SECURITIES PURCHASE AGREEMENT
EXHIBIT
4.1
SECURITIES
PURCHASE AGREEMENT
(the
"Agreement"),
dated
as of February 15, 2007, by and among Nesco Industries, Inc., a Nevada
corporation, with headquarters located at 000 Xxxxxxx Xxx., Xxxxx 0000, Xxx
Xxxx, XX 00000 (the "Company"),
and
the investors listed on the Schedule of Buyers attached hereto (individually,
a
"Buyer"
and
collectively, the "Buyers").
WHEREAS:
A.
The
Company and each Buyer is executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2)
of the
Securities Act of 1933, as amended (the "1933
Act"),
and
Rule 506 of Regulation D ("Regulation D")
as
promulgated by the United States Securities and Exchange Commission (the
"SEC")
under
the 1933 Act.
B.
The
Company has authorized a new series of senior secured convertible notes of
the
Company, which notes shall be convertible into the Company's common stock,
par
value $0.001 per share (the "Common
Stock"),
in
accordance with the terms of the Notes (as defined below).
C.
Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms
and
conditions stated in this Agreement, (i) that aggregate principal amount
of the
Notes, in substantially the form attached hereto as Exhibit
A
(the
"Notes"),
set
forth opposite such Buyer's name in column (3) on the Schedule of Buyers
attached hereto (which aggregate amount for all Buyers shall be a minimum
of
$4,445,000 and a maximum of $5,000,000) (as converted into Common Stock,
collectively, the "Conversion
Shares"),
and
(ii) warrants, in substantially the form attached hereto as Exhibit
B
(the
"Warrants"),
to
acquire that number of shares of Common Stock (the "Warrant
Shares")
set
forth opposite such Buyer's name in column (4) on the Schedule of
Buyers.
D.
Contemporaneously with the execution and delivery of this Agreement, the
parties
hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as Exhibit
C
(the
"Registration
Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration
rights
with respect to the Conversion Shares and the Warrant Shares under the 1933
Act
and the rules and regulations promulgated thereunder, and applicable state
securities laws.
E.
The
Notes, the Conversion Shares, the Warrants and the Warrant Shares collectively
are referred to herein as the "Securities".
F.
The
Notes will rank senior to all future indebtedness of the Company, subject
to
Permitted Senior Indebtedness (as defined in the Notes) and will be secured
by a
perfected security interest in all of the assets of the Company and each
of the
Company's subsidiaries, as evidenced by the security agreement attached hereto
as Exhibit
D
(the
"Security
Agreement"
and,
together with the Guaranty, attached hereto as Exhibit
E,
and any
ancillary documents related thereto, collectively the "Security
Documents").
G.
To
facilitate the Closing (as defined herein), each Buyer shall deposit into
escrow
its respective Purchase Price (as defined herein) with Gottbetter &
Partners, LLP (the “Escrow
Agent”)
pursuant to an Escrow Agreement, dated as of February 15, 2007, among the
parties hereto.
NOW,
THEREFORE,
the
Company and each Buyer hereby agree as follows:
1. PURCHASE
AND SALE OF NOTES AND WARRANTS.
(a) Purchase
of Notes and Warrants.
(b) Subject
to the terms of this Agreement and the satisfaction (or waiver) of the
conditions set forth in Sections 6 and 7 below, the Company shall issue and
sell
to each Buyer, and each Buyer severally, but not jointly, shall purchase
from
the Company, on the Closing Date (as defined below), (x) a principal amount
of
Notes as is set forth opposite such Buyer's name in column (3) on the Schedule
of Buyers and (y) Warrants to acquire that number of Warrant Shares as is
set
forth opposite such Buyer's name in column (4) on the Schedule of Buyers
(the
"Closing").
(i) Closing.
The Closing shall take place at 10:00 a.m., New York City Time, at the
offices of Gottbetter & Partners, LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, XX
00000, or at such other place or time as mutually agreed to by the parties
on a
date to be mutually agreed upon by the Company and the Buyers, which shall
be no
later than the second business day after the satisfaction (or waiver) of
the
last to be satisfied (or waived) of the conditions to the Closing set forth
in
Sections 6 and 7 below (other than conditions that by their terms are to
be
satisfied on the Closing Date). The date on which the Closing actually takes
place is referred to as the "Closing
Date."
(ii) Purchase
Price.
The aggregate purchase price for the Notes and the Warrants to be
purchased by each Buyer at the Closing (the "Purchase
Price")
shall
be the amount set forth opposite such Buyer's name in column (5) of the Schedule
of Buyers. Each Buyer, except for GCM (as defined below) shall pay $0.9300
for each $1.00 of principal amount of Notes and related Warrants to be purchased
by such Buyer at the Closing. GCM shall pay $0.9349 for each $1.00 of principal
amount of Notes and related Warrants to be purchased by GCM at the Closing.
(c) Form
of Payment.
On the Closing Date, (i) upon receipt of the Joint Written Instructions
(as defined in the Escrow Agreement), the Escrow Agent shall deliver each
Buyer’s Purchase Price to the Company or designated third parties for the Notes
and the Warrants to be issued and sold to such Buyer at the Closing by wire
transfer of immediately available funds in accordance with such Joint Written
Instructions, and (ii) the Company shall deliver to each Buyer (A) the
Notes (in the principal amounts as such Buyer shall have requested prior
to the
Closing) which such Buyer is then purchasing and (B) the Warrants (in the
amounts as such Buyer shall have requested prior to the Closing) which such
Buyer is then purchasing, in each case duly executed on behalf of the Company
and registered in the name of such Buyer or its permitted
designee.
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(d) Second
Closing.
Subject
to the terms and conditions of this Agreement, after the Closing and at any
time
on or prior to the date of the filing by the Company of the initial registration
statement required to be filed by it under the Registration Rights Agreement,
at
a second closing (the “Second
Closing”),
the
Company may issue and sell to one or more individuals and entities approved
by
the Company’s Board of Directors (each an “Additional
Buyer”
and
collectively, the “Additional
Buyers”)
an
aggregate principal amount of Notes equal to $500,000 at the Purchase Price
of
$0.9300 for each $1.00 of principal amount of Notes and Warrants to acquire
up
to Fifty Three Million, Eight Hundred and Seventy Nine Thousand, Three Hundred
and Ten (53,879,310) shares of Common Stock. All sales made at the Second
Closing shall be made on the terms and conditions set forth in this Agreement.
At the Second Closing the representations and warranties of the Company set
forth in Section 3 hereof shall speak as of the Closing Date (and the Company
shall have no obligation to update the representations and warranties and
the
Disclosure Schedules to the date of the Second Closing), and the representations
and warranties of the Additional Buyers shall speak as of the date of the
Second
Closing. At the Second Closing, (i) each Additional Buyer and the Company
shall
execute a counterpart signature page hereto and to the Registration Rights
Agreement, (ii) the Company shall cause the Schedule of Buyers hereto to
be
updated to reflect the purchases made by the Additional Buyers, (iii) each
Additional Buyer shall become a “Buyer” hereunder and the Notes and Warrants
purchased by such Additional Buyer shall be deemed “Notes” and “Warrants,”
respectively, for purposes of this Agreement and the other Transaction
Documents, and (iv) subject to the terms and conditions hereof, the Company
will deliver to each of the Additional Buyers purchasing Notes and Warrants
at
the Second Closing the applicable Notes and Warrants registered in the name
of
such Additional Buyer, against payment to the Company of the Purchase Price
therefor in cash by wire transfer, check or other method acceptable to the
Company.
2.
BUYER'S
REPRESENTATIONS AND WARRANTIES.
As
a
material inducement to the Company to enter into this Agreement and sell
the
Notes and the Warrants hereunder, each Buyer represents and warrants to the
Company with respect to only itself as of the date hereof that:
(a) No
Public Sale or Distribution.
Such Buyer is (i) acquiring the Notes and the Warrants and (ii) upon
conversion of the Notes and exercise of the Warrants will acquire the Conversion
Shares issuable upon conversion of the Notes and the Warrant Shares issuable
upon exercise of the Warrants, for its own account and with the present
intention of holding such securities for the purposes of investment, and
not
with a view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or exempt from
registration under the 1933 Act; provided,
however,
that by
making the representations herein, such Buyer 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 from registration under the 1933 Act.
Such Buyer does not presently have any agreement or understanding, directly
or
indirectly, with any Person to distribute any of the Securities.
3
(b) Accredited
Investor Status.
Such Buyer is an "accredited investor" as that term is defined in Rule
501(a) of Regulation D under the 1933 Act. Such Buyer is not a registered
broker-dealer under Section 15 of the 1934 Act (as defined herein) or an
entity
engaged in the business of being a broker-dealer and is acquiring the Securities
hereunder in the ordinary course of its business.
(c) Reliance
on Exemptions.
Such Buyer understands that the Securities are being offered and sold to
it in reliance on specific exemptions from the registration requirements
of
United States federal and state securities laws and that the Company is relying
in part upon the truth and accuracy of, and such Buyer's compliance with,
the
representations, warranties, agreements, acknowledgments and understandings
of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the
Securities.
(d) Information.
Such Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company
and
materials relating to the offer and sale of the Securities which have been
requested by such Buyer. Such Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company. Neither such inquiries
nor any other due diligence investigations conducted by such Buyer or its
advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
herein. Such Buyer understands that its investment in the Securities involves
a
high degree of risk. Such Buyer has sought such accounting, legal and tax
advice
as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Securities.
(e) No
Governmental Review.
Such Buyer understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities or the fairness or suitability
of the investment in the Securities nor have such authorities passed upon
or
endorsed the merits of the offering of the Securities.
(f) Transfer
or Resale.
Such Buyer understands that, except as provided for in the Registration
Rights Agreement: (i) the Securities have not been and are not being registered
under the 1933 Act or any state securities laws, and may not be offered for
sale, sold, assigned or transferred unless (A) subsequently registered
thereunder, (B) such Buyer shall have delivered to the Company an opinion
of
counsel, in a form reasonably acceptable to the Company, to the effect that
such
Securities to be sold, assigned or transferred may be sold, assigned or
transferred (1) pursuant to an exemption from such registration, or (2) pursuant
to Rule 144 or Rule 144A promulgated under the 1933 Act, as amended (or any
successor rule thereto); (ii) any sale of the Securities made in reliance
on
Rule 144 or Rule 144A may be made only in accordance with the terms of Rule
144
or Rule 144A, respectively, and further, if neither Rule 144 nor Rule 144A
is
applicable, any resale of the Securities under circumstances in which the
seller
(or the Person (as defined in Section 3(s) below) through whom the sale is
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 the Securities under the 1933
Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder. The Securities may be pledged in connection with a
bona
fide margin account or other loan or financing arrangement secured by the
Securities and such pledge of Securities shall not be deemed to be a transfer,
sale or assignment of the Securities hereunder, and no Buyer effecting a
pledge
of Securities shall be required to provide the Company with any notice thereof
or otherwise make any delivery to the Company pursuant to this Agreement
or any
other Transaction Document (as defined in Section 3(b)), including, without
limitation, this Section 2(f).
4
(g) Legends.
Such Buyer understands that the certificates or other instruments
representing the Notes and the Warrants and, until such time as the resale
of
the Conversion Shares and the Warrant Shares have been registered under the
1933
Act as contemplated by the Registration Rights Agreement, the stock certificates
representing the Conversion Shares and the Warrant Shares, except as set
forth
below, shall bear any legend as required by federal law and the "blue sky"
laws
of any state and a restrictive legend in substantially the following form
(and a
stop-transfer order may be placed against transfer of such stock
certificates):
The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which
it is
stamped, if, unless otherwise required by federal or state securities laws,
(i)
such Securities are transferred through a registered resale under the 1933
Act,
or (ii) in connection with a sale, assignment or other transfer, such holder
provides the Company with an opinion of counsel, in a form reasonably acceptable
to the Company, to the effect that (A) such sale, assignment or transfer
of the
Securities may be made without registration under the applicable requirements
of
the 1933 Act, or (B) that the Securities can be sold, assigned or transferred
pursuant to Rule 144.
5
(h) Authorization;
Enforcement; Validity.
