PURCHASE AGREEMENT
EXHIBIT
10.1
THIS
AGREEMENT is made as of the 17th day of October, 2006, by and between
PSI
Corporation (the
“Company”), a corporation organized under the laws of the State of Nevada, with
its principal offices at 0000 Xxxxxxxx Xxxxxx Xxxxx, Xxxxx 000, Xxxxxxxx
Xxxxxxx, Xxxxxxxx 00000, and Lazarus
Investment Partners LLLP, a
Delaware limited liability limited partnership, with its principal offices
at
0000 Xxxx Xxxxxx Xxxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxx 00000 (the
“Purchaser”).
IN
CONSIDERATION of the mutual covenants contained in this Agreement, the Company
and the Purchaser agree as follows:
SECTION
1. Authorization
of Sale of the Shares.
Subject
to the terms and conditions of this Agreement, the Purchaser will purchase
from
the Company and the Company will sell to the Purchaser 5,000,000 shares of
Common Stock (“Purchased Shares”) and two stock purchase warrants (“Warrants”)
exercisable for an aggregate of 5,000,000 shares of Common Stock (subject to
adjustment, “Warrant Shares”), for an aggregate purchase price of $500,000.00.
Each of the Warrants will be in the form delivered contemporaneously herewith,
will be exercisable for a period of five years (subject to earlier termination
as provided therein), commencing on the date of issuance, and will be
exercisable for 2,500,000 shares of Common Stock, subject to adjustment as
provided therein. The initial exercise prices under the Warrants will be $.15
and $.20 per share, respectively, subject to adjustment as provided in the
Warrants.
SECTION
2. Closing.
The
closing of the purchase and sale (“Closing”) shall take place on the date of
this Agreement (“Closing Date”) and shall be consummated by mail or otherwise in
accordance with arrangements reasonably acceptable to counsel for the Purchaser
and counsel for the Company. At the Closing, the Company will deliver to the
Purchaser the Warrants and certificates representing the Purchased Shares,
registered in the name of the Purchaser, and the Purchaser will deliver to
the
Company the purchase price therefor by wire transfer or check payable to the
order of the Company. The Purchaser’s obligations at the Closing are subject to
the following conditions, any one or more of which may be waived by the
Purchaser:
(a) Each
of
the representations and warranties of the Company made herein shall be accurate
as of the Closing Date and the Purchaser shall have received a certificate
from
the Company’s chief executive officer and chief financial or accounting officer
to that effect.
(b) The
Purchaser shall have received certified copies of (i) resolutions of the
directors of the Company in form and substance satisfactory to counsel to the
Purchaser with respect to the authorization of this Agreement and the
transactions referred to herein, and (ii) the Company’s bylaws and articles
of incorporation, both as amended and in effect on the Closing Date.
(c) The
execution by the Company of a management rights letter reasonably satisfactory
to the Purchaser.
(d) Fulfillment,
in all material respects, of those agreements and undertakings of the Company
to
be fulfilled prior to or at the Closing.
SECTION
3. Representations,
Warranties, and Covenants of the Company.
Except
as qualified on the Schedule of Exceptions attached hereto, the Company hereby
represents and warrants to, and covenants with, the Purchaser as follows:
3.1 Organization
and Qualification.
The
Company is a corporation duly incorporated, validly existing, and in good
standing under the laws of the State of Nevada and the Company is qualified
to
do business as a foreign corporation and in good standing in each jurisdiction
in which qualification is required, except where failure to so qualify would
not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect (as defined herein). The material subsidiaries of the Company
are
listed on Schedule
3.1
to the
Schedule of Exceptions (each a “Subsidiary” and collectively, the
“Subsidiaries”). Each Subsidiary is a direct or indirect wholly owned subsidiary
of the Company. Each Subsidiary is duly organized, validly existing, and in
good
standing under the laws of its jurisdiction of organization and is qualified
to
do business as a foreign entity in each jurisdiction in which qualification
is
required, except where failure to so qualify would not reasonably be expected
to
have, individually or in the aggregate, a Material Adverse Effect. For purposes
of this Agreement, the term “Material Adverse Effect” shall mean a material
adverse effect upon the business, financial condition, properties or results
of
operations of the Company and its Subsidiaries, taken as a whole.
3.2 Authorized
Capital Stock.
Immediately prior to the Closing, the authorized capital stock of the Company
will consist solely of 5,000,000 shares of Preferred Stock, par value $.001
per
share, none of which are outstanding, and 300,000,000 shares of Common Stock,
par value $.001 per share, 66,962,747 of which are issued and outstanding.
The
issued and outstanding shares of the Company’s Common Stock have been duly
authorized and validly issued, are fully paid and non-assessable, have been
issued in compliance with all federal and state securities laws, and were not
issued in violation of or subject to any preemptive rights or other rights
to
subscribe for or purchase securities. Other than pursuant to plans or agreements
described in the SEC Documents (as defined in Section 3.18) or the Schedule
of Exceptions (collectively, “Disclosure Documents”), the Company does not have
outstanding any options to purchase, or any preemptive rights or other rights
to
subscribe for or to purchase, any securities or obligations convertible into,
or
any contracts or commitments to issue or sell, shares of its capital stock
or
any such options, rights, convertible securities, or obligations. The
description of the Company’s stock, stock bonus, and other stock plans or
arrangements and the options or other rights granted and exercised thereunder,
set forth in the Disclosure Documents accurately and fairly presents all
material information with respect to such plans, arrangements, options, and
rights. With respect to each Subsidiary, (i) all the issued and outstanding
shares of each Subsidiary’s capital stock or other equity interests have been
duly authorized and validly issued, are fully paid and, in the case of each
Subsidiary that is a corporation, non-assessable, have been issued in compliance
with applicable federal and state securities laws, were not issued in violation
of or subject to any preemptive rights or other rights to subscribe for or
purchase securities, and (ii) there are no outstanding options to purchase,
or
any preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments
to
issue or sell, shares of any Subsidiary’s capital stock or other equity
interests or any such options, rights, convertible securities, or obligations.
Any anti-dilution or other adjustments in the number of shares issuable upon
exercise, conversion, or exchange of the Company’s rights, options, warrants,
and exercisable, convertible, and exchangeable securities have been waived
and
will not be invoked by the issuance of the Purchased Shares, Warrants, and
the
Warrant Shares, including any subsequent adjustments in the number of shares
issuable under the terms of the Warrants.
-2-
3.3 Warrant
Shares Percentage.
Attached hereto as Schedule 3.3 is the Company’s Capitalization Table
showing all outstanding shares of Common Stock on a fully diluted basis. For
such purpose, “Fully Diluted Shares” means outstanding shares of Common Stock
and Common Stock issuable upon exercise, conversion, or exchange of all
outstanding rights, options, warrants, securities, agreements, and instruments
provided that the exact number of shares issuable upon conversion or exchange
is
currently ascertainable and does not include, for example, “Penalty” shares
which may be issuable pursuant to prior financings, shares issuable in payment
of principal or interest under outstanding promissory notes, or shares issuable
as a result of any anti-dilution adjustments. On the date hereof, the Purchased
Shares and the Warrant Shares constitute 11.54% (“Purchaser’s Percentage) of the
Company’s Fully Diluted Shares.
3.4 Issuance,
Sale, and Delivery of the Purchased Shares.
