UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 14, 2005
FLEXIBLE SOLUTIONS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
NEVADA 001-31540 91-1922863
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2614 QUEENSWOOD DR., VICTORIA, BC CANADA V8N 1X5
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (250) 477-9969
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
ITEM 7.01 - REGULATION FD DISCLOSURE
On April 14, 2005 Flexible Solutions International, Inc., issued a press release
announcing the closing of a $3,375,000 private placement.
ITEM 9.01 - FINANCIAL STATEMENTS AND EXHIBITS
EXHIBIT NO. DESCRIPTION
99.1 Press Release Dated April 14, 2005
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Flexible Solutions International, Inc.
By: /s/ DAN O'BRIEN
----------------------------------
President
Dated: April 14, 2005.
EXHIBIT 99.1
FLEXIBLE SOLUTIONS
COVER AND CONSERVE
COMPANY CONTACT:
HEAD OFFICE
(250) 477-9969
(800) 661 3560
JENS BIERTUMPEL
(604) 682-1799
FSI RAISES $3.375 MILLION IN PRIVATE PLACEMENT
VICTORIA, BRITISH COLUMBIA, APRIL 14, 2005 - FLEXIBLE SOLUTIONS INTERNATIONAL,
INC. (AMEX: FSI, FRANKFURT: FXT), the developer and manufacturer of
biodegradable and environmentally safe water and energy conservation technology,
as well as anti-scalant technology, is pleased to announce today the closing of
a $3,375,000 private placement. The funds will be used to eliminate all debt,
and the small balance will be added to working capital.
The placement will allow the Company to maintain its existing working capital to
increase inventory and marketing, and therefore increase sales, rather than
using FSI's working capital to retire debt. CFO Fred Kupel states, "This
placement puts FSI's balance sheet in a strong position going forward.
Management is now freed to concentrate on the many opportunities open to our
product line."
Participating investors are a select group of investment funds, and the terms
are one common share at $3.75 and a warrant to acquire a further share at $4.50.
The total number of shares subscribed for was limited to 900,000, in order to
minimize shareholder dilution while providing sufficient funds to retire the
debt remaining from the acquisition of our NanoChem division in June 2004.
ABOUT FLEXIBLE SOLUTIONS INTERNATIONAL
Flexible Solutions International, Inc. (www.flexiblesolutions.com), based in
Victoria, British Columbia, is the developer and manufacturer of Water$avr, the
world's first commercially viable water evaporation retardant. FSI is an
environmental technology company specializing in energy and water conservation
products for drinking water, agriculture, industrial markets and swimming pools
throughout the world. Water$avr reduces evaporation by up to 30% on reservoirs,
lakes, aqueducts, irrigation canals, ponds and slow moving rivers. Heat$avr, a
"liquid blanket" evaporation retardant for the commercial swimming pool and spa
markets, also reduces humidity and lowers water heating costs, resulting in
energy savings of 15% to 40%. The Company's Eco$avr product targets the
residential swimming pool market.
The Company's Nanochem Solutions, Inc., subsidiary specializes in
environmentally friendly, green chemistry, water-soluble products utilizing
thermal polyaspartate (TPA) biopolymers. TPA beta-proteins are manufactured from
the common biological amino acid, L-aspartic acid.
SAFE HARBOR PROVISION
The Private Securities Litigation Reform Act of 1995 provides a "Safe Harbor"
for forward-looking statements. Certain of the statements contained herein,
which are not historical facts, are forward looking statement with respect to
events, the occurrence of which involve risks and uncertainties. These
forward-looking statements may be impacted, either positively or negatively, by
various factors. Information concerning potential factors that could affect the
company is detailed from time to time in the company's reports filed with the
Securities and Exchange Commission. #
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of
April 8, 2005, among Flexible Solutions International, Inc., a Nevada
corporation (the "COMPANY"), and the investors identified on the signature pages
hereto (each, an "INVESTOR" and collectively, the "INVESTORS").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act (as defined below)
and Rule 506 promulgated thereunder, the Company desires to issue and sell to
each Investor, and each Investor, severally and not jointly, desires to purchase
from the Company certain securities of the Company, as more fully described in
this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Investors agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in
this Agreement, for all purposes of this Agreement, the following terms shall
have the meanings indicated in this Section 1.1:
"ACTION" means any action, claim, suit, inquiry, notice of
violation, proceeding (including, without limitation, any investigation or
partial proceeding such as a deposition) or investigation pending or threatened
in writing against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency, regulatory authority (U.S. or Canadian federal, state,
provincial, county, local or foreign), stock market, stock exchange or trading
facility.
"ADDITIONAL SHARES" has the meaning set forth in Section 4.7.
"AFFILIATE" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed under Rule
144.
"AVAILABLE UNDERSUBSCRIPTION AMOUNT" has the meaning set forth
in Section 4.3(b).
"BASIC AMOUNT" has the meaning set forth in Section 4.3(b).
"BUSINESS DAY" means any day except Saturday, Sunday and any
day which is a federal legal holiday or a day on which banking institutions in
the State of New York or Victoria, British Columbia are authorized or required
by law or other governmental action to close.
"CLOSING" means the closing of the purchase and sale of the
Securities pursuant to Article II of this Agreement.
"CLOSING DATE" means the Business Day immediately following
the date on which all of the conditions set forth in Sections 5.1 and 5.2 hereof
are satisfied, or such other date as the parties may agree.
"COMMISSION" means the U.S. Securities and Exchange
Commission.
"COMMON STOCK" means the common stock of the Company, par
value $.001 per share, and any securities into which such common stock may
hereafter be reclassified, converted or exchanged.
"COMMON STOCK EQUIVALENTS" means any securities of the Company
or any Subsidiary which entitle the holder thereof to acquire Common Stock at
any time, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock or other securities that entitle the holder to receive, directly or
indirectly, Common Stock.
"COMPANY COUNSEL" means Foley & Lardner LLP.
"COMPANY DELIVERABLES" has the meaning set forth in Section
2.2(a).
"DISCLOSURE MATERIALS" has the meaning set forth in Section
3.1(h).
"EFFECTIVE DATE" means the date that the initial Registration
Statement required by Section 2(a) of the Registration Rights Agreement is first
declared effective by the Commission.
"EVALUATION DATE" has the meaning set forth in Section 3.1(s).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FIRST NOTICE" has the meaning set forth in Section 4.3(a).
"GAAP" means U.S. generally accepted accounting principles.
"INTELLECTUAL PROPERTY RIGHTS" has the meaning set forth in
Section 3.1(p).
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"INVESTMENT AMOUNT" means, with respect to each Investor, the
dollar amount that such Investor is investing in the Securities at Closing, as
indicated on such Investor's signature page to this Agreement under the line
"Investment Amount".
"INVESTOR DELIVERABLES" has the meaning set forth in Section
2.2(b).
"INVESTOR PARTY" has the meaning set forth in Section 4.9.
"LIEN" means any lien, charge, encumbrance, security interest,
right of first refusal or other restrictions of any kind.
"LOSSES" has the meaning set forth in Section 4.9.
"MATERIAL ADVERSE EFFECT" means any of (i) a material and
adverse effect on the legality, validity or enforceability of any Transaction
Document, (ii) a material and adverse effect on the results of operations,
assets, prospects, business or condition (financial or otherwise) of the Company
and the Subsidiaries, or (iii) an adverse impairment to the Company's ability to
perform on a timely basis any of its obligations under any Transaction Document.
"NEW ISSUE SECURITIES" has the meaning set forth in Section
4.3.
"NEW YORK COURTS" means the state and federal courts sitting
in the City of New York, Borough of Manhattan.
"NOTICE OF ACCEPTANCE" has the meaning set forth in Section
4.3(b).
"OUTSIDE DATE" means April 15, 2005.
"PER SHARE PURCHASE PRICE" equals $3.75.
"PERSON" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or subdivision
thereof) or other entity of any kind.