Such Buyer has the requisite power and authority to enter into and perform
its obligations under this Agreement and each of the other Transaction Documents
(as defined below) to which it is a party. This Agreement and each of the
other
Transaction Documents (as defined below) has been duly and validly authorized,
executed and delivered on behalf of such Buyer shall constitute the legal,
valid
and binding obligations of such Buyer enforceable against such Buyer in
accordance with their respective terms, except as such enforceability may
be
limited by general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to,
or
affecting generally, the enforcement of applicable creditors' rights and
remedies.
(i) No
Conflicts.
The execution, delivery and performance by such Buyer of this Agreement
and the other Transaction Documents to which such Buyer is a party and the
consummation by such Buyer of the transactions contemplated hereby and thereby
will not (i) result in a violation of the organizational documents of such
Buyer
or (ii) conflict with, or constitute a default (or an event which with notice
or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which such Buyer is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws) applicable to such Buyer,
except in the case of clauses (ii) and (iii) above, for such conflicts,
defaults, rights or violations
which would not, individually or in the aggregate, reasonably be expected
to
have a material adverse effect on the ability of such Buyer to perform its
obligations hereunder.
(j) Residency.
Such Buyer is a resident of that jurisdiction specified below its address
on the Schedule of Buyers.
(k) Independent
Investment Decision.
Such Buyer has independently evaluated the merits of its decision to
purchase the Securities pursuant to the Transaction Documents, and such Buyer
confirms that it has not relied on the advice of any other Buyers’ business
and/or legal counsel in making such decision.
(l) Certain
Trading Activities.
Such Buyer has not directly or indirectly, nor has any Person acting on
behalf of or pursuant to any understanding with such Buyer, engaged in any
transactions in the securities of the Company (including, without limitations,
any Short Sales involving the Company's securities) since the time that such
Buyer was first contacted by the Company regarding the transactions contemplated
hereby. Such Buyer covenants that neither it nor any Person acting on its
behalf
or pursuant to any understanding with it will engage in any transactions
in the
securities of the Company (including Short Sales) prior to the time that
the
transactions contemplated by this Agreement are publicly disclosed. For the
purpose of this Agreement,
"Short Sales"
include,
without limitation, all "short sales" as defined in Rule 200 promulgated
under
Regulation SHO under the 1934 Act and all types of direct and indirect stock
pledges, forward sale contracts, options, puts, calls, swaps and similar
arrangements (including on a total return basis), and sales and other
transactions through non-US broker dealers or foreign regulated
brokers.
6
(m) Limited
Ownership.
The purchase by such Buyer of the Securities issuable to it at the Closing
will not result in such Buyer (individually or together with other Persons
with
whom such Buyer has identified, or will have identified, itself as part of
a
"group" in a public filing made with the SEC 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 on
a
post-transaction basis that assumes that the Closing shall have occurred.
Such
Buyer does not presently intend to, alone or together with others, make a
public
filing with the SEC 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.
(n) General
Solicitation.
Such Buyer is not purchasing the Securities as a result of any
advertisement, article, notice or other communication regarding the Securities
published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar.
(o) Organization;
Authority.
Such Buyer is an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with the
requisite corporate or partnership or other entity power and authority to
enter
into and to consummate the transactions contemplated by the Transaction
Documents to which it shall be a party and otherwise to carry out its
obligations thereunder.
(p) Prohibited
Transactions.
Since
the time the Buyer was first contracted by the Company regarding the
transactions contemplated hereby, including during the last ten (10) days
prior
to the
date
hereof, neither such Buyer nor any Person acting on behalf of or pursuant
to any understanding with such Buyer has, directly or indirectly, effected
or agreed to effect any short sale, whether or not against the box, established
any "put equivalent position" (as defined in Rule 16a-1(h) under the Exchange
Act) with respect to the Common Stock, granted any other right (including,
without limitation, any put or call option) with respect to the Common
Stock or with respect to any security that includes, relates to or derived
any significant part of its value from the Common Stock or otherwise sought
to
hedge its position in the Securities (but not including any actions
to secure
available shares to borrow in order to effect short sales or similar transactions
in the future) (each, a "Prohibited
Transaction").
Prior
to the
termination of this Agreement such
Buyer shall not, and shall cause
any
Person acting on behalf of or pursuant to any understanding with
such Buyer
not
to, engage, directly or indirectly, in a Prohibited Transaction.
Such Buyer
acknowledges that the representations, warranties and covenants
contained in
this
Section 2(p) are being made for the benefit of the Buyers as well as
the Company.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
As
a
material inducement to each Buyer to enter into this Agreement and purchase
the
Notes and the Warrants hereunder, the Company represents and warrants to
each of
the Buyers as of the date hereof that, except as set forth in the Disclosure
Schedule attached hereto (the "Disclosure
Schedule")
or as
disclosed in the SEC Documents (as defined below) (regardless of whether
reference to the SEC Documents is included in each applicable representation
and
warranty):
7
(a) Organization
and Qualification.
The Company and its "Subsidiaries"
(which
for purposes of this Agreement means any joint venture or any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity
or
similar interest) are entities duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are formed, and
have
the requisite power and authority to own their properties and to carry on
their
business as now being conducted. Except as set forth in Schedule 3(a), each
of
the Company and its Subsidiaries is duly qualified as a foreign entity to
do
business and is in good standing in every jurisdiction in which its ownership
of
property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be
in
good standing would not have a Material Adverse Effect. As used in this
Agreement, "Material
Adverse Effect"
means
any material adverse effect on the business, properties, assets, operations,
results of operations, condition (financial or otherwise) or prospects of
the
Company and its Subsidiaries, taken as a whole, or on the transactions
contemplated hereby and the other Transaction Documents or by the agreements
and
instruments to be entered into in connection herewith or therewith, or on
the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below). The Company has no Subsidiaries
except as set forth on Schedule
3(a).
The
Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any liens (except as listed
on
Schedule 3(a)), 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 to subscribe for or purchase
securities.
(b) Authorization;
Enforcement; Validity.
Except as set forth in Schedule
3(b),
the
Company has the requisite power and authority to enter into and perform its
obligations under this Agreement, the Notes, the Warrants, the Security
Documents, the Registration Rights Agreement, the Irrevocable Transfer Agent
Instructions (as defined in Section
5(b)),
and
each of the other agreements entered into by the Company in connection with
the
transactions contemplated by this Agreement (collectively, the "Transaction
Documents")
and to
issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of this Agreement and the other Transaction Documents
by
the
Company
and the issuance of the Notes and the Warrants has been, and, following the
Share Increase Authorization, the consummation by the Company of the
transactions contemplated hereby and thereby, including, without limitation,
the
issuance of the Notes and the Warrants, the reservation for issuance and
the
issuance of the Conversion Shares issuable upon conversion of the Notes,
the
reservation for issuance and issuance of Warrant Shares issuable upon exercise
of the Warrants and the granting of a security interest in the Collateral
(as
defined in the Security Documents), will be, duly authorized by the Company's
Board of Directors and (other than (i) the filing of appropriate UCC financing
statements with the appropriate states and other authorities pursuant to
the
Security Agreement, (ii) the filing of a Form D under Regulation D of the
1933 Act and (iii) the filing with the SEC of one or more Registration
Statements in accordance with the requirements of the Registration Rights
Agreement) no further filing, consent, or authorization is required by the
Company, its Board of Directors or its stockholders. This Agreement and each
of
the other Transaction Documents of even date herewith has been duly executed
and
delivered by the Company and shall constitute the legal, valid and binding
obligation of the Company enforceable against the Company in accordance with
its
terms, except as such enforceability may be limited by general principles
of
equity or to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
8
(c) Issuance
of Securities.
The issuance of the Notes and the Warrants are duly authorized and are
free from all taxes, liens and charges with respect to the issue thereof.
Following of the Share Increase Authorization, a number of shares of Common
Stock shall have been duly authorized and reserved for issuance which equals
300% of the maximum number of shares Common Stock issuable upon conversion
of
the Notes and upon exercise of the Warrants. Upon conversion in accordance
with
the Notes or exercise in accordance with the Warrants, in each case following
the Share Increase Authorization, the Conversion Shares and the Warrant Shares,
respectively, will be validly issued, fully paid and nonassessable and free
from
all preemptive or similar rights, taxes, liens and charges with respect to
the
issue thereof, with the holders being entitled to all rights accorded to
a
holder of Common Stock. Assuming the truth and accuracy of the Buyers’
representations and warranties in this Agreement, the offer to the Buyers
and
issuance by the Company of the Securities is exempt from registration under
the
1933 Act.
(d) No
Conflicts.
The execution, delivery and performance of this Agreement and the other
Transaction Documents by the Company and the consummation by the Company
of the
transactions contemplated hereby and thereby (including, without limitation,
the
issuance of the Notes and the Warrants, the granting of a security interest
in
the Collateral and, following receipt of the Share Increase Authorization,
reservation for issuance and issuance of the Conversion Shares and the Warrant
Shares) will not (i) result in a violation of the Articles of Incorporation
of
the Company or any of its Subsidiaries, any capital stock of the Company
or
bylaws of the Company or any of its Subsidiaries or (ii) except as set forth
in
Schedule
3(d),
conflict with, or constitute a default (or an event which with notice or
lapse
of time or both would become a default) under, or give to others any rights
of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is
a
party, or (iii) assuming the truth and accuracy of the Buyers’ representations
and warranties in this Agreement, result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the Over-The-Counter
Bulletin Board (the "Principal
Market"))
applicable to the Company or any of its Subsidiaries or by which any property
or
asset of the Company or any of its Subsidiaries is bound or affected, except,
in
the cases of clause (ii) and (iii) above, for such conflicts, defaults, rights
or violations which would not, individually or in the aggregate, reasonably
be
expected to have a Material Adverse Effect.
9
(f) Acknowledgment
Regarding Buyer's Purchase of Securities.
The Company acknowledges and agrees that each Buyer is acting solely in
the capacity of an arm's length purchaser with respect to this Agreement
and the
other Transaction Documents and the transactions contemplated hereby and
thereby, and that no Buyer is (i) an officer or director of the Company,
(ii) to
the knowledge of the Company, an "affiliate" of the Company (as defined in
Rule
144, an "Affiliate")
or
(iii) to the knowledge of the Company, a "beneficial owner" of more than
10% of
the shares of Common Stock (as defined for purposes of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended (the "1934
Act")).
The
Company further acknowledges that no Buyer is acting as a financial advisor
or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the other Transaction Documents and the transactions contemplated
hereby and thereby, and any advice given by a Buyer or any of its
representatives or agents in connection with this Agreement and the other
Transaction Documents and the transactions contemplated hereby and thereby
is
merely incidental to such Buyer's purchase of the Securities. The Company
further represents to each Buyer that the Company’s decision to enter into the
Transaction Documents has been based solely on the independent evaluation
by the
Company and its representatives.
(g) No
General Solicitation.
Neither the Company or any of its Subsidiaries or Affiliates, nor, to the
Company’s knowledge, any Person acting on its or their behalf, has engaged in
any form of general solicitation or general advertising (within the meaning
of
Regulation D) in connection with the offer or sale of the Securities.
The
Company shall be responsible for the payment of any placement agent’s fees,
financial advisory fees, consultancy fees or brokers’ commissions (other than
for persons engaged by any Buyer or its investment advisor) relating to or
arising out of the transactions contemplated hereby. The Company shall pay,
and
hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, reasonable attorney’s fees and out-of-pocket expenses)
arising in connection with any such claim (including any claim from the
Placement Agent (as defined below)). The Company acknowledges that it has
engaged a consultant as set out in Schedule 3(g) (the “Consultant”)
in
connection with the sale of the Securities. Other than the Consultant, the
Company has not engaged any placement agent, consultant or other agent in
connection with the sale of the Securities.
(h) No
Integrated Offering.
None of the Company, its Subsidiaries, their respective Affiliates or any
Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any security, or solicited any offers to buy any security,
under circumstances that would require registration of any of the Securities
under the 1933 Act or cause this offering of the Securities to be integrated
with prior offerings by the Company for purposes of the 1933 Act or any
applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed
or
designated. None of the Company, its Subsidiaries, their Affiliates or any
Person acting on its or their behalf will take any action or steps referred
to
in the preceding sentence that would require registration of any of the
Securities under the 1933 Act or cause the offering of the Securities to
be
integrated with other offerings in a manner that would require such
registration.