The
Purchased Shares and the Warrants have been duly authorized and, when issued,
delivered and paid for in the manner set forth in this Agreement, will be duly
authorized, validly issued, fully paid, and non-assessable and free and clear
of
all pledges, liens, restrictions, and encumbrances (other than restrictions
on
transfer under state and/or federal securities laws). The shares of Common
Stock
issuable upon exercise of the Warrants have been duly authorized and, if and
when issued, delivered, and paid for upon exercise of the Warrants will be
duly
authorized, validly issued, fully paid, non-assessable, and free of clear of
all
pledges, liens, restrictions, and encumbrances (other than restrictions on
transfer under state and/or federal securities laws). No preemptive rights
or
other rights to subscribe for or purchase exist with respect to the issuance
and
sale of the Purchased Shares and Warrants by the Company pursuant to this
Agreement or the Warrant Shares upon exercise of the Warrants. Except as
otherwise disclosed in the Schedule of Exceptions, no stockholder of the Company
has any right to require the Company to register the sale of any shares owned
by
such stockholder under the Securities Act of 1933, as amended (the “Securities
Act”). Neither the Company nor its Subsidiaries nor, to the Company’s knowledge,
any shareholder of the Company has entered into any agreement with respect
to
the voting of equity securities of the Company or any Subsidiary. No further
approval or authority of the stockholders or the Board of Directors of the
Company will be required for the issuance and sale of the Purchased Shares
or
the Warrants to be sold by the Company as contemplated herein or for the
issuance of the Warrant Shares upon exercise of the Warrants.
3.5 Due
Execution, Delivery, and Performance of this Agreement.
The
Company has full legal right, corporate power and authority to enter into this
Agreement and perform the transactions contemplated hereby. This Agreement
has
been duly authorized, executed, and delivered by the Company. The execution,
delivery, and performance of this Agreement by the Company and the consummation
of the transactions herein contemplated will not violate any provision of the
certificate of incorporation or bylaws of the Company or any of its Subsidiaries
and will not result in the creation of any lien, charge, security interest,
or
encumbrance upon any assets of the Company or any of its Subsidiaries pursuant
to the terms or provisions of, and will not conflict with, result in the breach
or violation of, or constitute, either by itself or upon notice or the passage
of time or both, a default under (i) any agreement, lease, franchise, license,
permit, or other instrument to which the Company or any of its Subsidiaries
is a
party or by which the Company or any of its Subsidiaries or any of their
respective properties may be bound or affected and in each case which would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, or (ii) any statute or any judgment, decree, order, rule, or
regulation of any court or any regulatory body, administrative agency, or other
governmental body applicable to the Company or any of its Subsidiaries or any
of
their respective properties where such conflict, breach, violation, or default
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect. No consent, approval, authorization, or other order
of
any court, regulatory body, administrative agency, or other governmental body
is
required for the execution and delivery of this Agreement or the consummation
of
the transactions contemplated by this Agreement, except for compliance with
the
blue sky laws and federal securities laws applicable to the offering of the
Purchased Shares, Warrants, and Warrant Shares. Upon the execution and delivery
of this Agreement, and assuming the valid execution thereof by the Purchaser,
this Agreement will constitute a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting creditors’ and contracting
parties’ rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered
in
a proceeding in equity or at law) and except as the indemnification agreements
of the Company in Section 6.3 hereof may be limited by federal or state
securities laws or the public policy underlying such laws.
-3-
3.6 Accountants.
Each of
the firms of Lopez, Blevins, Xxxx & Associates, Ltd. and Xxxxx &
Company, which has audited the consolidated financial statements of the Company
included in the SEC Documents is an independent accountant as required by the
Securities Act and the rules and regulations promulgated thereunder (the “Rules
and Regulations”).
3.7 No
Defaults.
Neither
the Company nor any of its Subsidiaries is in violation or default of any
provision of its articles of incorporation, bylaws, or equivalent organizational
documents, or in breach of or default with respect to any provision of any
agreement, judgment, decree, order, lease, franchise, license, permit, or other
instrument to which it is a party or by which it or any of its properties are
bound which would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect and there does not exist any state of
facts
which, with notice or lapse of time or both, would constitute an event of
default on the part of the Company or any of its Subsidiaries as defined in
such
documents and which would reasonably be expected to have, individually or in
the
aggregate, a Material Adverse Effect.
3.8 Contracts.
The
Company and its Subsidiaries have no material contracts that are required to
be
filed with the Securities and Exchange Commission (the “Commission”) that are
not described in the Disclosure Documents. All contracts described in the
Disclosure Documents that are material to the Company and its Subsidiaries,
taken as a whole, are in full force and effect on the date hereof; and neither
the Company nor any of its Subsidiaries is, nor, to the Company’s knowledge, is
any other party in breach of or default under any of such contracts which breach
or default would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
3.9 No
Actions.
Except
as may be described in the Schedule of Exceptions: (i) there are no legal
or governmental actions, suits, or proceedings pending against the Company
or
any Subsidiary; and (ii) to the Company’s knowledge, there are no legal or
governmental inquiries, investigations, actions, suits, or proceedings
threatened against the Company or any of its Subsidiaries or of which property
owned or leased by the Company or any of its Subsidiaries is subject, or related
to environmental or discrimination matters, which actions, suits, or
proceedings, individually or in the aggregate, would reasonably be expected
to
have a Material Adverse Effect; and no labor disturbance by the employees of
the
Company exists or, to the Company’s knowledge, is imminent which would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries is party to
or
subject to the provisions of any injunction, judgment, decree, or order of
any
court, regulatory body, administrative agency, or other governmental body which
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
-4-
3.10 Properties.
The
Company and the Subsidiaries have good and marketable title to all properties
and assets reflected as owned in the financial statements included in the SEC
Documents, subject to no lien, mortgage, pledge, charge, or encumbrance of
any
kind except (i) those, if any, reflected in such financial statements, or
(ii) those which are not material in amount and do not adversely affect the
use of such property by the Company and its Subsidiaries. Each of the Company
and its Subsidiaries holds its leased properties under valid and binding leases,
with such exceptions as are not materially significant in relation to its
business taken as a whole. The Company leases all such properties as are
necessary to its operations as now conducted.
3.11 No
Material Change.
Since
July 31, 2006, and except as disclosed in the Schedule of
Exceptions: (i) the Company and its Subsidiaries have not
incurred any material liabilities or obligations, indirect, or contingent which
are not in the ordinary course of business or which would reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect;
(ii) neither the Company nor any Subsidiary has entered into any
transaction which is not in the ordinary course of business; (iii) the
Company and its Subsidiaries have not sustained any material loss or
interference with their businesses or properties from fire, flood, windstorm,
accident, or other calamity; (iv) the Company and its Subsidiaries have not
paid or declared any dividends or other distributions with respect to their
capital stock and neither the Company nor any of its Subsidiaries is in default
in the payment of principal or interest on any outstanding debt obligations;
(v) (a) there has not been any change in the capital stock of the
Company or any of its Subsidiaries other than the sale of the Purchased Shares
and Warrants hereunder, shares or options issued pursuant to employee equity
incentive plans or purchase plans approved by the Company’s Board of Directors
and repurchases of shares or options pursuant to repurchase plans already
approved by the Company's Board of Directors, in each case, which plans have
been disclosed in the Disclosure Documents, and (b) there has not been any
incurrence of indebtedness not incurred in the ordinary course of business
or
that is material to the Company and its Subsidiaries, taken as a whole; and
(vi) there has not been any other event which has caused or would
reasonably be expected to cause a Material Adverse Effect.
3.12 Intellectual
Property.