"REFUSED SECURITIES" has the meaning set forth in Section
4.3(c).
"REGISTRATION STATEMENT" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement and
covering the resale by the Investors of the Shares and the Warrant Shares.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the Closing Date, among the Company and the Investors, in
the form of Exhibit B hereto.
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"RULE 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC REPORTS" has the meaning set forth in Section 3.1(h).
"SECURITIES" means the Shares, the Warrants and the Warrant
Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means the shares of Common Stock issued or issuable
to the Investors pursuant to this Agreement, including any Additional Shares.
"SHORT SALES" include, without limitation, all "short sales"
as defined in Rule 3b-3 of the Exchange Act and include all types of direct and
indirect stock pledges, forward sale contracts, options, puts, calls, short
sales, swaps and similar arrangements (including on a total return basis), and
sales and other transactions through non-US broker dealers or foreign regulated
brokers having the effect of hedging the securities or investment made under
this Agreement.
"SUBSIDIARY" means any subsidiary of the Company required to
be identified in Schedule 3.1(a).
"THRESHOLD PRICE" means the Per Share Purchase Price (subject
to equitable adjustment for stock splits, recombinations and similar events that
may occur following the Closing Date and prior to the date in question).
"TRADING DAY" means (i) a day on which the Common Stock is
traded on a Trading Market (other than the OTC Bulletin Board), or (ii) if the
Common Stock is not listed on a Trading Market (other than the OTC Bulletin
Board), a day on which the Common Stock is traded in the over-the-counter
market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is
not quoted on any Trading Market, a day on which the Common Stock is quoted in
the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices); provided, that in the event that the Common Stock is not
listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day
shall mean a Business Day.
"TRADING MARKET" means whichever of the New York Stock
Exchange, the American Stock Exchange, the NASDAQ National Market, the NASDAQ
SmallCap Market or OTC Bulletin Board on which the Common Stock is listed or
quoted for trading on the date in question.
"TRANSACTION DOCUMENTS" means this Agreement, the Warrants,
the Registration Rights Agreement, and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
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"UNDERSUBSCRIPTION AMOUNT" has the meaning set forth in
Section 4.3(b).
"WARRANTS" means the Common Stock purchase warrants in the
form of Exhibit A, which are issuable to the Investors at the Closing.
"WARRANT SHARES" means the shares of Common Stock issuable
upon exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 CLOSING. The Closing shall take place at the offices of Bryan
Cave LLP, 1290 Avenue of the Americas, New York, NY 10104 at 4:30 p.m. (New York
time) on the Closing Date or at such other location or time as the parties may
agree.
2.2 CLOSING DELIVERIES. (a) At the Closing, the Company shall
deliver or cause to be delivered to each Investor the following (the "COMPANY
DELIVERABLES"):
(i) a certificate evidencing a number of Shares
equal to such Investor's Investment Amount divided by the Per Share Purchase
Price, registered in the name of such Investor;
(ii) a Warrant, registered in the name of such
Investor, pursuant to which such Investor shall have the right to acquire 100%
of the number of Shares issuable to such Investor pursuant to Section 2.2(a)(i);
(iii) the legal opinion of Company Counsel, in
agreed form, addressed to the Investors;
(iv) the Registration Rights Agreement, duly
executed by the Company; and
(v) an officer's certificate, pursuant to
Section 5.1(g) herein.
(b) At the Closing, each Investor shall deliver or cause
to be delivered to the Company the following (the "INVESTOR DELIVERABLES"):
(i) to the Company, its Investment Amount, in
United States dollars and in immediately available funds, by wire transfer to an
account designated in writing by the Company for such purpose; and
(ii) the Registration Rights Agreement, duly
executed by such Investor.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby makes the following representations and warranties to each Investor:
(a) SUBSIDIARIES. The Company has no direct or indirect
Subsidiaries other than as specified in Schedule 3.1(a). Except as disclosed in
Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital
stock of each Subsidiary free and clear of any and all Liens, and all the issued
and outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar rights.
(b) ORGANIZATION AND QUALIFICATION. The Company and each
Subsidiary are duly incorporated or otherwise organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation of any of the
provisions of its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. The Company and each Subsidiary are
duly qualified to conduct its respective businesses and are in good standing as
a foreign corporation or other entity in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect.
(c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company in
connection therewith. Each Transaction Document has been (or upon delivery will
have been) duly executed by the Company and, when delivered in accordance with
the terms hereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(d) NO CONFLICTS. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other organizational or charter documents,
or (ii) conflict with, or constitute a default (or an event that
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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 (with
or without notice, lapse of time or both) of, any agreement, credit facility,
debt or other instrument (evidencing a Company or Subsidiary debt or otherwise)
or other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect.
(e) FILINGS, CONSENTS AND APPROVALS. The Company is not
required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) the filing with the Commission of one or more
Registration Statements in accordance with the requirements Registration Rights
Agreement, (ii) filings required by state securities laws, (iii) the filing of a
Notice of Sale of Securities on Form D with the Commission under Regulation D of
the Securities Act, (iv) the filings required in accordance with Section 4.6 and
4.11, (v) the filing of an Additional Listing Application with the American
Stock Exchange, and (vi) those that have been made or obtained prior to the date
of this Agreement.
(f) ISSUANCE OF THE SECURITIES. The Securities have been duly
authorized and, when issued and paid for in accordance with the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens. The Company has reserved from its duly authorized
capital stock the shares of Common Stock issuable pursuant to this Agreement and
the Warrants in order to issue the Shares and the Warrant Shares.
(g) CAPITALIZATION. The number of shares and type of all
authorized, issued and outstanding capital stock of the Company, and all shares
of Common Stock reserved for issuance under the Company's various option and
incentive plans, is specified in the SEC Reports and on Schedule 3.1(g). Except
as specified in the SEC Reports and on Schedule 3.1(g), no securities of the
Company are entitled to preemptive or similar rights, and no Person has any
right of first refusal, preemptive right, right of participation, or any similar
right to participate in the transactions contemplated by the Transaction
Documents. Except as specified in the SEC Reports and on Schedule 3.1(g), there
are no outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of capital stock of the Company, or
contracts, commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of capital
stock of the Company, or securities or rights convertible or exchangeable into
shares of capital stock of the Company. The issue and sale of the Securities
will not, immediately or with the passage of time, obligate the Company to issue
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shares of capital stock of the Company or other securities to any Person (other
than the Investors under the Transaction Documents) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities.
(h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed
all reports, forms or other information required to be filed by it under the
Securities Act and the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the twelve months preceding the date hereof (or such shorter
period as the Company was required by law to file such reports, forms or other
information) (the foregoing materials being collectively referred to herein as
the "SEC REPORTS" and, together with the Schedules to this Agreement (if any),
the "DISCLOSURE MATERIALS") on a timely basis or has timely filed a valid
extension of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved, except as may be otherwise
specified in such financial statements or the notes thereto, and fairly present
in all material respects the financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments. For
purposes of this Agreement, any reports, forms or other information provided to
the Commission, whether by filing, furnishing or otherwise providing, is
included in the term "filed" (or any derivations thereof).
(i) PRESS RELEASES. The press releases disseminated by the
Company during the twelve months preceding the date of this Agreement do not
individually or taken as a whole contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made and when made, not misleading.
(j) MATERIAL CHANGES. Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables, accrued expenses and
other liabilities incurred in the ordinary course of business consistent with
past practice and (B) liabilities (not to exceed $100,000) not required to be
reflected in the Company's financial statements pursuant to GAAP or required to
be disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting or the identity of its auditors, (iv) the
Company has not
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declared or made any dividend or distribution of cash or other property to its
shareholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock, and (v) the Company has not issued any equity
securities, except pursuant to existing Company stock option plans and
consistent with past practice. The Company does not have pending before the
Commission any request for confidential treatment of information.