10
(i) Dilutive
Effect.
The Company understands and acknowledges that the number of Conversion
Shares issuable upon conversion of the Notes and the Warrant Shares issuable
upon exercise of the Warrants will increase in certain circumstances. The
Company further acknowledges that its obligation to issue Conversion Shares
upon
conversion of the Notes in accordance with this Agreement and the Notes and
its
obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrant is, in each case, absolute
and
unconditional regardless of the dilutive effect that such issuance may have
on
the ownership interests of other stockholders of the Company.
(j) Application
of Takeover Protections; Rights Agreement.
The Company and its board of directors have taken all necessary action, if
any, in order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Articles of Incorporation
or
the laws of the jurisdiction of its formation which is or could become
applicable to any Buyer as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company's issuance of the
Securities and any Buyer's ownership of the Securities. The Company has not
adopted a stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control
of
the Company.
(k) SEC
Documents; Financial Statements.
Except as disclosed in Schedule
3(k)
and
except as would not reasonably be expected to have a Material Adverse Effect,
during the two (2) years prior to the date hereof, the Company has filed
all
reports, schedules, forms, statements and other documents required to be
filed
by it with the SEC pursuant to the reporting requirements of the 1934 Act
(all
of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements, notes and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the
"SEC
Documents"). The
Company has delivered to the Buyers or their respective representatives true,
correct and complete copies of the SEC Documents not available on the XXXXX
system if such SEC Documents have been requested in writing by the Buyers.
As of their respective filing dates, the SEC Documents, as they may have
been subsequently amended by filings made by the Company with the SEC prior
to
the date hereof, 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, as they may have been subsequently amended by filings
made by the Company with the SEC prior to the date hereof, contained any
untrue
statement of a material fact or omitted to state a material fact required
to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As
of
their respective filing dates, the financial statements of the Company included
in the SEC Documents, as they may have been subsequently amended by filings
made
by the Company with the SEC prior to the date hereof, 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
were prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or
(ii)
in the case of unaudited interim statements, to the extent
they may exclude footnotes or may be condensed or summary statements) and
fairly
present in all material respects the financial position of the Company as
of the
dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments).
11
(l) Absence
of Certain Changes.
Except
as disclosed in
Schedule 3(l),
since
the date of the Company’s most recent audited financial statements contained in
the SEC Documents, there has been no material adverse change and no material
adverse development in the business, assets, properties, operations, condition
(financial or otherwise), or results of operations of the Company. Except
as
disclosed in
Schedule 3(l),
since
the date of the Company’s most recent audited financial statements contained in
the SEC Documents, neither the Company nor any of its Subsidiaries has
(i) declared or paid any dividends on its Common Stock, (ii) sold any
assets, individually or in the aggregate, in excess of $100,000 outside of
the
ordinary course of business or (iii) had capital expenditures, individually
or in the aggregate, in excess of $100,000. Except as set forth in Schedule
3(l),
neither
the Company nor any of its Subsidiaries has taken any steps to seek protection
pursuant to any bankruptcy law nor has the Company received any written notice
from its creditors that its creditors intend to initiate involuntary bankruptcy
proceedings. Each Buyer acknowledges the matters identified in the going
concern
opinion issued by the Company’s accountants on June 23, 2006.
(m) [Reserved]
(n) Conduct
of Business; Regulatory Permits.
Except as set for the in Schedule
3(n),
neither
the Company nor any of its Subsidiaries (i) is in violation of any term of
or in
default under its Articles of Incorporation or Bylaws or their organizational
charter or certificate of incorporation or bylaws, respectively, (ii) is
in
violation of any judgment, decree or order or any law, statute, ordinance,
rule
or regulation applicable to the Company or its Subsidiaries, or (iii) will
conduct its business in violation of any of the foregoing except, in each
case,
for possible violations which would not, individually or in the aggregate,
have
a Material Adverse Effect. Without limiting the generality of the foregoing,
the
Company is not in violation of any of the rules, regulations or requirements
of
the Principal Market and has no knowledge of any facts or circumstances which
would reasonably lead to suspension of the Common Stock from trading by the
Principal Market in the foreseeable future. Except as set forth in Schedule
3(n),
during
the two (2) years prior to the date hereof, (i) the Common Stock has been
designated for quotation on the Principal Market, (ii) trading
in the Common Stock has not been suspended by the SEC or quotation by the
Principal Market and (iii) the Company has received no communication, written
or
oral, from the SEC or the Principal Market regarding the suspension of the
Common Stock from quotation on the Principal Market. The Company and its
Subsidiaries possess all certificates, authorizations and permits issued
by the
appropriate regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the aggregate,
a
Material Adverse Effect, and neither the Company nor any such Subsidiary
has
received any written notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.
12
(o) Foreign
Corrupt Practices.
None of the Company, any of its Subsidiaries or, to the knowledge of the
Company, any director, officer, agent, or employee, in the course of its
actions
for, or on behalf of, the Company or any of its Subsidiaries (i) used any
corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official
or
employee from corporate funds of the Company or any its Subsidiaries; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign
or
domestic government official or employee.
(p) Xxxxxxxx-Xxxxx
Act.
The Company is in compliance with any and all applicable requirements of
the Xxxxxxxx-Xxxxx Act of 2002 that are effective as of the date hereof,
and any
and all rules and regulations promulgated by the SEC thereunder that are
effective as of the date hereof and applicable to the Company.
(q) Transactions
With Affiliates.
Other than the transactions disclosed on Schedule
3(q),
none of
the officers, directors or employees of the Company or any of its Subsidiaries
is presently a party to any transaction with the Company or any of its
Subsidiaries (other than for ordinary course services as employees, officers
or
directors), including any contract, agreement, loans or other arrangement
providing for the furnishing of services to or by, providing for rental of
real
or personal property to or from, including obligations to pay back pay,
salaries, bonuses, etc. or otherwise requiring payments to or from any such
officer, director or employee or, to the knowledge of the Company or any
of its
Subsidiaries, any corporation, partnership, trust or other entity in which
any
such officer, director, or employee has a substantial interest or is an officer,
director, trustee or partner.
(r) Equity
Capitalization.
As of immediately prior to Closing, the authorized capital stock of the
Company consists of (i) 25,000,000 shares of Common Stock, of which as of
the
date hereof, 21,636,225 shares are issued and outstanding, and (ii) 1,000,000
shares of Preferred Stock, of which as of the date hereof (A) 850,000 are
classified as Series A Convertible Preferred Stock, of which as of the date
hereof 67,000 are issued and outstanding and (B) 150,000 are classified as
Series B Convertible Preferred Stock, of which as of the date hereof 120,575
are
issued and outstanding. All currently issued and outstanding shares of Common
Stock have been, or upon issuance will be, validly issued and are fully paid
and
nonassessable. Except as disclosed herein or as disclosed in Schedule
3(r):
(i)
none of the Company's capital stock is subject to preemptive rights or any
other
similar rights or any liens or encumbrances suffered or permitted by the
Company; (ii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or
securities or rights convertible into, or exercisable or exchangeable for,
any
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of
its
Subsidiaries is or may become bound to issue
additional capital stock of the Company or any of its Subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any capital stock of the Company or any of its
Subsidiaries; (iii) there are no outstanding debt securities, notes, credit
or
loan agreements, credit facilities or other agreements, documents or instruments
evidencing Indebtedness (as defined below) of the Company or any of its
Subsidiaries or by which the Company or any of its Subsidiaries is or may
become
bound; (iv) there are no financing statements securing obligations in any
material amounts, either singly or in the aggregate, filed in connection
with
the Company or any of its Subsidiaries; (v) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated
to
register the sale of any of their securities under the 1933 Act (except pursuant
to the Registration Rights Agreement); (vi) there are no outstanding securities
or instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to purchase, repurchase, retire or redeem a security
of
the Company or any of its Subsidiaries; (vii) there are no securities or
instruments containing anti-dilution or similar provisions or reset provisions
that will be triggered by the issuance of the Securities; (viii) the Company
does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement; and (ix) the Company and its
Subsidiaries have no liabilities or obligations required to be disclosed
in the
SEC Documents but not so disclosed in the SEC Documents, other than those
which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect. The Company has furnished to the Buyer true, correct and complete
copies
of the Company's Articles of Incorporation, as amended and as in effect on
the
date hereof (the "Articles
of Incorporation"),
and
the Company's Bylaws, as amended and as in effect on the date hereof (the
"Bylaws"),
and
the terms of all securities convertible into, or exercisable or exchangeable
for, shares of Common Stock and the material rights of the holders thereof
in
respect thereto are disclosed in the SEC Documents.
13
(s) Indebtedness
and Other Contracts.
Except as disclosed in Schedule
3(s),
neither
the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness
(as
defined below), (ii) is a party to any contract, agreement or instrument,
the
violation of which, or default under which, by the other party(ies) to such
contract, agreement or instrument would result in a Material Adverse Effect,
(iii) is in violation of any term of or in default under any contract, agreement
or instrument relating to any Indebtedness, except where such violations
and
defaults would not result, individually or in the aggregate, in a Material
Adverse Effect, or (iv) is a party to any contract, agreement or instrument
relating to any Indebtedness, the performance of which, in the judgment of
the
Company's officers, has or is expected to have a Material Adverse Effect.
Schedule
3(s)
provides
a detailed description of the material terms of any such outstanding
Indebtedness. The
Indebtedness described on Schedule 3(s) is being settled, converted or paid
as
set forth on Schedule 3(s). For
purposes of this Agreement: (x) "Indebtedness"
of
any
Person
means, without duplication (A) all indebtedness for borrowed money, (B) all
obligations issued, undertaken or assumed as the deferred purchase price
of
property or services including (without limitation) "Capital Leases" in
accordance with generally accepted accounting principles (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and
other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect
to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement
in the
event of default are limited to repossession or sale of such property), (F)
all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or
for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person
which
owns such assets or property has not assumed or become liable for the payment
of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through
(G)
above; (y) "Contingent
Obligation"
means,
as to any Person, any direct or indirect liability, contingent or otherwise,
of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against
loss
with respect thereto; and (z) "Person"
means
an individual, a limited liability company, a partnership, a joint venture,
a
corporation, a trust, an unincorporated organization and a government or
any
department or agency thereof.
14
(t) Absence
of Litigation.
There is no action, suit, proceeding, inquiry or investigation before or
by the Principal Market, any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries,
the Common Stock or any of the Company's Subsidiaries or any of the Company's
or
its Subsidiaries' officers or directors, except as set forth in Schedule
3(t).
(u) 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, within the past two (2) years, been
refused
any insurance coverage sought or applied for and neither the Company nor
any
such Subsidiary has any reason to believe that it will 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.
(i)
Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or employs any member of a union. The Company
and its Subsidiaries believe that their relations with their employees are
good.
Except as disclosed in Schedule 3(v), no executive officer of the Company
or any
of its Subsidiaries (as defined in Rule 501(f) of the 0000 Xxx) has notified
the
Company or any such Subsidiary that such officer intends to leave the Company
or
any such Subsidiary or otherwise terminate such officer's employment with
the
Company or any such Subsidiary. No executive officer of the Company or any
of its Subsidiaries, to the knowledge of the Company or any such Subsidiary,
is
in violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition agreement,
or
any other contract or agreement or any restrictive covenant, and, the continued
employment of each such executive officer does not, subject the Company or
any
of its Subsidiaries to any liability with respect to any of the foregoing
matters.
15
(ii)
The
Company and its Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and wages and
hours,
except where failure to be in compliance would not, either individually or
in
the aggregate, reasonably be expected to result in a Material Adverse
Effect.
(w) Title.
Except
as disclosed in Schedule
3(w),
the
Company and its Subsidiaries have good and marketable title in fee simple
to all
real property owned by them and good and marketable title to all personal
property owned by them which is, in each case, material to the business of
the
Company and its Subsidiaries, free and clear of all liens, encumbrances and
defects except such as do not materially affect the value of such property
and
do not interfere with the use made and proposed to be made of such property
by
the Company and any of its Subsidiaries. Any real property and facilities
held under lease by the Company and any of its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are
not
material and do not interfere with the use made and proposed to be made of
such
property and facilities by the Company and its Subsidiaries.
(x) Intellectual
Property Rights.
