SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of July __,
2005, by and among UTIX GROUP, INC., a Delaware corporation, with an address at
7 New England Xxxxxxxxx Xxxx, Xxxxx 000, Xxxxxxxxxx, XX 00000 (the "COMPANY"),
and each of the purchasers set forth on SCHEDULE A hereto (the each a
"Purchaser," and collectively, the "PURCHASERS"). (The Company and the
Purchasers may sometimes be referred to herein individually as a "PARTY" and
collectively as the "PARTIES.")
WHEREAS:
A. The Company and the Purchasers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 under Regulation D ("REGULATION D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 ACT");
B. The Purchasers desire to purchase and the Company desires to issue
and sell, upon the terms and conditions set forth in this Agreement (i) 12%
convertible promissory notes of the Company, in the form attached hereto as
EXHIBIT A, in the aggregate principal amount of One Million Three Hundred and
Fifty Thousand ($1,350,000) Dollars (together with any promissory note(s) issued
in replacement thereof or as a dividend thereon or otherwise with respect
thereto in accordance with the terms thereof, the "PROMISSORY NOTES"),
convertible into shares of common stock, $0.001 par value per share, of the
Company (the "COMMON STOCK"), upon the terms and subject to the limitations and
conditions set forth in such Promissory Notes, and (ii) Class A Warrants of the
Company, in the form attached hereto as EXHIBIT B, to purchase an aggregate of
Ten Million Eight Hundred Thousand (10,800,000) shares of Common Stock (the
"WARRANTS"), upon the terms and subject to the limitations and conditions set
forth in such Warrants;
C. In addition to the Promissory Notes and Warrants, contemporaneous
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Cash Collateral Escrow Agreement in the form attached
hereto as EXHIBIT C and a Confession of Judgment in the principal amount of the
Promissory Notes together with all accrued and unpaid interest thereon.
D. Each Purchaser wishes to purchase, upon the terms and conditions
stated in this Agreement, such principal amount of Promissory Notes and number
of Warrants as is set forth on SCHEDULE A hereto.
NOW THEREFORE, the Company and each of the Purchasers severally (and
not jointly) hereby agree as follows:
1. PURCHASE AND SALE OF PROMISSORY NOTES AND WARRANTS.
a. PURCHASE OF PROMISSORY NOTES AND WARRANTS. On the Closing
Date (as defined below), the Company shall issue and sell to each Purchaser and
each Purchaser severally agrees to purchase from the Company such principal
amount of Promissory Notes and number of Warrants as is set forth on SCHEDULE A
hereto.
b. FORM OF PAYMENT. (i) On the Closing Date (as defined
below), (i) each Purchaser shall pay a purchase price for the Promissory Notes
and the Warrants to be issued and sold to it at the Closing (as defined below)
in an amount equal to ninety-seven (97%) percent of the principal amount of the
Promissory Note (the "PURCHASE PRICE") by wire transfer of immediately available
funds (or as otherwise mutually agreed) to the Company, in accordance with the
Company's written wiring instructions, against delivery of the Promissory Notes
in the principal amount equal to the Purchase Price and the number of Warrants
as is set forth beside such Purchaser's name on SCHEDULE A hereto, and (ii) the
Company shall deliver such Promissory Notes and Warrants duly executed on behalf
of the Company, to such Purchaser, against delivery of such Purchase Price.
(ii) NOTWITHSTANDING THE PURCHASE PRICE SET FORTH IN SECTION
1(b)(i) ABOVE, THE PURCHASER HEREBY ACKNOWLEDGES THAT IF THE PURCHASER IS
PURCHASING THE PROMISSORY NOTES AND WARRANTS THROUGH A BROKER-DEALER, FINDER,
PLACEMENT AGENT OR ANY OTHER THIRD PARTY (HEREINAFTER REFERRED TO AS A
"FINDER"), THE PURCHASER WILL BE PAYING A PURCHASE PRICE EQUAL TO ONE HUNDRED
(100%) PERCENT OF THE PRINCIPAL AMOUNT OF THE PROMISSORY NOTE. FURTHER, THE
COMPANY MAY COMPENSATE A FINDER WHO INTRODUCES THE PURCHASER TO THE COMPANY AT A
RATE NOT EXCEEDING THREE (3%) PERCENT OF THE PRINCIPAL AMOUNT OF THE PROMISSORY
NOTE.
c. CLOSING DATE. Subject to the satisfaction (or waiver) of
the conditions thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance and sale of the Promissory Notes and the Warrants pursuant
to this Agreement (the "CLOSING DATE") shall be July 18, 2005, or such other
mutually agreed upon time. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall occur on the Closing Date at the offices of
Xxxxxxx Xxxx LLP, located at 00 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, or
at such other location as may be agreed to be the parties.