(k) LITIGATION. There is no Action which (i) adversely affects
or challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) except as specifically disclosed in the SEC
Reports, could, if there were an unfavorable decision, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor any Subsidiary, nor any director or officer
thereof (in his or her capacity as such), is or has been the subject of any
Action involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty, except as specifically
disclosed in the SEC Reports. There has not been, and to the knowledge of the
Company, there is not pending any investigation by the Commission involving the
Company or any current or former director or officer of the Company (in his or
her capacity as such). The Commission has not issued any stop order or other
order suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities Act.
(l) LABOR RELATIONS. No material labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the employees
of the Company.
(m) COMPLIANCE. Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws relating to taxes, environmental protection, occupational health
and safety, product quality and safety and employment and labor matters, except
in each case as could not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect. The Company is in compliance
with all effective requirements of the Sarbanes-Oxley Act of 2002, as amended,
and the rules and regulations thereunder, that are applicable to it, except
where such noncompliance could not have or reasonably be expected to result in a
Material Adverse Effect.
(n) REGULATORY PERMITS. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to conduct
their respective businesses as described in the SEC Reports, except where the
failure to possess such permits could not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect, and
neither the
9
Company nor any Subsidiary has received any notice of proceedings relating to
the revocation or modification of any such permits.
(o) TITLE TO ASSETS. The Company and the Subsidiaries have
good and marketable title in fee simple to all real property owned by them that
is material to their respective businesses and good and marketable title in all
personal property owned by them that is material to their respective businesses,
in each case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and the
Subsidiaries. Any real property and facilities held under lease by the Company
and the Subsidiaries are held by them under valid, subsisting and enforceable
leases of which the Company and the Subsidiaries are in compliance, except as
could not, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect.
(p) PATENTS AND TRADEMARKS. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses and
other similar rights that are necessary or material for use in connection with
their respective businesses as described in the SEC Reports and which the
failure to so have could, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect (collectively, the
"INTELLECTUAL PROPERTY RIGHTS"). Neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any Person.
Except as set forth in the SEC Reports, to the knowledge of the Company, all
such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.
(q) INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged. The Company has no reason to believe
that it will not be able to renew its and the Subsidiaries' 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 on terms
consistent with market for the Company's and such Subsidiaries' respective lines
of business.
(r) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set
forth in the SEC Reports, none of the officers or directors of the Company and,
to the knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
10
(s) INTERNAL ACCOUNTING CONTROLS. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established disclosure controls and
procedures (as defined in Exchange Act rules 13a-15(e) and 15(d)-15(e) for the
Company and designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its Subsidiaries, is
made known to the certifying officers by others within those entities,
particularly during the period in which the Company's Form 10-KSB or 10-QSB, as
the case may be, is being prepared. The Company's certifying officers have
evaluated the effectiveness of the Company's controls and procedures as of the
last day of the period covered by the Form 10-QSB for the Company's most
recently ended fiscal quarter (such date, the "EVALUATION DATE"). The Company
presented in its most recently filed Form 10-KSB or Form 10-QSB the conclusions
of the certifying officers about the effectiveness of the disclosure controls
and procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no significant changes in the Company's
internal controls (as described in Item 308(c) of Regulation S-K under the
Exchange Act) or, to the Company's knowledge, without inquiry, in other factors
that could significantly affect the Company's internal controls.
(t) SOLVENCY. Based on the financial condition of the Company
as of the Closing Date (and assuming that the Closing shall have occurred), (i)
the Company's fair saleable value of its assets exceeds the amount that will be
required to be paid on or in respect of the Company's existing debts and other
liabilities (including known contingent liabilities) as they mature; (ii) the
Company's assets do not constitute unreasonably small capital to carry on its
business for the current fiscal year as now conducted and as proposed to be
conducted including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt).
(u) CERTAIN FEES. Except as described in Schedule 3.1(u), no
brokerage or finder's fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Investors shall have no obligation with
respect to any fees or with respect to any claims (other than such fees or
commissions owed by an Investor pursuant to written agreements executed by such
Investor
11
which fees or commissions shall be the sole responsibility of such Investor)
made by or on behalf of other Persons for fees of a type contemplated in this
Section that may be due in connection with the transactions contemplated by this
Agreement.
(v) CERTAIN REGISTRATION MATTERS. Assuming the accuracy of the
Investors' representations and warranties set forth in Section 3.2(b)-(e), no
registration under the Securities Act is required for the offer and sale of the
Shares, Warrants and Warrant Shares by the Company to the Investors under the
Transaction Documents. The Company is eligible to register the resale of its
Common Stock by the Investors on Form S-3 promulgated under the Securities Act.
Except as specified in Schedule 3.1(v), the Company has not granted or agreed to
grant to any Person any rights (including "piggy-back" registration rights) to
have any securities of the Company registered with the Commission or any other
governmental authority that have not been satisfied or exercised.
(w) LISTING AND MAINTENANCE REQUIREMENTS. Except as specified
in the SEC Reports, the Company has not, in the two years preceding the date
hereof, received notice from any Trading Market to the effect that the Company
is not in compliance with the listing or maintenance requirements thereof. The
Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with the listing and maintenance
requirements for continued listing of the Common Stock on the Trading Market on
which the Common Stock is currently listed or quoted. The issuance and sale of
the Securities under the Transaction Documents (including the issuance of
Additional Shares) does not contravene the rules and regulations of the Trading
Market on which the Common Stock is currently listed or quoted, and no approval
of the shareholders of the Company thereunder is required for the Company to
issue and deliver to the Investors the Securities contemplated by the
Transaction Documents.
(x) INVESTMENT COMPANY. The Company is not, and is not an
Affiliate of, and immediately following the Closing will not have become, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(y) APPLICATION OF TAKEOVER PROTECTIONS. The Company has taken
all necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company's
Certificate of Incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to the Investors or
shareholders of the Company prior to the Closing Date as a result of the
Investors and the Company fulfilling their obligations or exercising their
rights under the Transaction Documents, including without limitation the
Company's issuance of the Securities and the Investors' ownership of the
Securities.
(z) NO ADDITIONAL AGREEMENTS. The Company does not have any
agreement or understanding with any Investor with respect to the transactions
contemplated by the Transaction Documents other than as specified in the
Transaction Documents.
12
(aa) DISCLOSURE. The Company confirms that neither it nor any
Person acting on its behalf has provided any Investor or its respective agents
or counsel with any information that the Company believes constitutes material,
non-public information except insofar as the existence and terms of the proposed
transactions hereunder may constitute such information. The Company understands
and confirms that the Investors will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. All disclosure
provided to the Investors regarding the Company, its business and the
transactions contemplated hereby, furnished by or on behalf of the Company
(including the Company's representations and warranties set forth in this
Agreement) are true and correct and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
3.2 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor
hereby, for itself and for no other Investor, represents and warrants to the
Company as follows:
(a) ORGANIZATION; AUTHORITY. Such Investor is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the applicable Transaction Documents and otherwise to carry out
its obligations thereunder. The execution, delivery and performance by such
Investor of the transactions contemplated by this Agreement has been duly
authorized by all necessary corporate or, if such Investor is not a corporation,
such partnership, limited liability company or other applicable like action, on
the part of such Investor. Each of this Agreement and the Registration Rights
Agreement has been duly executed by such Investor, and when delivered by such
Investor in accordance with terms hereof, will constitute the valid and legally
binding obligation of such Investor, enforceable against it in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
(b) INVESTMENT INTENT. Such Investor is acquiring the
Securities as principal for its own account for investment purposes only and not
with a view to or for distributing or reselling such Securities or any part
thereof, without prejudice, however, to such Investor's right at all times to
sell or otherwise dispose of all or any part of such Securities in compliance
with applicable federal and state securities laws. Subject to the immediately
preceding sentence, nothing contained herein shall be deemed a representation or
warranty by such Investor to hold the Securities for any period of time. Such
Investor is acquiring the Securities hereunder in the ordinary course of its
business. Such Investor does not have any agreement or understanding, directly
or indirectly, with any Person to distribute any of the Securities.
