EXHIBIT 99.1
EXECUTION VERSION
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
December 23, 2005, among MicroIslet, Inc., a Nevada corporation (the "Company"),
and the purchasers identified on the signature pages hereto (each, a "Purchaser"
and collectively, the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act (as defined below)
and Rule 506 promulgated thereunder, the Company desires to issue and sell to
the Purchasers, and the Purchasers, severally and not jointly, desire to
purchase from the Company certain securities of the Company, as more fully
described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms shall have
the meanings indicated in this SECTION 1.1:
"Action" means any action, suit, inquiry, notice of violation,
proceeding (including any partial proceeding such as a deposition) or
investigation pending or threatened in writing against or affecting the Company,
any Subsidiary or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency, regulatory authority
(federal, state, county, local or foreign), stock market, stock exchange or
trading facility.
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed under Rule
144. With respect to a Purchaser, any investment fund or managed account that is
managed on a discretionary basis by the same investment manager as such
Purchaser will be deemed to be an Affiliate of such Purchaser.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.
"Change of Control" means the consummation, in one or a series
of related transactions, of a "Rule 13e-3 transaction" as defined in Rule 13e-3
under the Exchange Act with respect to the Company.
"Closing" means the closing of the purchase and sale of the
Shares and Warrants pursuant to SECTION 2.
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"Closing Date" means the date of the Closing.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, $.001
par value per share, and any securities into which such common stock may
hereafter be reclassified.
"Common Stock Equivalents" means any securities of the Company
or any Subsidiary which entitle the holder thereof to acquire Common Stock at
any time, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock or other securities that entitle the holder to receive, directly or
indirectly, Common Stock.
"Company Counsel" means Sheppard, Mullin, Xxxxxxx & Xxxxxxx
LLP.
"Eligible Market" means any of the New York Stock Exchange,
the American Stock Exchange, the NASDAQ National Market or the NASDAQ Capital
Market.
"Effective Date" means the date that the Registration
Statement is first declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exempt Issuance" means of any of the following: (i) the
issuance of securities upon the exercise or conversion of any Common Stock
Equivalents issued by the Company prior to the date of this Agreement (or to any
amendments or modifications thereof), (ii) the grant of options or the issuance
of additional securities under any duly authorized Company stock option,
restricted stock plan or stock purchase plan, including any inducement grant to
a new employee, officer or director, (iii) the issuance of securities pursuant
to acquisitions or other strategic transactions (including a licensing
transaction or joint venture), the primary purpose of which is not to raise
capital, (iv) the issuance of securities in connection with any equipment lease
or other asset-based lending transaction, (v) the issuance of securities in
connection with a bona fide settlement of a dispute or claim, or (vi) the
issuance of securities upon the conversion or exercise of any Common Stock
Equivalent; provided, that the issuance of the Common Stock Equivalent was not
in violation of this Agreement.
"Investment Amount" means, with respect to each Purchaser, the
investment amount set forth under such Purchaser's name on the signature pages
hereof next to the label "Investment Amount."
"Lien" means any lien, charge, encumbrance, security interest,
right of first refusal or other restrictions of any kind, but excluding any
restriction imposed under applicable securities laws.
"Person" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or subdivision
thereof) or other entity of any kind.
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"Per Unit Purchase Price" equals $1.50.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Qualified Institutional Buyer" means a "qualified
institutional buyer" as such term is defined in Rule 144A promulgated under the
Securities Act.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement and
covering the resale by the Purchasers of the Shares and the Warrant Shares.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Agreement, among the Company and the
Purchasers, in the form of EXHIBIT B hereto.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities" means the Shares, the Warrants and the Warrant
Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of Common Stock issued or issuable
to the Purchasers at the Closing pursuant to this Agreement.
"Strategic Transaction" means a transaction or relationship in
which the Company issues shares of Common Stock or Common Stock Equivalents (i)
"Subsidiary" means any subsidiary of the Company that would be required to be
listed in an exhibit to the Company's Annual Report on Form 10-KSB covering the
period in which the date of this Agreement falls.
"Trading Day" means (a) any day on which the Common Stock is
listed or quoted and traded on its primary Trading Market, or (b) if the Common
Stock is not then listed or quoted and traded on its primary Trading Market,
then a day on which trading occurs on an Eligible Market (or any successor
thereto), or (c) if trading ceases to occur on an Eligible Market (or any
successor thereto), any Business Day.
"Trading Market" means whichever of the Eligible Markets on
which the Common Stock is listed or quoted for trading on the date in question.
"Transaction Documents" means this Agreement, the Warrants,
the Registration Rights Agreement, the Transfer Agent Instructions and any other
documents or agreements executed in connection with the transactions
contemplated hereunder.
"Transfer Agent Instructions" means the Company's Transfer
Agent Instructions in the form of EXHIBIT C.
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"Warrant" means the Common Stock purchase warrants, each in
the form of EXHIBIT A, which are issuable to the Purchasers at the Closing.
"Warrant Shares" means, collectively, the shares of Common
Stock issuable upon exercise of each Warrant.
ARTICLE II.
PURCHASE AND SALE
2.1 CLOSING. Subject to the terms and conditions set forth in this
Agreement, at the Closing the Company shall issue and sell to each Purchaser,
and each Purchaser shall, severally and not jointly, purchase from the Company,
the Shares and the Warrants representing such Purchaser's Investment Amount. The
Closing shall take place at the offices of Sheppard, Mullin, Xxxxxxx & Xxxxxxx
LLP, 00000 Xxxx Xxxxx Xxxxx, Xxxxx 000, Xxx Xxxxx, Xxxxxxxxxx 00000 on the date
this Agreement is executed and delivered by the parties or at such other
location or time as the parties may agree.
2.2 CLOSING DELIVERIES. (a) At the Closing, the Company shall deliver
or cause to be delivered to each Purchaser the following:
(i) a certificate, registered in the name of such Purchaser;
evidencing the number of Shares as set forth under such Purchaser's name on the
signature pages hereof next to the label "Shares";
(ii) a Warrant, registered in the name of such Purchaser,
pursuant to which such Purchaser shall have the right to acquire the number of
shares of Common Stock as set forth under such Purchaser's name on the signature
pages hereof next to the label "Warrant Shares";
(iii) the legal opinion of Company Counsel, in agreed form,
addressed to the Purchasers;
(iv) the Registration Rights Agreement duly executed by the
Company; and
(v) the Transfer Agent Instructions executed by the Company
and delivered to and acknowledged by the Company's transfer agent.
(b) At the Closing, each Purchaser shall deliver or cause to
be delivered to the Company the following:
(i) such Purchaser's Investment Amount, in United States
dollars and in immediately available funds, by wire transfer to an account
designated in writing by the Company for such purpose; and
(ii) the Registration Rights Agreement duly executed by such
Purchaser.
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2.3 CLOSING CONDITIONS.
(a) The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met or waived by the
Company:
(i) the accuracy in all material respects when made and on the
Closing Date of the representations and warranties of each Purchaser made
herein;
(ii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior to the Closing Date shall have
been performed;
(iii) the delivery by the Purchasers of the items set forth in
SECTION 2.2(b) of this Agreement;
(iv) The American Stock Exchange shall have approved the
listing of the Shares and Warrant Shares.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being met or
waived by the Purchasers:
(i) the accuracy in all material respects when made and on the
Closing Date of the representations and warranties of the Company contained
herein;
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date shall have been
performed;
(iii) the delivery by the Company of the items set forth in
SECTION 2.2(A) of this Agreement;
(iv) there shall have been no Material Adverse Effect (as
hereinafter defined) with respect to the Company since the date hereof; and
(v) from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any time prior to
the Closing Date, trading in securities generally as reported by Bloomberg
Financial Markets shall not have been suspended or limited, or minimum prices
shall not have been established on securities whose trades are reported by such
service, or on any Trading Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities nor shall
there have occurred any declaration of war by the United States or other
national or international calamity, which, in each case, in the reasonable
judgment of each Purchaser, makes it impracticable or inadvisable to purchase
the Shares at the Closing.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
The Company makes the representations and warranties to the Purchasers
set forth in this Article III, subject to information set forth in the
Disclosure Materials (as defined in SECTION 3.1(G)). The disclosure set forth in
the Disclosure Materials shall qualify each section in this Article III where
such information is applicable.