Except
as disclosed in the Schedule of Exceptions: (i) the Company owns, or has
obtained valid and enforceable licenses or options for the inventions, patent
applications, patents, trademarks (both registered and unregistered), trade
names, copyrights, and trade secrets necessary for the conduct of the Company’s
business as currently conducted (collectively, the “Intellectual Property”); and
(ii) (a) there are no third parties who have any ownership rights to
any Intellectual Property that is owned by, or has been licensed to, the Company
for the products described in the Disclosure Documents that would preclude
the
Company from conducting its business as currently conducted and which would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, except for the ownership rights of the owners of the
Intellectual Property who have licensed or optioned such Intellectual Property
to the Company; (b) to the Company’s knowledge, there are currently no
sales of any products that would constitute an infringement by third parties
of
any Intellectual Property owned, licensed, or optioned by the Company, which
infringement would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect; (c) there is no pending or, to the
Company’s knowledge, threatened action, suit, proceeding, or claim by others
challenging the rights of the Company in or to any Intellectual Property owned,
licensed, or optioned by the Company; (d) there is no pending or, to the
Company’s knowledge, threatened action, suit, proceeding, or claim by others
challenging the validity or scope of any Intellectual Property owned, licensed,
or optioned by the Company; and (e) there is no pending or, to the
Company’s knowledge, threatened action, suit, proceeding, or claim by others
that the Company infringes or otherwise violates any patent, trademark,
copyright, trade secret, or other proprietary right of others.
3.13 Compliance.
Each of
the Company and its Subsidiaries is conducting its business in compliance with
all applicable laws, rules and regulations of the jurisdictions in which it
is
conducting its business, including, without limitation, all applicable local,
state, and federal environmental laws and regulations; except where failure
to
be so in compliance would not reasonably be expected to have, individually
or in
the aggregate, a Material Adverse Effect.
3.14 Taxes.
Each of
the Company and its Subsidiaries 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 neither the Company nor any of its Subsidiaries has any
tax
deficiency which has been, or to its knowledge might be, asserted or threatened
against it which would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
3.15 Transfer
Taxes.
On the
Closing Date, all stock transfer or other taxes (other than income taxes) which
are required to be paid in connection with the sale and transfer of the
Purchased Shares and Warrants to be sold to the Purchaser hereunder will be,
or
will have been, fully paid or provided for by the Company and all laws imposing
such taxes will be or will have been complied with.
3.16 Investment
Company.
The
Company is not an “investment company” or an “affiliated person” of, or
“promoter” or “principal underwriter” for an investment company, within the
meaning of the Investment Company Act of 1940, as amended.
3.17 Insurance.
The
Company and its Subsidiaries maintain insurance of the types and in the amounts
that the Company reasonably believes is adequate for their businesses,
including, but not limited to, insurance covering all real and personal property
owned and leased by the Company and its Subsidiaries against theft, damage,
destruction, acts of vandalism, and all other risks customarily insured against
by similarly situated companies, all of which insurance is in full force and
effect.
-5-
3.18 Additional
Information.
The
information contained in the following documents (“SEC Documents”), which the
Company has furnished to the Purchaser, or will furnish prior to the Closing,
does not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances in which they were made, not
misleading, as of their respective final dates:
(a) The
Company’s Annual Report on Form 10-KSB for the fiscal year ended October 31,
2005;
(b) The
Company’s Quarterly Report on Form 10-QSB for the fiscal quarter ended January
31, 2006;
(c) The
Company’s Quarterly Report on Form 10-QSB for the fiscal quarter ended
April 30, 2006;
(d) The
Company’s Quarterly Report on Form 10-QSB for the fiscal quarter ended July 31,
2006;
(e) Any
current reports on Form 8-K filed by the Company with the Commission since
July 31, 2006, but prior to the date hereof.
3.19 Price
of Common Stock.
The
Company has not taken, and will not take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of
the
price of the shares of the Common Stock to facilitate the sale or resale of
the
Purchased Shares or Warrant Shares.
3.20 Certificate.
At the
Closing, the Company will deliver to Purchaser a certificate executed by the
chief executive officer and the chief financial or accounting officer of the
Company, dated as of the Closing Date, in form and substance reasonably
satisfactory to the Purchaser, to the effect that the representations and
warranties of the Company set forth in this Section 3 are true and correct
as of the date of this Agreement and as of the Closing Date and that the Company
has complied with all the agreements and satisfied all the conditions herein
on
its part to be performed or satisfied on or prior to or on such Closing
Date.
3.21 Waiver
of Anti-Dilution.
At the
Closing, the Company will deliver to Purchaser, written waivers of any
anti-dilution or other adjustments in the number of shares issuable upon
exercise, conversion, or exchange of the Company’s rights, options, warrants,
and exercisable, convertible, and exchangeable securities that that in the
absence of such waivers would have been invoked by the issuance of the Purchased
Shares, Warrants, and the Warrant Shares, which waivers shall include a waiver
for any subsequent adjustments in the number of shares issuable under the terms
of the Warrants.
-6-
3.22 Reporting
Company; Form SB-2.
The
Company is subject to the reporting requirements of the Securities Exchange
Act
of 1934, as amended (the “Exchange Act”) and has filed all reports required
thereby. The Company is eligible to register the Purchased Shares and Warrant
Shares for resale by the Purchaser on a registration statement on Form SB-2
under the Securities Act. There exist no facts or circumstances (including
without limitation any required approvals or waivers or any circumstances that
may delay or prevent the obtaining of accountant’s consents) that reasonably
could be expected to prohibit or delay the preparation and filing of a
registration statement on Form SB-2 that will be available for the resale
of the Purchased Shares and Warrant Shares by the Purchaser.
3.23 Use
of
Proceeds.
The
Company shall use the proceeds from the sale of Purchased Shares and Warrants
as
described under “Use of Proceeds” in the Schedule of Exceptions.
3.24 Non-Public
Information.
The
Company has not disclosed to the Purchaser information that would constitute
material non-public information as of the Closing Date.
3.25 Use
of
Purchaser Name.
Except
in the registration statement (“Registration Statement”) and the prospectus
(“Prospectus”) that may be filed to register the Purchased Shares and the
Warrant Shares, as provided below, and as may be required by applicable law
or
regulation, the Company shall not use the Purchaser’s name or the name of any of
its affiliates in any advertisement, announcement, press release, or other
similar public communication unless it has received the prior written consent
of
the Purchaser for the specific use contemplated or as otherwise required by
applicable law or regulation.
3.26 Related
Party Transactions.
No
transaction has occurred between or among the Company, any of the Subsidiaries
and their affiliates, officers or directors or any affiliate or affiliates
of
any such officer or director that is required to have been described under
applicable securities laws in its Exchange Act filings and is not so described
in such filings.
3.27 Off-Balance Sheet Arrangements. There
is no transaction, arrangement, or other relationship between the Company or
any
Subsidiary and an unconsolidated or other off-balance sheet entity that is
required to be disclosed by the Company in its Exchange Act filings and is
not
so disclosed or that otherwise would be reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect (and no such transaction,
arrangement, or relationship has occurred since the time periods covered by
such
filings that is required to be reported in an upcoming Exchange Act filing).
There are no such transactions, arrangements, or other relationships with the
Company or any Subsidiary that may create contingencies or liabilities that
are
not otherwise disclosed by the Company in its Exchange Act filings (and no
such
transaction, arrangement, or relationship has occurred since the time periods
covered by such filings that is required to be reported in an upcoming Exchange
Act filing).