(c) INVESTOR STATUS. At the time such Investor was offered the
Securities, it was, and at the date hereof it is, an "accredited investor" as
defined in Rule 501(a) under the
13
Securities Act. Such Investor is not a registered broker-dealer under Section 15
of the Exchange Act.
(d) GENERAL SOLICITATION. Such Investor 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
or any other general solicitation or general advertisement.
(e) ACCESS TO INFORMATION. Such Investor acknowledges that it
has reviewed the Disclosure Materials and has been afforded (i) the opportunity
to ask such questions as it has deemed necessary of, and to receive answers
from, representatives of the Company concerning the terms and conditions of the
offering of the Shares and the merits and risks of investing in the Securities;
(ii) access to information about the Company and the Subsidiaries and their
respective financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment; and
(iii) the opportunity to obtain such additional information that the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation conducted by or
on behalf of such Investor or its representatives or counsel shall modify, amend
or affect such Investor's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
(f) CERTAIN TRADING ACTIVITIES. Such Investor has not directly
or indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Investor, engaged in any trading in any securities of
the Company (including, without limitations, any Short Sales involving the
Company's securities) during the 20 Trading Days prior to the date of this
Agreement. As of the date of this Agreement, such Investor has no open short
position in the Common Stock, and covenants that neither it nor any Person
acting on its behalf or pursuant to any understanding with it will engage in any
Short Sales prior to the public disclosure of the material terms of this
transaction by the Company.
(g) LIMITED OWNERSHIP. The purchase by such Investor of the
Securities issuable to it at the Closing will not result in such Investor
(individually or together with other Person with whom such Investor has
identified, or will have identified, itself as part of a "group" in a public
filing made with the Commission involving the Company's securities) acquiring,
or obtaining the right to acquire, in excess of 19.999% of the outstanding
shares of Common Stock or the voting power of the Company immediately following
Closing. Such Investor does not presently intend to, alone or together with
others, make a public filing with the Commission to disclose that it has (or
that it together with such other Persons have) acquired, or obtained the right
to acquire, as a result of the Closing (when added to any other securities of
the Company that it or they then own or have the right to acquire), in excess of
19.999% of the outstanding shares of Common Stock or the voting power of the
Company on a post transaction basis that assumes that the Closing shall have
occurred.
14
(h) INDEPENDENT INVESTMENT DECISION. Such Investor has
independently evaluated the merits of its decision to purchase Securities
pursuant to this Agreement, and such Investor confirms that it has not relied on
the advice of any other Investor's business and/or legal counsel in making such
decision. If such Investor is other than SF Capital Partners Ltd., such Investor
represents and warrants that Bryan Cave LLP has not acted as its legal counsel
in connection with the transactions contemplated by this Agreement.
The Company acknowledges and agrees that no Investor has made or makes any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 (a) Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of the
Securities other than pursuant to an effective registration statement, to the
Company, to an Affiliate of an Investor or in connection with a pledge as
contemplated in Section 4.1(b), the Company may require the transferor thereof
to provide to the Company an opinion of counsel selected by the transferor, the
form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act.
(b) Certificates evidencing the Securities will contain the
following legend, until such time as they are not required under Section 4.1(c):
[NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON
EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED] [THESE
SECURITIES HAVE NOT BEEN REGISTERED] WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE
REASONABLY ACCEPTABLE TO THE COMPANY. [THESE SECURITIES AND
THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES]
[THESE SECURITIES] MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.
15
The Company acknowledges and agrees that an Investor may from
time to time pledge, and/or grant a security interest in some or all of the
Securities pursuant to a bona fide margin agreement in connection with a bona
fide margin account and, if required under the terms of such agreement or
account, such Investor may transfer pledged or secured Securities to the
pledgees or secured parties. Such a pledge or transfer would not be subject to
approval or consent of the Company and no legal opinion of legal counsel to the
pledgee, secured party or pledgor shall be required in connection with the
pledge, but such legal opinion may be required in connection with a subsequent
transfer following default by the Investor transferee of the pledge. No notice
shall be required of such pledge. At the appropriate Investor's expense, the
Company will execute and deliver such reasonable documentation as a pledgee or
secured party of Securities may reasonably request in connection with a pledge
or transfer of the Securities including the preparation and filing of any
required prospectus supplement under Rule 424(b)(3) of the Securities Act or
other applicable provision of the Securities Act to appropriately amend the list
of selling shareholders thereunder.
(c) Certificates evidencing the Shares and Warrant Shares
shall not contain any legend (including the legend set forth in Section 4.1(b)):
(i) following a sale of such Securities pursuant to an effective registration
statement (including the Registration Statement), (ii) following a sale of such
Shares or Warrant Shares pursuant to Rule 144 (assuming the transferor is not an
Affiliate of the Company), or (iii) while such Shares or Warrant Shares are
eligible for sale under Rule 144(k). Following such time as restrictive legends
are not required to be placed on certificates representing Shares or Warrant
Shares pursuant to the preceding sentence, the Company will, no later than three
Trading Days following the delivery by an Investor to the Company or the
Company's transfer agent of a certificate representing Shares or Warrant Shares
containing a restrictive legend, use its best efforts to deliver or cause to be
delivered to such Investor a certificate representing such Shares or Warrant
Shares that is free from all restrictive and other legends. The Company may not
make any notation on its records or give instructions to any transfer agent of
the Company that enlarge the restrictions on transfer set forth in this Section.
If the Investor does not receive such certificates by the end of the seventh day
following the delivery by an Investor to the Company or the Company's transfer
agent of a certificate representing Shares or Warrant Shares containing a
restrictive legend such seven day period, then the Company shall pay partial
liquidated damages to the Investor in cash on demand, calculated at the rate of
1% per month of the Investor's Investment Amount, for each day so long as the
Company fails to provide such certificates.
4.2 FURNISHING OF INFORMATION. As long as any Investor owns the
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date htereof pursuant to the
Exchange Act. As long as any Investor owns Securities, if the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to
the Investors and make publicly available in accordance with Rule 144(c) such
information as is required for the Investors to sell the Shares and Warrant
Shares under Rule 144. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell the Shares and
Warrant Shares
16
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144.
4.3 PARTICIPATION RIGHTS. If at any time prior to the
eighteen-month anniversary of the Closing Date, the Company proposes to offer,
issue, or sell any equity Common Stock or Common Stock Equivalents
(collectively, "NEW ISSUE SECURITIES"), the Company shall concurrently offer to
the Investors up to such amount of New Issue Securities as would enable the
Investors to maintain their percentage ownership of the Company, in accordance
with the following provisions:
(a) The Company shall publicly disclose its intention to
offer, issue, or sell (as the case may be) New Issue Securities in a manner such
that Investors will not be in possession of material non-public information
concerning the Company as a result of the provisions of this Section (including
receipt of a First Notice, and then give a written notice to each Investor (the
"FIRST NOTICE") stating (i) its intention to issue the New Issue Securities,
(ii) the number and description of the New Issue Securities proposed to be
issued and (iii) the purchase price (calculated as of the proposed issuance
date) and the other terms and conditions upon which the Company is offering the
New Issue Securities.
(b) Transmittal of the First Notice to the Investors by the
Company shall constitute an offer by the Company to sell to each Investor (i) up
to its pro rata portion (based upon such Investor's percentage ownership of the
outstanding Common Stock as of the date of receipt of the First Notice) of the
New Issue Securities (the "BASIC AMOUNT") for the price and upon the terms and
conditions set forth in the First Notice and (ii) with respect to each Investor
that elects to purchase its Basic Amount, any additional portion of the New
Issue Securities attributable to the Basic Amounts of other Investors as such
Investor shall indicate it will purchase or acquire should the other Investors
subscribe for less than their Basic Amounts (the "UNDERSUBSCRIPTION AMOUNT").