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
makes the following representations and warranties to each Purchaser:
(a) ORGANIZATION AND QUALIFICATION. Each of the Company and each
Subsidiary is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite corporate
power and authority to own and use its properties and assets and to carry on its
business as currently conducted. Each of the Company and each Subsidiary is duly
qualified to conduct business and is in good standing as a foreign corporation
or other entity in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, have or reasonably be expected to
result in (i) an adverse effect on the legality, validity or enforceability of
any Transaction Document, (ii) a material and adverse effect on the results of
operations, assets, business or condition (financial or otherwise) of the
Company and the Subsidiaries, taken as a whole, or (iii) an adverse impairment
to the Company's ability to perform on a timely basis its obligations under any
Transaction Document (any of (i), (ii) or (iii), a "Material Adverse Effect").
Neither the Company nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of incorporation, by-laws
or other organizational or charter document. All direct and indirect
subsidiaries of the Company are set forth in the Disclosure Materials. Except as
set forth in the Disclosure Materials, the Company owns, directly or indirectly,
all of the capital stock or other equity interests of each Subsidiary free and
clear of any Liens, and all the issued and outstanding shares of capital stock
of each Subsidiary are validly issued and are fully paid, non-assessable and
free of preemptive and similar rights to subscribe for or purchase securities.
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary corporate action
on the part of the Company and no further action is required by the Company in
connection therewith. Each Transaction Document has been (or upon delivery will
have been) duly executed by the Company and, when delivered in accordance with
the terms hereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles.
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(c) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other organizational or charter documents,
or (ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) to which the
Company or any Subsidiary is a party or by which any property or asset of the
Company or any Subsidiary is bound or affected, or (iii) assuming the accuracy
of Purchasers' representations and warranties and compliance by the Purchasers
of their respective covenants as set forth in this Agreement, result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company or
a Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such
as could not, individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect.
(d) FILINGS, CONSENTS AND APPROVALS. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than (i) the filing with the Commission of one or more Registration
Statements in accordance with the requirements Registration Rights Agreement and
(ii) the application(s) to the American Stock Exchange for the listing of the
Shares and Warrant Shares for trading thereon if required under the rules of the
American Stock Exchange.
(e) ISSUANCE OF THE SECURITIES. The Securities have been duly
authorized and, when issued and paid for in accordance with the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens. The Company has reserved from its duly authorized
capital stock the maximum number of shares of Common Stock issuable pursuant to
this Agreement and the Warrants in order to issue the full number of Warrant
Shares as are or may become issuable in accordance with the Warrants.
(f) CAPITALIZATION. The number of shares and type of all authorized,
issued and outstanding capital stock of the Company is set forth in SCHEDULE
3.1(F). Except as set forth in SCHEDULE 3.1(f), no securities of the Company are
entitled to preemptive or similar rights, and no Person has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
Except as a result of the purchase and sale of the Securities and except as
disclosed in the Disclosure Materials, there are no outstanding options,
warrants, scrip rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. Except as set forth in SCHEDULE
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3.1(f), the issue and sale of the Securities will not, immediately or with the
passage of time, obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers and their permitted
successors and assigns) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under
such securities. All of the outstanding shares of capital stock of the Company
are validly issued, fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, and none of such outstanding shares
was issued in violation of any preemptive rights or similar rights to subscribe
for or purchase securities. No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is required for the
issuance and sale of the Securities. There are no stockholders agreements,
voting agreements or other similar agreements with respect to the Company's
capital stock to which the Company is a party or, to the knowledge of the
Company, between or among any of the Company's stockholders.
(g) SEC REPORTS; FINANCIAL STATEMENTS. Except as set forth in SCHEDULE
3.1(g), the Company has filed all reports required to be filed by it under the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the
twenty-four (24) months preceding the date hereof (or such shorter period as the
Company was required by law to file such reports) (the foregoing materials being
collectively referred to herein as the "SEC Reports" and, together with the
Schedules to this Agreement, the "Disclosure Materials") on a timely basis or
has received a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. Except as may have been
corrected or supplemented in a subsequent SEC Report, as of their respective
dates, the SEC Reports complied in all material respects with the requirements
of the Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Except as may have
been corrected or supplemented in a subsequent SEC Report, the financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing.
Except as may have been corrected or supplemented in a subsequent SEC Report,
such financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved ("GAAP"), except as may be otherwise specified in such
financial statements or the notes thereto, or, in the case of unaudited
financial statements, as permitted by Item 310(b) of Regulation S-B promulgated
under the Securities Act and the Exchange Act, and fairly present in all
material respects the financial position of the Company and its consolidated
Subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, year-end audit adjustments and the lack of footnotes.
Except as set forth in SCHEDULE 3.1(g), the Company has not received any letters
of comment from the Staff of the SEC which have not been satisfactorily resolved
as of the date hereof.
(h) MATERIAL CHANGES. Since the date of the latest balance sheet
included within the SEC Reports, except as specifically disclosed in the
Disclosure Materials, (i) there has been no event, occurrence or development
that has had or that could reasonably be expected to result in a Material
Adverse Effect, (ii) the Company has not incurred any material liabilities
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(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or required to be disclosed in filings made with the
Commission, (iii) the Company has not materially altered its method of
accounting or the identity of its auditors, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its stockholders
or purchased, redeemed or made any agreements to purchase or redeem any shares
of its capital stock, and (v) the Company has not issued any equity securities
to any officer, director or Affiliate, except pursuant to existing Company
equity compensation plans. The Company does not have pending before the
Commission any request for confidential treatment of information.
(i) LITIGATION. There is no Action which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, if there were an unfavorable
decision, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor
any director or officer thereof, is or has been the subject of any Action
involving a claim of violation of or liability under federal or state securities
laws or a claim of breach of fiduciary duty. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or former
director or officer of the Company. The Commission has not issued any stop order
or other order suspending the effectiveness of any registration statement filed
by the Company or any Subsidiary under the Exchange Act or the Securities Act.
(j) LABOR RELATIONS. Except as set forth in Schedule 3.1(j), no
material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company.
(k) COMPLIANCE. Except as set forth in Schedule 3.1(k), neither the
Company nor any Subsidiary (i) is in default under or in violation of (and no
event has occurred that has not been waived that, with notice or lapse of time
or both, would result in a default by the Company or any Subsidiary under), nor
has the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws relating to taxes,
environmental protection, occupational health and safety, product quality and
safety and employment and labor matters, except in each case as could not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect.
(l) REGULATORY PERMITS. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits would not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect ("Material
Permits"), and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit.
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(m) TITLE TO ASSETS. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to their respective businesses and good and marketable title in all
personal property owned by them that is material to their respective businesses,
in each case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and the
Subsidiaries and Liens for the payment of federal, state or other taxes, the
payment of which is not delinquent. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the Subsidiaries are
in material compliance.
(n) PATENTS AND TRADEMARKS. The Company and the Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights that are necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the failure to
so have could, individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect (collectively, the "Intellectual Property
Rights"). Neither the Company nor any Subsidiary has received a written notice
that the Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. Except as set forth in the
SEC Reports, to the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another Person
of any of the Intellectual Property Rights. (o) TRANSACTIONS WITH AFFILIATES AND
EMPLOYEES. Except as set forth in the SEC Reports, none of the officers or
directors of the Company and, to the knowledge of the Company, none of the
employees of the Company is presently a party to any transaction with the
Company or any Subsidiary (other than as holders of stock options and/or
warrants, and for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any entity in which any officer,
director, or any such employee has a substantial interest or is an officer,
director, trustee or partner.