3.28 Governmental
Permits, Etc.
Each of
the Company and its Subsidiaries has all franchises, licenses, certificates,
and
other authorizations from such federal, state, or local government or
governmental agency, department, or body that are currently required for the
operation of the business of the Company and its Subsidiaries as currently
conducted, except where the failure to possess currently such franchises,
licenses, certificates, and other authorizations would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
The Company and its Subsidiaries have not received any notice of proceedings
relating to the revocation or modification of any such permit which, if the
subject of an unfavorable decision, ruling, or finding would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
-7-
3.29 Financial
Statements.
The
consolidated financial statements of the Company and the related notes contained
in its Exchange Act filings present fairly, in accordance with generally
accepted accounting principles, the consolidated financial position of the
Company and its Subsidiaries as of the dates indicated, and the results of
their
operations, cash flows, and the changes in stockholders’ equity for the periods
therein specified, subject, in the case of unaudited financial statements for
interim periods, to normal year-end audit adjustments. Such consolidated
financial statements (including the related notes) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods therein specified, except that unaudited financial
statements may not contain all footnotes required by generally accepted
accounting principles.
3.30 Xxxxxxxx-Xxxxx
Act.
The
Chief Executive Officer and the Chief Financial Officer of the Company have
signed, and the Company has furnished to the Commission, all certifications
required by Sections 302 and 906 of the Xxxxxxxx-Xxxxx Act of 2002, and neither
the Company nor any of its officers have received notice from any governmental
entity questioning or challenging the accuracy, completeness, form, or manner
of
filing or submission of such certifications.
3.31 ERISA
Compliance.
Each
material employee benefit plan, within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”), that is
maintained, administered, or contributed to by the Company or any of its
affiliates for employees or former employees of the Company and its Subsidiaries
has been maintained in material compliance with its terms and the requirements
of any applicable statutes, orders, rules, and regulations, including but not
limited to ERISA and the Internal Revenue Code of 1986, as amended (the “Code”);
no prohibited transaction, within the meaning of Section 406 of ERISA or Section
4975 of the Code, has occurred which would result in a material liability to
the
Company with respect to any such plan excluding transactions effected pursuant
to a statutory or administrative exemption; and for each such plan that is
subject to the funding rules of Section 412 of the Code or Section 302 of ERISA,
no “accumulated funding deficiency” as defined in Section 412 of the Code has
been incurred, whether or not waived, and the fair market value of the assets
of
each such plan (excluding for these purposes accrued but unpaid contributions)
exceeds the present value of all benefits accrued under such plan determined
using reasonable actuarial assumptions.
3.32 Listing.
The
Company’s Common Stock is listed for trading on the Over the Counter Bulletin
Board (“OTCBB”) and satisfies all requirements for the continuation of such
trading. The Company has not received any notice that its Common Stock will
not
be eligible to be traded on the OTCBB or that its Common Stock does not meet
all
requirements for such trading.
-8-
3.33 No
Integrated Offering.
Neither
the Company, nor any of its Subsidiaries or 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 the offering of the Purchased Shares, Warrants, and/or Warrant
Shares to be integrated with prior offerings by the Company for purposes of
the
Securities Act and which would prevent the Company from selling securities
pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will the Company or any
of
its affiliates or Subsidiaries take any action or steps that would cause the
offering of the Purchased Shares, Warrants, and Warrant Shares to be integrated
with other offerings for such purpose.
3.34 Stop
Transfer.
The
Purchased Shares, Warrants, and Warrant Shares are restricted securities as
of
the date of this Agreement. Neither the Company nor any of its Subsidiaries
will
issue any stop transfer order or other order impeding the sale and delivery
of
any of the Purchased Shares, Warrants, or Warrant Shares at such time as the
they are registered for public sale or an exemption from registration is
available, except as required by state and federal securities laws.
3.35 Patriot
Act.
The
Company certifies that, to the best of Company’s knowledge, neither the Company
nor any of its Subsidiaries has been designated, and is not owned or controlled,
by a “suspected terrorist” as defined in Executive Order 13224. The Company
hereby acknowledges that the Purchaser seeks to comply with all applicable
laws
concerning money laundering and related activities. In furtherance of those
efforts, the Company hereby represents, warrants, and agrees that: (i) none
of the cash or property that the Company or any of its Subsidiaries will pay
or
will contribute to the Purchaser has been or shall be derived from, or related
to, any activity that is deemed criminal under United States law; and (ii)
no
contribution or payment by the Company or any of its Subsidiaries to the
Purchaser, to the extent that they are within the Company’s and/or its
Subsidiaries’ control shall cause the Purchaser to be in violation of the United
States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986, or the United States International money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. The Company shall promptly
notify the Purchaser if any of these representations ceases to be true and
accurate regarding the Company or any of its Subsidiaries. The Company agrees
to
provide the Purchaser any additional information regarding the Company or any
of
its Subsidiaries that the Purchaser deems necessary or convenient to ensure
compliance with all applicable laws concerning money laundering and similar
activities. The Company understands and agrees that if, at any time, it is
discovered that any of the foregoing representations are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
or similar activities, the Purchaser may undertake appropriate actions to ensure
compliance with such applicable law or regulation, including, but not limited
to, segregation and/or redemption of the Purchaser’s investment in the Company.
The Company further understands that the Purchaser may release confidential
information about the Company and its Subsidiaries and, if applicable, any
underlying beneficial owners, to proper authorities if the Purchaser, in its
sole reasonable discretion, after consultation with legal counsel, determines
that it is in the best interests of the Purchaser in light of relevant rules
and
regulations under the laws set forth in subsection (ii) above.
3.36 Completeness
of Representations and Warranties.
Neither
the Disclosure Documents, this Agreement, nor any Exhibit or Schedule to this
Agreement contains any untrue statement of a material fact or omits to state
a
material fact necessary in order to make the statements contained therein or
herein, in light of the circumstances under which they are made, not misleading,
and there is no fact which materially and adversely affects the business,
prospects, affairs, operations, condition, financial or otherwise, of the
Company which has not been disclosed to the Purchaser in writing by the Company.
-9-
SECTION
4. Representations,
Warranties, and Covenants of the Purchaser.
(a) The
Purchaser represents and warrants to, and covenants with , the Company that:
(i)
the Purchaser is knowledgeable, sophisticated and experienced in making, and
is
qualified to make, decisions with respect to investments like those involved
in
the purchase of the Purchased Shares and Warrants and has had the opportunity
to
request, receive, review, and consider all information it deems relevant in
making an informed decision to purchase the Purchased Shares and Warrants
(collectively, “Securities”); (ii) the Purchaser is acquiring the
Securities in the ordinary course of its business and for its own account for
investment only and with no present intention of distributing any of such
Securities or any arrangement or understanding with any other persons regarding
the distribution of such Securities (this representation and warranty not
limiting the Purchaser’s right to sell pursuant to the Registration Statement or
in compliance with the Securities Act and the Rules and Regulations, the
Purchaser’s right to indemnification under Section 6.3); (iii) the
Purchaser will not, directly or indirectly, offer, sell, pledge, transfer,
or
otherwise dispose of (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of) any of the Securities, nor will the Purchaser
engage in any short sale that results in a disposition of any of the Securities
by the Purchaser, except in compliance with the Securities Act and the Rules
and
Regulations and any applicable state securities laws; (iv) the Purchaser
has had an opportunity to discuss this investment with representatives of the
Company and ask questions of them; (v) the Purchaser is an “accredited
investor” within the meaning of Rule 501(a) of Regulation D promulgated
under the Securities Act; (vi) the Purchaser has not engaged any finder,
broker or agent who is entitled to receive a finder’s or broker’s or agent’s fee
or commission in connection with the purchase of the Securities; and
(vii) the Purchaser acknowledges that no oral or written representations
have been made to the Purchaser in connection with the offering of the
Securities which were in any way inconsistent with the information reviewed
by
the Purchaser.