For a period of ten (10) Business Days after receipt of the First Notice, each
Investor shall have the option, exercisable by written notice to the Company, to
accept the Company's offer as to all or any part of such Investor's Basic Amount
and, if such Investor shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Investor elects to purchase (in
either case, the "NOTICE OF ACCEPTANCE"). If the Basic Amounts subscribed for by
all Investors are less than the total of all of the Basic Amounts, then each
Investor who has set forth an Undersubscription Amount in its Notice of
Acceptance shall be entitled to purchase, in addition to the Basic Amounts
subscribed for, the Undersubscription Amount it has subscribed for; provided,
however, that if the Undersubscription Amounts subscribed for exceed the
difference between the total of all the Basic Amounts and the Basic Amounts
subscribed for (the "AVAILABLE UNDERSUBSCRIPTION AMOUNT"), each Investor who has
subscribed for any Undersubscription Amount shall be entitled to purchase that
portion of the Available Undersubscription Amount as the Basic Amount of such
Investor bears to the total Basic Amounts of all Investors that have subscribed
for Undersubscription Amounts, subject to rounding by the Board of Directors to
the extent it deems reasonably necessary. If two or more types of New Issue
Securities are to be issued or New Issue Securities are to be issued together
with other types of securities, including, without limitation, debt securities,
in a single
17
transaction or related transactions, the rights to purchase New Issue Securities
granted to the Investors under this Section must be exercised to purchase all
types of New Issue Securities and such other securities in the same proportion
as such New Issue Securities and other securities are to be issued by the
Company.
(c) The Company shall have ten (10) Trading Days from the
expiration of the period set forth in Section 4.3(b) above to issue, sell or
exchange all or any part of such New Issue Securities as to which a Notice of
Acceptance has not been given by the Investors (the "REFUSED SECURITIES"), but
only upon terms and conditions (including, without limitation, unit prices and
interest rates) that are not more favorable to the acquiring Person or Persons
than those set forth in the First Notice.
(d) In the event the Company shall propose to sell less than
all the Refused Securities (any such sale to be in the manner and on the terms
specified in Section 4.3(c) above), then each Investor may, at its sole option
and in its sole discretion, reduce the number or amount of the New Issue
Securities specified in its Notice of Acceptance to an amount that shall be not
less than the number or amount of New Issue Securities that the Investor elected
to purchase pursuant to Section 4.3(b) above multiplied by a fraction, (i) the
numerator of which shall be the number or amount of New Issue Securities the
Company actually proposes to issue, sell or exchange (including prior to such
reduction) and (ii) the denominator of which shall be the original amount of the
New Issue Securities. In the event that any Investor so elects to reduce the
number or amount of New Issue Securities specified in its Notice of Acceptance,
the Company may not issue, sell or exchange more than the reduced number or
amount of the New Issue Securities unless and until such securities have again
been offered to the Investors in accordance with Section 4.3(a) above.
(e) Upon the closing of the issuance, sale or exchange of all
or less than all of the Refused Securities, the Investors shall acquire from the
Company, and the Company shall issue to the Investors, the number or amount of
New Issue Securities specified in the Notices of Acceptance, as reduced pursuant
to Section 4.3(d) the Investors have so elected, upon the terms and conditions
specified in the First Notice. The purchase by the Investors of any New Issue
Securities is subject in all cases to the preparation, execution and delivery by
the Company and the Investors of a purchase agreement relating to such New Issue
Securities reasonably satisfactory in form and substance to the Investors and
the Company and their respective counsel.
(f) The participation rights contained in this Section 4.3
shall not apply to the issuance and sale by the Company of shares of Common
Stock issued as a result of: (i) the issuance of Warrant Shares, (ii) to the
extent consistent with past practice, the grant of options or warrants, or the
issuance of additional securities, under any duly authorized Company stock
option, restricted stock plan or stock purchase plan whether now existing or
approved by the Company and its shareholders in the future (but not as to any
amendments or other modifications to the number of Common Stock issuable
thereunder, the terms set forth therein, or the exercise price set forth
therein, unless such amendments or other modifications are approved by the
18
Company's shareholders), or (iii) the issuance and sale by the Company of shares
of Common Stock issued as consideration for the acquisition of another company
or business in which the shareholders of the Company do not have an ownership
interest, which acquisition has been approved by the Board of Directors of the
Company.
4.4 INTEGRATION. The Company shall not, and shall use its best
efforts to ensure that no Affiliate of the Company shall, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Investors, or that
would be integrated with the offer or sale of the Securities for purposes of the
rules and regulations of any Trading Market in a manner that would require
shareholder approval of the sale of the Securities to the Investors.
4.5 SUBSEQUENT REGISTRATIONS. Other than pursuant to the
Registration Statement, prior to the Effective Date, the Company may not file
any registration statement (other than on Form S-8) with the Commission with
respect to any securities of the Company.
4.6 SECURITIES LAWS DISCLOSURE; PUBLICITY. By 9:30 a.m. (New York
time) on the Trading Day following the execution of this Agreement, and by 9:30
a.m. (New York time) on the Trading Day following the Closing Date, the Company
shall issue press releases in a form approved by the Investors disclosing the
transactions contemplated hereby and the Closing. On the Trading Day following
the execution of this Agreement the Company will file a Current Report on Form
8-K disclosing the material terms of the Transaction Documents (and attach as
exhibits thereto the Transaction Documents), and on the Trading Day following
the Closing Date the Company will file an additional Current Report on Form 8-K
to disclose the Closing. In addition, the Company will make such other filings
and notices in the manner and time required by the Commission and the Trading
Market on which the Common Stock is listed. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Investor, or include the
name of any Investor in any filing with the Commission (other than the
Registration Statement and any exhibits to filings made in respect of this
transaction in accordance with periodic filing requirements under the Exchange
Act) or any regulatory agency or Trading Market, without the prior written
consent of such Investor, except to the extent such disclosure is required by
law or Trading Market regulations.
4.7 ADDITIONAL SHARES.
(a) If, prior to the one-year anniversary of the Closing Date,
the Company issues (or agrees to issue) any shares of Common Stock or if the
Company or any Subsidiary issues (or agrees to issue) any Common Stock
Equivalents entitling any Person to acquire shares of Common Stock at a price
per share less than the Threshold Price (if the holder of the Common Stock or
Common Stock Equivalent so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights issued in
connection with such issuance, be entitled to receive shares of Common Stock at
a price less than the Threshold Price, such
19
issuance shall be deemed to have occurred for less than the Threshold Price),
then, with each such issuance of Common Stock or Common Stock Equivalents for a
purchase price that is less than the Threshold Price, the Company shall
immediately issue additional shares of Common Stock (the "ADDITIONAL SHARES") to
each Investor for no additional consideration. The number of Additional Shares
issuable to each Investor will equal: (a) the Threshold Price minus the lowest
price per share of the Common Stock or Common Stock Equivalents offered or sold
that trigger an obligation under this Section ("SUBSEQUENT ISSUE PRICE") divided
by (b) the Threshold Price, multiplied by (c) the total number of Shares issued
or issuable to such Investor pursuant to Section 2.2(a)(i). The Company shall
notify the Investors in writing, no later than the Trading Day following the
issuance of any Common Stock or Common Stock Equivalent subject to this section,
indicating therein the applicable issuance price. The Additional Shares shall be
entitled to the registration and other rights set forth in the Registration
Rights Agreement and any Additional Shares not registered for resale shall also
be afforded general piggyback registration rights such that such Additional
Shares may be included in any registration statement (other than on Form S-8)
filed by the Company. Notwithstanding the foregoing, no issuances of Additional
Shares will be made under this Section as a result of: (i) the issuance of
Warrant Shares, (ii) to the extent consistent with past practice, the grant of
options or warrants, or the issuance of additional securities, under any duly
authorized Company stock option, restricted stock plan or stock purchase plan
whether now existing or approved by the Company and its shareholders in the
future (but not as to any amendments or other modifications to the number of
Common Stock issuable thereunder, the terms set forth therein, or the exercise
price set forth therein, unless such amendments or other modifications are
approved by the Company's shareholders), or (iii) the issuance and sale by the
Company of shares of Common Stock issued as consideration for the acquisition of
another company or business in which the shareholders of the Company do not have
an ownership interest, which acquisition has been approved by the Board of
Directors of the Company. If prior to the one-year anniversary of the Closing
Date, the Company enters into any understanding or agreement to issue or sell
securities, or otherwise engages in discussions with any Person in connection
with a potential issuance or sale of securities, that would, if such issuance or
sale were to occur prior to the one-year anniversary of the Closing Date,
trigger an obligation to issue Additional Shares, then notwithstanding the fact
that such actual issuance of Common Stock or Common Stock Equivalents occurs
after the one-year anniversary of the Closing Date, such issuance will obligate
the Company to issue Additional Shares under this Section.