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES. Each Purchaser severally
(and not jointly) represents and warrants to the Company solely as to such
Purchaser that:
a. INVESTMENT PURPOSE. As of the date hereof, the Purchaser is
purchasing the Promissory Notes and the shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Promissory Notes (such shares of
Common Stock being referred to herein as the "CONVERSION SHARES"), and the
Warrants and the shares of Common Stock issuable upon exercise thereof (the
"WARRANT SHARES" and, collectively with the Promissory Notes, Warrants and
Conversion Shares, the "SECURITIES"), for its own account and not with a present
view towards
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the public sale or distribution thereof, except pursuant to sales registered or
exempted from registration under the 1933 Act; PROVIDED, HOWEVER, that by making
the representations herein, the Purchaser does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. ACCREDITED INVESTOR STATUS. The Purchaser is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D (an "ACCREDITED
INVESTOR").
c. RELIANCE ON EXEMPTIONS. The Purchaser understands that the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Purchaser's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order to
determine the availability of such exemptions and the eligibility of the
Purchaser to acquire the Securities.
d. INFORMATION. The Purchaser and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by the Purchaser or its advisors. The
Purchaser and its advisors, if any, have been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any other due diligence
investigation conducted by Purchaser or any of its advisors or representatives
shall modify, amend or affect Purchaser's right to rely on the Company's
representations and warranties contained in Section 3 below. The Purchaser
understands that its investment in the Securities involves a significant degree
of risk.
e. GOVERNMENTAL REVIEW. The Purchaser understands that no
United States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the
Securities.
f. TRANSFER OR RE-SALE. The Purchaser understands that (i) the
sale or re-sale of the Securities has not been and is not being registered under
the 1933 Act or any applicable state securities laws, and the Securities may not
be transferred unless (A) the Securities are sold pursuant to an effective
registration statement under the 1933 Act, (B) the Purchaser shall have
delivered to the Company an opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that the Securities to be sold or transferred may be
sold or transferred pursuant to an exemption from such registration, (C) the
Securities are sold or transferred to an "affiliate" (as defined in Rule 144
promulgated under the 1933 Act (or a successor rule) ("RULE 144")) of the
Purchaser who agrees to sell or otherwise transfer the Securities only in
accordance with this Section 2(f) and who is an Accredited Investor, or (D) the
Securities are sold pursuant to Rule 144; (ii) any sale of such Securities made
in reliance on Rule 144 may be made only in accordance with the terms of said
Rule and further, if said Rule is not applicable, any re-sale of such Securities
under circumstances in which the seller (or the person through whom the sale is
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made) may be deemed to be an underwriter (as that term is defined in the 0000
Xxx) may require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (iii) neither the Company nor
any other person is under any obligation to register such Securities under the
1933 Act or any state securities laws or to comply with the terms and conditions
of any exemption thereunder. Notwithstanding the foregoing or anything else
contained herein to the contrary, the Securities may be pledged as collateral in
connection with a BONA FIDE margin account or other lending arrangement.
g. LEGENDS. The Purchaser understands that the Promissory
Notes and the Warrants and, until such time as the Conversion Shares and Warrant
Shares have been registered under the 1933 Act, or otherwise, may be sold
pursuant to Rule 144 without any restriction as to the number of securities as
of a particular date that can then be immediately sold, the Conversion Shares
and Warrant Shares may bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the
certificates for such Securities):
"THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES
UNDER SAID ACT, OR AN OPINION OF COUNSEL, IN
FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR
OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT."
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (i)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 without
any restriction as to the number of securities as of a particular date that can
then be immediately sold, or (ii) such holder provides the Company with an
opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Security may be made without registration under the 1933 Act and such
sale or transfer is effected, or (iii) such holder provides the Company with
reasonable assurances that such Security can be sold pursuant to Rule 144. The
Purchaser agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
h. AUTHORIZATION; ENFORCEMENT. This Agreement has been duly
and validly authorized. This Agreement has been duly executed and delivered on
behalf of the Purchaser, and this Agreement constitutes a valid and binding
agreement of the Purchaser enforceable in accordance with its terms.
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i. RESIDENCY. The Purchaser is a resident of the jurisdiction
set forth immediately below such Purchaser's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Purchaser that:
a. ORGANIZATION AND QUALIFICATION. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other) to
own, lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. SCHEDULE 3(a) sets forth
a list of all of the Subsidiaries of the Company and the jurisdiction in which
each is incorporated. The Company and each of its Subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which its ownership or use of property or the nature of the
business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect on the
business, operations, assets, financial condition or prospects of the Company or
its Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements or instruments to be entered into in connection
herewith. "Subsidiaries" means any corporation or other organization, whether
incorporated or unincorporated, in which the Company owns, directly or
indirectly, any equity or other ownership interest.
b. AUTHORIZATION; ENFORCEMENT. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Promissory Notes, and the Warrants, and to consummate the
transactions contemplated hereby and thereby and to issue the Securities, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Promissory Notes and the Warrants by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Promissory Notes and the
Warrants and the issuance and reservation for issuance of the Conversion Shares
and Warrant Shares issuable upon conversion or exercise thereof) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or its shareholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company, and (iv) this Agreement constitutes, and upon execution and delivery by
the Company of the Promissory Notes and the Warrants, each of such instruments
will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.
c. CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) (A) 100,000,000 shares of Common
Stock, of which 37,640,967 shares are issued and outstanding, (B) excluding
shares which may be reserved for issuance pursuant to the Company's stock option
plans, 20,903,144 shares are reserved for issuance pursuant to securities (other
than the Promissory Notes and the Warrants) exercisable for, or convertible into
or exchangeable for shares of Common Stock, and (C) 36,000,000 shares are
reserved for issuance upon conversion of the Promissory Notes and exercise of
the Warrants (subject to
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adjustment pursuant to the Company's covenant set forth in Section 4(f) below);
and (ii) 25,000,000 shares of preferred stock, none of which are issued or
outstanding. All of such outstanding shares of capital stock are, or upon
issuance will be, duly authorized, validly issued, fully paid and nonassessable.