(p) INTERNAL CONTROL OVER FINANCIAL REPORTING. The Company and the
Subsidiaries maintain a system of internal control over financial reporting
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 accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
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designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made known
to the certifying officers by others within those entities, particularly during
the period in which the Company's most recently filed periodic report under the
Exchange Act, as the case may be, is being prepared. The Company's certifying
officers have evaluated the effectiveness of the Company's disclosure controls
and procedures as of the date prior to the filing date of the most recently
filed periodic report under the Exchange Act (such date, the "Evaluation Date").
The Company presented in its most recently filed periodic report under the
Exchange Act the conclusions of the certifying officers about the effectiveness
of the disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company's internal controls (as such term is defined in Exchange
Act Rule 13a-15(f)) or, to the knowledge of the Company, in other factors that
could significantly affect the Company's internal control over financial
reporting.
(q) CERTAIN FEES. Except as described in SCHEDULE 3.1(Q), no brokerage
or finder's fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by
this Agreement. The Purchasers shall have no obligation with respect to any fees
or with respect to any claims (other than such fees or commissions owed by a
Purchaser pursuant to written agreements executed by such Purchaser which fees
or commissions shall be the sole responsibility of such Purchaser) made by or on
behalf of other Persons for fees of a type contemplated in this Section that may
be due in connection with the transactions contemplated by this Agreement.
(r) CERTAIN REGISTRATION MATTERS. Assuming the accuracy of the
Purchasers' representations and warranties set forth in SECTION 3.2(B)-(G), no
registration under the Securities Act is required for the offer and sale of the
Shares and Warrant Shares by the Company to the Purchasers under the Transaction
Documents. The Company is eligible to register the resale of the Shares and
Warrant Shares for resale by the Purchasers under Form SB-2 promulgated under
the Securities Act. Except as described in SCHEDULE 3.1(R), the Company has not
granted or agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority that have not been satisfied.
(s) INSURANCE. The Company and the Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged. The Company has no reason to believe that it will
not be able to renew its 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 without a significant increase in cost.
(t) LISTING AND MAINTENANCE REQUIREMENTS. The Company is, and has no
reason to believe that it will not, upon the issuance of the Shares and Warrants
hereunder and in the foreseeable future, continue to be, in compliance with the
listing and maintenance requirements for continued listing of the Common Stock
on the American Stock Exchange. The issuance of the Securities hereunder does
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not contravene the rules and regulations of the American Stock Exchange. Except
as set forth in the Disclosure Materials, the Company has not, in the 12 months
preceding the date hereof, received notice from any Trading Market on which the
Common Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such Trading
Market.
(u) 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.
(v) APPLICATION OF TAKEOVER PROTECTIONS. 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 Company's Articles of Incorporation or the
laws of its state of incorporation that is or could become applicable to the
Purchasers as a result of the Purchasers and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including without limitation as a result of the Company's issuance of the
Securities and the Purchasers' ownership of the Securities.
(w) DISCLOSURE. The Company confirms that, other than as set forth in
SCHEDULE 3.1(W), neither it nor any other Person acting on its behalf has
provided any of the Purchasers or their agents or counsel with any information
that the Company believes constitutes or might constitute material, non-public
information. The Company understands and confirms that the Purchasers will rely
on the foregoing representations and covenants in effecting transactions in
securities of the Company. None of the disclosures provided to the Purchasers
regarding the Company, its business and the transactions contemplated hereby,
including the Disclosure Materials to this Agreement, furnished by or on behalf
of the Company with respect to the representations and warranties made herein
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(x) XXXXXXXX-XXXXX ACT. The Company is in compliance with applicable
requirements of the Xxxxxxxx-Xxxxx Act of 2002 and applicable rules and
regulations promulgated by the Commission thereunder in effect as of the date of
this Agreement, except where such noncompliance could not be reasonably expected
to have, individually or in the aggregate, a Material Adverse Effect.
(y) NO INTEGRATED OFFERING. Assuming the accuracy of the Purchasers'
representations and warranties set forth in SECTION 3.2, neither the Company,
nor any of its affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of the Securities Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
any Trading Market on which any of the securities of the Company are listed or
designated.
(z) SOLVENCY. Based on the financial condition of the Company as of the
Closing Date after giving effect to the receipt by the Company of the proceeds
from the sale of the Securities hereunder, (i) the fair saleable value of the
Company's assets exceeds the amount that will be required to be paid on or in
respect of the Company's existing debts and other liabilities (including known
contingent liabilities) as they mature; (ii) the Company's assets do not
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constitute unreasonably small capital to carry on its business for the current
fiscal year as now conducted and as proposed to be conducted including its
capital needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to liquidate all
of its assets, after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its debt when such amounts
are required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt). The Company has no
knowledge of any facts or circumstances which lead it to believe that it will
file for reorganization or liquidation under the bankruptcy or reorganization
laws of any jurisdiction within one year from the Closing Date. The SEC Reports
set forth as of the dates thereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary. For the purposes of this
Agreement, "Indebtedness" shall mean (a) any liabilities for borrowed money or
amounts owed in excess of $50,000 (other than trade accounts payable incurred in
the ordinary course of business), (b) all guaranties, endorsements and other
contingent obligations in respect of Indebtedness of others, whether or not the
same are or should be reflected in the Company's balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP. Neither the Company
nor any Subsidiary is in material default with respect to any Indebtedness.
(aa) TAX STATUS. Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid or
accrued all taxes shown as due thereon, and the Company has no knowledge of a
tax deficiency which has been asserted or threatened against the Company or any
Subsidiary.
(bb) NO GENERAL SOLICITATION. Neither the Company nor any
person acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company has
offered the Securities for sale only to the Purchasers and certain other
"accredited investors" within the meaning of Rule 501 under the Securities Act.
(cc) FOREIGN CORRUPT PRACTICES. Neither the Company, nor to
the knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, or (iii) violated
in any material respect any provision of the Foreign Corrupt Practices Act of
1977, as amended.
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(dd) ACCOUNTANTS. The Company's accountants are set forth in
the SEC Reports. To the knowledge of the Company, such accountants are a
registered public accounting firm as required by the Securities Act.
(ee) ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF
SECURITIES. The Company acknowledges and agrees that each of the Purchasers is
acting solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby. The Company
further acknowledges that no Purchaser is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by any
Purchaser or any of their respective representatives or agents in connection
with this Agreement and the transactions contemplated hereby is merely
incidental to the Purchasers' purchase of the Securities. The Company further
represents to each Purchaser that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants to the
Company as follows:
(a) ORGANIZATION; AUTHORITY. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate, partnership or
limited liability company power and authority to enter into and to consummate
the transactions contemplated by the applicable Transaction Documents and
otherwise to carry out its obligations thereunder. The execution, delivery and
performance by such Purchaser of the Transaction Documents to which it is a
party and the consummation by such Purchaser of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate or, if such
Purchaser is not a corporation, such partnership, limited liability company or
other applicable like action, on the part of such Purchaser. Each of this
Agreement and the Registration Rights Agreement has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with terms hereof,
will constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles.
(b) PURCHASER STATUS. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on which it
exercises the Warrants it will be, an "accredited investor" as defined in Rule
501(a) under the Securities Act. Such Purchaser is not a registered
broker-dealer under Section 15 of the Exchange Act. If such Purchaser has
checked the box marked "Yes" on the signature page hereto, such Purchaser is a
Qualified Institutional Buyer.
(c) GENERAL SOLICITATION. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.