(b) CERTAIN LIMITATIONS.
(i) Notwithstanding anything to the contrary
contained herein, the number of Additional Shares that may be acquired by an
Investor pursuant to this Section shall be limited to the extent necessary to
insure that, following such issuance, the total number of shares of Common Stock
then beneficially owned by such Investor and its Affiliates and any other
Persons whose beneficial ownership of Common Stock would be aggregated with the
Holder's for purposes of Section 13(d) of the Exchange Act, does not exceed
4.999% of the total number of issued and outstanding shares of Common Stock
(including for such purpose the issuance of Additional Shares). For such
purposes, beneficial ownership shall be determined in
20
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. By written notice to the Company, an Investor may waive
the provisions of this Section 4.7(b) as to itself but any such waiver will not
be effective until the 61st day after delivery thereof and such waiver shall
have no effect on any other Investor.
(ii) Notwithstanding anything to the contrary
contained herein, the number of Additional Shares that may be acquired by an
Investor pursuant to this Section shall be limited to the extent necessary to
insure that, following such issuance, the total number of shares of Common Stock
then beneficially owned by such Investor and its Affiliates and any other
Persons whose beneficial ownership of Common Stock would be aggregated with the
Holder's for purposes of Section 13(d) of the Exchange Act, does not exceed
9.999% of the total number of issued and outstanding shares of Common Stock
(including for such purpose the issuance of Additional Shares). For such
purposes, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
This restriction may not be waived.
(iii) The Company and each Investor agree that, if
and to the extent Sections 4.7(b)(i)-(ii) would restrict the ability of an
Investor to receive any Additional Shares, then notwithstanding anything to the
contrary set forth herein, the Company shall deliver those Additional Shares as
may be acquired by such Investor in accordance with Sections 4.7(b)(i)-(ii). An
Investor will promptly notify the Company in writing if the issuance of
Additional Shares would be restricted by Sections 4.7(b)(i)-(ii), specifying
therein the Additional Shares so restricted. Such Investor shall deliver a
notice to the Company when it is able to acquire any remaining Additional Shares
not previously deliverable to such Investor due to the applicability of Sections
4.7(b)(i)-(ii), however, such notice shall not take effect until the 61st day
following delivery thereof.
(iv) Notwithstanding anything to the contrary in this
Agreement, if the Company has not previously obtained Stockholder Approval, then
the Company may not issue Additional Shares in excess of the Issuable Maximum
pursuant to this Section. The "Issuable Maximum" means, as of any date, a number
of shares of Common Stock equal to 2,354,551, which is 19.9% of the issued and
outstanding Common Stock of the Company, based on 11,831,916 shares of Common
Stock outstanding on April 1, 2005. Each Investor shall be entitled to a portion
of the Issuable Maximum equal to the quotient obtained by dividing: (x) the
number of Shares issued and sold to such Investor on the Closing Date plus any
Additional Shares previously issued to such Investor by (y) the aggregate number
of Shares issued and sold by the Company on the Closing Date plus any Additional
Shares previously issued to Investors. If any Investor shall no longer hold
Shares, then such Investor's remaining portion of the Issuable Maximum shall be
allocated pro-rata among the remaining Investors, giving effect to the Company's
desire to allocate this limitation among the class of securities known as
Shares. If on any date Additional Shares are issuable to Investors, or at such
time as an Investor shall notify the Company that the condition in (A) following
this clause shall be in effect: (A) the aggregate number of Additional Shares
would exceed the Issuable Maximum on such date, and (B) the Company shall not
have previously obtained the vote of shareholders, as may be required by the
21
applicable rules and regulations of the American Stock Exchange (or any
successor entity or any other Trading Market on which the Company's securities
then trade), applicable to approve the issuance of shares of Common Stock in
excess of the Issuable Maximum pursuant to the terms hereof (the "STOCKHOLDER
APPROVAL"), then, the Company shall issue to the Investor a number of Additional
Shares equal to the Issuable Maximum and, with respect to the remainder of
Additional Shares issuable to the Investors which would result in an issuance of
shares of Common Stock in excess of the Issuable Maximum, the Company must use
its best efforts to seek and obtain Stockholder Approval as soon as possible,
but in any event not later than the 90th day following such Exercise Date or the
date of such request. The Company and the Investors understand and agree that
Additional Shares issued to and then held by the Investors shall not be entitled
to cast votes on any resolution to obtain Stockholder Approval pursuant hereto.
(c) For purposes of this Section 4.7, the following
subsections (c)(i) to (c)(vi) shall also be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. In case at any
time the Company shall in any manner grant (directly and not by assumption in a
merger or otherwise) any warrants or other rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock or
security convertible into or exchangeable for Common Stock (such warrants,
rights or options being called "OPTIONS" and such convertible or exchangeable
stock or securities being called "CONVERTIBLE SECURITIES") whether or not such
Options or the right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon the conversion or exchange of
such Convertible Securities (determined by dividing (i) the sum (which sum shall
constitute the applicable consideration) of (x) the total amount, if any,
received or receivable by the Company as consideration for the granting of such
Options, plus (y) the aggregate amount of additional consideration payable to
the Company upon the exercise of all such Options, plus (z), in the case of such
Options which relate to Convertible Securities, the aggregate amount of
additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (ii) the
total maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options) shall be less than the
Threshold Price in effect immediately prior to the time of the granting of such
Options, then the total number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total amount of
such Convertible Securities issuable upon the exercise of such Options shall be
deemed to have been issued for such price per share as of the date of granting
of such Options or the issuance of such Convertible Securities and thereafter
shall be deemed to be outstanding for purposes of adjusting the Subsequent Issue
Price. Except as otherwise provided in subsection 4.7(c)(iii), no adjustment of
the Subsequent Issue Price shall be made upon the actual issue of such Common
Stock or of such Convertible Securities upon exercise of such Options or upon
the actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
22
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. In case the
Company shall in any manner issue (directly and not by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not the rights to
exchange or convert any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon such conversion
or exchange (determined by dividing (i) the sum (which sum shall constitute the
applicable consideration) of (x) the total amount received or receivable by the
Company as consideration for the issue or sale of such Convertible Securities,
plus (y) the aggregate amount of additional consideration, if any, payable to
the Company upon the conversion or exchange thereof, by (ii) the total number of
shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the Threshold Price in effect
immediately prior to the time of such issue or sale, then the total maximum
number of shares of Common Stock issuable upon conversion or exchange of all
such Convertible Securities shall be deemed to have been issued for such price
per share as of the date of the issue or sale of such Convertible Securities and
thereafter shall be deemed to be outstanding for purposes of adjusting the
Subsequent Issue Price, provided that (a) except as otherwise provided in
subsection 4.7(c)(iii), no adjustment of the Subsequent Issue Price shall be
made upon the actual issuance of such Common Stock upon conversion or exchange
of such Convertible Securities and (b) no further adjustment of the Subsequent
Issue Price shall be made by reason of the issue or sale of Convertible
Securities upon exercise of any Options to purchase any such Convertible
Securities for which adjustments of the Subsequent Issue Price have been made
pursuant to the other provisions of subsection 4.7(c).