No shares of capital stock of the Company are subject to preemptive rights or
any other similar rights of the stockholders of the Company or any liens or
encumbrances imposed through the actions or failure to act of the Company.
Except as disclosed in SCHEDULE 3(c), as of the effective date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries,
(ii) there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of its or their
securities under the 1933 Act, and (iii) there are no anti-dilution or price
adjustment provisions contained in any security issued by the Company (or in any
agreement providing rights to security holders) that will be triggered by the
issuance of the Promissory Notes, the Warrants, the Conversion Shares or Warrant
Shares. The Company has furnished to the Purchaser true and correct copies of
the Company's Certificate of Incorporation as in effect on the date hereof
("CERTIFICATE OF INCORPORATION"), the Company's By-laws, as in effect on the
date hereof (the "BY-LAWS"), and the terms of all securities convertible into or
exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto. The Company shall provide the Purchaser with
a written update of this representation signed by the Company's Chief Executive
or Chief Financial Officer on behalf of the Company as of the Closing Date.
d. ISSUANCE OF SHARES. The Conversion Shares and Warrant
Shares are (or shall be) duly authorized and reserved for issuance and, upon
conversion of the Promissory Notes and exercise of the Warrants in accordance
with their respective terms, will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and encumbrances with
respect to the issue thereof and shall not be subject to preemptive rights or
other similar rights of stockholders of the Company and will not impose personal
liability upon the holder thereof.
e. ACKNOWLEDGMENT OF DILUTION. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares and Warrant Shares upon conversion of the
Promissory Notes, or exercise of the Warrants. The Company further acknowledges
that its obligation to issue Conversion Shares and Warrant Shares upon
conversion of the Promissory Notes or exercise of the Warrants in accordance
with this Agreement, the Promissory Notes and the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
f. NO CONFLICTS. The execution, delivery and performance of
this Agreement, the Promissory Notes and the Warrants by the Company and the
consummation by
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the Company of the transactions contemplated hereby and thereby (including,
without limitation, the issuance and reservation for issuance of the Conversion
Shares and Warrant Shares) will not (i) conflict with or result in a violation
of any provision of the Certificate of Incorporation or By-laws, or (ii) violate
or conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both could become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture, patent, patent
license or instrument to which the Company or any of its Subsidiaries is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries, if any, are not being conducted, and shall
not be conducted so long as a Purchaser owns any of the Securities, in violation
of any law, ordinance or regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the 1933 Act
and any applicable state securities laws, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court, governmental agency, regulatory agency, self regulatory organization
or stock market or any third party in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Promissory Notes or the
Warrants in accordance with the terms hereof or thereof or to issue and sell the
Promissory Notes and Warrants in accordance with the terms hereof and to issue
the Conversion Shares upon conversion of the Promissory Notes and the Warrant
Shares upon exercise of the Warrants. All consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the date
hereof. The Company is not in violation of the listing requirements of the
Over-the-Counter Bulletin Board (the "OTCBB") and does not reasonably anticipate
that the Common Stock will be delisted by the OTCBB in the foreseeable future.
The Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
g. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since January 1, 2004,
the Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act of 1934, as amended (the "1934 ACT") (all of
the foregoing filed prior to the date hereof and all
7
exhibits included therein and financial statements and schedules thereto and
documents (other than exhibits to such documents) incorporated by reference
therein, being hereinafter referred to herein as the "SEC DOCUMENTS"). Upon
request, the Company shall deliver to each Purchaser true and complete copies of
the SEC Documents, except for such exhibits and incorporated documents. As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have been
amended or updated in subsequent filings prior the date hereof). As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth in the
financial statements of the Company included in the SEC Documents, the Company
has no liabilities, contingent or otherwise, other than (i) liabilities incurred
in the ordinary course of business subsequent to December 31, 2004, and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.