-14-
(d) ACCESS TO INFORMATION. Such Purchaser acknowledges that it has
reviewed the Disclosure Materials and has been afforded (i) the opportunity to
ask such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Subsidiaries
and their respective financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional information that
the Company possesses or can acquire without unreasonable effort or expense that
is necessary to make an informed investment decision with respect to the
investment.
(e) KNOWLEDGE AND EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either
alone or together with its representatives, has such knowledge, sophistication
and experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the Securities,
and has so evaluated the merits and risks of such investment. Such Purchaser is
able to bear the economic risk of an investment in the Securities and is able to
afford a complete loss of such investment.
(f) RESTRICTIONS ON SECURITIES. Such Purchaser understands that the
Securities have not been registered under the Securities Act and may not be
offered, resold, pledged or otherwise transferred except (a) pursuant to an
exemption from registration under the Securities Act or pursuant to an effective
registration statement in compliance with Section 5 under the Securities Act and
(b) in accordance with all applicable securities laws of the states of the
United States and other jurisdictions.
(g) INVESTMENT INTENT. Such Purchaser is acquiring the Securities as
principal for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof, without
prejudice, however, to such Purchaser's right at all times to sell or otherwise
dispose of all or any part of such Securities in compliance with applicable
federal and state securities laws. Nothing contained herein shall be deemed a
representation or warranty by such Purchaser to hold the Securities for any
period of time. Such Purchaser is acquiring the Securities hereunder in the
ordinary course of its business. Such Purchaser does not have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the
Securities.
(h) INVESTMENT DECISION. Such Purchaser is not relying on the Company,
any other potential Purchaser, or on any legal or other opinion in the materials
reviewed by the Purchaser with respect to the financial or tax considerations of
the Purchaser relating to its investment in the Securities. Such Purchaser has
relied solely on the representations and warranties, covenants and agreements of
the Company in this Agreement (including the Schedules and Exhibits hereto) and
on its examination and independent investigation in making its decision to
acquire the Securities. Such Purchaser has not relied on the business or legal
advice of Globalvest Partners, LLC or any of its agents, counsel or Affiliates
in making its investment decision hereunder, and confirms that none of such
Persons has made any representations or warranties to such Purchaser in
connection with the transactions contemplated by the Transaction Documents.
-15-
(i) NO OTHER REPRESENTATIONS. No oral or written representations have
been made to such Purchaser in connection with its acquisition of Securities
which were in any way inconsistent with the information reviewed by such
Purchaser. Such Purchaser acknowledges that no representations or warranties of
any type or description have been made to it by any Person with regard to the
Company, any of its Subsidiaries, any of their respective businesses, properties
or prospects or the investment contemplated herein, other than the
representations and warranties set forth in Article III hereof.
(j) NO PRIOR SHORT SELLING. At no time during the 30 days prior to the
Closing Date has such Purchaser engaged in or effected, in any manner
whatsoever, directly or indirectly, any sale of Common Stock which such
Purchaser is not deemed to own under the provisions of Rule 200(b) of Regulation
SHO promulgated under the Exchange Act.
(k) COMPLIANCE WITH LAWS. Such Purchaser is in compliance with all
securities laws applicable to it in connection with the transactions
contemplated by the Transaction Documents, including all securities laws, rules
and regulations in respect of the stabilization or manipulation of the price of
the Common Stock.
(l) PRIVATE PLACEMENT. Such Purchaser understands and acknowledges that
(i) the Securities are offered and sold without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption
depends in part on, and that the Company and its counsel will rely upon, the
accuracy and truthfulness of the foregoing representations and each Purchaser
hereby consents to such reliance.
(m) REGISTRATION STATEMENT QUESTIONNAIRE. Such Purchaser has completed
or caused to be completed the Registration Statement Questionnaire attached
hereto as Appendix I, for use in preparation of the Registration Statement, and
the answers thereto are true and correct as of the date hereof and will be true
and correct as of the effective date of the Registration Statement, or as
applicable, any amendment thereto, and such Purchaser will notify the Company
immediately of any material change in any such information provided in the
Registration Statement Questionnaire until such time as the Registration
Statement has been declared effective.
(n) COMMISSIONS. Such Purchaser has not incurred any obligation for any
finder's or broker's or agent's fees or commissions in connection with the
transactions contemplated hereby.
(o) RESIDENCE. If the Purchaser is an individual, such Purchaser
resides in the state identified in the address of such Purchaser set forth on
the signature page hereto; if such Purchaser is a partnership, corporation,
limited liability company or other entity, then the office or offices of such
Purchase in which its investment decision was made is located at the address or
addresses of such Purchaser set forth on the signature page hereto.
The Company acknowledges and agrees that each Purchaser does not make
or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in this
SECTION 3.2 or elsewhere in this Agreement.
-16-
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 (a) Securities may only be disposed of in compliance with state and
federal securities laws. In connection with any transfer of the Securities other
than pursuant to an effective registration statement, to the Company, to an
Affiliate of a Purchaser or in connection with a pledge as contemplated in
SECTION 4.1(B), the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act.
(b) Certificates evidencing the Securities will contain the following
legend, so long as is required by this SECTION 4.1(B):
[NEITHER] THESE SECURITIES [NOR THE SECURITIES ISSUABLE UPON EXERCISE
OF THESE SECURITIES] HAVE [NOT] BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES OR BLUE SKY LAWS. THESE SECURITIES AND THE SECURITIES
ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT.
The Company acknowledges and agrees that a Purchaser may from time to
time pledge Securities pursuant to a bona fide margin account and, if required
under the terms of such account, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. Such pledge or transfer would not
be subject to approval or consent of the Company and no legal opinion of legal
counsel to the pledgee, secured party or pledgor shall be required in connection
with the pledge, but the legend shall remain on the pledged Securities and such
legal opinion may be required in connection with a subsequent transfer following
default by the Purchaser transferee of the pledge. Further, no notice shall be
required of such pledge. At the appropriate Purchaser's expense, the Company
will execute and deliver such reasonable documentation as a pledgee or secured
party of Securities may reasonably request in connection with a pledge or
transfer of the Securities including the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) of the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list of
Selling Stockholders thereunder.
(c) Certificates evidencing the Shares and Warrant Shares shall not
contain any legend (including the legend set forth in SECTION 4.1(B)): (i) while
a registration statement (including the Registration Statement) covering the
resale of such Shares and Warrant Shares is effective under the Securities Act,
or (ii) following any sale of such Shares or Warrant Shares pursuant to Rule
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144, or (iii) if such Shares or Warrant Shares are eligible for sale under Rule
144(k), or (iv) if such legend is not required under applicable requirements of
the Securities Act (including judicial interpretations and pronouncements issued
by the Staff of the Commission). The Company shall cause its counsel to issue
the legal opinion to the Company's transfer agent promptly after the Effective
Date if requested by the Company's transfer agent to effect the removal of the
legend hereunder. Following the Effective Date or at such earlier time as a
legend is no longer required for the Shares and Warrant Shares under this
SECTION 4.1(C), the Company will, no later than three (3) Trading Days following
the delivery by a Purchaser to the Company or the Company's transfer agent of a
certificate representing Shares or Warrant Shares containing a restrictive
legend, deliver or cause to be delivered to such Purchaser a certificate
representing such Shares or Warrant Shares that is free from all restrictive and
other legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section. Certificates for Securities subject to
legend removal hereunder shall be transmitted by the transfer agent of the
Company to the Purchasers by crediting the account of the Purchaser's prime
broker with the Depository Trust Company System.
4.2 FURNISHING OF INFORMATION. As long as any Purchaser owns the
Securities, the Company covenants to use its best efforts to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act which are required to be filed in order to satisfy
the current public information requirements of Rule 144(c)(1). As long as any
Purchaser owns Securities, if the Company is no longer subject to the periodic
reporting requirements of the Exchange Act and Rule 144(k) is not available to
any Purchaser with respect to any Securities held, the Company will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c)(2) such information as is required for the Purchasers to sell the Shares
and Warrant Shares under Rule 144.