(b) The
Purchaser understands that the Securities are being offered and sold to it
in
reliance upon specific exemptions from the registration requirements of the
Securities Act, the Rules and Regulations, and state securities laws and that
the Company is relying upon the truth and accuracy of, and the Purchaser’s
compliance with, the representations, warranties, agreements, acknowledgments,
and understandings of the Purchaser set forth herein in order to determine
the
availability of such exemptions and the eligibility of the Purchaser to acquire
the Securities.
(c) The
Purchaser understands that its investment in the Securities involves a
significant degree of risk, including a risk of total loss of the Purchaser’s
investment, and the Purchaser has full cognizance of and understands all of
the
risk factors related to the Purchaser’s purchase of the Securities. The
Purchaser understands that the market price of the Common Stock has been
volatile and that no representation is being made as to the future value of
the
Common Stock. The Purchaser has the knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the Securities and has the ability to bear the economic risks
of
an investment in the Securities.
-10-
(d) The
Purchaser understands that no United States federal or state agency or any
other
government or governmental agency has passed upon or made any recommendation
or
endorsement of the Securities.
(e) The
Purchaser understands that, until such time as the Registration Statement has
been declared effective or the Securities may be sold pursuant to Rule 144(k)
under the Securities Act without any restriction as to the number of securities
as of a particular date that can then be immediately sold, the Securities will
bear a restrictive legend in substantially the following form:
“The
shares represented by this certificate may be transferred, sold, assigned,
or
hypothecated, only if registered under the Securities Act of 1933 and if
registered or qualified in every applicable state, or if the issuer has received
the favorable opinion of counsel to the holder, which opinion and counsel shall
be reasonably satisfactory to counsel to the issuer, to the effect that such
registration is not necessary in connection with such transfer, sale,
assignment, or hypothecation.”
(f) The
Purchaser’s principal executive offices are in the jurisdiction set forth in the
first paragraph of this Agreement.
(g) The
Purchaser hereby covenants with the Company not to make any sale of the
Purchased Shares or Warrant Shares under the Registration Statement without
complying with the provisions of this Agreement and without effectively causing
the prospectus delivery requirement under the Securities Act to be satisfied.
The Purchaser will notify the Company promptly after the sale of all of the
Purchased Shares and Warrant Shares. The Purchaser acknowledges that there
may
occasionally be times when the Company may need to suspend the use of the
Prospectus forming a part of the Registration Statement (a “Suspension”) until
such time as an amendment to the Registration Statement has been filed by the
Company and declared effective by the Commission, or until such time as the
Company has filed an appropriate report with the Commission pursuant to the
Exchange Act. The Purchaser hereby covenants that it will not sell any Purchased
Shares or Warrant Shares pursuant to said Prospectus during the period
commencing at the time at which the Company gives the Purchaser written notice
of the Suspension of the use of said Prospectus and ending at the time the
Company gives the Purchaser written notice that the Purchaser may thereafter
effect sales pursuant to said Prospectus. Notwithstanding the foregoing, the
Company agrees that no Suspension shall be for a period of longer than 60
consecutive days, there shall be no more than two Suspensions during any twelve
month period, and the Company shall use best efforts to lift any such Suspension
as soon as practicable following such Suspension. Nothing in this paragraph
shall be interpreted to restrict or prohibit the Purchaser from selling any
of
the Securities in a private transaction in compliance with applicable laws
(including, but not limited to, Rule 144), and otherwise in accordance with
the other provisions of this Agreement.
-11-
(h) The
Purchaser further represents and warrants to, and covenants with, the Company
that: (i) the Purchaser has full right, power, authority, and
capacity to enter into this Agreement and to consummate the transactions
contemplated hereby and has taken all necessary action to authorize the
execution, delivery, and performance of this Agreement; (ii) the making and
performance of this Agreement by the Purchaser and the consummation of the
transactions herein contemplated will not violate any provision of the
organizational documents of the Purchaser or conflict with, result in the breach
or violation of, or constitute, either by itself or upon notice or the passage
of time or both, a default under any material agreement, mortgage, deed of
trust, lease, franchise, license, indenture, permit, or other instrument to
which the Purchaser is a party, or any statute or any authorization, judgment,
decree, order, rule, or regulation of any court or any regulatory body,
administrative agency, or other governmental body applicable to the Purchaser;
(iii) no consent, approval, authorization, or other order of any court,
regulatory body, administrative agency, or other governmental body is required
on the part of the Purchaser for the execution and delivery of this Agreement
or
the consummation of the transactions contemplated by this Agreement;
(iv) upon the execution and delivery of this Agreement, this Agreement
shall constitute a legal, valid, and binding obligation of the Purchaser,
enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting creditors’ and contracting parties’ rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) and except to the extent enforcement of the indemnification
provisions, set forth in Section 6.3 of this Agreement, may be limited by
federal or state securities laws or the public policy underlying such laws;
and
(v) there is not in effect any order enjoining or restraining the Purchaser
from entering into or engaging in any of the transactions contemplated by this
Agreement.
(i) The
Purchaser further represents and warrants that at no time during the 30 days
prior to the Closing has the Purchaser engaged in or effected, in any manner
whatsoever, directly or indirectly, in any “short sale” (as such term is defined
in Rule 3b-3 of the Exchange Act) of the Common Stock (a “Short Sale”) of the
Company.
SECTION
5. Survival of Representations, Warranties, and Agreements.
Notwithstanding any investigation made by any party to this Agreement, all
covenants, agreements, representations, and warranties made by the Company
and
the Purchaser herein and in the Warrants and certificates for the Purchased
Shares delivered pursuant hereto shall survive the execution of this Agreement,
the delivery to the Purchaser of the Purchased Shares and Warrants being
purchased and the payment therefor.
SECTION
6. Registration
of the Shares; Compliance with the Securities Act.
6.1 Registration
Procedures and Expenses.
The
Company shall:
(a) Take
all
actions to permit the Purchaser to sell all of the Purchased Shares and Warrant
Shares (“Total Shares”) pursuant to Rule 144, including, but not limited
to, making and keeping public information available, filing all required
Commission reports and other documents in a timely manner, and providing
Purchaser with a written statement as to the compliance with the reporting
requirements of Rule 144..
-12-
(b) In
addition, within 60 days after the date hereof (“Filing Date”), the Company
shall prepare and file with the Securities and Exchange Commission (the
“Commission”) a Registration Statement covering the Purchased Shares and the
Warrant Shares (“Total Shares”) for an offering to be made on a continuous basis
pursuant to Rule 415. The Registration Statement shall be on Form SB-2
(except if the Company is not then eligible to register for resale the Total
Shares on Form SB-2, in which case such registration shall be on another
appropriate form in accordance herewith). The Company shall cause the
Registration Statement to become effective and remain effective as provided
herein. The Company shall use its reasonable commercial efforts to cause the
Registration statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event no later than
90
days after the date hereof (“Effectiveness Target Date”). The Company shall use
its reasonable commercial efforts to keep the Registration Statement
continuously effective under the Securities Act until the date which is the
earlier date of when (i) the Warrants have been fully exercised or have
terminated and all of the Total Shares have been sold, or (ii) the Warrants
have been fully exercised or have terminated and all of the Total Shares may
be
sold immediately without registration under the Securities Act and without
volume restrictions pursuant to Rule 144(k), as determined by the counsel
to the Company pursuant to a written opinion letter to such effect addressed
and
acceptable to the Company’s transfer agent and the Purchaser (the “Effectiveness
Period”).