The Company and its Subsidiaries own or possess adequate rights or
licenses to use all trademarks, trade names, service marks, service xxxx
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and other
intellectual property rights necessary to conduct their respective businesses
as
now conducted ("Intellectual
Property Rights").
Except as set forth in Schedule
3(x),
none of
the Company's Intellectual Property Rights have expired or terminated, or
are
expected to expire or terminate, within three years from the date of this
Agreement. The Company does not have any knowledge of any infringement by
the
Company or its Subsidiaries of Intellectual Property Rights of others. There
is
no claim, action or proceeding being made or brought or, to the knowledge
of the
Company, being threatened, against the Company or any of its Subsidiaries
regarding its Intellectual Property Rights. The Company is unaware of any
facts
or circumstances which might give rise to any of the foregoing infringements
or
claims, actions or proceedings. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and
value
of all of their Intellectual Property Rights.
16
(z) Subsidiary
Rights.
The Company or one of its Subsidiaries has the unrestricted right to vote,
and (subject to limitations imposed by applicable law) to receive dividends
and
distributions on, all capital securities of its Subsidiaries currently owned
by
the Company or such Subsidiary.
(aa) Investment
Company.
The Company is not, and is not an Affiliate of, an "investment company"
within the meaning of the Investment Company Act of 1940, as
amended.
(bb) Tax
Status.
Except
as
disclosed on Schedule
3(bb),
the
Company and each of its Subsidiaries (i) has made or filed all foreign, federal
and state income and all other tax returns, reports and declarations required
by
any jurisdiction to which it is subject, (ii) 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 (iii) has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to
the
periods to which such returns, reports or declarations apply. Except as
disclosed on Schedule
3(bb),
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. Except as disclosed on Schedule
3(bb),
no
liens
have been filed and no claims are being asserted by or against the Company
or
any of its Subsidiaries with respect to any taxes (other than liens for taxes
not yet due and payable). Neither the Company nor it Subsidiaries has received
notice of assessment or proposed assessment of any taxes of a material amount
claimed to be owed by it or any other Person on its behalf. Except as disclosed
on Schedule
3(bb),
neither
the Company nor any Subsidiary is a party to any tax sharing or tax indemnity
agreement or any other agreement of a similar nature that remains in effect.
Except
as
disclosed on Schedule
3(bb),
each
of
the Company and its Subsidiaries has complied in all material respects with
all
applicable legal requirements relating to the payment and withholding of
taxes
and, within the time and in the manner prescribed by law, has withheld from
wages, fees and other payments and paid over to the proper governmental or
regulatory authorities all amounts required.
17
(cc) Internal
Accounting and Disclosure Controls.
The Company and each of its 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 generally accepted
accounting principles and to maintain asset and liability accountability,
(iii)
access to assets or incurrence of liabilities is permitted only in accordance
with management's general or specific authorization and (iv) the recorded
accountability for assets and liabilities is compared with the existing assets
and liabilities at reasonable intervals and appropriate
action is taken with respect to any difference (the "Internal
Accounting Controls").
The
Company maintains disclosure controls and procedures (as such term is defined
in
Rule 13a-14 under the 0000 Xxx) that are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is recorded, processed, summarized and reported, within
the
time periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under
the
1934 Act is accumulated and communicated to the Company's management, including
its principal executive officer and its principal financial officer, as
appropriate, to allow timely decisions regarding required
disclosure.
(dd) Off
Balance Sheet Arrangements.
There is no transaction, arrangement, or other relationship between the
Company or any of its Subsidiaries and an unconsolidated or other off balance
sheet entity that is required to be disclosed by the Company in its 1934
Act
filings and is not so disclosed or that otherwise would be reasonably likely
to
have a Material Adverse Effect.
(ee) Ranking
of Notes.
Except as set forth on
Schedule 3(ee),
no
Indebtedness of the Company is senior to or ranks
pari
passu
with the
Notes in right of payment, whether with respect of payment of redemptions,
interest, damages or upon liquidation or dissolution or otherwise.
(ff) Transfer
Taxes.
On the Closing Date, all stock transfer or other taxes (other than income
or similar taxes) which are required to be paid in connection with the sale
and
transfer of the Securities to be sold to each Buyer hereunder will be, or
will
have been, fully paid or provided for by the Company, and all material laws
imposing such taxes will be or will have been complied with.
(gg) Manipulation
of Price.
The Company and its Subsidiaries have not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result or that could reasonably be expected to cause or result
in
the stabilization or manipulation of the price of any security of the Company
to
facilitate the sale or resale of any of the Securities, (ii) other than the
Consultant, sold, bid for, purchased, or paid any compensation for soliciting
purchases of, any of the Securities, or (iii) other than the Consultant,
paid or
agreed to pay to any person any compensation for soliciting another to purchase
any other securities of the Company.
(hh) U.S.
Real Property Holding Corporation.
The Company is not, nor has ever been, a U.S. real property holding
corporation within the meaning of Section 897 of the Internal Revenue Code
of
1986, as amended, and the Company shall so certify upon Buyer's
request.
18
(ii) Disclosure.
Except for the information set forth on the Disclosure Schedules, the
projections provided by the Company and information provided by the Company’s
customers, the Company confirms that neither it nor any other Person acting
on
its behalf has provided any of the Buyers or their agents or counsel with
any
information that constitutes or could reasonably be expected to constitute
material, nonpublic information other than the existence of the transactions
contemplated by this Agreement or the other Transaction Documents. The Company
understands and confirms that each of the Buyers will rely on the foregoing
representations in effecting transactions in the Securities. All disclosure
provided to the Buyers regarding the Company, its business and the transactions
contemplated by this Agreement and the other Transaction Documents, including
the Schedules and Exhibits hereto and thereto, furnished by or on behalf
of the
Company is true and correct in all material respects and does not contain
any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made herein or therein, in the light of the
circumstances under which they were made, not misleading. Each press release
issued by the Company or its Subsidiaries during the twelve (12) months
preceding the date of this Agreement did not at the time of release 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
the
light of the circumstances under which they were made, not misleading. No
event
or circumstance has occurred or information exists with respect to the Company
or any of its Subsidiaries or its or their business, assets, liabilities,
properties, prospects, operations or condition (financial or otherwise),
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.
(jj) Lien
Searches.
Prior
to the date hereof, the Company has delivered or caused to be delivered to
each
Buyer certified copies of UCC financing statement search results listing
any and
all effective financing statements filed within five years prior to such
date in
any applicable jurisdiction that name the Company or any of its Subsidiaries
(other than Converting Sciences, Inc.) as a debtor to perfect an interest
in any
of the assets thereof, together with copies of such financing statements
and the
results of searches for any effective tax liens and judgment liens filed
against
any such Person or its property in any applicable jurisdiction, which results,
except as otherwise agreed to in writing by the Buyers, shall not show any
such
effective tax liens and judgment liens.
4. COVENANTS.
(a) Best
Efforts.
Each party shall use its best efforts timely to satisfy each of the
conditions to be satisfied by it as provided in Sections 6 and 7 of this
Agreement.
19
(c) Reporting
Status.
Until the date on which the Investors (as defined in the Registration
Rights Agreement) shall have sold all the Conversion Shares and Warrant Shares
and none of the Notes or Warrants is outstanding (the "Reporting
Period"),
the
Company shall 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 otherwise permit such termination.
(d) Use
of
Proceeds.
The Company will use the proceeds from the sale of the Securities as set
forth on Schedule
4(d).
(e) Financial
Information.
The Company agrees to send the following to each Investor during the
Reporting Period, unless the following are filed with the SEC through XXXXX
and
are available to the public through the XXXXX system, (i) within one (1)
Business Day after the filing thereof with the SEC, a copy of its Annual
Reports
on Form 10-K or 10-KSB, any interim reports or any consolidated balance sheets,
income statements, stockholders' equity statements and/or cash flow statements
for any period other than annual, any Current Reports on Form 8-K and any
registration statements (other than on Form S-8) or amendments filed pursuant
to
the 1933 Act, (ii) on the same day as the release thereof, facsimile or e-mailed
copies of all press releases issued by the Company or any of its Subsidiaries,
and (iii) copies of any notices and other information made available or given
to
the stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders. As used herein "Business
Day"
means any other day other than a Saturday, Sunday, or other day on which
commercial banks in The City of New York are authorized or required by law
to
remain closed.
(f) Listing.
Upon
the filing of a registration statement pursuant to Section 4(w), the Company
shall promptly secure the listing or quotation of all of the Registrable
Securities (as defined in the Registration Rights Agreement) upon each national
securities exchange and automated quotation system, if any, upon which the
Common Stock is then listed or quoted (subject to official notice of issuance)
and shall maintain such listing of all Registrable Securities from time to
time
issuable under the terms of the Transaction Documents. The Company shall
maintain the Common Stock’s authorization for
quotation on the Principal Market. Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to
result
in the delisting or suspension of the Common Stock on the Principal Market.
The Company shall pay all fees and expenses in connection with satisfying
its obligations under this Section 4(f).
(g) Fees.
The Company shall pay (i) Gottbetter & Partners, LLP (“G&P”)
$40,000 in legal fees plus reasonable expenses up to $500, (ii) Gottbetter
Capital Master, Ltd. (a Buyer) ("GCM")
or its
designee(s) $10,000 for due diligence and all reasonable expenses up to $500
incurred in connection with the transactions contemplated by the Transaction
Documents (including all reasonable legal fees and disbursements in connection
therewith, documentation and implementation of the transactions contemplated
by
the Transaction Documents and due diligence in connection therewith), and
(iii)
$5,000
to
Gottbetter Capital Finance, LLC which amounts shall be withheld by such Buyer
from its Purchase Price at the Closing. The Company shall be responsible
for the
payment of any placement agent's fees, financial advisory fees, consultancy
fees
or broker's commissions (other than for Persons engaged by any Buyer) relating
to or arising out of the transactions contemplated by the Transaction Documents
including, without limitation, any fees or commission payable to the Consultant.
The Company shall pay, and hold each Buyer harmless against, any liability,
loss
or expense (including, without limitation, reasonable attorney's fees and
out-of-pocket expenses) arising in connection with any claim against a Buyer
relating to any such payment. Except as otherwise set forth in the Transaction
Documents, each party to this Agreement shall bear its own expenses in
connection with the sale of the Securities to the Buyers.
20
(h) Pledge
of Securities.
The Company acknowledges and agrees that the Securities may be pledged by
a Buyer in connection with a bona fide margin agreement or other loan or
financing arrangement that is secured by the Securities. The pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Investor effecting a pledge of Securities shall
be
required to provide the Company with any notice thereof or otherwise make
any
delivery to the Company pursuant to this Agreement or any other Transaction
Document, including, without limitation, Section 2(f) hereof; provided that
an
Investor and its pledgee shall be required to comply with the provisions
of
Section 2(f) hereof in order to effect a sale, transfer or assignment of
Securities to such pledgee. The Company hereby agrees to execute and deliver
such documentation as a pledgee of the Securities may reasonably request
in
connection with a pledge of the Securities to such pledgee by an
Investor.
(i) Disclosure
of Transactions and Other Material Information.
On or before 5:00 p.m., New York Time, on the fourth Business Day
following the date of this Agreement, the Company shall file a Current Report
on
Form 8-K describing the terms of the transactions contemplated by the
Transaction Documents in the form required by the 1934 Act and attaching
the
material Transaction Documents (including, without limitation, this Agreement,
the form of each of the Notes, the form of Warrant, the Registration Rights
Agreement and the Security Documents) as exhibits to such filing (including
all
attachments, the "8-K
Filing").
From
and after the filing of the 8-K Filing with the SEC, no Buyer shall be in
possession of any material,
nonpublic information received from the Company, any of its Subsidiaries
or any
of their respective officers, directors, employees, stockholders,
representatives or agents, that is not disclosed in the 8-K Filing. The Company
shall not, and shall not cause any of its Subsidiaries and its and each of
their
respective officers, directors, employees and agents, to, provide any Buyer
with
any material, nonpublic information regarding the Company or any of its
Subsidiaries from and after the filing of the 8-K Filing with the SEC without
the express written consent of such Buyer. In
the
event of a breach of the foregoing covenant by the Company, any of its
Subsidiaries, or any of their respective officers, directors, employees and
agents, in addition to any other remedy provided herein or in the Transaction
Documents, a Buyer shall have the right to make a public disclosure, in the
form
of a press release, public advertisement or otherwise, of such
material, nonpublic information without
the prior approval by the Company, their Subsidiaries, or any of their
respective officers, directors, employees or agents.