4.3 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, by 8:30
a.m. Eastern time on the Trading Day immediately following the date hereof,
issue a press release or file a Current Report on Form 8-K, or both, disclosing
the transactions contemplated hereby and any other information set forth in
SCHEDULE 3.1(W). In addition, the Company will make such other filings and
notices in the manner and time required by the Commission and the Trading Market
on which the Common Stock is listed. The Company and the Purchasers shall
consult with each other in issuing any press releases with respect to the
transactions contemplated hereby, and neither party shall issue any such press
release without the prior consent of the other, which consent shall not be
unreasonably withheld or delayed, except if such disclosure is required by law
or Trading Market regulations, in which case the disclosing party shall provide
the other party with prior notice of such press release. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, except to the extent such disclosure (but not any disclosure as to
the controlling Persons thereof) is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure.
-18-
4.4 INDEMNIFICATION.
(a) INDEMNIFICATION OF PURCHASERS. In addition to the indemnity
provided in the Registration Rights Agreement, the Company will indemnify and
hold the Purchasers and their directors, officers, shareholders, partners,
employees and agents (each, a "Purchaser Party") harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs and
reasonable attorneys' fees and costs of investigation (collectively, "Losses")
that any such Purchaser Party may suffer or incur as a result of or relating to
any misrepresentation, breach or inaccuracy of any representation, warranty,
covenant or agreement made by the Company in any Transaction Document; provided,
that such indemnity (other than as to any indemnity called for under the
Registration Rights Agreement) does not exceed, in the aggregate, the Investment
Amount of such Purchaser together with its reasonable attorneys' fees and costs
of investigation subject to indemnification above. Except as set forth above,
the mechanics and procedures with respect to the rights and obligations under
this SECTION 4.4(A) will be the same as those set forth in the Registration
Rights Agreement.
(b) INDEMNIFICATION OF COMPANY. In addition to the indemnity provided
in the Registration Rights Agreement, the Purchasers will, severally and not
jointly, indemnify and hold the Company and its directors, officers,
shareholders, partners, employees and agents (each, a "Company Party") harmless
from any and all Losses that any such Company Party may suffer or incur as a
result of or relating to any misrepresentation, breach or inaccuracy of any
representation, warranty, covenant or agreement made by the Purchasers in any
Transaction Document; provided, that such indemnity (other than as to any
indemnity called for under the Registration Rights Agreement) does not exceed,
with respect to each Purchaser, the portion of the Investment Amount of such
Purchaser hereunder, together with the Company's reasonable attorneys' fees and
costs of investigation subject to indemnification above. Except as set forth
above, the mechanics and procedures with respect to the rights and obligations
under this SECTION 4.4(B) will be the same as those set forth in the
Registration Rights Agreement.
4.5 CONFIDENTIAL INFORMATION; STANDSTILL.
(a) The Purchasers agree that no portion of the Confidential
Information (as defined below) shall be disclosed to third parties, except as
may be required by law, without the prior written consent of the Company;
provided, that, the Purchasers may share such information with such of their
officers and professional advisors as may need to know such information to
assist the Purchasers in their evaluation thereof on the condition that such
parties agree to be bound by the terms hereof. All Confidential Information
received by the Purchasers shall be promptly returned or destroyed, as directed
by the Company. "Confidential Information" means all written data, reports,
records or materials and any and all other confidential or disclosure
information or materials obtained from the Company or its advisors, which are
not yet publicly available. Confidential Information excludes information that
is publicly available. Notwithstanding the foregoing, the Company and the
Purchasers acknowledge and agree that the Company has not provided any
Confidential Information to the Purchasers in connection with this Agreement and
the other Transaction Documents, other than the existence of this Agreement and
the other Transaction Documents and the transactions contemplated hereby and
thereby.
-19-
(b) STANDSTILL. For a period of one (1) year from the Closing Date, the
Purchasers will not, without the prior written consent of the Company (i)
propose to enter into any acquisition of all or substantially all of the assets
or stock of the Company or a merger or other business combination involving the
Company; (ii) seek to control the management, board of directors or policies of
the Company; or (iii) form, join or in any way participate in a "group" (within
the meaning of Section 13(d)(3) of the Exchange Act) with respect to any
securities of the Company in connection with any of the foregoing.
4.6 USE OF PROCEEDS. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes, and not to redeem
any Company equity or equity-equivalent securities or to settle any outstanding
Action with such proceeds.
4.7 CERTAIN TRADING RESTRICTIONS.
(a) RESTRICTIONS. So long as a Purchaser continues to hold any
Securities acquired hereunder, such Purchaser will not, nor will it knowingly
through its Affiliates engage in any "short sale" of Common Stock as such term
is defined in Rule 200(a) of Regulation SHO promulgated under the Exchange Act
(a "Short Sale"), except on those days (each a "Permitted Day") on which the
aggregate short position with respect to the Common Stock of such Purchaser
prior to giving effect to any Short Sales by such Purchaser on such Permitted
Day does not exceed such Purchaser's Permitted Share Position (as defined below)
on such Permitted Day; PROVIDED, however, that a Purchaser will only be entitled
to engage in transactions that constitute Short Sales on a Permitted Day to the
extent that following such transaction, the aggregate short position with
respect to the Common Stock of such Purchaser does not exceed such Purchaser's
Permitted Share Position. For purposes of this SECTION 4.7, a Purchaser's
"Permitted Share Position" means, with respect to any date of determination, the
number of shares of Common Stock owned by such Purchaser (including Shares) plus
the maximum number of Warrant Shares then issuable (including as to portions of
Warrants not yet exercised and without regard to any exercise caps or other
exercise restrictions applicable to the Warrants) to such Purchaser.
(b) OTHER TRANSACTIONS PERMITTED. Subject to SECTION 4.7(A) and
applicable securities laws, the Company acknowledges and agrees that nothing in
this SECTION 4.7 or elsewhere in any Transaction Document prohibits any
Purchaser from, and each Purchaser is permitted to, engage, directly or
indirectly, in hedging transactions involving the Securities and the Common
Stock (including, without limitation, by way of short sales, purchases and sales
of options, swap transactions and synthetic transactions) at any time.
4.8 INTEGRATION. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market such that it would require stockholder
approval of the sale of the Securities to the Purchasers unless stockholder
approval is obtained before the closing of such subsequent transaction.
-20-
4.9 STOCKHOLDER RIGHTS PLAN. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any stockholder rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents. The Company
shall conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.10 NON-PUBLIC INFORMATION. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.
4.11 RESERVATION OF COMMON STOCK. As of the date hereof, the Company
has reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement and Warrant Shares pursuant to any exercise of the Warrants.
4.12 LISTING OF COMMON STOCK. The Company hereby agrees to use best
efforts to maintain the listing of the Common Stock on a Trading Market, and as
soon as reasonably practicable following the Closing (but not later than the
earlier of the Effective Date and the first anniversary of the Closing Date) to
list all of the Shares and Warrant Shares on such Trading Market. The Company
further agrees that, if the Company applies to have the Common Stock traded on
any other Trading Market, it will include in such application all of the Shares
and Warrant Shares, and will take such other action as is necessary to cause all
of the Shares and Warrant Shares to be listed on such other Trading Market as
promptly as reasonably practicable. The Company will take all action reasonably
necessary to continue the listing and trading of its Common Stock on a Trading
Market and will comply in all material respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the applicable Trading
Market.
4.13 EQUAL TREATMENT OF PURCHASERS. 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 is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended to treat the Purchasers as a class and shall not in any way be
construed as the Purchasers acting in concert or as a group with respect to the
purchase, disposition or voting of Securities or otherwise.