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon
the happening of any of the following events, namely, if the purchase price
provided for in any Option referred to in subsection 4.7(c)(i) hereof, the
additional consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subsections 4.7(c)(i) or 4.7(c)(ii), or
the rate at which Convertible Securities referred to in subsections 4.7(c)(i) or
4.7(c)(ii) are convertible into or exchangeable for Common Stock shall change at
any time (including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the Subsequent Issue Price in
effect at the time of such event shall forthwith be readjusted to the Subsequent
Issue Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold. On the termination of any Option for
which any adjustment was made pursuant to this subsection 4.7(c) or any right to
convert or exchange Convertible Securities for which any adjustment was made
pursuant to this subsection 4.7(c) (including without limitation upon the
redemption or purchase for consideration of such Convertible Securities by the
Company), the Subsequent Issue Price then in effect hereunder shall forthwith be
changed to the Subsequent Issue Price which would have been in effect at the
time of such termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such termination, never been issued.
(iv) STOCK DIVIDENDS. Subject to the provisions of
this Section 4.7(c), in case the Company shall declare a dividend or make any
other distribution upon any stock of
23
the Company (other than the Common Stock) payable in Common Stock, Options or
Convertible Securities, then any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without consideration.
(v) CONSIDERATION FOR STOCK. In case any shares of
Common Stock, Options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the net amount
received by the Company therefor, after deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the
Company in connection therewith. In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the Company
shall be deemed to be the fair value of such consideration as determined in good
faith by the Board of Directors of the Company, after deduction of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the
Company in connection therewith. In case any Options shall be issued in
connection with the issue and sale of other securities of the Company, together
comprising one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall be deemed
to have been issued for such consideration as determined in good faith by the
Board of Directors of the Company. If Common Stock, Options or Convertible
Securities shall be issued or sold by the Company and, in connection therewith,
other Options or Convertible Securities (the "ADDITIONAL RIGHTS") are issued,
then the consideration received or deemed to be received by the Company shall be
reduced by the fair market value of the Additional Rights (as determined using
the Black-Scholes option pricing model or another method mutually agreed to by
the Company and the Investors). The Board of Directors of the Company shall
respond promptly, in writing, to an inquiry by the Investors as to the fair
market value of the Additional Rights. In the event that the Board of Directors
of the Company and the Investors are unable to agree upon the fair market value
of the Additional Rights, the Company and the Investors shall jointly select an
appraiser, who is experienced in such matters. The decision of such appraiser
shall be final and conclusive, and the cost of such appraiser shall be borne
evenly by the Company and the Investors.
(vi) RECORD DATE. In case the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them (i)
to receive a dividend or other distribution payable in Common Stock, Options or
Convertible Securities or (ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
4.8 LIMITATION ON ISSUANCE OF FUTURE PRICED SECURITIES. During the
six months following the Closing Date, the Company shall not issue any "Future
Priced Securities" as such term is described by NASD IM-4350-1.
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4.9 INDEMNIFICATION OF INVESTORS. In addition to the indemnity
provided in the Registration Rights Agreement, the Company will indemnify and
hold the Investors and their directors, officers, shareholders, partners,
employees and agents (each, an "INVESTOR PARTY") harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs and
reasonable attorneys' fees and costs of investigation (collectively, "LOSSES")
that any such Investor Party may suffer or incur as a result of or relating to
any misrepresentation, breach or inaccuracy of any representation, warranty,
covenant or agreement made by the Company in any Transaction Document. In
addition to the indemnity contained herein, the Company will reimburse each
Investor Party for its reasonable legal and other expenses (including the cost
of any investigation, preparation and travel in connection therewith) incurred
in connection therewith, as such expenses are incurred.
4.10 NON-PUBLIC INFORMATION. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Investor
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Investor
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Investor shall
be relying on the foregoing representations in effecting transactions in
securities of the Company. In the event that in order to comply with its
obligations under Section 4.3, the Company in writing requests an Investor to
enter into a written confidentiality agreement regarding information which the
Company desires to disclose to such Investor and which the Company believes is
material and non-public (the parties agreeing that the information to be
disclosed pursuant to such an agreement shall only be material and non-public
for up to 10 days from the date of such agreement) and such Investor informs the
Company that it would not be willing to enter into such confidentiality
agreement, then such Investor shall be deemed to have waived its pre-emptive
rights under Section 4.3 for a period of 20 days from the date of such
Investor's refusal (or the 20th day following the third Business Day on which
the Company shall have requested such agreement in writing in the event such
Investor fails to respond).
4.11 LISTING OF SECURITIES. The Company agrees, (i) if the Company
applies to have the Common Stock traded on any other Trading Market, it will
include in such application the Shares and Warrant Shares, and will take such
other action as is necessary or desirable to cause the Shares and Warrant Shares
to be listed on such other Trading Market as promptly as possible, and (ii) it
will take all action reasonably necessary to continue the listing and trading of
its Common Stock on a Trading Market and will comply in all material respects
with the Company's reporting, filing and other obligations under the bylaws or
rules of the Trading Market.
4.12 USE OF PROCEEDS. The Company will use the net proceeds from
the sale of the Securities hereunder to retire a note, in an amount not
exceeding $3,150,000, secured by the Company's Peru, IL factory, and for working
capital purposes, and not for the purpose of redeeming any Common Stock or
Common Stock Equivalents.
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ARTICLE V.
CONDITIONS PRECEDENT TO CLOSINGS
5.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE INVESTORS TO
PURCHASE SECURITIES. The obligation of each Investor to acquire Securities at
the Closing is subject to the satisfaction or waiver by such Investor, at or
before such Closing, of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained herein shall be true and correct in all
material respects as of the date when made and as of such Closing as though made
on and as of such date;
(b) PERFORMANCE. The Company shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by the Transaction Documents to be performed, satisfied or
complied with by it at or prior to such Closing;
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;
(d) ADVERSE CHANGES. Since the date of execution of this
Agreement, no event or series of events shall have occurred that reasonably
could have or result in a Material Adverse Effect;
(e) NO SUSPENSIONS OF TRADING IN COMMON STOCK; LISTING.
Trading in the Common Stock shall not have been suspended by the Commission or
any Trading Market (except for any suspensions of trading of not more than one
Trading Day solely to permit dissemination of material information regarding the
Company) at any time since the date of execution of this Agreement, and the
Common Stock shall have been at all times since such date listed for trading on
a Trading Market;
(f) COMPANY DELIVERABLES. The Company shall have delivered the
Company Deliverables in accordance with Section 2.2(a);
(g) CLOSING OFFICER'S CERTIFICATE. At the Closing, the Company
shall have delivered to each Investor an officer's certificate to the effect
that each of the conditions specified in Sections 5.1(a) - 5.1(e) is satisfied
in all respects;
(h) MINIMUM SUBSCRIPTIONS. The aggregate of all Investors'
Investment Amounts shall not be less than $3,000,000;
(i) MAXIMUM SUBSCRIPTIONS. The aggregate of all Investors'
Investment Amounts shall not be greater than $3,750,000;
26
(j) THRESHOLD PRICE. On the Trading Day immediately preceding
the Closing Date, the closing price of the Common Stock as reported on the
Trading Market shall not be less than the Threshold Price; and
(k) AMEX LISTING. The American Stock Exchange shall have
approved the Company's application for the listing of the Shares and shall not
have objected to the transactions contemplated by this Agreement.
