective
bargaining agreement or employs any member of a union (other than
with regards to statutory unions required under foreign laws and
regulations). The Company and each Subsidiary believe that their
relations with their employees are good. Except as set forth in the
Private Placement Memorandum, no executive officer of the Company
(as defined in Rule 501(f) promulgated under the Securities Act)
has notified the Company that such officer intends to leave the
Company or otherwise terminate such officer’s employment with
the Company. No executive officer of the Company is, or is now
expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement or any other agreement or any
restrictive covenant, and the continued employment of each such
executive officer does not subject the Company or any Subsidiary to
any liability with respect to any of the foregoing
matters.
4.32 ERISA . Each material
employee benefit plan, within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended
(“ ERISA ”), that is maintained, administered or
contributed to by the Company or any of its Affiliates
for
13
employees or former employees of the Company and
its Subsidiaries, or to which the Company or any of its
Subsidiaries has any liability thereunder (a “Company Benefit
Plan”), has been maintained in material compliance with its
terms and the requirements of any applicable statutes, orders,
rules and regulations, including ERISA and the Internal Revenue
Code of 1986, as amended (the “ Code ”); no
action, dispute, claim, suit or proceeding is pending or, to the
knowledge of the Company, threatened with respect to any Company
Benefit Plan (other than claims for benefits in the ordinary
course) that could result in a material liability to the Company;
no prohibited transaction, within the meaning of Section 406
of ERISA or Section 4975 of the Code, has occurred that could
result in a material liability to the Company with respect to any
such plan excluding transactions effected pursuant to a statutory
or administrative exemption; and for each such plan that is subject
to the funding rules of Section 412 of the Code or
Section 302 of ERISA, no “accumulated funding
deficiency” as defined in Section 412 of the Code has
been incurred, whether or not waived, and the fair market value of
the assets of each such plan (excluding for these purposes accrued
but unpaid contributions) exceeds the present value of all benefits
accrued under such plan determined using reasonable actuarial
assumptions.
4.33 Environmental Matters .
There has been no storage, disposal, generation, manufacture,
transportation, handling or treatment of toxic wastes, hazardous
wastes or hazardous substances by the Company or to its knowledge,
any Subsidiary (or, to the knowledge of the Company, any of their
predecessors in interest) at, upon or from any of the property now
or previously owned or leased by the Company or any Subsidiary in
material violation of any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit or that would require
remedial action under any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit; there has been no
material spill, discharge, leak, emission, injection, escape,
dumping or release of any kind into such property or into the
environment surrounding such property of any toxic wastes, medical
wastes, solid wastes, hazardous wastes or hazardous substances due
to or caused by the Company or any Subsidiary or with respect to
which the Company or any Subsidiary have knowledge; the terms
“hazardous wastes”, “toxic wastes”,
“hazardous substances”, and “medical
wastes” shall have the meanings specified in any applicable
local, state, federal and foreign laws or regulations with respect
to environmental protection.
4.34 Integration; Other Issuances
of the Securities . The Company has not issued any shares of
Common Stock or shares of any series of preferred stock or other
securities or instruments convertible into, exchangeable for or
otherwise entitling the holder thereof to acquire shares of Common
Stock that would be integrated with the sale of the Securities to
the Purchaser for purposes of the Securities Act or of any
applicable stockholder approval provisions, including 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. Assuming the accuracy of the representations and
warranties of the Purchasers to the Company as set forth in the
Agreements, the offer and sale of the Securities by the Company to
the Purchasers pursuant to the Agreements will be exempt from the
registration requirements of the Securities Act.
4.35 Disclosure . All
disclosure provided to the Purchaser, including the Private
Placement Memorandum but excluding the summary term sheets attached
hereto as Exhibit F , regarding the Company, its business
and the transactions contemplated hereby, furnished by or on behalf
of the Company, were, as of the date made, true and correct and did
not contain any
14
untrue statement of material fact or omit to
state any material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they
were made, not misleading. No representation or warranty is made in
respect of the summary term sheets attached hereto as Exhibit
F hereto.