(c) If:
(i) the Registration Statement is not filed on or prior to the Filing Date;
(ii) the Company fails to respond in writing to comments received from the
Commission in connection with the Registration Statement within 15 business
days
of receipt thereof; (iii) the Registration Statement is not declared
effective by the Commission by the Effectiveness Target Date; (iv) after
the Registration Statement is filed with and declared effective by the
Commission, the Registration Statement ceases to be effective (by suspension
or
otherwise) as to any of the Total Shares to which it is required to relate
at
any time prior to the expiration of the Effectiveness Period (without being
succeeded immediately by an additional registration statement filed and declared
effective) for a period of time which shall exceed 30 days in the aggregate
per
year (defined as a period of 365 days commencing on the date the Registration
Statement is declared effective) or more than 20 consecutive calendar days;
or
(v) the Common Stock is not listed or quoted, or is suspended from trading
on the OTCBB for a period of three consecutive trading days (provided the
Company shall not have been able to cure such trading suspension within 30
days
of the notice thereof or list the Common Stock on another trading market
acceptable to Purchaser) (any such failure or breach being referred to as an
“Event,” and for purposes of clauses (i) or (ii) the date on which such
Event occurs, or for purposes of clause (iv) the date on which such 30 day
or 20 consecutive day period (as the case may be) is exceeded, or for purposes
of clause (v) the date on which such three trading day period is exceeded,
being referred to as “Event Date”), then until the applicable Event is cured,
the Company shall pay to each Holder an amount in cash, as liquidated damages,
and not as a penalty, equal to 2.0% for each thirty (30) day period (prorated
for partial periods) on a daily basis of the sum of the purchase price of the
Purchased Shares ($500,000) and the aggregate exercise price under the Warrants
($875,000). While such Event continues, such liquidated damages shall be paid
not less often than each 30 days. Any unpaid liquidated damages as of the date
when an Event has been cured by the Company shall be paid within three days
following the date on which such Event has been cured by the Company.
-13-
(d) Use
its
best efforts to promptly prepare and file with the Commission such amendments
and supplements to the Registration Statement and the prospectus used in
connection therewith as may be necessary to keep the Registration Statement
effective during the Effectiveness Period.
(e) Furnish
to the Purchaser with respect to the Total Shares registered under the
Registration Statement (and to each underwriter, if any, of such Total Shares)
such number of copies of prospectuses and such other documents as the Purchaser
may reasonably request, in order to facilitate the public sale or other
disposition of all or any of the Total Shares by the Purchaser.
(f) File
documents required of the Company for normal Blue Sky clearance in states
specified in writing by the Purchaser; provided, however, that the Company
shall
not be required to qualify to do business or consent to service of process
in
any jurisdiction in which it is not now so qualified or has not so consented.
(g) Bear
all
expenses in connection with the procedures in Paragraphs (a) through (f) of
this Section 6.1 and the registration of the Total Shares pursuant to the
Registration Statement, other than fees and expenses, if any, of counsel or
other advisers to the Purchaser or underwriting discounts, brokerage fees,
and
commissions incurred by the Purchaser.
(h) Make
available, while the Registration Statement is effective, its Chief Executive
Officer, Chief Financial Officer, and Chief Operating Officer for questions
regarding information which the Purchaser may reasonably request in order to
fulfill any due diligence obligation on its part.
The
Company understands that the Purchaser disclaims being an underwriter, but
the
Purchaser being deemed an underwriter shall not relieve the Company of any
obligations it has hereunder.
6.2 Transfer
of Shares and Registration Rights.
(a) The
Purchaser agrees that it will not effect any disposition of any Total Shares
that are registered under the Registration Statement that would constitute
a
sale within the meaning of the Securities Act or any applicable state securities
laws, except as contemplated in the Registration Statement, and that it will
promptly notify the Company of any changes in the information set forth in
the
Registration Statement regarding the Purchaser or its plan of distribution.
(b) Subject
to the provisions of this Agreement, the Purchaser may assign the registration
rights with respect to the Total Shares to any party or parties to which it
may
from time to time transfer all or any portion of the Total Shares, provided
that
the transferee agrees in writing with the Company to be bound by the applicable
provisions of this Agreement regarding such registration rights and
indemnification relating thereto. Upon assignment of any registration rights
pursuant to this Section 6.2(b), the Purchaser shall deliver to the Company
a notice of such assignment which includes the identity and address of any
assignee and such other information reasonably requested by the Company in
connection with effecting any such registration (the term “Purchaser” under this
Section 6 will also include all such assignees).
-14-
6.3 Indemnification.
(a) Indemnification
by Company.
In the
event of any registration of any of its securities under the Securities Act
pursuant to this Agreement, the Company shall indemnify and hold harmless each
holder requesting or joining in a registration of such securities (“Holder”),
each of its officers, directors, and partners and such Holder's legal counsel
and accountants, each underwriter (as defined in the Securities Act) and each
controlling person of each of the foregoing, if any, (within the meaning of
the
Securities Act) against any losses, claims, damages, or liabilities, joint
or
several (or actions in respect thereof), including any of the foregoing incurred
in the settlement of any litigation, commenced or threatened, to which any
of
them may be subject under the Securities Act or any other statute or at common
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or based upon: (i) any untrue
statement (or alleged untrue statement) of any material fact contained in any
Registration Statement under which such securities were registered under the
Securities Act, any preliminary prospectus or final prospectus contained
therein, or any summary prospectus issued in connection with any securities
being registered, or any amendment or supplement thereto, or any other document;
or (ii) any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; or (iii) any violation by the Company of the Securities Act or
any Blue Sky law or any other statute or common law, or any rule or regulation
promulgated under the Securities Act or any Blue Sky law or any other law,
applicable to the Company in connection with any such registration,
qualification, or compliance, and shall reimburse each such person entitled
to
indemnification under this Paragraph (a) for any legal or other expenses
reasonably incurred by such person in connection with investigating or defending
any such loss, claim, damage, liability, or action including if requested by
Holders holding a majority of the Total Shares included in the registration,
the
fees and disbursements of separate counsel designated by Holders holding a
majority of such included Total Shares; provided, however, that the Company
shall not be liable to any such person in any such case to the extent that
any
such loss, claim, damage, or liability arises out of or is based upon any untrue
statement or omission made in such Registration Statement, preliminary
prospectus, summary prospectus, prospectus, or amendment or supplement thereto,
or any other document, in reliance upon and in conformity with written
information furnished to the Company by such person, specifically for use
therein. The indemnity provided for herein shall remain in full force and effect
regardless of any investigation made by or on behalf of the person seeking
indemnification and shall survive transfer of such securities by such Holder.
(b) Indemnification
by Holders.