4.14 PROHIBITED TRANSACTIONS.
(a) For a period from the date hereof until the ninetieth (90th) day
immediately following the Effective Date (as such period may be extended for a
number of Trading Days in such ninety (90) day period during which (i) trading
in the Common Stock is suspended by the Trading Market, or (ii) following the
Effective Date, the Registration Statement is not effective or the prospectus
-21-
included in the Registration Statement may not be used by the Purchasers for the
resale of the Shares and the Warrant Shares), the Company shall not (1) issue
any securities registered or to be registered on Form S-8 in violation of
applicable law regarding the use of such form, (2) issue any Stock Award under
the Company's 2005 Equity Incentive Plan (the "2005 Plan") to any non-employee
consultant of the Company as compensation for services rendered (for the
avoidance of doubt, such prohibition does not prohibit the issuance of Options
under the 2005 Plan or the issuance of shares of Common Stock upon exercise of
outstanding Options), (3) issue any shares of Common Stock or any Common Stock
Equivalents under the 2005 Plan at a purchase price, exercise price and/or
conversion price per share less than Fair Market Value (as such term is defined
in the 2005 Plan) or (4) offer or sell any equity securities of the Company,
whether currently authorized or not, or rights, options, or warrants to purchase
such equity securities, or securities of any type whatsoever that are, or may
become, convertible into or exchangeable into or exercisable for such equity
securities issuance of Common Stock or securities convertible into or
exercisable for Common Stock, if such securities or rights have a purchase
price, exercise price and/or conversion price per share less than the Per Unit
Purchase Price. Clause (4) of this SECTION 4.14(A) shall not apply to any Exempt
Issuance.
(b) From the date hereof until the Shares become eligible for resale
under Rule 144(k), the Company shall be prohibited from effecting or entering
into an agreement to effect any subsequent financing involving a Variable Rate
Transaction. The term "Variable Rate Transaction" shall mean a transaction in
which the Company (i) issues or sells any debt or equity securities that are
convertible into, exchange or exercisable for, or the right to receive
additional shares of Common Stock either (A) at a conversion, exercise or
exchange rate or other price that is based upon and/or varies with the trading
prices of or quotations for the shares of Common Stock at any time after the
initial issuance of such debt or equity securities, or (B) with a conversion,
exercise or exchange price that is subject to being reset at some future date
after the initial issuance of such debt or equity security or upon the
occurrence of specified or contingent events directly or indirectly related to
the business of the Company or the market for the Common Stock (other than any
Exempt Issuance), or (ii) enters into any agreement including, but not limited
to, an equity line of credit, whereby the Company may sell securities at a
future determined price. Any Purchaser shall be entitled to obtain injunctive
relief against the Company to preclude any such issuance, which remedy shall be
in addition to any right to collect damages.
4.15 PARTICIPATION IN FUTURE FINANCING. Subject to applicable
securities laws, for a period from the date hereof until the ninetieth (90th)
day immediately following the Effective Date (as such period may be extended for
a number of Trading Days in such ninety (90) day period during which (i) trading
in the Common Stock is suspended by the Trading Market, or (ii) following the
Effective Date, the Registration Statement is not effective or the prospectus
included in the Registration Statement may not be used by the Purchasers for the
resale of the Shares and the Warrant Shares), upon any financing by the Company
or any of its Subsidiaries of Common Stock or Common Stock Equivalents (a
"Subsequent Financing"), each Purchaser shall have the right to participate in
up to 100% of such Subsequent Financing. At least 10 Trading Days prior to the
closing of the Subsequent Financing, the Company shall deliver to each Purchaser
a written notice of its intention to effect a Subsequent Financing
-22-
("Pre-Notice"), which Pre-Notice shall ask such Purchaser if it wants to review
the details of such financing (such additional notice, a "Subsequent Financing
Notice"). Upon the request of a Purchaser, and only upon a request by such
Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no
later than two (2) Trading Days after receipt of such request, deliver a
Subsequent Financing Notice to such Purchaser. The Subsequent Financing Notice
shall describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder, the Person
with whom such Subsequent Financing is proposed to be effected, and attached to
which shall be a term sheet or similar document relating thereto. If by 6:30
p.m. (New York City time) on the 10th Trading Day after the Company has
delivered the Pre-Notice to all Purchasers, notifications of the Purchasers of
their willingness to participate in the Subsequent Financing (or to cause an
Affiliate to provide) is, in the aggregate, less than the total amount of the
Subsequent Financing, then the Company may effect the remaining portion of such
Subsequent Financing on the terms and to the Persons set forth in the Subsequent
Financing Notice. If the Company receives no notice from a Purchaser as of such
10th Trading Day, such Purchaser shall be deemed to have notified the Company
that it does not elect to participate. In the event the Company receives
responses to Subsequent Financing Notices from Purchasers seeking to purchase
more than the aggregate amount of the Subsequent Financing, each such Purchaser
shall have the right to purchase their Pro Rata Portion (as defined below) of
the Subsequent Financing. "Pro Rata Portion" is the ratio of (x) the Investment
Amount of a participating Purchaser and (y) the sum of the aggregate Investment
Amount of all participating Purchasers. If the Subsequent Financing subject to
the initial Subsequent Financing Notice is not consummated for any reason on
terms not substantially more favorable to the applicable investor(s) than those
set forth in such Subsequent Financing Notice within 60 Trading Days after the
date of the initial Subsequent Financing Notice, the right provided hereunder
shall be deemed to be revived and the Company shall be required to follow the
procedures set forth herein prior to consummating any Subsequent Financing.
Notwithstanding the foregoing, this SECTION 4.15 shall not apply in respect of
an Exempt Issuance. The rights set forth in this SECTION 4.15 may not be
assigned or transferred, except to an Affiliate of the applicable Purchaser.
4.16 DELIVERY OF SECURITIES AFTER CLOSING. The Company shall deliver,
or cause to be delivered, the respective Securities purchased by each Purchaser
to such Purchaser within three (3) Trading Days of the Closing Date.
ARTICLE V.
MISCELLANEOUS
5.1 FEES AND EXPENSES. At the Closing, the Company shall pay to
XxXxxxxxxx & Xxxxx, LLP an aggregate of not more than $7,500 for its legal fees
and expenses incurred in connection with its due diligence and the preparation
and negotiation of the Transaction Documents. Except as expressly set forth in
the Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the issuance of the Securities.
-23-
5.2 ENTIRE AGREEMENT. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.3 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York City time) on a Trading
Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 6:30 p.m. (New
York City time) on any Trading Day, (c) the Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The address for such notices and communications shall be as follows:
If to the Company: MicroIslet, Inc.
0000 Xxxxx Xxxxx Xxxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
Attn: President
Facsimile No.: (000) 000-0000
With a copy to: Sheppard, Mullin, Xxxxxxx & Xxxxxxx LLP
00000 Xxxx Xxxxx Xxxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
Attn: Xxxx X. Xxxxxxx, Esq.
Facsimile No.: (000) 000-0000
If to a Purchaser: To the address set forth under such
Purchaser's name on the signature
pages hereof;
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
5.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.5 CONSTRUCTION. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party. This Agreement
-24-
shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement or any of the Transaction
Documents.
5.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities; provided, that, such transfer is
in accordance with this Agreement and the transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof that
apply to the "Purchasers."
5.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in SECTION 4.5. 5.8
GOVERNING LAW. All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York, without
regard to the principles of conflicts of law thereof. Each party agrees that all
Proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective Affiliates, employees
or agents) shall be commenced exclusively in the state and federal courts
sitting in the City of New York, Borough of Manhattan (the "New York Courts").
Each party hereto hereby irrevocably submits to the exclusive jurisdiction of
the New York Courts for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of the any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
Proceeding, any claim that it is not personally subject to the jurisdiction of
any such New York Court, or that such Proceeding has been commenced in an
improper or inconvenient forum. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party hereto hereby irrevocably waives, to
the fullest extent permitted by applicable law, any and all right to trial by
jury in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby. If either party shall commence a Proceeding to
enforce any provisions of a Transaction Document, then the prevailing party in
such Proceeding shall be reimbursed by the other party for its attorney's fees
and other costs and expenses actually incurred with the investigation,
preparation and prosecution of such Proceeding.