No Buyer
shall have any liability to the Company, its Subsidiaries, or any of its
or
their respective officers, directors, employees, stockholders or agents for
any
such disclosure.
Subject
to the foregoing, none of the Company, its Subsidiaries or any Buyer shall
issue
any press releases or any other public statements with respect to the
transactions contemplated hereby without the approval of all of the Buyers;
provided,
however,
that
the Company shall be entitled, without the prior approval of any Buyer, to
make
any press release or other public disclosure with respect to such transactions
(i) in substantial conformity with the 8-K Filing and contemporaneously
therewith or (ii) as is required by the 1934 Act, the 1933 Act or any other
applicable law and regulations (provided that in the case of clause (i) the
Required Holders shall be consulted by the Company in connection with any
such
press release or other public disclosure prior to its release). Without the
prior written consent of any applicable Buyer, the Company shall not disclose
the name of any Buyer in any filing, announcement, release or otherwise.
21
(j) Restriction
on Redemption and Cash Dividends.
So long as any Notes are outstanding, the Company shall not, directly or
indirectly, redeem, or declare or pay any cash dividend or distribution on,
the
Common Stock without the prior express written consent of the Required Holders
(as defined in the Notes).
(k) Additional
Notes; Variable Securities; Dilutive Issuances.
So long as any Buyer beneficially owns any Securities, the Company will
not issue any Notes (other than to the Buyers as contemplated hereby) and
the
Company shall not issue any other securities that would cause a breach or
default under the Notes. For so long as any Notes or Warrants remain
outstanding, the Company shall not, in any manner, issue or sell any rights,
warrants or options to subscribe for or purchase Common Stock or other
securities directly or indirectly convertible into or exchangeable or
exercisable for Common Stock at a price which varies or may vary with the
market
price of the Common Stock, including by way of one or more reset(s) to any
fixed
price unless the conversion, exchange or exercise price of any such security
cannot be less than the then applicable Conversion Price (as defined in the
Notes) with respect to the Common Stock into which any Note is convertible
or
the then applicable Exercise Price (as defined in the Warrants) with respect
to
the Common Stock into which any Warrant is exercisable. For so long as any
Notes
or Warrants remain outstanding, the Company shall not, in any manner, enter
into
or affect any Dilutive Issuance (as defined in the Notes) if the effect of
such
Dilutive Issuance is to cause the Company to be required to issue upon
conversion of any Note or exercise of any Warrant any shares of Common Stock
in
excess of that number of shares of Common Stock which the Company has, following
the Share Increase Authorization, authorized and reserved for purposes of
such
conversions or exercises or which the Company may issue upon conversion of
the
Notes and exercise of the Warrants without breaching the Company's obligations
under the rules or regulations of the Principal Market.
(m) Reservation
of Shares.
Following the Share Increase Authorization, so long as any Buyer owns any
Securities, the Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, no less than 300% of
the
number of shares of Common Stock issuable upon conversion of all of the Notes
and issuable upon exercise of the Warrants then outstanding (without taking
into
account any limitations on the conversion of the Notes or exercise of the
Warrants set forth in the Notes and Warrants, respectively).
22
(n) Conduct
of Business.
The business of the Company and its Subsidiaries shall not be conducted in
violation of any law, ordinance or regulation of any government, or any
department or agency thereof or governmental entity, except where such
violations would not result, either individually or in the aggregate, in
a
Material Adverse Effect.
(o) Additional
Issuances of Securities.
(i) For
purposes of this Section 4(o), the following definitions shall
apply.
(1) "Convertible
Securities"
means
any stock or securities (other than Options) convertible into or exercisable
or
exchangeable for shares of Common Stock.
(2) "Options"
means
any rights, warrants or options to subscribe for or purchase shares of Common
Stock or Convertible Securities.
(3) "Common
Stock Equivalents"
means,
collectively, Options and Convertible Securities.
(4) "Excluded
Offerings"
mean
any offerings or sales of stock or securities including, without limitation,
Common Stock and Common Stock Equivalents (but not including any securities
of
the type restricted by Section 4(k)), at a price at least 16% above the
initial "Conversion Price" under the Notes (the "Minimum Excluded Offering
Price") and resulting in net proceeds to the Company in the aggregate of
up to
$7 million; provided that such an offering or sale shall not be
considered an "Excluded Offering" if the amount of proceeds from such
offfering that is to be used, in accordance with the terms thereof, (or that
is
actually used) for purposes other than to redeem outstanding principal under
the
Notes, when combined with the aggregate amount of proceeds from prior Excluded
Offerings that has been used for purposes other than to redeem outstanding
principal under the Notes, would exceed $3 million; provided further that
no
Excluded Offering shall include warrant coverage in excess of 50% and no
such
warrants shall have exercise prices below the Minimum Excluded Offering Price;
and provided further that no debt security offered in any Excluded Offering
shall mature prior to the Maturity Date (as defined in the Notes).
(ii) From
the
date hereof until the earlier of (i) the Maturity Date (as defined in the
Notes)
and (ii) the satisfaction of the Notes (the "Trigger
Date"),
and
except with respect to any transaction described in Schedule
4(o)
or with
respect to any issuance pursuant to an employee or director stock incentive
plan
or with respect to an Excluded Offering, the Company will not, directly or
indirectly, offer, sell, grant any option to purchase, or otherwise dispose
of
(or announce any offer, sale, grant or any option to purchase or other
disposition of) any of its or its Subsidiaries' equity or equity equivalent
securities, including without limitation any debt, preferred stock or other
instrument or security that is, at any time during its life and under any
circumstances, convertible into or exchangeable or exercisable for shares
of
Common Stock or Common Stock Equivalents (any such offer, sale, grant,
disposition or announcement being referred to as a "Subsequent
Placement"),
unless the Company shall have first received the express written consent
of the
Required Holders and complied with Section 4(o)(iii).
23
(iii) Prior
to
the
Trigger Date, the Company will not, directly or indirectly, effect any
Subsequent Placement unless the Company shall have first complied with this
Section 4(o)(iii).
(2) To
accept
an Offer, in whole or in part, such Buyer must deliver a written notice to
the
Company prior to the end of the tenth (10th
)
Business Day after such Buyer's receipt of the Offer Notice (the "Offer
Period"),
setting forth the portion of such Buyer's Basic Amount that such Buyer elects
to
purchase and, if such Buyer shall elect to purchase all of its Basic Amount,
the
Undersubscription Amount, if any, that such Buyer elects to purchase (in
either
case, the "Notice
of Acceptance").
If
the Basic Amounts subscribed for by all Buyers are less than the total of
all of
the Basic Amounts, then each Buyer 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
Buyer who has subscribed for any Undersubscription Amount shall be entitled
to
purchase only that portion of the Available Undersubscription Amount as the
Basic Amount of such Buyer bears to the total Basic Amounts of all Buyers
that
have subscribed for Undersubscription Amounts, subject to rounding by the
Company to the extent its deems reasonably necessary.
24
(3) The
Company shall have thirty (30) Business Days from the expiration of the Offer
Period above to offer, issue, sell or exchange all or any part of such Offered
Securities as to which a Notice of Acceptance has not been given by the Buyers
(the "Refused
Securities"),
but
only to the offerees described in the Offer Notice (if so described therein)
or
any investor introduced to the Company by a placement agent described in
the
Offer Notice and only upon terms and conditions (including, without limitation,
unit prices and interest rates) that are not more favorable to the acquiring
person or persons or less favorable to the Company than those set forth in
the
Offer Notice.
(4) 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(o)(iii)(3) above), then each Buyer may, at its sole option and in its sole
discretion, reduce the number or amount of the Offered Securities specified
in
its Notice of Acceptance to an amount that
shall be
not less than the number or amount of the Offered Securities that such Buyer
elected to purchase pursuant to Section 4(o)(iii)(2) above multiplied by
a
fraction, (i) the numerator of which shall be the number or amount of Offered
Securities the Company actually proposes to issue, sell or exchange (including
Offered Securities to be issued or sold to Buyers pursuant to Section
4(o)(iii)(3) above prior to such reduction) and (ii) the denominator of which
shall be the original amount of the Offered Securities. In the event that
any
Buyer so elects to reduce the number or amount of Offered Securities specified
in its Notice of Acceptance, the Company may not issue, sell or exchange
more
than the reduced number or amount of the Offered Securities unless and until
such securities have again been offered to the Buyers in accordance with
Section 4(o)(iii)(1) above.
(5) Upon
the
closing of the issuance, sale or exchange of all or less than all of the
Refused
Securities, the Buyers shall acquire from the Company, and the Company shall
issue to the Buyers, the number or amount of Offered Securities specified
in the
Notices of Acceptance, as reduced pursuant to Section 4(o)(iii)(3) above
if the
Buyers have so elected, upon the terms and conditions specified in the Offer.
The purchase by the Buyers of any Offered Securities is subject in all cases
to
the preparation, execution and delivery by the Company and the Buyers of
a
purchase agreement relating to such Offered Securities must be reasonably
satisfactory in form and substance to the Buyers and their respective counsel
and to the Company and its counsel.
(6) Any
Offered Securities not acquired by the Buyers or other persons in accordance
with Section 4(o)(iii)(3) above may not be issued, sold or exchanged until
they
are again offered to the Buyers under the procedures specified in this
Agreement.
25
(iv) The
restrictions contained in subsections (ii) and (iii) of this Section 4(o)
shall
not apply in connection with the issuance of any Excluded Securities (as
defined
in the Notes).
(p) Additional
Registration Statements.
Until the Effective Date (as defined in the Registration Rights
Agreement), the Company will not file a registration statement under the
1933
Act relating to securities that are not the Securities; provided,
however,
that
the Company shall have the right to include the securities listed on
Schedule
4(p).
(q) No
Short Position.
For so
long as the Notes remain outstanding, none of the Buyers or any of its
Affiliates shall have an open short position in the Common Stock.
(s) Transactions
With Affiliates.
So long
as any Note or Warrant is outstanding, the Company shall not, and shall cause
each of its Subsidiaries not to, enter into, amend, modify or supplement,
or
permit any Subsidiary to enter into, amend, modify or supplement any agreement,
transaction, commitment, or arrangement with any of its or any Subsidiary’s
officers, directors, person who were officers or directors at any time during
the previous two (2) years, stockholders who beneficially own five percent
(5%)
or more of the Common Stock, or Affiliates (as defined below), or with any
individual related by blood, marriage, or adoption to any such individual
or
with any entity in which any such entity or individual owns a five percent
(5%)
or more beneficial interest (each a "Related
Party"),
except (a) for customary employment arrangements and benefit programs on
reasonable terms, or (b) relating to the transactions described in Schedule
4(s).
For
purposes of this Section 4(s) only, "Affiliate" means, with respect to any
person or entity, another person or entity that, directly or indirectly,
(i) has
a ten percent (10%) or more equity interest in that person or entity, (ii)
has
ten percent (10%) or more common ownership with that person or entity, (iii)
controls that person or entity, or (iv) shares common control with that
person or entity. "Control" or "controls" for purposes hereof means that
a
person or entity has the power, direct or indirect, to conduct or govern
the
policies of another person or entity.
(t) [Reserved]
26
(u) Share
Increase Authorization and Reverse Stock Split.