h. ABSENCE OF LITIGATION. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material Adverse Effect. The
Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
i. PATENTS, COPYRIGHTS, ETC. The Company and each of its
Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names and copyrights ("Intellectual Property") necessary to enable it to conduct
its business as now operated (and to the best of the Company's knowledge, as
presently contemplated to be operated in the future); there is no claim or
action by any person pertaining
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to, or proceeding pending, or to the Company's knowledge threatened, which
challenges the right of the Company or of a Subsidiary with respect to any
Intellectual Property necessary to enable it to conduct its business as now
operated (and to the best of the Company's knowledge, as presently contemplated
to be operated in the future); to the best of the Company's knowledge, the
Company's or its Subsidiaries' current and intended products, services and
processes do not infringe on any Intellectual Property or other rights held by
any person; and the Company is unaware of any facts or circumstances which might
give rise to any of the foregoing. The Company and each of its Subsidiaries have
taken reasonable security measures to protect the secrecy, confidentiality and
value of their Intellectual Property.
j. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
k. TAX STATUS. The Company and each of its Subsidiaries has
made or filed all federal, state and foreign income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its Subsidiaries has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provisions reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim. The Company
has not executed a waiver with respect to the statute of limitations relating to
the assessment or collection of any foreign, federal, statue or local tax. None
of the Company's tax returns is presently being audited by any taxing authority.
l. CERTAIN TRANSACTIONS. Except for arm's length transactions
pursuant to which the Company or any of its Subsidiaries makes payments in the
ordinary course of business upon terms no less favorable than the Company or any
of its Subsidiaries could obtain from third parties and other than the grant of
stock options disclosed on SCHEDULE 3(c), none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for 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
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
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m. DISCLOSURE. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and provided to
the Purchasers pursuant to Section 2(d) hereof and otherwise in connection with
the transactions contemplated hereby is true and correct in all material
respects and the Company has not omitted to state any material fact necessary in
order to make the statements made herein or therein, in light of the
circumstances under which they were made, not misleading. No event or
circumstance has occurred or exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects, operations or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed (assuming for this purpose that the Company's
reports filed under the 1934 Act are being incorporated into an effective
registration statement filed by the Company under the 1933 Act).
n. ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF
SECURITIES. The Company acknowledges and agrees that the Purchasers are acting
solely in the capacity of arm's length purchasers with respect to this Agreement
and the transactions contemplated hereby. The Company further acknowledges that
no Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by any Purchaser or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is merely
incidental to the Purchasers' purchase of the Securities. The Company further
represents to each Purchaser that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of the Company and
its representatives.
o. NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Purchasers. The issuance of
the Securities to the Purchasers will not be integrated with any other issuance
of the Company's securities (past, current or future) for purposes of any
stockholder approval provisions applicable to the Company or its securities.
p. FINDER'S FEE. The Company may compensate a Finder (as
defined in Section 1(b)(ii)) who introduces the Purchaser to the Company at a
rate not exceeding three (3%) percent of the principal amount of the Promissory
Note.
q. PERMITS; COMPLIANCE. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "COMPANY
PERMITS"), and there is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the Company Permits.
Neither the Company nor any of its Subsidiaries is in conflict with, or in
default or violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the
10
aggregate, would not reasonably be expected to have a Material Adverse Effect.
Neither the Company nor any of its Subsidiaries has received any notification
with respect to possible conflicts, defaults or violations of applicable laws,
except for notices relating to possible conflicts, defaults or violations, which
conflicts, defaults or violations would not have a Material Adverse Effect.
r. TITLE TO PROPERTY. The Company and its Subsidiaries have
good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects as would not have a Material Adverse Effect. Any
real property and facilities held under lease by the Company and its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as would not have a Material Adverse Effect.
s. INSURANCE. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
t. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company, 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 generally accepted
accounting principles 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.
u. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary has, in the course of his
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
v. NO INVESTMENT COMPANY. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement will not
be an "investment
11
company" required to be registered under the Investment Company Act of 1940 (an
"INVESTMENT COMPANY"). The Company is not controlled by an Investment Company.
4. COVENANTS.
a. BEST EFFORTS. The parties shall use their best efforts to
satisfy timely each of the conditions described in Section 6 and 7 of this
Agreement as applicable to them.
b. FORM D; BLUE SKY LAWS. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Purchaser promptly after such filing. The Company shall, on
or before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Purchasers at
the applicable closing pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to each Purchaser on or prior to the Closing Date.
c. REPORTING STATUS. So long as any Purchaser beneficially
owns any of the Securities, the Company will use its best efforts to timely file
all reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination.
d. USE OF PROCEEDS. The Company shall use the proceeds from
the sale of the Promissory Notes and the Warrants in the manner set forth in
SCHEDULE 4(d) attached hereto and made a part hereof, and shall not, directly or
indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership, enterprise or other person (except in connection with
its currently existing direct or indirect Subsidiaries).
e. FINANCIAL INFORMATION. For a period of two(2) years from
the date of this Agreement, the Company agrees to send the following reports to
each Purchaser until such Purchaser transfers, assigns, or sells all of the
Securities: (i) a copy of its Annual Report on Form 10-KSB, its Quarterly
Reports on Form 10-QSB and any Current Reports on Form 8-K; (ii) copies of all
press releases issued by the Company or any of its Subsidiaries; and (iii)
copies of any notices or other information the Company makes available or gives
to such stockholders.