5.9 SURVIVAL. The representations, warranties, agreements and covenants
contained herein shall survive the Closing for a period of two (2) years.
-25-
5.10 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile or electronic transmission, such signature shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such facsimile or
electronic signature page were an original thereof.
5.11 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.12 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities. If a replacement
certificate or instrument evidencing any Securities is requested due to a
mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a
replacement.
5.13 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.14 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser 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
Purchaser 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.
5.15 TERMINATION. This Agreement may be terminated: (i) by any
Purchaser, as to such Purchaser's obligations hereunder only and without any
effect whatsoever on the obligations between the Company and the other
Purchasers, by written notice to the other parties, if the Closing has not been
consummated on or before December 31, 2005; provided, however, that no such
termination will affect the right of any party to xxx for any breach by the
-26-
other party (or parties); or (ii) by the Company, by written notice to the
Purchasers, if the Closing has not been consummated on or before December 31,
2005; provided, however, that no such termination will affect the right of any
party to xxx for any breach by the other party (or parties).
5.16 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. The decision of each Purchaser to
purchase Securities pursuant to this Agreement has been made by such Purchaser
independently of any other Purchaser and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, or condition (financial
or otherwise) of the Company or any Subsidiary which may have been made or given
by any other Purchaser or by any agent or employee of any other Purchaser, and
no Purchaser or any of its agents or employees shall have any liability to any
other Purchaser relating to or arising from any such information, materials,
statements or opinions. Nothing contained herein or in any Transaction Document,
and no action taken by any Purchaser pursuant thereto, shall be deemed to
constitute the Purchasers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Purchasers are in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Document. The Company hereby
confirms that it understands and agrees that the Purchasers are not acting as a
"group" as that term is used in Section 13(d) of the Exchange Act. Each
Purchaser acknowledges that no other Purchaser has acted as agent for such
Purchaser in connection with making its investment hereunder and that no other
Purchaser will be acting as agent of such Purchaser in connection with
monitoring its investment hereunder. Each Purchaser shall be entitled to
independently protect and enforce its rights, including without limitation the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose. Each Purchaser represents
that it has been represented by its own separate legal counsel in its review and
negotiations of this Agreement and the Transaction Documents.
5.17 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]
-27-
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
MICROISLET, INC.
----------------------------------------------
Name: Xxxx X. Steel IV
Title: Chairman and Chief Executive Officer
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
-28-
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Purchaser: ________________________________________________________
SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: ___________________________
Name of Authorized Signatory: _____________________________________________
Title of Authorized Signatory: ____________________________________________
Email Address of Purchaser:________________________________________________
Address for Delivery of Securities for Purchaser (if not same as above):
Investment Amount:
Shares:
Warrant Shares:
EIN Number:
Qualified Institutional Buyer: [ ] Yes
[ ] No
-29-
APPENDIX I
MICROISLET, INC.
STOCK CERTIFICATE QUESTIONNAIRE
Pursuant to Section 3.2(m) of the Purchase Agreement, please provide us with the
following information:
1. The exact name that your Shares are to be registered in (this is the
name that will appear on your stock certificate(s)). You may use a
nominee name if appropriate: _____________________________
2. The relationship between the Purchaser of the Shares and the Registered
Holder listed in response to item 1 above:
_____________________________
3. The mailing address of the Registered Holder listed in response to item
1 above:
_____________________________
_____________________________
_____________________________
_____________________________
4. The Social Security Number or Tax Identification Number of the
Registered Holder listed in response to item 1 above:
_____________________________
-1-
APPENDIX I
MICROISLET, INC.
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the preparation of the Registration Statement, please provide
us with the following information:
SECTION 1. Pursuant to the "Selling Stockholder" section of the Registration
Statement, please state your or your organization's name exactly as it should
appear in the Registration Statement:
________________________________________________________________
SECTION 2. Please provide the number of shares of the Company's Common Stock
that you or your organization will "beneficially" own (see definition below)
immediately after Closing, including those Shares purchased by you or your
organization pursuant to this Purchase Agreement, the shares of Common Stock
underlying the Warrants purchased by you or your organization pursuant to this
Purchase Agreement, and those shares purchased by you or your organization
through other transactions:
________________________________________________________________
SECTION 3. Have you or your organization had any position, office or other
material relationship within the past three years with the Company or its
affiliates?
Yes ____ No ____
If yes, please indicate the nature of any such relationships below:
________________________________________________________________
________________________________________________________________
________________________________________________________________
SECTION 4. As to the shares of Common Stock indicated as being beneficially
owned in Section 2 above, does any person other than the person identified in
Section 1 have
4.1 the sole or shared power to vote or to direct the vote of any
such securities?
Yes ____ No ____
Or
4.2 the sole or shared power to dispose or to direct the
disposition of any such securities (referred to as
"dispositive power")?
Yes ____ No ____
If the answer is "Yes" to either of the foregoing questions, please set forth
below the name and address of each person who has either such power or with whom
the indicated beneficial owner shares such power, together with such number of
shares to which such rights relates.
________________________________________________________________
________________________________________________________________
________________________________________________________________
-2-
PLEASE READ THE FOLLOWING CAREFULLY IF YOU ARE AN ENTITY OR A TRUST:
IF YOU ARE AN ENTITY OR A TRUST, you MUST list the name of each natural person
associated with your entity or trust who has or shares voting or dispositive
power with respect to the shares indicated as being beneficially owned in the
answer to Section 2. For an investment or holding company, the investment
manager(s) would normally be the person(s) who hold(s) or share(s) voting and
dispositive power. For a trust, the natural person(s) holding or sharing voting
or dispositive power would normally be the trustee(s). For other types of
entities, the natural person(s) holding or sharing voting or dispositive power
would normally be the officer(s) empowered by the board of directors to make
such decisions, or if there is no such officer, each of the directors.
Disclosure is required for each natural person who in practice has voting or
dispositive power, regardless of that person's formal title or position within
the organization.
NAME OF TYPE OF POWER:
NATURAL PERSON VOTING/DISPOSITIVE/BOTH ADDRESS POSITION OR TITLE
----------------- ----------------------- ------------------- ------------------
----------------- ----------------------- ------------------- ------------------
----------------- ----------------------- ------------------- ------------------
----------------- ----------------------- ------------------- ------------------
----------------- ----------------------- ------------------- ------------------
----------------- ----------------------- ------------------- ------------------
----------------- ----------------------- ------------------- ------------------
SECTION 5. In any pending legal proceeding, are you or your organization, or any
"affiliates" (see definition below) of you or your organization, a party, or do
you or your organization, or any such "associate" (see definition below) of you
or your organization, have an interest, adverse to the Company or any affiliate
of the Company?
Yes _____ No_____
If the answer is "Yes," please describe, and state the nature and amount of,
such interest.
________________________________________________________________
________________________________________________________________
________________________________________________________________
SECTION 6. Are you directly or indirectly a "broker-dealer" (see definition
below) or an affiliate or an associate of a broker-dealer?
Yes _____ No _____
If the answer is yes, please respond to each of the questions below:
Please describe your affiliation or association with a broker-dealer,
or if you are a broker-dealer, please so state.
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
Did you purchase the Shares and the Warrants under the Purchase
Agreement in the ordinary course of business?
Yes _____ No _____
-3-
At the time of the purchase of the Shares and Warrants, did you have
any agreements or understandings, directly or indirectly, with any person to
distribute such shares or such shares issuable upon the conversion or exercise
of the Preferred Shares or the Warrants?
Yes _____ No _____
If the answer is yes, please describe such arrangements or
understandings below.