4.36 No New Issuances and
Registrations . Except with respect to (a) the issuance of
the Securities pursuant to the other Agreements, (b) the
issuance of the Initial Exercise Shares upon exercise of the
Initial Warrants, (c) the issuance of the Contingent Exercise
Shares upon exercise of the Contingent Warrants, (d) the
issuance of the Conversion Shares upon conversion of the Preferred
Shares, (e) the issuance of any shares of Common Stock as
dividends on the Preferred Shares and (f) the issuance of a
warrant to the Placement Agent for not more than 200,000 shares of
Common Stock at an exercise price of not less than $2.00 per share
of Common Stock, the Company agrees that until such time as the
Commission declares the First Registration Statement effective, it
will not, directly or indirectly, grant, issue, sell,
pledge or otherwise dispose of any shares of Common Stock, or
securities convertible into or exchangeable for Common Stock, or
file a registration statement (other than the Registration
Statements) with respect to the registration of any such newly
issued shares of Common Stock or other securities.
Notwithstanding the above, the restrictions set forth in this
Section 4.36 shall not apply to issuances by the
Company of (i) securities required to be issued pursuant to
contractual obligations of the Company in effect as of the date
hereof; (ii) securities issued on a pro rata basis to all
holders of a class of outstanding equity securities of the Company;
(iii) securities issued in connection with a strategic
partnership, licensing, joint venture, collaboration, lending or
other similar arrangements, or in connection with the acquisition
or license by the Company of any business, products or
technologies, so long as the aggregate amount of such issuances
pursuant to this clause (iii) that do not exceed 10% of the
Company’s outstanding capital stock measured as of the
closing of the sale of the Securities, including the Securities;
and (iv) equity securities issued pursuant to employee
compensation, incentive, benefit or purchase plans in effect as of
the date hereof or subsequently adopted by the Company’s
Board of Directors. Notwithstanding the foregoing, the Company
shall not, and shall cause its directors, officers and Affiliates
not to, sell, offer for sale or solicit offers to buy any shares of
Common Stock or shares of any series of preferred stock or other
securities or instruments convertible into, exchangeable for or
otherwise entitling the holder thereof to acquire shares of Common
Stock that would be integrated with the sale of the Securities to
the Purchaser for purposes of the Securities Act, except with
respect to the issuance of the Securities pursuant to the other
Agreements.
4.37 No Undisclosed Events,
Liabilities, Developments or Circumstances . Except as
described in the Private Placement Memorandum and for the
transactions contemplated hereby, which will be disclosed in the
Press Release (as defined in Section 7.5(b) ), or as
disclosed in the SEC Documents, no event, liability, development or
circumstance has occurred or exists, or is contemplated to occur,
with respect to the Company or its Subsidiaries or their respective
business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under
applicable securities laws on a registration statement on Form S-1
filed with the Commission relating to an issuance and sale by the
Company of its Common Stock and that has not been publicly
announced.
4.38 Amendment to Credit
Facility . The Company has entered into an amendment to its
credit facility substantially on the terms described in the Private
Placement
15
Memorandum (the “ Credit Facility
Amendment ”). The Credit Facility Amendment has been duly
and validly authorized, executed and delivered by the Company and
constitutes the legal, valid and binding agreement of the Company,
enforceable by and against it in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws and
judicial decisions of general application relating to enforcement
of creditors’ rights generally, and the application of
general equitable principles relating to or affecting the
availability of remedies, and except as rights to indemnity or
contribution may be limited by federal or state securities laws or
the public policy underlying such laws.
4.39 Shareholder Vote With
Respect to Amendment .
(a) The Company shall, in accordance
with any applicable federal, state, local or foreign order, writ,
injunction, judgment, settlement, award, decree, statute, law, rule
or regulation and the Company’s Amended and Restated
Certificate of Incorporation and By-laws, take all action necessary
to convene a meeting of its stockholders to consider and vote upon
(i) the amendment of the Company’s Amended and Restated
Certificate of Incorporation to increase the number of authorized
shares of Common Stock from 40,000,000 to at least 80,000,000 (the
“ Proposed Charter Amendment ”); (ii) the
approval of the payment by the Company of dividends in respect of
the Preferred Shares in shares of Common Stock (the “ PIK
Approval ”); (iii) the approval of the anti-dilution
price protection in the Initial Warrants (the “ Initial
Warrant Approval ”); and (iv) the approval of the
Contingent Warrants (the “ Contingent Warrant Approval
” and, together with the Proposed Charter Amendment, PIK
Approval and the Initial Warrant Approval, the “
Stockholder Proposals ”). Such meeting shall be
convened as soon as practicable following the Closing Date, but in
any event not later than 120 days following the Closing Date.
Subject to fiduciary duties under applicable Law, the Board of
Directors of the Company shall, in connection with such meeting,
recommend approval of the Stockholder Proposals and shall take all
other lawful action to solicit the approval of the Stockholder
Proposals. The Company shall retain a proxy solicitor to assist in
obtaining the approval of