f. RESERVATION OF SHARES. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion or exercise of the
outstanding Promissory Notes and Warrants and issuance of the Conversion Shares
and Warrant Shares in connection therewith (based on the Conversion Price of the
Promissory Notes or Exercise Price of the Warrants in effect from time to time)
and as otherwise required by the Promissory Notes. The Company shall not reduce
the number of shares of Common Stock reserved for issuance upon conversion of
Promissory Notes and exercise of the Warrants without the consent of each
Purchaser. The Company shall use its best efforts at all times to maintain the
number of shares of Common Stock so reserved for
12
issuance at no less than one and one-half (1 1/2) times the number that is then
actually issuable upon full conversion of the Promissory Notes and upon exercise
of the Warrants (based on the Conversion Price of the Promissory Notes or the
Exercise Price of the Warrants in effect from time to time). If at any time the
number of shares of Common Stock authorized and reserved for issuance is below
the number of Conversion Shares and Warrant Shares issued and issuable upon
conversion of the Promissory Notes and exercise of the Warrants (based on the
Conversion Price of the Promissory Notes or the Exercise Price of the Warrants
then in effect), the Company will promptly take all corporate action necessary
to authorize and reserve a sufficient number of shares, including, without
limitation, calling a special meeting of stockholders to authorize additional
shares to meet the Company's obligations under this Section 4(f), in the case of
an insufficient number of authorized shares, and using its best efforts to
obtain stockholder approval of an increase in such authorized number of shares.
g. CORPORATE EXISTENCE. So long as a Purchaser beneficially
owns any Promissory Notes or Warrants, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the Company's assets,
except in the event of a merger or consolidation or sale of all or substantially
all of the Company's assets, where the surviving or successor entity in such
transaction assumes the Company's obligations hereunder and under the agreements
and instruments entered into in connection herewith and (i) is a publicly traded
corporation whose Common Stock is listed for trading on the OTCBB, Nasdaq,
Nasdaq SmallCap, NYSE or AMEX; or (ii) is a private company and the Company has
the written consent of the record holder or holders of more than 50% of the
aggregate of the Conversion Shares issued and issuable upon conversion of the
Promissory Notes, which such consent shall not be unreasonably withheld.
h. NO INTEGRATION. The Company shall use its best efforts to
ensure that it does not offer or sell of any security (other than the
Securities) under circumstances that would require registration of the
Securities being offered or sold hereunder under the 1933 Act or cause the
offering of the Securities to be integrated with any other offering of
securities by the Company for the purpose of any stockholder approval provision
applicable to the Company or its securities.
i. STOCKHOLDER APPROVAL. The Company shall, at its next
special or annual meeting of stockholders, use its best efforts to obtain such
approvals of the Company's stockholders as may be required to authorize, reserve
and issue all of the Conversion Shares and Warrants Shares in accordance with
applicable law (the "STOCKHOLDER APPROVAL"). The Company shall comply with the
filing and disclosure requirements of Section 14 under the Exchange Act, and the
rules and regulations thereunder, in connection with the solicitation,
acquisition and disclosure of the Stockholder Approval. The Company represents
and warrants that its Board of Directors has approved, and will recommend that
the Company's stockholders approve, the proposal contemplated by this Section
4(i) and shall so indicate such recommendation in the proxy statement used to
solicit the Stockholder Approval. The Company shall use its best efforts to
cause its officers and directors to vote in favor of the proposal contemplated
by this Section 4(i).
13
j. ADDITIONAL WARRANT SHARES. Upon the occurrence of an Event
of Default (as defined in the Promissory Notes) the Company shall issue to the
Purchaser, in addition to any other consideration hereunder, warrants to
purchase additional shares of the Company's Common Stock (in a number as
determined below, hereinafter the "ADDITIONAL WARRANTS"), PROVIDED, HOWEVER,
that if the Company has transferred $1,552,500 (or such lesser amount as
permitted under the terms of the Cash Collateral Escrow Agreement) to the Cash
Collateral Escrow Account (as defined in the Cash Collateral Escrow Agreement of
even date herewith) by the Maturity Date of the Promissory Notes (as defined in
the Promissory Notes), the Purchaser shall not be entitled to receive the
Additional Warrants. The Purchaser shall be entitled to Additional Warrants, in
the forms attached hereto as EXHIBIT B, to purchase shares of the Company's
Common Stock equal to the number determined by multiplying the number of
Conversion Shares (as defined in the Promissory Notes) that the Holder is
entitled to receive by a fraction, the numerator of which is the number of
additional days following the Maturity Date until the earlier of the date that
the Company transfers the $1,552,500 (or such lesser amount as permitted) to the
Cash Collateral Escrow Account, makes payment of the full amount outstanding
under the Note, or the Purchaser converts the full amount of the Promissory Note
into shares of Common Stock and the denominator of which is 30, PROVIDED,
HOWEVER, that the total aggregate number of shares underlying the Additional
Warrants shall not exceed ten million eight hundred thousand (10,800,000).
k. FUTURE OFFERING. As soon as possible following the
execution and delivery of this Agreement, the Company expects to complete a best
efforts offering of certain of the Company's Series A Convertible Preferred
Stock, or any other of the Company's securities offered in lieu thereof,
resulting in gross proceeds of up to $9 million.
