SECURITIES PURCHASE AGREEMENT
EXHIBIT 4.1
SECURITIES
PURCHASE AGREEMENT (this “Agreement”), dated as of November 14,
2007, by and among Avitar Inc., a Delaware corporation, with headquarters
located at 00 Xxx Xxxx, Xxxxxx, XX 00000 (the “Company”), and
each of the purchasers set forth on the signature pages hereto (the
“Buyers”).
WHEREAS:
A. The
Company and the Buyers are executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by the rules and
regulations as promulgated by the United States Securities and Exchange
Commission (the “SEC”) under the Securities Act of 1933, as
amended (the “1933 Act”);
B. Buyers
desire to purchase and the Company desires to issue and sell, upon the terms
and
conditions set forth in this Agreement (i) 8% secured convertible notes of
the Company, in the form attached hereto as Exhibit “A”, in the
aggregate principal amount of Four Hundred Thousand Dollars ($400,000) (together
with any note(s) issued in replacement thereof or as a dividend thereon or
otherwise with respect thereto in accordance with the terms thereof, the
“Notes”), convertible into shares of common stock, par value
$.01 per share, of the Company (the “Common Stock”), upon the
terms and subject to the limitations and conditions set forth in such Notes
and
(ii) warrants, in the form attached hereto as Exhibit “B”,
to purchase 45,000,000 shares of Common Stock (the
“Warrants”).
C. Each
Buyer wishes to purchase, upon the terms and conditions stated in this
Agreement, such principal amount of Notes and number of Warrants as is set
forth
immediately below its name on the signature pages hereto; and
D. Contemporaneous
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, in the form attached
hereto as Exhibit “C” (the “Registration Rights
Agreement”), pursuant to which the Company has agreed to provide
certain registration rights under the 1933 Act and the rules and regulations
promulgated thereunder, and applicable state securities laws.
NOW
THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE
AND SALE OF NOTES AND WARRANTS.
a. Purchase
of Notes and Warrants. On the Closing Date (as defined
below), the Company shall issue and sell to each Buyer and each Buyer severally
agrees to purchase from the Company such principal amount of Notes and number
of
Warrants as is set forth immediately below such Buyer’s name on the signature
pages hereto.
b. Form
of Payment. On the Closing Date (as defined below),
(i) each Buyer shall pay the purchase price for the Notes and the Warrants
to be issued and sold to it at the Closing (as defined below) (the
“Purchase Price”) by wire transfer of immediately available
funds to the Company, in accordance with the Company’s written wiring
instructions, against delivery of the Notes in the principal amount equal to
the
Purchase Price and the number of Warrants as is set forth immediately below
such
Buyer’s name on the signature pages hereto, and (ii) the Company shall
deliver such Notes and Warrants duly executed on behalf of the Company, to
such
Buyer, against delivery of such Purchase Price.
c. Closing
Date. Subject to the satisfaction (or written waiver) of
the conditions thereto set forth in Section 6 and Section 7 below, the date
and
time of the issuance and sale of the Notes and the Warrants pursuant to this
Agreement (the “Closing Date”) shall be 12:00 noon, Eastern
Standard Time on November 14, 2007, or such other mutually agreed upon
time. The closing of the transactions contemplated by this Agreement
(the “Closing”) shall occur on the Closing Date at such
location as may be agreed to by the parties.
2. BUYERS’
REPRESENTATIONS AND WARRANTIES. Each Buyer severally
(and not jointly) represents and warrants to the Company solely as to such
Buyer
that:
a. Investment
Purpose. As of the date hereof, the Buyer is purchasing
the Notes and the shares of Common Stock issuable upon conversion of or
otherwise pursuant to the Notes (including, without limitation, such additional
shares of Common Stock, if any, as are issuable (i) on account of interest
on the Notes, (ii) as a result of the events described in Sections 1.3 and
1.4(g) of the Notes and Section 2(c) of the Registration Rights Agreement or
(iii) in payment of the Standard Liquidated Damages Amount (as defined in
Section 2(f) below) pursuant to this Agreement, such shares of Common Stock
being collectively referred to herein as the “Conversion
Shares”) and the Warrants and the shares of Common Stock issuable upon
exercise thereof (the “Warrant Shares” and, collectively with
the Notes, Warrants and Conversion Shares, the “Securities”)
for its own account and not with a present view towards the public sale or
distribution thereof, except pursuant to sales registered or exempted from
registration under the 1933 Act; provided, however, that by making
the representations herein, the Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. Accredited
Investor Status. The Buyer is an “accredited investor”
as that term is defined in Rule 501(a) of Regulation D (an “Accredited
Investor”).
c. Reliance
on Exemptions. The Buyer understands that the Securities
are being offered and sold to it in reliance upon specific exemptions from
the
registration requirements of United States federal and state securities laws
and
that the Company is relying upon the truth and accuracy of, and the Buyer’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire
the
Securities.
d. Information. The
Buyer and its advisors, if any, have been, and for so long as the Notes and
Warrants remain outstanding will continue to be, furnished with all materials
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Securities which have been requested
by
the Buyer or its advisors. The Buyer and its advisors, if any, have
been, and for so long as the Notes and Warrants remain outstanding will continue
to be, afforded the opportunity to ask questions of the
Company. Notwithstanding the foregoing, the Company has not disclosed
to the Buyer any material nonpublic information and will not disclose such
information unless such information is disclosed to the public prior to or
promptly following such disclosure to the Buyer. Neither such
inquiries nor any other due diligence investigation conducted by Buyer or any
of
its advisors or representatives shall modify, amend or affect Buyer’s right to
rely on the Company’s representations and warranties contained in Section 3
below. The Buyer understands that its investment in the Securities
involves a significant degree of risk. The Buyers are not aware of
any facts that may constitute a breach of any of the Company’s representations
and warranties made herein.
e. Governmental
Review. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the
Securities.
f. Transfer
or Re-sale. The Buyer understands that (i) except
as provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the
Company an opinion of counsel reasonably acceptable to the Company and its
counsel that shall be in form, substance and scope customary for opinions of
counsel in comparable transactions to the effect that the Securities to be
sold
or transferred may be sold or transferred pursuant to an exemption from such
registration, which opinion shall be accepted by the Company, (c) the
Securities are sold or transferred to an “affiliate” (as defined in Rule 144
promulgated under the 1933 Act (or a successor rule) (“Rule
144”)) of the Buyer who agrees to sell or otherwise transfer the
Securities only in accordance with this Section 2(f) and who is an Accredited
Investor, (d) the Securities are sold pursuant to Rule 144, or (e) the
Securities are sold pursuant to Regulation S under the 1933 Act (or a successor
rule) (“Regulation S”), and the Buyer shall have delivered to
the Company an opinion of counsel reasonably acceptable to the Company and
its
counsel that shall be in form, substance and scope customary for opinions of
counsel in corporate transactions, which opinion shall be accepted by the
Company; (ii) any sale of such Securities made in reliance on Rule 144 may
be
made only in accordance with the terms of said Rule and further, if said Rule
is
not applicable, any re-sale of such Securities under circumstances in which
the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 0000 Xxx) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of
the
SEC thereunder; and (iii) neither the Company nor any other person is under
any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else contained
herein to the contrary, the Securities may be pledged as collateral in
connection with a bonafide margin account or other lending
arrangement. In the event that the Company does not accept the
opinion of counsel provided by the Buyer with respect to the transfer of
Securities pursuant to an exemption from registration, such as Rule 144 or
Regulation S, within three (3) business days of delivery of the opinion to
the
Company, the Company shall pay to the Buyer liquidated damages of two percent
(2%) of the outstanding amount of the Notes per month plus accrued and unpaid
interest on the Notes, prorated for partial months, in cash or shares at the
option of the Company (“Standard Liquidated Damages
Amount”). If the Company elects to be pay the Standard
Liquidated Damages Amount in shares of Common Stock, such shares shall be issued
at the Conversion Price at the time of payment. Notwithstanding
anything herein to the contrary, in the event the Company has to pay the
Standards Liquidated Damages Amount pursuant to any provision of this Agreement,
the Buyers shall first have to give the Company advance written notice of such
breach and in such event, the Company shall have 30 days from the receipt of
such notice to cure such breach before the Standard Liquidated Damages Amount
shall be due and payable to the Buyers.
g. Legends. The
Buyer understands that the Notes and the Warrants and, until such time as the
Conversion Shares and Warrant Shares have been registered under the 1933 Act
as
contemplated by the Registration Rights Agreement or otherwise may be sold
pursuant to Rule 144 or Regulation S without any restriction as to the number
of
securities as of a particular date that can then be immediately sold, the
Conversion Shares and Warrant Shares may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities):
“The
securities represented by this certificate have not been registered under the
Securities Act of 1933, as amended. The securities may not be sold,
transferred or assigned in the absence of an effective registration statement
for the securities under said Act, or an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions, that
registration is not required under said Act or unless sold pursuant to Rule
144
or Regulation S under said Act.”
The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it
is
stamped, if, unless otherwise required by applicable state securities laws,
(a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, which opinion shall be
reasonably acceptable to the Company’s counsel, to the effect that a public sale
or transfer of such Security may be made without registration under the 1933
Act, which opinion shall be accepted by the Company so that the sale or transfer
is effected or (c) such holder provides the Company with reasonable assurances
that such Security can be sold pursuant to Rule 144 or Regulation
S. The Buyer agrees to sell all Securities, including those
represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if
any.
h. Authorization;
Enforcement. This Agreement and the Registration Rights Agreement
have been duly and validly authorized. This Agreement has been duly
executed and delivered on behalf of the Buyer, and this Agreement constitutes,
and upon execution and delivery by the Buyer of the Registration Rights
Agreement, such agreement will constitute, valid and binding agreements of
the
Buyer enforceable in accordance with their terms.
i. Residency. The
Buyer is a resident of the jurisdiction set forth immediately below such Buyer’s
name on the signature pages hereto.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to each Buyer that:
a. Organization
and Qualification. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other)
to
own, lease, use and operate its properties and to carry on its business as
and
where now owned, leased, used, operated and
conducted. Schedule 3(a) sets forth a list of all of
the Subsidiaries of the Company and the jurisdiction in which each is
incorporated. The Company and each of its Subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which its ownership or use of property or the nature
of
the business conducted by it makes such qualification necessary except where
the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. “Material Adverse Effect” means any of (i) a
material and adverse effect on the legality, validity or enforceability of
any
document executed in connection with this financing, (ii) a material and adverse
effect on the results of operations, assets, prospects, business or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a whole,
or (iii) an adverse impairment to the Company’s ability to perform under any of
the documents executed in connection with this
financing. “Subsidiaries” means any corporation or
other organization, whether incorporated or unincorporated, in which the Company
owns, directly or indirectly, any equity or other ownership
interest.
b. Authorization;
Enforcement. (i) The Company has all requisite corporate
power and authority to enter into and perform this Agreement, the Registration
Rights Agreement, the Notes and the Warrants and to consummate the transactions
contemplated hereby and thereby and to issue the Securities, in accordance
with
the terms hereof and thereof, (ii) the execution and delivery of this Agreement,
the Registration Rights Agreement, the Notes and the Warrants by the Company
and
the consummation by it of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Notes and the Warrants and
the issuance and reservation for issuance of the Conversion Shares and Warrant
Shares issuable upon conversion or exercise thereof) have been duly authorized
by the Company’s Board of Directors and no further consent or authorization of
the Company, its Board of Directors, or its shareholders is required, (iii)
this
Agreement has been duly executed and delivered by the Company by its authorized
representative, and such authorized representative is the true and official
representative with authority to sign this Agreement and the other documents
executed in connection herewith and bind the Company accordingly, and (iv)
this
Agreement constitutes, and upon execution and delivery by the Company of the
Registration Rights Agreement, the Notes and the Warrants, each of such
instruments will constitute, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its
terms.
c. Capitalization. As
of the date hereof, the authorized capital stock of the Company consists of
(i)
100,000,000 shares of Common Stock, of which 87,641,617 shares are issued and
outstanding, 97,719 shares are reserved for issuance pursuant to the Company’s
stock option plans, 2,260,664 shares are reserved for issuance pursuant to
securities (other than the Notes and the Warrants) exercisable for, or
convertible into or exchangeable for shares of Common Stock and, 10,000,000
shares are reserved for issuance upon conversion of the Notes and exercise
of
the Warrants (subject to adjustment pursuant to the Company’s covenant set forth
in Section 4(h) below); and (ii) 5,000,000 shares of preferred stock, of which
44,630 shares are issued and outstanding. All of such outstanding
shares of capital stock are, or upon issuance will be, duly authorized, validly
issued, fully paid and nonassessable. No shares of capital stock of
the Company are subject to preemptive rights or any other similar rights of
the
shareholders of the Company or any liens or encumbrances imposed through the
actions or failure to act of the Company. Except as disclosed in
Schedule 3(c), as of the effective date of this Agreement, (i)
there are no outstanding options, warrants, scrip, rights to subscribe for,
puts, calls, rights of first refusal, agreements, understandings, claims or
other commitments or rights of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for any shares of capital
stock of the Company or any of its Subsidiaries, or arrangements by which the
Company or any of its Subsidiaries is or may become bound to issue additional
shares of capital stock of the Company or any of its Subsidiaries, (ii) there
are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of its or their securities
under the 1933 Act (except the Registration Rights Agreement) and (iii) there
are no anti-dilution or price adjustment provisions contained in any security
issued by the Company (or in any agreement providing rights to security holders)
that will be triggered by the issuance of the Notes, the Warrants, the
Conversion Shares or Warrant Shares. The Company has furnished to the
Buyer true and correct copies of the Company’s Articles of Incorporation as in
effect on the date hereof (“Articles of Incorporation”), the
Company’s By-laws, as in effect on the date hereof (the
“By-laws”), and the terms of all securities convertible into or
exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto. The Company shall provide the
Buyer with a written update of this representation signed by the Company’s Chief
Executive or Chief Financial Officer on behalf of the Company as of the Closing
Date.
d. Issuance
of Shares. The Conversion Shares and Warrant Shares are
duly authorized and reserved for issuance and, upon conversion of the Notes
and
exercise of the Warrants in accordance with their respective terms, will be
validly issued, fully paid and non-assessable, and free from all taxes, liens,
claims and encumbrances with respect to the issue thereof and shall not be
subject to preemptive rights or other similar rights of shareholders of the
Company and will not impose personal liability upon the holder
thereof.
e. Acknowledgment
of Dilution. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares and Warrant Shares upon conversion of the
Note
or exercise of the Warrants. The Company further acknowledges that
its obligation to issue Conversion Shares and Warrant Shares upon conversion
of
the Notes or exercise of the Warrants in accordance with this Agreement, the
Notes and the Warrants is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
shareholders of the Company.
f. No
Conflicts. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement, the Notes and the Warrants
by
the Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance and reservation
for issuance of the Conversion Shares and Warrant Shares) will not (i) conflict
with or result in a violation of any provision of the Certificate of
Incorporation or By-laws or (ii) violate or conflict with, or result in a breach
of any provision of, or constitute a default (or an event which with notice
or
lapse of time or both could become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture, patent, patent license or instrument to which the Company
or any of its Subsidiaries is a party, or (iii) to the Company’s
knowledge, result in a violation of any law, rule, regulation, order, judgment
or decree (including federal and state securities laws and regulations and
regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or any of its Subsidiaries
or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse
Effect). Neither the Company nor any of its Subsidiaries is in
violation of its Certificate of Incorporation, By-laws or other organizational
documents and neither the Company nor any of its Subsidiaries is in default
(and
no event has occurred which with notice or lapse of time or both could put
the
Company or any of its Subsidiaries in default) under, and neither the Company
nor any of its Subsidiaries has taken any action or failed to take any action
that would give to others any rights of termination, amendment, acceleration
or
cancellation of, any agreement, indenture or instrument to which the Company
or
any of its Subsidiaries is a party or by which any property or assets of the
Company or any of its Subsidiaries is bound or affected, except for possible
defaults as would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its Subsidiaries, if any, are not
being conducted, and shall not be conducted so long as a Buyer owns any of
the
Securities, in violation of any law, ordinance or regulation of any governmental
entity. Except as specifically contemplated by this Agreement and as
required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency, regulatory
agency, self regulatory organization or stock market or any third party in
order
for it to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement, the Notes or the Warrants in
accordance with the terms hereof or thereof or to issue and sell the Notes
and
Warrants in accordance with the terms hereof and to issue the Conversion Shares
upon conversion of the Notes and the Warrant Shares upon exercise of the
Warrants. Except as disclosed in Schedule 3(f), all
consents, authorizations, orders, filings and registrations which the Company
is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company is not in
violation of the quotation requirements of the Over-the-Counter Bulletin Board
(the “OTCBB”) and does not reasonably anticipate that the
Common Stock will be removed by the OTCBB in the foreseeable
future. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
g. SEC
Documents; Financial Statements. Except as disclosed in
Schedule 3(g), since September 30, 2004 the Company has timely
filed all reports, schedules, forms, statements and other documents required
to
be filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the “1934 Act”)
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents (other
than
exhibits to such documents) incorporated by reference therein, being hereinafter
referred to herein as the “SEC Documents”). As of
their respective dates, the SEC Documents complied in all material respects
with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to
be
stated therein or necessary in order to make the statements therein, in light
of
the circumstances under which they were made, not misleading. None of
the statements made in any such SEC Documents is, or has been, required to
be
amended or updated under applicable law (except for such statements as have
been
amended or updated in subsequent filings prior the date hereof). As
of their respective dates, the financial statements of the Company included
in
the SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with
respect thereto. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in
all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in
the
case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the financial statements of the
Company included in the SEC Documents, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to September 30, 2004 and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in
such
financial statements, which, individually or in the aggregate, are not material
to the financial condition or operating results of the Company.
h. Absence
of Certain Changes. Except as set forth in Schedule
3(h), since September 30, 2005, there has been no material adverse change
and no material adverse development in the assets, liabilities, business,
properties, operations, financial condition, results of operations or prospects
of the Company or any of its Subsidiaries.
i. Absence
of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material Adverse
Effect. Schedule 3(i) contains a complete list and
summary description of any pending or, to the knowledge of the
Company, threatened proceeding against or affecting the Company or
any of its Subsidiaries, without regard to whether it would have a Material
Adverse Effect. The Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the
foregoing.
j. Patents,
Copyrights, etc. The Company and each of its
Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names,
trade
names and copyrights (“Intellectual Property”) necessary to
enable it to conduct its business as now operated (and, except as set forth
in
Schedule 3(j) hereof, to the best of the Company’s knowledge,
as presently contemplated to be operated in the future); there is no claim
or
action by any person pertaining to, or proceeding pending, or to the Company’s
knowledge threatened, which challenges the right of the Company or of a
Subsidiary with respect to any Intellectual Property necessary to enable it
to
conduct its business as now operated (and, except as set forth in
Schedule 3(j) hereof, to the best of the Company’s knowledge,
as presently contemplated to be operated in the future); to the best of the
Company’s knowledge, the Company’s or its Subsidiaries’ current and intended
products, services and processes do not infringe on any Intellectual Property
or
other rights held by any person; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The
Company and each of its Subsidiaries have taken reasonable security measures
to
protect the secrecy, confidentiality and value of their Intellectual
Property.
k. No
Materially Adverse Contracts, Etc. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company’s officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment
of
the Company’s officers has or is expected to have a Material Adverse
Effect.
l. Tax
Status. Except as set forth on Schedule
3(l), the Company and each of its Subsidiaries has made or filed all
federal, state and foreign income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments
and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment
of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim. The
Company has not executed a waiver with respect to the statute of limitations
relating to the assessment or collection of any foreign, federal, state or
local
tax. Except as set forth on Schedule 3(l), none of
the Company’s tax returns is presently being audited by any taxing
authority.
m. Certain
Transactions. Except as set forth on Schedule
3(m) and except for arm’s length transactions pursuant to which the
Company or any of its Subsidiaries makes payments in the ordinary course of
business upon terms no less favorable than the Company or any of its
Subsidiaries could obtain from third parties and other than the grant of stock
options disclosed on Schedule 3(c), none of the officers,
directors, or employees of the Company is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
n. Disclosure. All
information relating to or concerning the Company or any of its Subsidiaries
set
forth in this Agreement and provided to the Buyers pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby
is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein
or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed
(assuming for this purpose that the Company’s reports filed under the 1934 Act
are being incorporated into an effective registration statement filed by the
Company under the 1933 Act).
o. Acknowledgment
Regarding Buyers’ Purchase of Securities. The Company
acknowledges and agrees that the Buyers are acting solely in the capacity of
arm’s length purchasers with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that no Buyer
is acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any statement made by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to the Buyers’ purchase of the Securities. The Company further
represents to each Buyer that the Company’s decision to enter into this
Agreement has been based solely on the independent evaluation of the Company
and
its representatives.
p. No
Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers
to
buy any security under circumstances that would require registration under
the
1933 Act of the issuance of the Securities to the Buyers. The
issuance of the Securities to the Buyers will not be integrated with any other
issuance of the Company’s securities (past, current or future) for purposes of
any shareholder approval provisions applicable to the Company or its
securities.
q. No
Brokers. Except as set forth in Schedule
3(q), the Company has taken no action which would give rise to any
claim by any person for brokerage commissions, transaction fees or similar
payments relating to this Agreement or the transactions contemplated
hereby.
r. Permits;
Compliance. The Company and each of its Subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the “Company
Permits”), and there is no action pending or, to the knowledge of the
Company, threatened regarding suspension or cancellation of any of the Company
Permits. Neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of, any of the Company Permits, except
for any such conflicts, defaults or violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect. Since September 30, 2004, neither the Company nor any of its
Subsidiaries has received any notification with respect to possible conflicts,
defaults or violations of applicable laws, except for notices relating to
possible conflicts, defaults or violations, which conflicts, defaults or
violations would not have a Material Adverse Effect.
s. Environmental
Matters.
(i) Except
as
set forth in Schedule 3(s), there are, to the best of the
Company’s knowledge, with respect to the Company or any of its Subsidiaries or
any predecessor of the Company, no past or present violations of Environmental
Laws (as defined below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or
any
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws and
neither the Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to the Company’s
knowledge, threatened in connection with any of the foregoing. The
term “Environmental Laws” means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials, as well as
all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(ii) Other
than those that are or were stored, used or disposed of in compliance with
applicable law, no Hazardous Materials are contained on or about any real
property currently owned, leased or used by the Company or any of its
Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the Company’s
or any of its Subsidiaries’ business.
(iii) Except
as
set forth in Schedule 3(s), to the best of the Company’s
knowledge there are no underground storage tanks on or under any real property
owned, leased or used by the Company or any of its Subsidiaries that are not
in
compliance with applicable law.
t. Title
to Property. The Company and its Subsidiaries have good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule
3(t) or such as would not have a Material Adverse
Effect. Any real property and facilities held under lease by the
Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as would not have a Material Adverse
Effect.
u. Insurance. The
Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts
as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its Subsidiaries are engaged. Neither the
Company nor any such Subsidiary has any reason to believe that it will not
be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse
Effect.
v. Internal
Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient,
in
the judgment of the Company’s board of directors, 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.
w. Foreign
Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated
or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of
1977,
as amended, or made any bribe, rebate, payoff, influence payment, kickback
or
other unlawful payment to any foreign or domestic government official or
employee.
x. Solvency. The
Company (after giving effect to the transactions contemplated by this Agreement)
is solvent (i.e., its assets have a fair market value in excess of the
amount required to pay its probable liabilities on its existing debts as they
become absolute and matured) and currently the Company has no information that
would lead it to reasonably conclude that the Company would not, after giving
effect to the transaction contemplated by this Agreement, have the ability
to,
nor does it intend to take any action that would impair its ability to, pay
its
debts from time to time incurred in connection therewith as such debts
mature.
y. No
Investment Company. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement will
not
be an “investment company” required to be registered under the Investment
Company Act of 1940 (an “Investment Company”). The
Company is not controlled by an Investment Company.
z. Certain
Registration Matters. Assuming the accuracy of the Buyers'
representations and warranties set forth in Section 3, no registration under
the
Securities Act is required for the offer and sale of the Conversion Shares
and
Warrant Shares by the Company to the Buyers under the transaction documents.
Except as specified in Schedule 3(z), 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.
aa. Breach
of Representations and Warranties by the Company. If the
Company materially breaches any of the representations or warranties set forth
in this Section 3, and in addition to any other remedies available to the Buyers
pursuant to this Agreement, the Company shall pay to the Buyer the Standard
Liquidated Damages Amount in cash or in shares of Common Stock at the option
of
the Company, until such breach is cured. If the Company elects to pay
the Standard Liquidated Damages Amounts in shares of Common Stock, such shares
shall be issued at the Conversion Price at the time of payment.
4. COVENANTS.
a. Best
Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Section 6 and 7 of this
Agreement.
b. Form
D; Blue Sky Laws. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide
a
copy thereof to each Buyer promptly after such filing. The Company
shall, on or before the Closing Date, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for sale to the
Buyers at the applicable closing pursuant to this Agreement under applicable
securities or “blue sky” laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to each Buyer on or prior to the Closing Date; provided,
however, that the Company shall not be required in connection therewith
or as a condition thereto to (a) qualify to do business in any jurisdiction
where it would not otherwise be required to qualify but for this Section 4(b),
(b) subject itself to general taxation in any such jurisdiction,
(c) file a general consent to service of process in any such jurisdiction,
(d) provide any undertakings that cause the Company undue expense or
burden, or (e) make any change in its charter or bylaws, which in each case
the Board of Directors of the Company determines to be contrary to the best
interests of the Company and its shareholders.
c. Reporting
Status; Eligibility to Use Form S-3, SB-2 or Form
S-1. The
Company’s Common Stock is registered under Section 12(g) of the 1934 Act. The
Company represents and warrants that it meets the requirements for the use
of
Form S-3 (or if the Company is not eligible for the use of Form S-3 as of the
Filing Date (as defined in the Registration Rights Agreement), the Company
may
use the form of registration for which it is eligible at that time) for
registration of the sale by the Buyer of the Registrable Securities (as defined
in the Registration Rights Agreement). So long as the Buyer
beneficially owns any of the Securities, the Company shall timely file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination. The Company further agrees to file all
reports required to be filed by the Company with the SEC in a timely manner
so
as to become eligible, and thereafter to maintain its eligibility, for the
use
of Form S-3. The Company shall issue a press release describing the
material terms of the transaction contemplated hereby as soon as practicable
following the Closing Date but in no event more than two (2) business days
of
the Closing Date, which press release shall be subject to prior review by the
Buyers. The Company agrees that such press release shall not disclose
the name of the Buyers unless expressly consented to in writing by the Buyers
or
unless required by applicable law or regulation, and then only to the extent
of
such requirement.
d. Use
of Proceeds. The Company shall use the net proceeds from
the sale of the Notes and the Warrants in the manner set forth in
Schedule 4(d) attached hereto and made a part hereof and shall
not, directly or indirectly, use such proceeds for (i) any loan to or investment
in any other corporation, partnership, enterprise or other person (except in
connection with its currently existing direct or indirect Subsidiaries); (ii)
the satisfaction of any portion of the Company’s debt (other than payment of
trade payables and accrued expenses in the ordinary course of the Company’s
business and consistent with prior past practices), or (iii) the redemption
of
any Common Stock.
e. Future
Offerings. Subject to the exceptions described below,
the Company will not, without the prior written consent of a
majority-in-interest of the Buyers, which consent shall not be unreasonably
withheld, negotiate or contract with any party to obtain additional equity
financing (including debt financing with an equity component) that involves
(A)
the issuance of Common Stock for cash at a discount to the market price of
the
Common Stock on the date of issuance (taking into account the value of any
warrants or options to acquire Common Stock issued in connection therewith)
or
(B) the issuance of convertible securities that are convertible into an
indeterminate number of shares of Common Stock or (C) the issuance of warrants
during the period (the “Lock-up Period”) beginning on the
Closing Date and ending on the later of (i) two hundred seventy (270) days
from
the Closing Date and (ii) one hundred eighty (180) days from the date the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective (plus any days in which sales cannot be made
thereunder). In addition, subject to the exceptions described below,
the Company will not conduct any equity financing (including debt with an equity
component) (“Future Offerings”) during the period beginning on
the Closing Date and ending two (2) years after the end of the Lock-up Period
unless it shall have first delivered to each Buyer, at least twenty (20)
business days prior to the closing of such Future Offering, written notice
describing the proposed Future Offering, including the terms and conditions
thereof and proposed definitive documentation to be entered into in connection
therewith, and providing each Buyer an option during the fifteen (15) day period
following delivery of such notice to purchase its pro rata share (based on
the
ratio that the aggregate principal amount of Notes purchased by it hereunder
bears to the aggregate principal amount of Notes purchased hereunder) of the
securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in this
sentence and the preceding sentence are collectively referred to as the
“Capital Raising Limitations”). In the
event the terms and conditions of a proposed Future Offering are amended in
any
respect after delivery of the notice to the Buyers concerning the proposed
Future Offering, the Company shall deliver a new notice to each Buyer describing
the amended terms and conditions of the proposed Future Offering and each Buyer
thereafter shall have an option during the fifteen (15) day period following
delivery of such new notice to purchase its pro rata share of the securities
being offered on the same terms as contemplated by such proposed Future
Offering, as amended. The foregoing sentence shall apply to
successive amendments to the terms and conditions of any proposed Future
Offering. The Capital Raising Limitations shall not apply to any
transaction involving (i) issuances of securities in a firm commitment
underwritten public offering (excluding a continuous offering pursuant to Rule
415 under the 1933 Act, an equity line of credit or similar financing
arrangement) resulting in net proceeds to the Company of in excess of
$1,500,000, or (ii) issuances of securities as consideration for a merger,
consolidation or purchase of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or in connection with the disposition or acquisition of a
business, product or license by the Company. The Capital Raising
Limitations also shall not apply to the issuance of securities upon exercise
or
conversion of the Company’s options, warrants or other convertible securities
outstanding as of the date hereof or to the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option or restricted stock plan approved by the shareholders of the
Company.
f. Expenses. At
the Closing, the Company shall reimburse Buyers for expenses incurred by them
in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and the other agreements to be executed in
connection herewith (“Documents”), including, without limitation, attorneys’ and
consultants’ fees and expenses, transfer agent fees, fees for stock quotation
services, fees relating to any amendments or modifications of the Documents
or
any consents or waivers of provisions in the Documents, fees for the preparation
of opinions of counsel, escrow fees, and costs of restructuring the transactions
contemplated by the Documents. When possible, the Company must pay
these fees directly, otherwise the Company must make immediate payment for
reimbursement to the Buyers for all fees and expenses immediately upon written
notice by the Buyer or the submission of an invoice by the
Buyer. Notwithstanding anything herein to the contrary, the Company’s
obligation to reimburse Buyers’ expenses shall not exceed $20,000 in the
aggregate.
g. Financial
Information. The Company agrees to send the following
reports to each Buyer until such Buyer transfers, assigns, or sells all of
the
Securities: (i) within ten (10) days after the filing with the SEC, a copy
of its Annual Report on Form 10-KSB its Quarterly Reports on Form 10-QSB and
any
Current Reports on Form 8-K; (ii) within one (1) day after release, copies
of all press releases issued by the Company or any of its Subsidiaries; and
(iii) contemporaneously with the making available or giving to the
shareholders of the Company, copies of any notices or other information the
Company makes available or gives to such shareholders.
h. Authorization
and Reservation of Shares. Subject to Stockholder
Approval, the Company shall at all times have authorized, and reserved for
the
purpose of issuance, a sufficient number of shares of Common Stock to provide
for the full conversion or exercise of the outstanding Notes and Warrants and
issuance of the Conversion Shares and Warrant Shares in connection therewith
(based on the Conversion Price of the Notes or Exercise Price of the Warrants
in
effect from time to time) and as otherwise required by the Notes. The
Company shall not reduce the number of shares of Common Stock reserved for
issuance upon conversion of Notes and exercise of the Warrants without the
consent of each Buyer. The Company shall at all times maintain the
number of shares of Common Stock so reserved for issuance at an amount
(“Reserved Amount”) equal to no less than two (2) times the
number that is then actually issuable upon full conversion of the Notes and
upon
exercise of the Warrants (based on the Conversion Price of the Notes or the
Exercise Price of the Warrants in effect from time to time). If at
any time the number of shares of Common Stock authorized and reserved for
issuance (“Authorized and Reserved Shares”) is below the
Reserved Amount, the Company will promptly take all corporate action necessary
to authorize and reserve a sufficient number of shares, including, without
limitation, calling a special meeting of shareholders to authorize additional
shares to meet the Company’s obligations under this Section 4(h), in the case of
an insufficient number of authorized shares, obtain shareholder approval of
an
increase in such authorized number of shares, and voting the management shares
of the Company in favor of an increase in the authorized shares of the Company
to ensure that the number of authorized shares is sufficient to meet the
Reserved Amount. If the Company fails to obtain such shareholder
approval within thirty (30) days following the date on which the number of
Reserved Amount exceeds the Authorized and Reserved Shares, the Company shall
pay to the Borrower the Standard Liquidated Damages Amount, in cash or in shares
of Common Stock at the option of the Buyer. If the Buyer elects to be
paid the Standard Liquidated Damages Amount in shares of Common Stock, such
shares shall be issued at the Conversion Price at the time of
payment. In order to ensure that the Company has authorized a
sufficient amount of shares to meet the Reserved Amount at all times, the
Company must deliver to the Buyer at the end of every month a list detailing
(1)
the current amount of shares authorized by the Company and reserved for the
Buyer; and (2) amount of shares issuable upon conversion of the Notes and upon
exercise of the Warrants and as payment of interest accrued on the Notes for
one
year. If the Company fails to provide such list within five (5)
business days of the end of each month, the Company shall pay the Standard
Liquidated Damages Amount, in cash or in shares of Common Stock at the option
of
the Buyer, until the list is delivered. If the Buyer elects to be
paid the Standard Liquidated Damages Amount in shares of Common Stock, such
shares shall be issued at the Conversion Price at the time of
payment.
i. Listing. The
Company shall promptly secure the listing of the Conversion Shares and Warrant
Shares upon each national securities exchange or automated quotation system,
if
any, upon which shares of Common Stock are then listed (subject to official
notice of issuance) and, so long as any Buyer owns any of the Securities, shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares and Warrant Shares from time to time issuable
upon conversion of the Notes or exercise of the Warrants. The Company
will obtain and, so long as any Buyer owns any of the Securities, maintain
the
listing and trading of its Common Stock on the OTCBB or any equivalent
replacement exchange, the Nasdaq National Market (“Nasdaq”),
the Nasdaq SmallCap Market (“Nasdaq SmallCap”), the New York
Stock Exchange (“NYSE”), or the American Stock Exchange
(“AMEX”) and will comply in all respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers (“NASD”) and such
exchanges, as applicable. The Company shall promptly provide to each
Buyer copies of any notices it receives from the OTCBB and any other exchanges
or quotation systems on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on such exchanges and
quotation systems.
j. Corporate
Existence. So long as a Buyer beneficially owns any
Notes or Warrants, the Company shall maintain its corporate existence and shall
not sell all or substantially all of the Company’s assets, except in the event
of a merger or consolidation or sale of all or substantially all of the
Company’s assets, where the surviving or successor entity in such transaction
(i) assumes the Company’s obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on the OTCBB, Nasdaq,
Nasdaq SmallCap, NYSE or AMEX.
k. No
Integration. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that
would
require registration of the Securities being offered or sold hereunder under
the
1933 Act or cause the offering of the Securities to be integrated with any
other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
l. Restriction
on Short Sales. The Buyers agree that, so long as any of the Notes
remain outstanding, but in no event less than two (2) years from the date
hereof, the Buyers will not enter into or effect any “short sales” (as such term
is defined in Rule 3b-3 of the 0000 Xxx) of the Common Stock or hedging
transaction which establishes a net short position with respect to the Common
Stock.
m. Breach
of Covenants. If the Company breaches
any of the covenants set forth in this Section 4, and in addition to any other
remedies available to the Buyers pursuant to this Agreement, the Company shall
pay to the Buyers the Standard Liquidated Damages Amount, in cash or in shares
of Common Stock at the option of the Company, until such breach is
cured. If the Company elects to pay the Standard Liquidated Damages
Amount in shares, such shares shall be issued at the Conversion Price at the
time of payment.
5. TRANSFER
AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the
name
of each Buyer or its nominee, for the Conversion Shares and Warrant Shares
in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Notes or exercise of the Warrants in accordance with the
terms
thereof (the “Irrevocable Transfer Agent
Instructions”). Prior to registration of the Conversion
Shares and Warrant Shares under the 1933 Act or the date on which the Conversion
Shares and Warrant Shares may be sold pursuant to Rule 144 without any
restriction as to the number of Securities as of a particular date that can
then
be immediately sold, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants
that no instruction other than the Irrevocable Transfer Agent Instructions
referred to in this Section 5, and stop transfer instructions to give effect
to
Section 2(f) hereof (in the case of the Conversion Shares and Warrant Shares,
prior to registration of the Conversion Shares and Warrant Shares under the
1933
Act or the date on which the Conversion Shares and Warrant Shares may be sold
pursuant to Rule 144 without any restriction as to the number of Securities
as
of a particular date that can then be immediately sold), will be given by the
Company to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights
Agreement. Nothing in this Section shall affect in any way the
Buyer’s obligations and agreement set forth in Section 2(g) hereof to comply
with all applicable prospectus delivery requirements, if any, upon re-sale
of
the Securities. If a Buyer provides the Company with (i) an opinion
of counsel reasonably acceptable to the Company and its counsel in form,
substance and scope customary for opinions in comparable transactions, to the
effect that a public sale or transfer of such Securities may be made without
registration under the 1933 Act and such sale or transfer is effected or (ii)
the Buyer provides reasonable assurances that the Securities can be sold
pursuant to Rule 144, the Company shall permit the transfer, and, in the case
of
the Conversion Shares and Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates, free from restrictive legend, in such name
and in such denominations as specified by such Buyer. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers, by vitiating the intent and purpose of the
transactions contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5 may be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section, that the Buyers shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate transfer, without the necessity
of showing economic loss and without any bond or other security being
required.
6. CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL. The obligation of
the Company hereunder to issue and sell the Notes and Warrants to a Buyer at
the
Closing is subject to the satisfaction, at or before the Closing Date of each
of
the following conditions thereto, provided that these conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion:
a. The
applicable Buyer shall have executed this Agreement and the Registration Rights
Agreement, and delivered the same to the Company.
b. The
applicable Buyer shall have delivered the Purchase Price in accordance with
Section 1(b) above.
c. The
representations and warranties of the applicable Buyer shall be true and correct
in all material respects as of the date when made and as of the Closing Date
as
though made at that time (except for representations and warranties that speak
as of a specific date), and the applicable Buyer shall have performed, satisfied
and complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the applicable Buyer at or prior to the Closing Date.
d. No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or
in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
7. CONDITIONS
TO EACH BUYER’S OBLIGATION TO PURCHASE. The obligation
of each Buyer hereunder to purchase the Notes and Warrants at the Closing is
subject to the satisfaction, at or before the Closing Date of each of the
following conditions, provided that these conditions are for such Buyer’s sole
benefit and may be waived by such Buyer at any time in its sole
discretion:
a. The
Company shall have executed this Agreement and the Registration Rights
Agreement, and delivered the same to the Buyer.
b. The
Company shall have delivered to such Buyer duly executed Notes (in such
denominations as the Buyer shall request) and Warrants in accordance with
Section 1(b) above.
c. The
Irrevocable Transfer Agent Instructions, in form and substance satisfactory
to a
majority-in-interest of the Buyers, shall have been delivered to and
acknowledged in writing by the Company’s Transfer Agent.
d. The
representations and warranties of the Company shall be true and correct in
all
material respects as of the date when made and as of the Closing Date as though
made at such time (except for representations and warranties that speak as
of a
specific date) and the Company shall have performed, satisfied and complied
in
all material respects with the covenants, agreements and conditions required
by
this Agreement to be performed, satisfied or complied with by the Company at
or
prior to the Closing Date. The Buyer shall have received a
certificate or certificates, executed by the chief executive officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by such Buyer including, but not
limited to certificates with respect to the Company’s Certificate of
Incorporation, By-laws and Board of Directors’ resolutions relating to the
transactions contemplated hereby.
e. No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or
in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
f. No
event
shall have occurred which could reasonably be expected to have a Material
Adverse Effect on the Company.
g. The
Conversion Shares and Warrant Shares shall have been authorized for quotation
on
the OTCBB and trading in the Common Stock on the OTCBB shall not have been
suspended by the SEC or the OTCBB.
h. The
Buyer
shall have received an opinion of the Company’s counsel, dated as of the Closing
Date, in form, scope and substance reasonably satisfactory to the Buyer and
in
substantially the same form as Exhibit “D” attached
hereto.
i. The
Buyer
shall have received an officer’s certificate described in Section 3(c) above,
dated as of the Closing Date.
8. GOVERNING
LAW; MISCELLANEOUS.
a. Governing
Law. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED
IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT,
THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE
OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR
PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A
PARTY MAILED BY REGISTERED FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT
EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT
A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT
OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN
ANY DISPUTE ARISING UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES
AND
EXPENSES, INCLUDING REASONABLE ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY
IN CONNECTION WITH SUCH DISPUTE.
b. Counterparts;
Signatures by Facsimile. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original but
all
of which shall constitute one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other
party. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
c. Headings. The
headings of this Agreement are for convenience of reference only and shall
not
form part of, or affect the interpretation of, this Agreement.
d. Severability. In
the event that any provision of this Agreement is invalid or unenforceable
under
any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision
hereof which may prove invalid or unenforceable under any law shall not affect
the validity or enforceability of any other provision hereof.
e. Entire
Agreement; Amendments. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to
such
matters. No provision of this Agreement may be waived or amended
other than by an instrument in writing signed by the party to be charged with
enforcement.
f. Notices. Any
notices required or permitted to be given under the terms of this Agreement
shall be sent by certified or registered mail (return receipt requested) or
delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five days after being placed
in
the mail, if mailed by regular United States mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service)
or
by facsimile, in each case addressed to a party. The addresses for
such communications shall be:
If
to the
Company:
Avitar
Inc.
00
Xxx
Xxxx
Xxxxxx,
XX 00000
Attention:
Chief Executive Officer
Telephone: (000)
000-0000
Facsimile:
(781)
With
a
copy to:
Dolgenos
Xxxxxx & Xxxxxx LLP
000
Xxxxxxx Xxxxxx
Xxx
Xxxx,
XX 00000
Attention: Xxxxxx
Xxxxxx, Esq.
Telephone: (000)
000-0000
Facsimile: (000)
000-0000
If
to a
Buyer: To the address set forth immediately below such Buyer’s name
on the signature pages hereto.
With
copy
to:
Xxxxxxx
Xxxxx Xxxxxxx & Xxxxxxxxx, LLP
0000
Xxxxxx Xxxxxx
00xx
Xxxxx
Xxxxxxxxxxxx,
Xxxxxxxxxxxx 00000
Attention: Xxxxxx
X. Xxxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each
party shall provide notice to the other party of any change in
address.
g. Successors
and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and
assigns. Neither the Company nor any Buyer shall assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other.
h. Third
Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. The
representations and warranties of the Company and the agreements and covenants
set forth in Sections 3, 4, 5 and 8 shall survive the closing hereunder
notwithstanding any due diligence investigation conducted by or on behalf of
the
Buyers. The Company agrees to indemnify and hold harmless each of the
Buyers and all their officers, directors, employees and agents for loss or
damage arising as a result of or related to any breach or alleged breach by
the
Company of any of its representations, warranties and covenants set forth in
Sections 3 and 4 hereof or any of its covenants and obligations under this
Agreement or the Registration Rights Agreement, including advancement of
expenses as they are incurred.
j. Publicity. The
Company and each of the Buyers shall have the right to review a reasonable
period of time before issuance of any press releases, SEC, OTCBB or NASD
filings, or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of each of the Buyers, to make any press
release or SEC, OTCBB (or other applicable trading market) or NASD filings
with
respect to such transactions as is required by applicable law and regulations
(although each of the Buyers shall be consulted by the Company in connection
with any such press release prior to its release and shall be provided with
a
copy thereof and be given an opportunity to comment thereon).
k. Further
Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute
and
deliver all such other agreements, certificates, instruments and documents,
as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. No
Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any
party.
m. Remedies. The
Company acknowledges that a breach by it of its obligations hereunder will
cause
irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Agreement will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement, that the Buyers
shall
be entitled, in addition to all other available remedies at law or in equity,
and in addition to the penalties assessable herein, to an injunction or
injunctions restraining, preventing or curing any breach of this Agreement
and
to enforce specifically the terms and provisions hereof, without the necessity
of showing economic loss and without any bond or other security being
required.
IN
WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above
written.
AVITAR
INC.
________________________________
Xxxxx
Xxxxxxxx
Chief
Executive Officer
AJW
PARTNERS, LLC
By: SMS
Group, LLC
______________________________________
Xxxxx
X.
Xxxxxxxx
Manager
RESIDENCE: Delaware
ADDRESS: 0000
Xxxxxxxx Xxxxxxxxx
Xxxxx
000
Xxxxxx,
Xxx Xxxx 00000
Facsimile: (000)
000-0000
Telephone: (000)
000-0000
AGGREGATE
SUBSCRIPTION AMOUNT:
Aggregate
Principal Amount of
Notes: $________
Number
of
Warrants: ________
Aggregate
Purchase
Price: $________
AJW
MASTER FUND, LTD.
By: First
Street Manager II, LLC
______________________________________
Xxxxx
X.
Xxxxxxxx
Manager
RESIDENCE: Cayman
Islands
ADDRESS: AJW
Offshore, Ltd.
X.X.
Xxx
00000 XXX
Xxxxx
Xxxxxx, Xxxxxx Xxxxxx, B.W.I.
AGGREGATE
SUBSCRIPTION AMOUNT:
Aggregate
Principal Amount of Notes: $_______
Number
of
Warrants: _______
Aggregate
Purchase Price: $_______
NEW
MILLENNIUM CAPITAL PARTNERS II, LLC
By: First
Street Manager II, LLP
____________________________________
Xxxxx
X.
Xxxxxxxx
Manager
RESIDENCE: New
York
ADDRESS: 0000
Xxxxxxxx Xxxxxxxxx
Xxxxx
000
Xxxxxx,
Xxx Xxxx 00000
Facsimile: (000)
000-0000
Telephone: (000)
000-0000
AGGREGATE
SUBSCRIPTION AMOUNT:
Aggregate
Principal Amount of Notes: $______
Number
of
Warrants: ______
Aggregate
Purchase Price: $______