As
soon
as practicable following the Closing (as defined herein), the Company shall
(i)
mail an Information Statement to its stockholders, notifying such stockholders
that the holders of shares representing a majority of the voting stock of
the
Company have given their written consent to resolutions adopted by the board
of
directors of the Company to, among other things, amend the Articles of
Incorporation (as defined below) to increase the number of shares of Common
Stock the Company is authorized to issue to 400,000,000, (ii) file an amendment
to the Articles of Incorporation with the Secretary of State of the State
of
Nevada to effect, among other things, such increase in the authorized number
of
shares of Common Stock, (iii) hold an annual meeting of its stockholders,
during
which annual meeting the Company's stockholders shall, among other things,
vote
on a proposal (A) to enact a reverse stock split so that each 150 shares
of
issued and outstanding shares of the Company’s Common Stock shall be canceled
and replaced by one new share of the Company’s Common Stock and (B) to further
increase the number of shares of Common Stock that the Company is authorized
to
issue to at least such number as shall accommodate the issuance of the Notes
and
the Warrants, the reservation of shares of underlying Common Stock pursuant
to
the terms hereof and the reverse stock split described in clause (iii)(A)
and
(iv) to the extent such increase and reverse stock split have been approved
by
the Company’s shareholders, file a further amendment to the Articles of
Incorporation with the Secretary of State of the State of Nevada to effect
such
increase in the authorized number of shares of Common Stock and the reverse
stock split described in clause (iii)(A) (the actions set forth in clauses
(i),
(ii), (iii) and (iv) related to the increase of the Company’s authorized share
capital shall, collectively, be referred to herein as the "Share
Increase Authorization"
and the
actions set forth in clauses (iii) and (iv) related to the reverse stock
split
shall, collectively, be referred to herein as the “Reverse
Stock Split”).
(v) Collateral
Agent.
(i) Each
Buyer hereby (a) appoints GCM, as the collateral agent hereunder and under
the
other Security Documents (in such capacity, the “Collateral
Agent”),
and
(b) authorizes the Collateral Agent (and its officers, directors, employees
and
agents) to take such action on such Buyer’s behalf in accordance with the terms
hereof and thereof. The Collateral Agent shall not have, by reason hereof
or any
of the other Security Documents, a fiduciary relationship in respect of any
Buyer. Neither the Collateral Agent nor any of its officers, directors,
employees and agents shall have any liability to any Buyer for any action
taken
or omitted to be taken in connection hereof or any other Security Document
except to the extent caused by its own gross negligence or willful misconduct,
and each Buyer agrees to defend, protect, indemnify and hold harmless the
Collateral Agent and all of its officers, directors, employees and agents
(collectively, the “Collateral
Agent Indemnitees”)
from
and against any losses, damages, liabilities, obligations, penalties, actions,
judgments, suits, fees, costs and expenses (including, without limitation,
reasonable attorneys’ fees, costs and expenses) incurred by such Collateral
Agent Indemnitee, whether direct, indirect or consequential, arising from
or in
connection with the performance by such Collateral Agent Indemnitee of the
duties and obligations of Collateral Agent pursuant hereto or any of the
Security Documents.
(ii) The
Collateral Agent shall be entitled to rely upon any written notices, statements,
certificates, orders or other documents or any telephone message believed
by it
in good faith to be genuine and correct and to have been signed, sent or
made by
the proper Person, and with respect to all matters pertaining to this Agreement
or any of the other Transaction Documents and its duties hereunder or
thereunder, upon advice of counsel selected by it.
27
(iii) The
Collateral Agent (i) may resign from the performance of all its functions
and
duties hereunder and under the Notes and the Security Documents at any time
by
giving at least ten (10) Business Days prior written notice to the Company
and
each holder of the Notes and (ii) the Collateral Agent shall immediately
resign
if GCM, or one of its affiliates, is no longer a holder of the Notes. Such
resignation shall take effect upon the acceptance by a successor Collateral
Agent of appointment as provided below. Upon any such notice of resignation,
the
holders of a majority of the outstanding principal under the Notes shall
appoint
a successor Collateral Agent. Upon the acceptance of the appointment as
Collateral Agent, such successor Collateral Agent shall succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Collateral Agent, and the retiring Collateral Agent shall be discharged from
its
duties and obligations under this Agreement, the Notes and the other Security
Documents. After any Collateral Agent’s resignation hereunder, the provisions of
this Section 4(w) shall inure to its benefit. If a successor Collateral Agent
shall not have been so appointed within said ten (10) Business Day period,
the
retiring Collateral Agent shall then appoint a successor Collateral Agent
who
shall serve until such time, if any, as the holders of a majority of the
outstanding principal under the Notes appoint a successor Collateral Agent
as
provided above.
(w) Appointment
of Directors Upon Continuing Default.
If (i)
any Event of Default (as defined in the Notes) remains uncured for thirty
(30)
consecutive days or more, the Required Holders, taken together, may, at their
option, recommend one nominee for the Company’s Board of Directors, (ii) any
Event of Default remains uncured for thirty (30) consecutive days or more
following the recommended nomination pursuant to clause (i), the Required
Holders, taken together, may, at their option, recommend a second nominee
for
the Company’s Board of Directors, and (iii) any Event of Default remains uncured
for thirty (30) consecutive days or more following the recommended nomination
pursuant to clause (ii), the Required Holders, taken together, may, at their
option, recommend (on one or more occasions thereafter anytime that the Required
Holders do not equal one less than a majority of the Company’s directors until
cured) an additional number or numbers of nominees to the Company’s Board of
Directors, such that the Buyer’s nominees shall number one less than a majority
of the Company’s Board of Directors (each such nominee referred to singularly as
a "Buyer’s
Nominee"
and
collectively as the "Buyer’s
Nominees").
The
Company agrees that its Board of Directors, or the Nominating Committee of
the
Board, as applicable, shall promptly increase the size of the Board of Directors
as necessary to appoint as members of the Company’s Board of Directors the
number of Buyer’s Nominees required pursuant to the immediately preceding
sentence. After such appointment, the Company and its Board of Directors
shall
use their reasonable best efforts to obtain stockholder ratification of the
appointment of the Buyer’s Nominees at the next stockholder
meeting.
(x) The
Company shall dissolve Converting Sciences, Inc. and assume all of its
liabilities, obligations and assets within 60 days of the Closing
Date.
5. REGISTER.
(a) The
Company shall maintain at its principal executive offices (or such other
office
or agency of the Company as it may designate by notice to each holder of
Securities), or shall cause its transfer agent to maintain, a register for
the
Notes and the Warrants in which the Company or the transfer agent shall record
the name and address of the Person in whose name the Notes and the Warrants
have
been issued (including the name and address of each transferee), the principal
amount of Notes held by such Person, the number of Conversion Shares issuable
upon conversion of the Notes and the number of Warrant Shares issuable upon
exercise of the Warrants held by such Person. The Company or the transfer
agent
shall make the register available at all times during business hours for
inspection of any Buyer or its legal representatives following reasonable
written notice of not less than two Business Days.
28
(b) Transfer
Agent Instructions.
The Company shall issue irrevocable instructions to its transfer agent,
and any subsequent transfer agent, to issue certificates or credit shares
to the
applicable balance accounts at The Depository Trust Company ("DTC"),
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares and the Warrant Shares issued at the Closing or upon
conversion of the Notes or exercise of the Warrants in such amounts as specified
from time to time by each Buyer to the Company upon conversion of the Notes
or
exercise of the Warrants in the form of Exhibit
F
attached
hereto (the "Irrevocable
Transfer Agent Instructions").
Except as otherwise required in the Transaction Documents, the Company warrants
that no instruction other than the Irrevocable Transfer Agent Instructions
referred to in this Section 5(b), and stop transfer instructions to give
effect
to Section 2(g) hereof, will be given by the Company to its transfer agent
relating to the Securities, and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the other Transaction Documents. If a Buyer
effects a sale, assignment or transfer of the Securities in accordance with
Section 2(f), the Company shall permit the transfer and shall promptly instruct
its transfer agent to issue one or more certificates or credit shares to
the
applicable balance accounts at DTC in such name and in such denominations
as
specified by such Buyer to effect such sale, transfer or assignment. In the
event that such sale, assignment or transfer involves Conversion Shares or
Warrant Shares sold, assigned or transferred pursuant to an effective
registration statement or pursuant to Rule 144, the transfer agent shall
issue
such Securities to the Buyer, assignee or transferee, as the case may be,
without any restrictive legend. The Company acknowledges that a breach by
it of
its obligations hereunder will cause irreparable harm to a Buyer.
Accordingly, the Company acknowledges that the remedy at law for a breach
of its obligations under this Section 5(b) will be inadequate and agrees,
in the
event of a breach or threatened breach by the Company of the provisions of
this
Section 5(b), that a Buyer shall be entitled, in addition to all other available
remedies, to an order and/or injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic
loss
and without any bond or other security being required.
6. CONDITIONS
TO THE COMPANY'S OBLIGATION TO SELL.
(a) The
obligation of the Company hereunder to issue and sell the Notes and the related
Warrants to each Buyer and to otherwise cause the transactions contemplated
by
this Agreement to be consummated is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions, 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 by providing each Buyer with prior written
notice thereof:
(i) Such
Buyer and each other Buyer shall have executed each of the Transaction Documents
to which it is a party and delivered the same to the Company.
(ii) Such
Buyer and each other Buyer shall have delivered to the Company the Purchase
Price (less, in the case of GCM, any amounts withheld in satisfaction of
the
Company's obligations pursuant to Section 4(g)(ii)) for the Notes and the
related Warrants being purchased by such
Buyer at the Closing by wire transfer of immediately available funds pursuant
to
the wire instructions provided by the Company.
29
(iii) The
representations and warranties of each Buyer shall be true and correct with
respect to those matters that are qualified by material adverse effect or
by any
other materiality standard and shall be true and correct in all material
respects with respect to all matters that are not so qualified, in each case
as
of the date hereof and as of the Closing Date as though made at that time
(except to the extent any such representation or warranty expressly speaks
as of
an earlier date, in which case such representation and warranty shall be
true
and correct or true and correct in all material respects, as applicable,
as of
such earlier date), and each Buyer shall have performed, satisfied and complied
in all material respects with the covenants, agreements and conditions required
by the Transaction Documents to be performed, satisfied or complied with
by such
Buyer at or prior to the Closing Date.
(iv) The
Company shall have received from each Buyer a certificate executed by an
executive officer of such Buyer, in his or her capacity as such, confirming
that
the conditions set forth in Section 7(a) have been satisfied.
(v) The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Securities.
(vi) No
temporary restraining order, preliminary or permanent injunction or other
order
preventing the consummation of the transaction contemplated by this Agreement
shall have been issued by any court of competent jurisdiction or other
government body and remain in effect, and there shall not be any legal
requirement enacted or deemed applicable to the transactions contemplated
hereby
that makes the consummation of such transactions illegal.
(vii) Each
Buyer shall have delivered to the Company such other documents relating to
the
transactions contemplated by this Agreement as the Company or its counsel
may
reasonably request.
(b) The
obligation of the Company hereunder to issue and sell the Notes and the related
Warrants to each Buyer and to otherwise cause the transactions contemplated
by
this Agreement to be consummated at the Second Closing is subject to the
satisfaction, at or before the date of the Second Closing (the “Second
Closing Date”),
of
each of the following conditions, 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 by providing each Buyer with prior written notice
thereof:
(i) Such
Buyer and each other Buyer shall have executed each of the Transaction Documents
to which it is a party and delivered the same to the Company.
30
(ii) Such
Buyer and each other Buyer shall have delivered to the Company the Purchase
Price for the Notes and the related Warrants being purchased by such Buyer
at
the Closing by wire transfer of immediately available funds pursuant to the
wire
instructions provided by the Company.
(iii) The
representations and warranties of each Buyer shall be true and correct with
respect to those matters that are qualified by material adverse effect or
by any
other materiality standard and shall be true and correct in all material
respects with respect to all matters that are not so qualified, in each case
as
of the date hereof and as of the Second Closing Date as though made at that
time
(except to the extent any such representation or warranty expressly speaks
as of
an earlier date, in which case such representation and warranty shall be
true
and correct or true and correct in all material respects, as applicable,
as of
such earlier date), and each Buyer shall have performed, satisfied and complied
in all material respects with the covenants, agreements and conditions required
by the Transaction Documents to be performed, satisfied or complied with
by such
Buyer at or prior to the Second Closing Date.
(iv) The
Company shall have received from each Buyer a certificate executed by an
executive officer of such Buyer, in his or her capacity as such, confirming
that
the conditions set forth in Section 7(b) have been satisfied.
(v) The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Securities.
(vi) No
temporary restraining order, preliminary or permanent injunction or other
order
preventing the consummation of the transaction contemplated by this Agreement
shall have been issued by any court of competent jurisdiction or other
government body and remain in effect, and there shall not be any legal
requirement enacted or deemed applicable to the transactions contemplated
hereby
that makes the consummation of such transactions illegal.