5. REGISTRATION OF SECURITIES. The Company hereby grants the following
registration rights to holders of the Securities.
a. DEMAND REGISTRATION RIGHTS. On one occasion, for a period
commencing 60 days after the Closing Date, but not later than three years after
the Closing Date ("Request Date"), the Company, upon a written request therefor
from any record holder of Conversion Shares and Warrant Shares issued and
issuable upon conversion of the Promissory Notes and exercise of the Warrants
(the Conversion Shares and Warrant Shares, being referred to in this Section 5
as the "Registrable Securities"), shall prepare and file with the SEC a
registration statement under the Securities Act of 1933, as amended (the "Act"),
covering the Registrable Securities which are the subject of such request,
unless such Registrable Securities are the subject of an effective registration
statement. In addition, upon the receipt of such request, the Company shall
promptly give written notice to all other record holders of the Registrable
Securities that such registration statement is to be filed and shall include in
such registration statement Registrable Securities for which it has received
written requests within 10 days after the Company gives such written notice.
Such other requesting record holders shall be deemed to have exercised their
demand registration right under this Section 5(a). As a condition precedent to
the inclusion of Registrable Securities, the holder thereof shall provide the
Company with such information as the Company reasonably requests. The obligation
of the Company under this Section 5(a) shall be limited to one registration
statement.
14
b. PIGGY-BACK REGISTRATION. If the Company at any time
proposes to register any of its securities under the Act for sale to the public,
whether for its own account or for the account of other security holders or
both, except with respect to registration statements on Forms X-0, X-0 or
another form not available for registering the Registrable Securities for sale
to the public, provided the Registrable Securities are not otherwise registered
for resale by the Purchaser pursuant to an effective registration statement,
each such time it will give at least 30 days' prior written notice to the record
holder of the Registrable Securities of its intention. Upon the written request
of the Purchaser, received by the Company within 20 days after the giving of any
such notice by the Company, to register any of the Registrable Securities, the
Company will cause such Registrable Securities as to which registration shall
have been so requested to be included with the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
required to permit the sale or other disposition of the Registrable Securities
so registered by the holder of such Registrable Securities (the "Seller"). In
the event that any registration pursuant to this Section 5(b) shall be, in whole
or in part, an underwritten public offering of common stock of the Company, the
number of shares of Registrable Securities to be included in such an
underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. The Company may withdraw or delay or
suffer a delay of any registration statement referred to in this Section 5(b)
without thereby incurring any liability to the Seller.
c. REGISTRATION FOR COMPANY'S OWN ACCOUNT. If, at the time any
written request for registration is received by the Company pursuant to Section
5(a), the Company has determined to proceed with the actual preparation and
filing of a registration statement under the Act in connection with the proposed
offer and sale for cash of any of its securities for the Company's own account,
such written request shall be deemed to have been given pursuant to Section 5(b)
rather than Section 5(a), and the rights of the holders of Registrable
Securities covered by such written request shall be governed by Section 5(b).
d. REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions hereof to effect the registration of any shares of
Registrable Securities under the Act, the Company will, as expeditiously as
possible:
(i) prepare and file with the Commission a registration
statement with respect to such securities and use its best
efforts to cause such registration statement to become and
remain effective for the period of the distribution
contemplated thereby (determined as herein provided), and
promptly provide to the holders of Registrable Securities
("Sellers") copies of all filings and Commission letters of
comment;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the
prospectus used in connection therewith as may be necessary
to keep such registration statement effective until the
latest
15
of: (i) twelve months after the latest Maturity Date of a
Promissory Note; or (ii) two years after the Closing Date
and comply with the provisions of the Act with respect to
the disposition of all of the Registrable Securities
covered by such registration statement in accordance with
the Seller's intended method of disposition set forth in
such registration statement for such period;
(iii) furnish to the Seller, and to each underwriter if any, such
number of copies of the registration statement and the
prospectus included therein (including each preliminary
prospectus) as such persons reasonably may request in order
to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(iv) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration
statement under the securities or "blue sky" laws of such
jurisdictions as the Seller and in the case of an
underwritten public offering, the managing underwriter
shall reasonably request, provided, however, that the
Company shall not for any such purpose be required to
qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so
qualified or to consent to general service of process in
any such jurisdiction;
(v) list the Registrable Securities covered by such
registration statement with any securities exchange on
which the Common Stock of the Company is then listed;
(vi) immediately notify the Seller and each underwriter under
such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Act,
of the happening of any event of which the Company has
knowledge as a result of which the prospectus contained in
such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances then existing;
(vii) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to
such registration statement, and any attorney, accountant
or other agent retained by the Seller or underwriter, all
publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of
the Company, and cause the Company's officers, directors
and employees to supply all publicly available,
non-confidential information reasonably requested by the
seller, underwriter, attorney, accountant or agent in
connection with such registration statement;
(viii) In connection with each registration hereunder, the Seller
will furnish to the Company in writing such information and
representation letters with respect to
16
itself and the proposed distribution by it as reasonably
shall be necessary in order to assure compliance with
federal and applicable state securities laws. In connection
with each registration pursuant to Section 5(a) or 5(b)
covering an underwritten public offering, the Company and
the Seller agree to enter into a written agreement with the
managing underwriter in such form and containing such
provisions as are customary in the securities business for
such an arrangement between such underwriter and companies
of the Company's size and investment stature.