Each
Holder who holds any Total Shares included in the Registration Statement hereby
agrees, severally and not jointly, to indemnify the Company, its directors
and
officers and its legal counsel and accountants, each underwriter (as defined
in
the Securities Act), each controlling person of each of the foregoing and each
other such Holder, each of its officers, directors, and partners and each
controlling person of such Holder, against any losses, claims, damages, or
liabilities (or actions in respect thereof), including any of the foregoing
incurred in the settlement of any litigation, commenced or threatened, joint
or
several, to which any of them may become subject under the Securities Act or
under any other statute or at common law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement (or alleged untrue statement) of any material
fact contained in any Registration Statement under which such securities were
registered under the Securities Act at the request of such Holder pursuant
to
this Agreement, any preliminary prospectus or final prospectus contained
therein, or any summary prospectus issued in connection with any securities
being registered, or any amendment or supplement thereto, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to
the
extent that such untrue statement (or alleged untrue statement) or omission
(or
alleged omission) was made in such Registration Statement, preliminary
prospectus, summary prospectus, prospectus, or amendment or supplement thereto,
solely in reliance upon and in conformity with written information furnished
to
the Company by such Holder specifically for use therein, and to reimburse such
persons for any legal or other expenses reasonably incurred in connection with
investigating or defending any such loss, claim, damage, liability, or action,
provided that a Holder's total liability under any indemnity given pursuant
to
this Paragraph (b) shall not exceed the net proceeds received by such
Holder from the sale of stock pursuant to the registration.
-15-
(c) Notice
of Claim.
Each
party entitled to indemnification under this Agreement (the “Indemnified Party”)
shall give written notice to the party required to provide indemnification
(the
“Indemnifying Party”) promptly after such Indemnified Party has written
notification of any claim as to which indemnity may be sought, and shall permit
the Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom, provided that (i) if the claim is made under
Paragraph (a) above, the Holders of a majority of the Total Shares included
in the Registration will have the right to designate separate counsel at the
Indemnifying Party’s expense, (ii) if separate counsel is not designated under
clause (i) counsel for the Indemnifying Party, who shall conduct the defense
of
such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at the Indemnified Party's expense, and (iii) the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Paragraph (c).
No Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect of such claim or litigation.
6.4 Contribution.
If the
indemnification provided for in Section 6.3 is for any reason held to be
unavailable, or insufficient to hold harmless an indemnified party with respect
to any losses, claims, damages, or liabilities referred to therein, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damage or liabilities
in
such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand, and of the Indemnified Party on the other,
in connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations; provided, however that each Holder's liability under this
Section 6.4 shall not exceed such Holder's net proceeds from the offering
of securities made in connection with a registered offering pursuant to this
Agreement. The relative fault of this Indemnifying Party and of the Indemnified
Party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. For purposes of this Section 6.4 each person, if
any, who controls, within the meaning of the Securities Act, any Indemnified
Party shall have the same rights to contribution as such Indemnified Party,
and
each person, if any, who controls the Company within the meaning of the
Securities Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company. Any party entitled to contribution,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution
may
be made against another party or parties under this Section 6.4, will
notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties from whom contribution may be sought
shall not relieve the party or parties from whom contribution may be sought
from
any other obligation it or they may have hereunder or otherwise than under
this
Section 6.4.
-16-
6.5 Information
Available.
So long
as the Registration Statement is effective covering the resale of Total Shares
owned by the Purchaser, the Company will furnish to the Purchaser:
(a) As
soon
as practicable after available (but in the case of the Annual Report to the
Stockholders, within 150 days after the end of each fiscal year of the Company),
one copy of: (i) its Annual Report to Stockholders (which Annual Report
shall contain financial statements audited in accordance with generally accepted
accounting principles by a national firm of certified public accountants);
(ii) if not included in substance in the Annual Report to Stockholders,
upon the request of Purchaser, its Annual Report on Form 10-K or 10-KSB;
(iii) upon request of Purchaser, its quarterly reports on Form 10-Q or
10-QSB; and (iv) a full copy of the Registration Statement (the foregoing,
in each case, excluding exhibits).
(b) Upon
the
reasonable request of the Purchaser, a reasonable number of copies of the
Prospectuses, and any supplements thereto, to supply to any other party
requiring such Prospectuses.
The
Company, upon the reasonable request of the Purchaser and with prior notice,
will be available to the Purchaser or a representative thereof at the Company’s
headquarters to discuss information relevant for disclosure in the Registration
Statement and will otherwise cooperate with any Purchaser conducting an
investigation for the purpose of reducing or eliminating such Purchaser’s
exposure to liability under the Securities Act, including the reasonable
production of information at the Company’s headquarters, subject to appropriate
confidentiality limitations.
6.6 Lost,
Stolen, etc. Certificates Evidencing Shares.
Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction, or mutilation of any Warrant or any certificate evidencing
any Purchased Shares or Warrant Shares owned by Purchaser, and (in the case
of
loss, theft, or destruction) of an unsecured indemnity satisfactory to it and,
upon surrender and cancellation of such Warrant or certificate, if mutilated,
the Company will make and deliver in lieu of such Warrant or certificate a
new
Warrant or certificate of like tenor and for the number of Purchased Shares
or
Warrant Shares evidenced by such certificate which remain outstanding.
Purchaser’s agreement of indemnity for losses described in this paragraph shall
constitute indemnity satisfactory to the Company for purposes of this
Section 6.6.
-17-
6.7 Other
Registration Rights.
If at
any time during the Effectiveness Period, the Company has an effective
registration rights agreement with any other shareholder that the Purchaser
determines are more favorable than those granted herein, the Purchaser shall
be
entitled to such other registration rights upon written notice to the Company.
SECTION
7. Broker’s
Fee.
The
Company agrees to pay all brokers’, finders’, or agents’ fees and commissions
payable as a result of the Company’s agreements or actions. The Purchaser and
the Company each hereby agrees to indemnify and hold the other harmless from
and
against any losses, claims, damages, liabilities, or expenses, joint or several,
to which the other party may become subject as a result of any brokers’,
finders’, or agents’ fees or commissions resulting from actions or agreements of
the Indemnifying Party.
SECTION
8. Participation
Right.
(a) If
the
Company should desire to issue any Common Stock, preferred stock, options,
stock
purchase warrants, convertible securities, or any other securities exercisable,
exchangeable, or convertible for capital stock of the Company (collectively,
“Equity Securities”) for cash in a transaction not registered under the
Securities Act, it shall give the Purchaser a right to purchase the Purchaser’s
Percentage of such Equity Securities. Such purchase shall be made on the same
terms as the Company is willing to sell such Equity Securities to any other
person. Prior to or contemporaneously with any sale or issuance by the Company
of Equity Securities, the Company shall notify Purchaser, in writing, of its
intention to sell and issue such Equity Securities, setting forth the amount
of
Equity Securities it desires to sell and the terms under which it proposes
to
make such sale. Purchaser shall have 20 days after the Company gives its
aforesaid notice to notify the Company of the maximum number of the Equity
Securities that it desires to purchase upon the terms set forth in the Company’s
notice. If Purchaser exercises the option, it may also specify in its notice
whether its purchase is contingent upon the Company consummating the sale of
all
of the Equity Securities (or any portion thereof) which it has proposed to
sell
as set forth in the Company’s notice.
(b) After
giving such notice, the Company may sell all but Purchaser’s Percentage of such
Equity Securities and, after the end of the 20-day period that Purchaser has
to
exercise its option, the Company may sell any Equity Securities with respect
to
which the Purchaser did not indicate a desire to purchase, provided that all
such sales described in this sentence shall be made within 90 days following
the
Company’s notice and shall be upon terms and conditions no more favorable to the
purchaser than those set forth in the Company’s notice. Any Equity Securities
described in the Company’s notice which are not sold within such 90-day period
may not be sold thereafter unless the Company again follows the provisions
of
this Section.