(vii) Each
Buyer shall have delivered to the Company such other documents relating to
the
transactions contemplated by this Agreement as the Company or its counsel
may
reasonably request.
7. CONDITIONS
TO EACH BUYER'S OBLIGATION TO PURCHASE.
(a) The
obligation of each Buyer hereunder to purchase the Notes and the related
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 each Buyer's sole benefit and may be waived by such Buyer at any time
in its
sole discretion by providing the Company with prior written notice
thereof:
(i) The
Company shall have executed and delivered to such Buyer (A) each of the
Transaction Documents, (B) the Notes (in such principal amounts as such Buyer
shall request) being purchased by such Buyer at the Closing pursuant to this
Agreement, and (C) the Warrants (in such amounts as such Buyer shall
request) being purchased by such Buyer at the Closing pursuant to this
Agreement.
31
(ii) Such
Buyer shall have received the opinion of Barack Xxxxxxxxxx Xxxxxxxxxx Xxxxxxx
& Xxxxxxxxx LLP, the Company's outside counsel, dated as of the Closing
Date, in substantially the form of Exhibit
G
attached
hereto and a letter stating that the Company is in good standing with its
attorneys.
(iii) The
Company shall have delivered to such Buyer a true copy of the Irrevocable
Transfer Agent Instructions, in the form of Exhibit F
attached
hereto, which instructions shall have been delivered to and acknowledged
in
writing by the Company's transfer agent.
(iv) The
Company shall have delivered to such Buyer a true copy of certificate evidencing
the formation and good standing of the Company and each of its Subsidiaries
in
such entity's jurisdiction of formation issued by the Secretary of State
(or
comparable office) of such jurisdiction, as of a date within 10 days of the
Closing Date.
(vi) The
Company shall have delivered to such Buyer a true copy of certificate evidencing
the Company's qualification as a foreign corporation and good standing issued
by
the Secretary of State (or comparable office) of each jurisdiction in which
the
Company conducts business, as of a date within 10 days of the Closing
Date.
(vii) The
Company shall have delivered to such Buyer a certificate, executed by the
Chief
Executive Officer of the Company and dated as of the Closing Date, as to
(i) the
resolutions consistent with Section 3(b) as adopted by the Company's Board
of
Directors in a form reasonably acceptable to such Buyer, (ii) the Articles
of
Incorporation and (iii) the Bylaws, each as in effect at the Closing, in
the
form attached hereto as Exhibit H.
(viii) The
representations and warranties of the Company shall be true and correct in
all
material respects (other than representations and warranties that are already
qualified by materiality or Material Adverse Effect which shall be true and
correct in all 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 Company shall have performed, satisfied and
complied in all respects with the covenants, agreements and conditions required
by the Transaction Documents to be performed, satisfied or complied with
by the
Company at or prior to the Closing Date. Such Buyer shall have received a
certificate, 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 Buyer.
32
(ix) The
Company shall have delivered to such Buyer a letter from the Company's transfer
agent certifying the number of shares of Common Stock outstanding as of a
date
within five days of the Closing Date.
(x) The
Common Stock (I) shall be designated for quotation on the Principal Market
and
(II) shall not have been suspended, as of the Closing Date, by the SEC or
the
Principal Market from quotation on the Principal Market nor shall suspension
by
the SEC or the Principal Market have been threatened in writing, as of the
Closing Date, by either the SEC or the Principal Market.
(xi) The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Securities.
(xiii) The
Company shall have provided to the Buyer an acknowledgement, to the satisfaction
of the Buyer, from the Company’s certified public accountant as to its ability
to provide all consents required in order to file a registration statement
in
connection with this transaction and that the Company is in good standing
with
its auditors.
(xiv) The
Company shall have delivered to such Buyer such other documents relating
to the
transactions contemplated by this Agreement as such Buyer or its counsel
may
reasonably request including but not limited to the Lock-Up Agreements with
Xxxxxxx Xxxxxxxx, Xxxxxxx Xxxxxxxx and Chicago Investments, Inc. (the
“Lock-up
Agreements”)
and
the Joint Written Instructions as defined in the Escrow Agreement.
(xv) As
a
condition to closing, on the Closing Date, the Company shall deliver or cause
to
be delivered to each Buyer written voting agreements duly executed by Xxxxxxx
Xxxxxxxx, Xxxxxxx Xxxxxxxx and Chicago Investments, Inc. and such additional
shareholders to vote all Common Stock over which such Persons have voting
control as of the record date for the meeting of shareholders of the Company
in
favor of the Share Increase Authorization and the Reverse Stock Split, amounting
to, in the aggregate, at least 50% of the issued and outstanding Common Stock
as
of such record date.
33
(b) The
obligation of each Buyer hereunder to purchase the Notes and the related
Warrants at the Second Closing is subject to the satisfaction, at or before
the
Second Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer
at
any time in its sole discretion by providing the Company with prior written
notice thereof:
(i) The
Company shall have executed and delivered to such Buyer (A) each of the
Transaction Documents, (B) the Notes (in such principal amounts as such Buyer
shall request) being purchased by such Buyer at the Closing pursuant to this
Agreement, and (C) the Warrants (in such amounts as such Buyer shall
request) being purchased by such Buyer at the Closing pursuant to this
Agreement.
(ii) Such
Buyer shall have received the opinion of Barack Xxxxxxxxxx Xxxxxxxxxx Xxxxxxx
& Xxxxxxxxx LLP, the Company's outside counsel, dated as of the Second
Closing Date, in substantially the form of Exhibit
G
attached
hereto and a letter stating that the Company is in good standing with its
attorneys.
(iii) The
Company shall have delivered to such Buyer a true copy of the Irrevocable
Transfer Agent Instructions, in the form of Exhibit F
attached
hereto, which instructions shall have been delivered to and acknowledged
in
writing by the Company's transfer agent.
(iv) The
Company shall have delivered to such Buyer a true copy of certificate evidencing
the formation and good standing of the Company and each of its Subsidiaries
in
such entity's jurisdiction of formation issued by the Secretary of State
(or
comparable office) of such jurisdiction, as of a date within 10 days of the
Second Closing Date.
(v) The
Company shall have delivered to such Buyer a certificate, executed by the
Chief
Executive Officer of the Company and dated as of the Second Closing Date,
as to
(i) the resolutions consistent with Section 3(b) as adopted by the Company's
Board of Directors in a form reasonably acceptable to such Buyer, (ii) the
Article of Incorporation and (iii) the Bylaws, each as in effect at the Closing,
in the form attached hereto as Exhibit H
.
(vi) The
representations and warranties of the Company shall be true and correct in
all
material respects (other than representations and warranties that are already
qualified by materiality or Material Adverse Effect which shall be true and
correct in all 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 Company shall have performed, satisfied and
complied in all respects with the covenants, agreements and conditions required
by the Transaction Documents to be performed, satisfied or complied with
by the
Company at or prior to the Second Closing Date. Such Buyer shall have received
a
certificate, executed by the Chief Executive Officer of the Company, dated
as of
the Second Closing Date, to the foregoing effect and as to such other matters
as
may be reasonably requested by such Buyer.
34
(vii) The
Common Stock (I) shall be designated for quotation on the Principal Market
and
(II) shall not have been suspended, as of the Second Closing Date, by the
SEC or
the Principal Market from quotation on the Principal Market nor shall suspension
by the SEC or the Principal Market have been threatened in writing, as of
the
Second Closing Date, by either the SEC or the Principal Market.
(viii) The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Securities.
(ix) The
Company shall have provided to the Buyer an acknowledgement, to the satisfaction
of the Buyer, from the Company’s certified public accountant as to its ability
to provide all consents required in order to file a registration statement
in
connection with this transaction and that the Company is in good standing
with
its auditors.
(x) The
Company shall have delivered to such Buyer such other documents relating
to the
transactions contemplated by this Agreement as such Buyer or its counsel
may
reasonably request including but not limited to the Lock-Up
Agreements.
This
Agreement may be terminated prior to the Closing Date:
(i)
By
mutual
written consent of the Company and each Buyer.
(ii) By
either
the Company or any Buyer if the Closing Date shall not have occurred on or
prior
to February 15, 2007 (the "End
Date").
(iii) By
the
Company upon a breach of any representation, warranty, covenant or agreement
on
the part of any Buyer set forth in this Agreement such that, if such breach
were
occurring or continuing on the Closing Date, the conditions set forth in
Section
6(iii) would not be satisfied and which breach cannot be or has not been
cured
prior to the earlier to occur of (i) two (2) days following written notice
thereof to the breaching party or (ii) the End Date.
(iv) By
any
Buyer upon a breach of any representation, warranty, covenant or agreement
on
the part of the Company set forth in this Agreement such that, if such breach
were occurring or continuing on the Closing Date, the conditions set forth
in
Section 7(vi) would not be satisfied and which breach cannot be or has not
been
cured prior to the earlier to occur of (i) two (2) days following written
notice
thereof to the Company or (ii) the End Date.
If
this
Agreement is terminated pursuant to this Section 8, the Company shall remain
obligated to reimburse the non-breaching Buyers for the expenses described
in
Section 4(g) above.
35
9. MISCELLANEOUS.
(a) Governing
Law; Jurisdiction; Jury Trial.
All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of
the
State of New York, without giving effect to any choice of law or conflict
of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than
the
State of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in The City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding
is
improper. Each party hereby irrevocably waives personal service of process
and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such 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 HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
(b) Counterparts.
This Agreement may be executed in two or more identical counterparts, all
of which 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; provided that a facsimile signature shall be considered due
execution and shall be binding upon the signatory thereto with the same force
and effect as if the signature were an original, not a facsimile
signature.
(c) Headings.
The headings of this Agreement are for convenience of reference and shall
not form part of, or affect the interpretation of, this Agreement.
36
(e) Entire
Agreement; Amendments.
This Agreement and the other Transaction Documents supersede all other
prior oral or written agreements between the Buyers, the Company, their
Affiliates and Persons acting on their behalf with respect to the matters
discussed herein, and this Agreement, the other Transaction Documents and
the
instruments referenced herein and therein 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 any
Buyer
makes any representation, warranty, covenant or undertaking with respect
to such
matters. No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the Required Holders, and
any
amendment to this Agreement made in conformity with the provisions of this
Section 9(e) shall be binding on all Buyers and holders of securities, as
applicable. No provision hereof may be waived other than by an instrument
in writing signed by the party against whom enforcement is sought. No such
amendment shall be effective to the extent that it applies to less than all
of
the holders of the applicable Securities then outstanding. No
consideration shall be offered or paid to any Person to amend or consent
to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration also is offered to all of the parties to the
Transaction Documents, holders of Notes or holders of the Warrants, as the
case
may be. The Company has not, directly or indirectly, made any agreements
with any Buyers relating to the terms or conditions of the transactions
contemplated by the Transaction Documents except as set forth in the Transaction
Documents.
(f) Notices.
Any
notices, consents, waivers or other communications required or permitted
to be
given under the terms of this Agreement must be in writing and will be deemed
to
have been delivered: (i) upon receipt, when delivered personally; (ii)
upon receipt, when sent by facsimile (provided confirmation of transmission
is
mechanically or electronically generated and kept on file by the sending
party);
or (iii) one Business Day after deposit with an overnight courier service,
in
each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If
to the
Company:
Nesco
Industries, Inc.
000
Xxxxxxx Xxx., Xxxxx 0000
Xxx
Xxxx,
XX 00000
Telephone:
(000) 000-0000
Facsimile: (000)
000-0000
Attention: Xxxxxxx
Xxxxxxxx, President
If
before
June 30, 2007:
Barack
Xxxxxxxxxx Xxxxxxxxxx Xxxxxxx
&
Xxxxxxxxx LLP
000
X.
Xxxxxx, Xxxxx 0000
Xxxxxxx,
Xxxxxxxx 00000
Telephone:
000-000-0000
Facsimile: 000-000-0000
Attention: Xxxxx
X.
Xxxxxxxxx
00
If
after
June 30, 2007:
Barack
Xxxxxxxxxx Xxxxxxxxxx Xxxxxxx
&
Xxxxxxxxx LLP
000
X.
Xxxxxxx, Xxxxx 0000
Xxxxxxx,
Xxxxxxxx 00000
Telephone:
000-000-0000
Facsimile:
000-000-0000
Attention:
Xxxxx
X.