e. EXPENSES. All expenses incurred by the Company in complying
with Section 5, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, up to $10,000 in the aggregate for the fees and
expenses of one legal counsel designated by the Sellers, fees and expenses
(including reasonable counsel fees) incurred in connection with complying with
state securities or "blue sky" laws, fees of the National Association of
Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars, and costs of insurance are called "Registration Expenses". All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities are called "Selling Expenses". Except as otherwise
provided in this paragraph 5(e), the Seller shall pay the fees of its own
additional counsel, if any. The Company will pay all Registration Expenses in
connection with the registration statement under Section 5. All Selling Expenses
in connection with each registration statement under Section 5 shall be borne by
the Seller and may be apportioned among the Sellers in proportion to the number
of shares sold by the Seller relative to the number of shares sold under such
registration statement or as all Sellers thereunder may agree.
f. INDEMNIFICATION AND CONTRIBUTION.
(i) In the event of a registration of any Registrable
Securities under the Act pursuant to Section 5, the Company
will indemnify and hold harmless the Seller, each officer
of the Seller, each director of the Seller, each
underwriter of such Registrable Securities thereunder and
each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any
losses, claims, damages or liabilities, joint or several,
to which the Seller, or such underwriter or controlling
person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under
which such Registrable Securities was registered under the
Act pursuant to Section 5, any preliminary prospectus or
final prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the
Seller, each such underwriter and each such controlling
person for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any
such loss, claim, damage, liability or action;
17
provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of
or are based upon an untrue statement or omission made in
any preliminary prospectus if (i) the Seller failed to send
or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of
written confirmation of the sale by the Seller to the
person asserting the claim from which such damages arise,
(ii) the final prospectus would have corrected such untrue
statement or alleged untrue statement or such omission or
alleged omission, or (iii) to the extent that any such
loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or
omission or alleged omission so made in conformity with
information furnished by any such Seller, or any such
controlling person, in writing specifically for use in such
registration statement or prospectus.
(ii) In the event of a registration of any of the Registrable
Securities under the Act pursuant to Section 5, the Seller
will indemnify and hold harmless the Company, and each
person, if any, who controls the Company within the meaning
of the Act, each officer of the Company who signs the
registration statement, each director of the Company, each
underwriter and each person who controls any underwriter
within the meaning of the Act, against all losses, claims,
damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or
controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue
statement of any material fact contained in the
registration statement under which such Registrable
Securities were registered under the Act pursuant to
Section 5, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading, and will reimburse the Company and each
such officer, director, underwriter and controlling person
for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such
loss, claim, damage, liability or action, provided,
however, that the Seller will be liable hereunder in any
such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity
with information pertaining to such Seller, as such,
furnished in writing to the Company by such Seller
specifically for use in such registration statement or
prospectus, and provided, further, however, that the
liability of the Seller hereunder shall be limited to the
gross proceeds received by the Seller from the sale of
Registrable Securities covered by such registration
statement.
(iii) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified
party shall, if a claim in respect
18
thereof is to be made against the indemnifying party
hereunder, notify the indemnifying party in writing
thereof, but the omission so to notify the indemnifying
party shall not relieve it from any liability which it may
have to such indemnified party other than under this
Section 5(f) and shall only relieve it from any liability
which it may have to such indemnified party under this
Section 5(f), except and only if and to the extent the
indemnifying party is prejudiced by such omission. In case
any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall
wish, to assume and undertake the defense thereof with
counsel satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified
party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable
to such indemnified party under this Section 5(f) for any
legal expenses subsequently incurred by such indemnified
party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with
counsel so selected, provided, however, that, if the
defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be
reasonable defenses available to it which are different
from or additional to those available to the indemnifying
party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified parties shall have
the right to select one separate counsel and to assume such
legal defenses and otherwise to participate in the defense
of such action, with the reasonable expenses and fees of
such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as
incurred.