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(c) If
the
Purchaser gives the Company notice that it desires to purchase any of the Equity
Securities, it shall pay for the Equity Securities which it has notified the
Company that it will purchase by check against delivery of the Equity Securities
at the executive office of the Company within 10 days after the expiration
of
the 20-day period referred to above unless the Purchaser made its purchase
contingent upon the sale of all Equity Securities (or any portion thereof)
specified in the Company’s notice, in which event, such purchase and sale will
take place upon satisfaction of such contingency with at least 10 days’ prior
written notice.
(d) The
provisions of this Section will expire five years after the date hereof and
will
not apply to: (i) options, warrants, or other rights to purchase Common
Stock (and the issuance of shares of Common Stock on the exercise thereof)
issued to the Company’s employees, consultants, or directors pursuant to any
plan or arrangement approved by the Board of Directors of the Company;
(ii) the issuance of securities pursuant to a registered public offering;
(iii) the issuance of securities in connection with a bona fide acquisition
of or by the Company of any business or property, whether by merger,
consolidation, sale of assets, sale, or exchange of stock or otherwise;
(iv) the issuance of Common stock upon conversion, exchange, or exercise of
rights of any option, right, warrant, or convertible or exchangeable security
that is either outstanding on the date hereof or was previously offered to
the
Purchaser pursuant to this Section.
SECTION
9. Company’s
Agreements.
The
Company further agrees as follows:
(a) The
Company will file a Form D and any required state filings with respect to
the Purchased Shares, Warrants, and Warrant Shares as required under
Regulation D and applicable state securities laws and provide copies
thereof to the Purchaser promptly after filing.
(b) Prior
to
the date of an effective registration statement covering the resale of the
Total
Shares (or any portion), the Company shall have caused its officers, directors,
controlling shareholders, and certain other persons requested by the Purchaser
to agree to “lockup” and not sell their shares of Common stock of the Company,
pursuant to documentation, and on terms and conditions, acceptable to the
Purchaser.
(c) The
Company will advise the Purchaser, promptly after it receives notice of issuance
by the SEC, any state securities commission, or any other regulatory authority
of any stop order or of any order preventing or suspending any offering of
any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
(d) The
Company will cause the Total Shares to be included with its Common Stock that
is
listed on the OTCBB (the “Principal Market”) and the Company shall maintain such
on the Principal Market so long as any other shares of Common Stock shall be
so
listed. The Company will maintain the listing of its Common Stock on the
Principal Market, and will comply in all material respects with its reporting,
filing, and other obligations.
(e) To
the
extent required, the Company shall notify the SEC, NASD, and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule, and
regulation, for the legal and valid issuance of the Securities to the Purchaser
and promptly provide copies thereof to the Purchaser.
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(f) The
Company will timely file with the SEC all reports required to be filed pursuant
to the Exchange Act and refrain from terminating its status as an issuer
required by the Exchange Act to file reports thereunder, even if the Exchange
Act or the rules or regulations thereunder would permit such termination.
(g) Until
the
first to occur of the expiration of five years after the date of this Agreement
and the Purchaser’s sale or disposition of all of the Purchased Shares,
Warrants, and Warrant Shares, the Company will deliver to the Purchaser copies
of all press releases and all of its public filings made with the Commission
within one business day after the release or filing is made.
(h) The
Company will bear all its own expenses in connection with the transactions
contemplated by this Agreement and will pay at Closing by wire transfer to
Purchaser’s attorneys the legal fees and expenses incurred by Purchaser;
provided that the Company’s share of the Purchaser’s legal fees will not exceed
$20,000.00.
SECTION
10. Notices.
All
notices required or permitted hereunder shall be in writing and shall be deemed
effectively given: (i) upon delivery to the party to be notified; (ii) when
received by confirmed facsimile or (iii) one (1) business day after deposit
with
a nationally recognized overnight carrier, specifying next business day
delivery, with written verification of receipt. All communications shall be
sent
to the Company and the Purchaser as follows or at such other addresses as the
Company or the Purchaser may designate upon 10 days’ advance written notice to
the other party:
| If to the Company, to: |
PSI
Corporation
|
| 0000 Xxxxxxxx Xxxxxx Xxxxx |
| Xxxxx 000 |
| Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000 |
| Attn: Xxx Xxxxxxx, Chief Executive Officer and President |
| Fax: 000-000-0000 |
| If to the Purchaser, to: | Lazarus Investment Partners LLLP |
| 0000 Xxxx Xxxxxx Xxxxxx |
| Xxxxx 000 |
| Xxxxxx, Xxxxxxxx 00000 |
| Attn: Xxxxxx Xxxxx, Member |
| Fax: 000-000-0000 |
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| With a copy to: |
Xxxxx
X. Xxxxxxxx, Esq.
|
| Berenbaum, Weinshienk & Xxxxx, P.C. |
| 000 Xxxxxxxxxxx Xxxxxx, 00xx Xxxxx |
| Xxxxxx, Xxxxxxxx 00000-0000 |
| Fax: 000-000-0000 |
SECTION
11. Changes.
This
Agreement may not be modified or amended except pursuant to an instrument in
writing signed by the Company and the Purchaser. No provision hereunder may
be
waived other than in a written instrument executed by the waiving party.
SECTION
12. Headings.
The
headings of the various sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be part of this
Agreement.
SECTION
13. Severability.
In case
any provision contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of
the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
SECTION
14. Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Colorado and the federal law of the United States of America.
SECTION
15. Counterparts.
This
Agreement may be executed in two or more counterparts, each of which shall
constitute an original, but all of which, when taken together, shall constitute
but one instrument, and shall become effective when one or more counterparts
have been signed by each party hereto and delivered (including by facsimile)
to
the other parties.
SECTION
16. Entire
Agreement.
This
Agreement and the instruments referenced herein contain the entire understanding
of the parties with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the Company nor
the
Purchaser makes any representation, warranty, covenant, or undertaking with
respect to such matters.
SECTION
17. Assignment.
Except
as otherwise expressly provided herein, the provisions hereof shall inure to
the
benefit of, and be binding upon, the parties hereto and their respective
permitted successors, assigns, heirs, executors, and administrators. This
Agreement and the rights of the Purchaser hereunder may be assigned by the
Purchaser without the Company’s consent, except as may otherwise be provided in
this Agreement.
SECTION
18. Further
Assurances.
Each
party agrees to cooperate fully with the other parties and to execute such
further instruments, documents, and agreements and to give such further written
assurance as may be reasonably requested by any other party to evidence and
reflect the transactions described herein and contemplated hereby and to carry
into effect the intents and purposes of this Agreement.
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IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by
their duly authorized representatives as of the day and year first above
written.
| COMPANY: | ||
| PSI Corporation, a Nevada corporation | ||
| By: | /s/ Xxxxxxx X. Xxxxxxx | |
| Name: | Xxxxxxx X. Xxxxxxx | |
| Title: | Chief Executive Officer | |
| PURCHASER: | ||
| Lazarus Investment Partners LLLP, a | ||
| Delaware limited liability limited partnership | ||
| By: | Lazarus Management Company LLC, | |
| its General Partner | ||
| By: /s/ Xxxxxx X. Xxxxx | ||
|
Xxxxxx X.
Xxxxx,
Manager
|
||
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