Xxxxxxxxx
If
to the
Transfer Agent: Interwest
Transfer Co. Inc.
0000
Xxxxxx Xxxxxxxx Xx # 000
Xxxxxxxx,
XX
Telephone: 000-000-0000
Attention:
Xxxxx
Xxxxx
If
to a
Buyer, to its address and facsimile number set forth on the Schedule of Buyers,
with copies to such Buyer's representatives as set forth on the Schedule
of
Buyers, with a copy (for informational purposes only) to:
Gottbetter
& Partners, LLP
000
Xxxxxxx Xxxxxx, 00xx
Xxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Telephone: (000)
000-0000
Facsimile: (000)
000-0000
Attention:
Xxxxx
X.
Xxxxxxx, Esq.
or
to
such other address and/or facsimile number and/or to the attention of such
other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated
by
the sender's facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C)
provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above,
respectively.
(g) Successors
and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns, including any purchasers
of
the Notes or the Warrants. The Company shall not assign this Agreement or
any
rights or obligations hereunder without the prior written consent of the
Required Holders (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and
the
Warrants). A Buyer may assign some or all of its rights hereunder without
the
consent of the Company, in which event such assignee shall be deemed to be
a
Buyer hereunder with respect to such assigned rights; provided that such
assignee agrees in writing to be bound by all of the provisions contained
herein.
(h) No
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.
38
(i) Survival.
Unless
this Agreement is terminated under Section 8, the representations and warranties
of the Company and the Buyers contained in Sections 2 and 3 and the agreements
and the covenants set forth in Sections 4, 5 and 9 shall survive (i) for
a
period of thirty (30) months, for all such representations, warranties,
covenants and agreements relating to obligations of the Company or the Buyers
with respect to the Warrants or the Warrant Shares and (ii) until the Trigger
Date for all other representations, warranties, covenants and agreements.
Each
Buyer shall be responsible for its own representations, warranties, agreements
and covenants hereunder.
(j) 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 any 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.
(k) Indemnification.
In consideration of each Buyer's execution and delivery of the Transaction
Documents and acquiring the Securities thereunder and in addition to all
of the
Company's other obligations under the Transaction Documents, the Company
shall
defend, protect, indemnify and hold harmless each Buyer and all of their
stockholders, partners, members, officers, directors , employees and direct
or
indirect investors and any of the foregoing Persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees")
from
and against any and all actions, causes of action, suits, claims, losses,
costs,
penalties, fees, liabilities and damages, and expenses in connection therewith,
and including reasonable attorneys' fees and disbursements (the "Indemnified
Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating
to (a)
any misrepresentation or breach
of
any representation or warranty made by the Company in the Transaction Documents
or any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby or (c) any cause of action, suit or claim
brought
or made against such Indemnitee by a third party (including for these purposes
a
derivative action brought on behalf of the Company) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of
the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Securities, (iii) any disclosure made by such Buyer pursuant to Section
4(i), or (iv) the status of such Buyer or holder of the Securities as an
investor in the Company pursuant to the transactions contemplated by the
Transaction Documents. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise
set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 9(k) shall be the same as those set forth
in
Section 6 of the Registration Rights Agreement.
39
(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.
Each Buyer and each holder of the Securities shall have all rights and
remedies set forth in the Transaction Documents and all rights and remedies
which such holders have been granted at any time under any other agreement
or
contract and all of the rights which such holders have under any law. Any
Person
having any rights under any provision of this Agreement shall be entitled
to
enforce such rights specifically (without posting a bond or other security),
to
recover damages by reason of any breach of any provision of this Agreement
and
to exercise all other rights granted by law. Furthermore, the Company recognizes
that in the event that it fails to perform, observe, or discharge any or
all of
its obligations under the Transaction Documents, any remedy at law may prove
to
be inadequate relief to the Buyers. The Company therefore agrees that the
Buyers
shall be entitled to seek temporary and permanent injunctive relief in any
such
case without the necessity of proving actual damages and without posting
a bond
or other security.
(n) Rescission
and Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without limiting
any
similar provisions of) the Transaction Documents, whenever any Buyer 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 Buyer 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.
(o) Payment
Set Aside.
To the extent that the Company makes a payment or payments to the Buyers
hereunder or pursuant to any of the other Transaction Documents or the Buyers
enforce or exercise their rights hereunder or 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, foreign, 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.
(p) Independent
Nature of Buyers' Obligations and Rights.
The obligations of each Buyer under any Transaction Document are several
and not joint with the obligations of any other Buyer, and no Buyer shall
be
responsible in any way for the performance of the obligations of any other
Buyer
under any Transaction Document. Nothing contained herein or in any other
Transaction Document, and no action taken by any Buyer pursuant hereto or
thereto, shall be deemed to constitute the Buyers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Buyers are in any way acting in concert or as a group
with
respect to such obligations or the transactions contemplated by the Transaction
Documents and the Company acknowledges that to its knowledge the Buyers are
not
acting in concert or as a group, and the Company will not assert any such
claim,
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Buyer confirms that it has independently
participated in the negotiation of the transaction contemplated hereby with
the
advice of its own counsel and advisors. Each Buyer shall be entitled to
independently protect and enforce its rights, including, without limitation,
the
rights arising out of this Agreement or out of any other Transaction Documents,
and it shall not be necessary for any other Buyer to be joined as an additional
party in any proceeding for such purpose.
40
(q) Litigation
Expenses.
In the
event of any judgment of a court or arbitration body on any dispute hereunder
or
in connection herewith or with any transaction contemplated hereby or discussed
herein that is not appealed within thirty (30) days of such judgment, the
prevailing party in such judgment may recover its reasonable expenses in
obtaining such judgment (including without limitation amounts paid in
settlement, interest, court costs, costs of investigators, fees and expenses
of
attorneys, accountants, financial advisors and other experts, and other expenses
of litigation), provided that if such prevailing party prevails on several
motions in the judgment and does not prevail on others, it shall be in the
discretion of a court or arbitration body to determine what percentage of
such
reasonable expenses the prevailing party is entitled to receive.
[Signature
Page Follows]
41
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
COMPANY: NESCO
INDUSTRIES, INC. |
||
| |
|
|
| By: | /s/ Xxxxxxx Xxxxxxxx | |
|
Name: Xxxxxxx
Xxxxxxxx
Title:
President
|
||
42
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
BUYERS:
|
||
|
GOTTBETTER
CAPITAL MASTER, LTD.
|
||
|
By:
/s/
Xxxx X.
Xxxxxxxxxx
|
||
|
Name:
Xxxx
X. Xxxxxxxxxx
|
||
|
Title:
Director
|
||
|
|
||
|
BRIDGEPOINTE
MASTER FUND LTD.
|
||
|
By:
/s/
Xxxx X.
Xxxxxx
|
||
|
Name: Xxxx
X. Xxxxxx
|
||
|
Title:
Director
|
||
|
HARBORVIEW
MASTER FUND LP
|
||
|
By:
/s/
Navigator Management Ltd.
|
||
|
Name:
Navigator
Management Ltd.
|
||
|
Title:
Authorized
Signatory
|
||
|
X.
XXXXXXXX FUND LP
|
||
|
By:
/s/
Xxxxx
Xxxxxxx
|
||
|
Name:
Xxxxx
Xxxxxxx
|
||
|
Title:
Managing Member
|
||
|
XXXX
NOVEMBER
|
||
|
By:
/s/
Xxxx
November
|
||
|
Name: Xxxx
November
|
||
|
XXXXX
BLOCK
|
||
|
By: /s/
Xxxxx
Block
|
||
|
Name: Xxxxx
Block
|
||
43
SCHEDULE
OF BUYERS
|
(1)
|
|
(2)
|
|
(3)
|
|
(4)
|
|
(5)
|
|
(6)
|
|
Buyer
|
|
Address
and
Facsimile
Number
|
|
Aggregate
Principal
of Note
|
|
Aggregate
Number
of
Warrant
Shares
|
|
Purchase
Price
|
|
Legal
Representative’s
Address
and
Facsimile
Number
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gottbetter
Capital Master, Ltd.
|
000
Xxxxxxx Xxxxxx
00xx
Xxxxx
Xxx
Xxxx, XX 00000
Facsimile:
212.400.6999
|
$1,075,268.80
|
114,758,912
|
$1,005,00
|
Xxxxx
X. Xxxxxxx, Esq.
Xxxxxxxxxx
& Partners, LLP
000
Xxxxxxx Xxxxxx
00xx
Xxxxx
Xxx
Xxxx, XX 00000
Facsimile:
212.400.6901
|
|||||
|
BridgePointe
Master Fund Ltd.
|
0000
Xxxxxxxxx Xxxxxxx
Xxxxx
000
Xxxxxxxxxx,
XX 00000
Facsimile:
770.777.5844
|
$1,500,000
|
161,637,931
|
$1,395,000
|
P.
Xxxxxxxx Xxxxxxx, Esq.
Roswell
Capital Partners, LLC
0000
Xxxxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxxxx,
XX 00000
Facsimile:
000-000-0000
|
|||||
|
Harborview
Master Fund LP
|
Harbor
House
Waterfront
Drive
Road
Town, Tortola
British
Virgin Islands
|
$806,451.61
|
86,902,113
|
$750,000
|
Xxxxxx
X. Xxxxxxx
Xxxxxxx
& Xxxxxx LLP
00
Xxxxxxxx, Xxxxx 000
Xxx
Xxxx, XX 00000
Fax:
(000) 000-0000
|
|||||
|
X.
Xxxxxxxx Fund LP
|
000
Xxxxx Xxxxxx
00xx
Xxxxx
Xxx
Xxxx, XX 00000
|
$268,817.20
|
28,967,371
|
$250,000
|
N/A
|
|||||
|
Xxxx
November
|
00-0
Xxxxxxxx Xxxx
Xxxxxxxxxxx
Xxxxx
Xxx
Xxxx, XX 00000
|
$268,817.20
|
28,967,371
|
$250,000
|
X/X
|
|||||
|
Xxxxx
Xxxxx
|
Xxx
Xxxxxxxx Xxxxxx
0000
Xxxxxx Xxxxxx
0xx
Xxxxx
Xxxxxxxxxxxx,
XX 00000
|
$537,634.41
|
57,934,742
|
$500,000
|
N/A
|
|||||
|
Total:
|
$4,456,989.22
|
479,168,440
|
$4,150,000
|
44
|
EXHIBITS
|
|
|
Exhibit
A
|
Form
of Notes
|
|
Exhibit
B
|
Form
of Warrants
|
|
Exhibit
C
|
Registration
Rights Agreement
|
|
Exhibit
D
|
Form
of Security Agreement
|
|
Exhibit
E
|
Guaranty
|
|
Exhibit
F
|
Irrevocable
Transfer Agent Instructions
|
|
Exhibit
G
|
Form
of Opinion Letter
|
|
Exhibit
H
|
Form
of Resolutions, Articles of Incorporation and By-Laws
|
|
SCHEDULES
|
|
|
Schedule
3(a)
|
Subsidiaries
|
|
Schedule
3(b)
|
Authorization,
Enforcement, Validity
|
|
Schedule
3(d)
|
No
Conflicts
|
|
Schedule
3(e)
|
Consents
|
|
Schedule
3(g)
|
Consultant
|
|
Schedule
3(k)
|
SEC
Documents; Financial Statements
|
|
Schedule
3(l)
|
Absence
of Certain Changes
|
|
Schedule
3(n)
|
Conduct
of Business; Regulatory Permits
|
|
Schedule
3(q)
|
Transactions
with Affiliates
|
|
Schedule
3(r)
|
Equity
Capitalization
|
|
Schedule
3(s)
|
Indebtedness
and Other Contracts
|
|
Schedule
3(t)
|
Absence
of Litigation
|
|
Schedule
3(v)
|
Employee
Relations
|
|
Schedule
3(w)
|
Title
|
|
Schedule
3(x)
|
Intellectual
Property Rights
|
|
Schedule
3(bb)
|
Tax
Status
|
|
Schedule
3(ee)
|
Ranking
of Notes
|
|
Schedule
4(d)
|
Use
of Proceeds
|
|
Schedule
4(o)
|
Additional
Issuances of Securities
|
|
Schedule
4(p)
|
Additional
Registration Statements
|
45