5.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY TO SELL
SECURITIES. The obligation of the Company to sell Securities at the Closing is
subject to the satisfaction or waiver by the Company, at or before such Closing,
of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Investor contained herein shall be true and correct in all
material respects as of the date when made and as of such Closing as though made
on and as of such date;
(b) PERFORMANCE. Each Investor shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by the Transaction Documents to be performed, satisfied or
complied with by such Investor at or prior to such Closing;
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;
(d) INVESTORS DELIVERABLES. Each Investor shall have delivered
its Investors Deliverables in accordance with Section 2.2(b); and
(e) AMEX LISTING. The American Stock Exchange shall have
approved the Company's application for the listing of the Shares and shall not
have objected to the transactions contemplated by this Agreement.
ARTICLE VI.
MISCELLANEOUS
6.1 FEES AND EXPENSES. At the Closing, the Company shall reimburse
SF Capital Partners Ltd. $15,000 in connection with its legal fees concerning
the transactions contemplated by the Transaction Documents (SF Capital Partners
Ltd. may deduct such amount from the portion of its Investment Amount
deliverable to the Company at the Closing), it being understood that Bryan Cave
LLP has only rendered legal advice to SF Capital Partners Ltd., and not to the
Company or any Investor in connection with the transactions contemplated hereby,
and that each of the Company and each Investor has relied for such matters on
the advice of its own respective counsel. Except as specified in the immediately
preceding sentence and in the Registration Rights Agreement, each party shall
pay the fees and expenses of its advisers,
27
counsel, accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of the Transaction Documents. The Company shall pay all stamp and
other taxes and duties levied in connection with the sale of the Securities.
6.2 ENTIRE AGREEMENT. The Transaction Documents, together with the
Schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements, understandings,
discussions and representations, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits and
schedules.
6.3 NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile
(provided the sender receives a machine-generated confirmation of successful
transmission) at the facsimile number specified in this Section prior to 6:30
p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number specified in this Section on a day that is not a Trading
Day or later than 6:30 p.m. (New York City time) on any Trading Day, (c) the
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and communications
shall be as follows:
If to the Company: Flexible Solutions International, Inc.
615 Discovery Street
Victoria, B.C.
V8T 5G4, Canada
Facsimile: (250) 477-9912
Attn.: Dan O'Brien
If to an Investor: To the address set forth under such Investor's
name on the signature pages hereof; or such
other address as may be designated in writing
hereafter, in the same manner, by such Person.
6.4 AMENDMENTS; WAIVERS; NO ADDITIONAL CONSIDERATION. No provision
of this Agreement may be waived or amended except in a written instrument signed
by the Company and the Investors holding a majority of the Shares. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right. No
consideration shall be offered or paid to any Investor to amend or consent to a
waiver or modification of any provision of any
28
Transaction Document unless the same consideration is also offered to all
Investors who then hold Shares.
6.5 TERMINATION. This Agreement may be terminated prior to
Closing:
(a) by written agreement of the Investors and the Company;
(b) by the Company or an Investor (as to itself but no other
Investor) upon written notice to the other, if the Closing shall not have taken
place by 6:30 p.m. Eastern time on the Outside Date; provided, that the right to
terminate this Agreement under this Section 6.5(b) shall not be available to any
Person whose failure to comply with its obligations under this Agreement has
been the cause of or resulted in the failure of the Closing to occur on or
before such time; or
(c) by an Investor (as to itself but no other Investor) if it
concludes in good faith that any of the conditions precedent contained in
Section 5.1(c), (d) or (e) shall have been breached or shall not be capable of
being satisfied by the Outside Date despite the assumed best efforts of the
Company.
In the event of a termination pursuant to this Section, the Company
shall promptly notify all non-terminating Investors and shall pay to SF Capital
Partners Ltd. up to $15,000 of the fees and expenses incurred by SF Capital
Partners Ltd. (including reasonable legal fees and expenses) in connection with
this Agreement and the transactions contemplated by this Agreement through the
termination date. Other than as to the foregoing fees and expenses, upon a
termination in accordance with this Section 6.5, the Company and the terminating
Investor(s) shall not have any further obligation or liability (including as
arising from such termination) to the other and no Investor will have any
liability to any other Investor under the Transaction Documents as a result
therefrom.
6.6 CONSTRUCTION. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party. This
Agreement shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement or any of the
Transaction Documents.
6.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Investors. Any Investor may
assign any or all of its rights under this Agreement to any Person to whom such
Investor assigns or transfers any Securities, provided such transferee agrees in
writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Investors."
29
6.8 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.8 (as to each
Investor Party).
6.9 GOVERNING LAW. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all Actions concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
Affiliates, employees or agents) shall be commenced exclusively in the New York
Courts. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of the any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any Action, any claim that it is not personally subject to the jurisdiction
of any such New York Court, or that such Action has been commenced in an
improper or inconvenient forum. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
Action by mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. Each party hereto hereby irrevocably waives, to the
fullest extent permitted by applicable law, any and all right to trial by jury
in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby. If either party shall commence an Action to
enforce any provisions of a Transaction Document, then the prevailing party in
such Action shall be reimbursed by the other party for its reasonable attorneys'
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such Action.
6.10 SURVIVAL. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery of the
Securities.
6.11 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
6.12 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and
30
provisions of this Agreement shall not in any way be affected or impaired
thereby and the parties will attempt to agree upon a valid and enforceable
provision that is a reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Agreement.
6.13 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Investor exercises a right, election, demand
or option under a Transaction Document and the Company does not timely perform
its related obligations within the periods therein provided, then such Investor
may rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.
6.14 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities. If a replacement
certificate or instrument evidencing any Securities is requested due to a
mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a
replacement.
6.15 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Investors and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
6.16 PAYMENT SET ASIDE. To the extent that the Company makes a
payment or payments to any Investor pursuant to any Transaction Document or an
Investor enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
6.17 INDEPENDENT NATURE OF INVESTORS' OBLIGATIONS AND RIGHTS. The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any
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other Investor, and no Investor shall be responsible in any way for the
performance of the obligations of any other Investor under any Transaction
Document. The decision of each Investor to purchase Securities pursuant to the
Transaction Documents has been made by such Investor independently of any other
Investor. Nothing contained herein or in any Transaction Document, and no action
taken by any Investor pursuant thereto, shall be deemed to constitute the
Investors as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Investors are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. Each Investor acknowledges that no
other Investor has acted as agent for such Investor in connection with making
its investment hereunder and that no Investor will be acting as agent of such
Investor in connection with monitoring its investment in the Securities or
enforcing its rights under the Transaction Documents. Each Investor shall be
entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Investor to
be joined as an additional party in any proceeding for such purpose. The Company
acknowledges that each of the Investors has been provided with the same
Transaction Documents for the purpose of closing a transaction with multiple
Investors and not because it was required or requested to do so by any Investor.
6.18 LIMITATION OF LIABILITY. Notwithstanding anything herein to
the contrary, the Company acknowledges and agrees that the liability of an
Investor arising directly or indirectly, under any Transaction Document of any
and every nature whatsoever shall be satisfied solely out of the assets of such
Investor, and that no trustee, officer, other investment vehicle or any other
Affiliate of such Investor or any investor, shareholder or holder of shares of
beneficial interest of such a Investor shall be personally liable for any
liabilities of such Investor.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
FLEXIBLE SOLUTIONS INTERNATIONAL, INC.
By:_______________________________________
Name:
Title:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR INVESTORS FOLLOW]
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IN WITNESS WHEREOF, the parties have executed this Security Purchase
Agreement as of the date first written above.
NAME OF INVESTOR:
By: Name:
Title:
Investment Amount: $
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Tax ID No.:
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ADDRESS FOR NOTICE
c/o:
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Street:
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City/State/Zip:
--------------------------------
Attention:
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Tel:
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Fax:
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DELIVERY INSTRUCTIONS
(if different from above)
c/o:
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Street:
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City/State/Zip:
--------------------------------
Attention:
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Tel:
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