(iv) In order to provide for just and equitable contribution in
the event of joint liability under the Act in any case in
which either (i) the Seller, or any controlling person of
the Seller, makes a claim for indemnification pursuant to
this Section 5(f) but it is judicially determined (by the
entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such
indemnification may not be enforced in such case
notwithstanding the fact that this Section 5(f) provides
for indemnification in such case, or (ii) contribution
under the Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which
indemnification is provided under this Section 5(f); then,
and in each such case, the Company and the Seller will
contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after
contribution from others) in such proportion so that the
Seller is responsible only for the portion represented by
the percentage that the public offering price of its
securities offered by the registration statement bears to
the public offering price of all securities offered by such
registration statement, provided, however, that, in any
such case, (y) the Seller will not be required to
contribute any amount in excess of the public offering
price of all such securities
19
offered by it pursuant to such registration statement; and
(z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of
the Act) will be entitled to contribution from any person
or entity who was not guilty of such fraudulent
misrepresentation.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
the Company hereunder to issue and sell the Promissory Notes and Warrants to a
Purchaser at the Closing is subject to the satisfaction, at or before the
Closing Date of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
a. The applicable Purchaser shall have executed this Agreement
and delivered the same to the Company.
b. The applicable Purchaser shall have delivered the Purchase
Price in accordance with Section 1(b) above.
c. The representations and warranties of the applicable
Purchaser shall be true and correct in all material respects as of the date when
made and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and the
applicable Purchaser shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the applicable
Purchaser at or prior to the Closing Date.
d. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE. The
obligation of each Purchaser hereunder to purchase the Promissory Notes and
Warrants at the Closing is subject to the satisfaction, at or before the Closing
Date of each of the following conditions, provided that these conditions are for
such Purchaser's sole benefit and may be waived by such Purchaser at any time in
its sole discretion:
a. The Company shall have executed this Agreement and
delivered the same to the Purchaser.
b. The Company shall have delivered to such Purchaser duly
executed Promissory Notes (in such denominations as the Purchaser shall request)
and Warrants in accordance with Section 1(b) above.
c. The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though
20
made at such time (except for representations and warranties that speak as of a
specific date) and the Company shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the Company at or
prior to the Closing Date. The Purchaser shall have received a certificate or
certificates, executed by the chief executive officer of the Company, dated as
of the Closing Date, to the foregoing effect and as to such other matters as may
be reasonably requested by such Purchaser including, but not limited to
certificates with respect to the Company's Certificate of Incorporation, By-laws
and Board of Directors' resolutions relating to the transactions contemplated
hereby.
d. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
e. The Purchaser shall, upon request, receive an officer's
certificate described in Section 3(c) above, dated as of the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITH SUCH STATE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. THE PARTIES FURTHER AGREE
THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED
IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.
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b. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may
be executed in one or more counterparts, each of which shall be deemed an
original but all of which shall constitute one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
c. HEADINGS. The headings of this Agreement are for
convenience of reference only and shall not form part of, or affect the
interpretation of, this Agreement.
d. SEVERABILITY. In the event that any provision of this
Agreement is invalid or enforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Purchaser
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
f. NOTICES. Any notices required or permitted to be given
under the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
UTIX Group, Inc.
0 Xxx Xxxxxxx Xxxxxxxxx Xxxx
Xxxxx 000
Xxxxxxxxxx, XX 00000
Attn.: Xxxxxxx X. Xxxx
Tel.: (000) 000-0000
Fax: (000) 000-0000
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With copy to:
Xxxxxxx Xxxx LLP
00 Xxxx 00xx Xx., 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn.: Xxxxxxx X. Xxxxx, Esq.
Tel.: 000-000-0000
Fax.: 000-000-0000
If to a Purchaser:
To the address set forth beside such
Purchaser's name on SCHEDULE A hereto.
Each party shall provide notice to the other party of any change in
address.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Purchaser shall assign this Agreement or any rights
or obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Purchaser may assign
its rights hereunder to any person that purchases Securities in a private
transaction from a Purchaser or to any of its "affiliates," as that term is
defined under the 1934 Act, without the consent of the Company.
h. THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. SURVIVAL. The representations and warranties of the Company
and the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall
survive the Closing hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Purchasers. The Company agrees to indemnify and
hold harmless each of the Purchasers and all their officers, directors,
employees and agents for loss or damage arising as a result of or related to any
breach or alleged breach by the Company of any of its representations,
warranties and covenants set forth in Sections 3 and 4 hereof or any of its
covenants and obligations under this Agreement including advancement of expenses
as they are incurred.
j. PUBLICITY. The Company and each of the Purchasers shall
have the right to review a reasonable period of time before issuance of any
press releases, SEC, OTCBB or NASD filings, or any other public statements with
respect to the transactions contemplated hereby; PROVIDED, HOWEVER, that the
Company shall be entitled, without the prior approval of each of the Purchasers,
to make any press release or SEC, OTCBB (or other applicable trading market) or
NASD filings with respect to such transactions as is required by applicable law
and regulations.
k. FURTHER ASSURANCES. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
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l. NO STRICT CONSTRUCTION. 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.
m. REMEDIES. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Purchasers by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Agreement will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this
Agreement, that the Purchasers shall be entitled, in addition to all other
available remedies at law or in equity, and in addition to the penalties
assessable herein, to an injunction or injunctions restraining, preventing or
curing any breach of this Agreement and to enforce specifically the terms and
provisions hereof, without the necessity of showing economic loss and without
any bond or other security being required.
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COUNTERPART SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT, DATED JULY __, 2005
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have
caused this Agreement to be duly executed as of the date first above written.
UTIX GROUP, INC.
By:
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Name: Xxxxxxx X. Xxxx
Title: Chief Executive Officer and President
Purchasers:
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