________________________________________________________________
________________________________________________________________
________________________________________________________________
If you are a broker-dealer, it is frequently the position of the Staff
of the Division of Corporation Finance of the Securities and Exchange Commission
that you must be named as an underwriter in the Registration Statement. Do you
consent to be named as an underwriter?
Yes _____ No _____
SECTION 7. Are you (i) an NASD Member (see definition), (ii) a Controlling (see
definition) shareholder of an NASD Member, (iii) a Person Associated with a
Member of the NASD (see definition), or (iv) an Underwriter or a Related Person
(see definition) with respect to the proposed offering; or (b) do you own any
shares or other securities of any NASD Member not purchased in the open market;
or (c) have you made any outstanding subordinated loans to any NASD Member?
Answer: [ ] Yes [ ] No If "yes," please describe below
________________________________________________________________
________________________________________________________________
SECTION 8. Is the plan of distribution of your Shares correctly described in
excerpt set forth on Annex A to the Registration Rights Agreement, which is
proposed to be included in the Registration Statement?
Yes _____ No _____
SECTION 9. By initialing below, you agree that you will comply with Regulation M
under the Securities Exchange Act of 1934, as amended, in connection with any
resales of your stock pursuant to the Registration Statement. The provisions of
Regulation M are referenced above in the "Plan of Distribution" referenced in
Section 8.
_________________
Initials
DEFINITIONS:
AFFILIATE: An "affiliate" of a specified person is a person that
directly, or through one or more intermediaries, controls, or is controlled by,
or is under common control with, the person specified.
ASSOCIATE: The term "associate" means (1) any corporation or
organization (except the Company and its subsidiaries) of which you are an
officer or partner, or of which you are, directly or indirectly, the owner
beneficially of 10% or more of any class of equity securities, (2) any trust or
other estate in which you have a beneficial interest or as to which you serve as
trustee or in a similar fiduciary capacity, or (3) your spouse, or any relative
of yours or of your spouse who shares your home or who is a director or officer
of the Company.
BENEFICIALLY: The term "beneficially" as applied to an interest in
securities describes any interest in the securities in question which entitles
you to any of the rights or benefits of ownership, even though you are not the
holder or owner of record. Interests in securities held in an estate, trust, or
partnership, or by a nominee, are examples of beneficial interests.
If you have any contract, understanding, relationship, agreement, or
other arrangement with any other person with respect to securities, pursuant to
which you obtain benefits substantially equivalent to the ownership of
securities, you should consider such securities as "beneficially owned" by you.
For purposes of this questionnaire, you will be regarded as having benefits
substantially equivalent to ownership of securities if:
-4-
(a) directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise you have or share:
(i) voting power, which includes the power to vote, or to
direct the voting of, the security; or
(ii) investment power, which includes the power to dispose
of, or to direct the disposition of, the security;
(b) you have the right to acquire beneficial ownership of the security,
including but not limited to any right to acquire:
(i) through the exercise of any option, warrant, or
right;
(ii) through the conversion of a security;
(iii) pursuant to a power to revoke a trust, discretionary
account, or similar arrangement; or
(iv) pursuant to the automatic termination of a trust,
discretionary account, or similar arrangement.
You are also considered to be the beneficial owner of a security if
you, directly or indirectly, create or use a trust, proxy, power of attorney,
pooling arrangement, or any other contract, arrangement, or device with the
purpose or effect of divesting yourself of beneficial ownership of such security
or preventing the vesting of such beneficial ownership as part of a plan or
scheme to evade the reporting requirements of Section 13(d) or 13(g) of the
Securities Exchange Act.
If you have any reason to believe that any interest you have in
securities, however remote, might be described as a beneficial interest, please
describe such interest.
The Securities and Exchange Commission has taken the view, with which some
courts have agreed, that a person may be regarded as the beneficial owner of
securities held in the name of the person's spouse, minor children, or other
relatives of the person or the person's spouse who share the person's home, if
such relationship results in such person obtaining benefits substantially
equivalent to ownership of such securities. We will assume, however, that you do
not consider that you beneficially own any securities you list in answer to
Section 2 as being owned by such persons. If you do consider that you are the
beneficial owner of such securities, please list them as being owned by both you
and such other person, and indicate that such securities are listed more than
once.
BROKER-DEALER. The term "broker-dealer" includes "brokers," as that term is
defined in Section 3(a)(4) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and "dealers" as that term is defined in Section 3(a)(5)
of the Exchange Act.
CONTROL. The term "control" (including the terms "controlling," "controlled by"
and "under common control with") means the possession, direct or indirect, of
the power, either individually or with others, to direct or cause the direction
of the management and policies of a person, whether through the ownership of
voting securities, by contract, or otherwise. (Rule 405 under the Securities Act
of 1933, as amended)
NASD MEMBER. The term "NASD member" means any broker-dealer admitted to
membership in the National Association of Securities Dealers, Inc. ("NASD").
(NASD Manual, By-laws Article I, Definitions)
PERSON ASSOCIATED WITH A MEMBER OF THE NASD. The term "person associated with a
member of the NASD" means every sole proprietor, partner, officer, director,
branch manager or executive representative of any NASD Member, or any natural
person occupying a similar status or performing similar functions, or any
natural person engaged in the investment banking or securities business who is
directly or indirectly controlling or controlled by a NASD Member, whether or
not such person is registered or exempt from registration with the NASD pursuant
to its bylaws. (NASD Manual, By-laws Article I, Definitions)
UNDERWRITER OR A RELATED PERSON. The term "underwriter or a related person"
means, with respect to a proposed offering, underwriters, underwriters' counsel,
financial consultants and advisors, finders, members of the selling or
distribution group, and any and all other persons associated with or related to
any of such persons. (NASD Interpretation)
EXHIBIT A
WARRANTS
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
EXHIBIT C
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
MICROISLET, INC.
Publicease Stock Transfer
0000 Xxxx Xxxxxx Xxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
Ladies and Gentlemen:
Reference is made to that certain Securities Purchase
Agreement (the "PURCHASE AGREEMENT"), dated as of December 23, 2005, among
MicroIslet, Inc. (the "Company"), and the purchasers named therein (the
"HOLDERS") pursuant to which the Company will issue to the Holders: (i) shares
of the Company's Common Stock ("SHARES"), and (ii) certain common stock purchase
warrants (the "WARRANTS"). The Warrants shall be exercisable into shares of the
Company's common stock, par value $.001 per share (the "COMMON STOCK"). The
shares of Common Stock issuable upon exercise of the Warrants are referred to
herein as "UNDERLYING SHARES."
The Company has agreed with the Holders that it will re-issue
the Shares and, upon exercise of the Warrants, it will issue the Underlying
Shares (or reissue such Underlying Shares, as applicable) free of all
restrictive and other legends, among other times, when there is an effective
registration statement covering the resale thereof.
In furtherance of this instruction, upon the effectiveness of
the Registration Statement (as defined in the Purchase Agreement), we will
instruct you in writing to the effect that the Shares and Underlying Shares may
be issued (or reissued, as applicable) and delivered to the Holders free of all
restrictive and other legends pursuant to the Registration Statement which has
been declared effective by the Securities and Exchange Commission. You need not
require further letters from us to effect any future legend-free issuance of
shares of Common Stock to the Holders as contemplated by this letter and this
letter shall serve as our standing instructions with regard to this matter,
provided, that the Company may, from time to time, notify you to place
stop-transfer restrictions on the certificates for Shares or Underlying Shares
in the event the Registration Statement is subject to amendment for events then
current or is otherwise unavailable to the selling securityholders listed
therein.
These instructions have been executed and delivered pursuant
to the Purchase Agreement. Please execute this letter in the space indicated to
acknowledge your agreement to act in accordance with these instructions.
Very truly yours,
MicroIslet, Inc.
By:
------------------------------------
Name:
Title:
ACKNOWLEDGED AND AGREED:
Name:
Title:
