SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
Dated as of October 12, 2006
among
ASTRATA GROUP INCORPORATED
and
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
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PAGE
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ARTICLE I Purchase and Sale of Preferred Stock........................................................1
Section 1.1 Purchase and Sale of Stock.................................................1
Section 1.2 Warrants...................................................................1
Section 1.3 Conversion Shares..........................................................2
Section 1.4 Purchase Price and Closing.................................................2
ARTICLE II Representations and Warranties.............................................................3
Section 2.1 Representations and Warranties of the Company..............................3
Section 2.2 Representations and Warranties of the Purchasers..........................13
ARTICLE III Covenants................................................................................16
Section 3.1 Securities Compliance.....................................................16
Section 3.2 Registration and Listing..................................................16
Section 3.3 Inspection Rights.........................................................16
Section 3.4 Compliance with Laws......................................................17
Section 3.5 Keeping of Records and Books of Account...................................17
Section 3.6 Reporting Requirements....................................................17
Section 3.7 Amendments................................................................17
Section 3.8 Other Agreements..........................................................17
Section 3.9 Distributions.............................................................17
Section 3.10 Status of Dividends.......................................................17
Section 3.11 Use of Proceeds...........................................................18
Section 3.12 Reservation of Shares.....................................................18
Section 3.13 Transfer Agent Instructions...............................................19
Section 3.14 Disposition of Assets.....................................................19
Section 3.15 Reporting Status..........................................................19
Section 3.16 Disclosure of Transaction ................................................19
Section 3.17 Disclosure of Material Information........................................19
Section 3.18 Pledge of Securities......................................................20
Section 3.19 Form SB-2 Eligibility.....................................................20
Section 3.20 Lock-Up Agreement.........................................................20
Section 3.21 Investor Relations Firm...................................................20
Section 3.22 Increase in Authorized Shares ............................................20
Section 3.23 Subsequent Financings.....................................................20
ARTICLE IV Conditions............................................................................... 23
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell the
Shares....................................................................23
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase
the Shares................................................................24
ARTICLE V Stock Certificate Legend...................................................................26
Section 5.1 Legend....................................................................27
ARTICLE VI Indemnification...........................................................................28
Section 6.1 General Indemnity.........................................................28
Section 6.2 Indemnification Procedure.................................................28
ARTICLE VII Miscellaneous............................................................................29
Section 7.1 Fees and Expenses.........................................................29
Section 7.2 Specific Enforcement, Consent to Jurisdiction.............................29
Section 7.3 Entire Agreement; Amendment...............................................30
Section 7.4 Notices...................................................................30
Section 7.5 Waivers...................................................................31
Section 7.6 Headings..................................................................31
Section 7.7 Successors and Assigns....................................................31
Section 7.8 No Third Party Beneficiaries..............................................32
Section 7.9 Governing Law.............................................................32
Section 7.10 Survival..................................................................32
Section 7.11 Counterparts..............................................................32
Section 7.12 Publicity.................................................................32
Section 7.13 Severability..............................................................32
Section 7.14 Further Assurances........................................................32
ii
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of October 12, 2006 by and among Astrata Group
Incorporated, a Nevada corporation (the "Company"), and each of the Purchasers
of shares of Series A Convertible Preferred Stock of the Company whose names are
set forth on Exhibit A hereto (individually, a "Purchaser" and collectively, the
"Purchasers").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Preferred Stock
Section 1.1 Purchase and Sale of Stock. Upon the following terms and
conditions, the Company shall issue and sell to the Purchasers and each of the
Purchasers shall purchase from the Company, the number of shares of the
Company's Series A Convertible Preferred Stock, par value $0.0001 per share and
at a purchase price of $1.00 per share (the "Preferred Shares"), convertible
into shares of the Company's common stock, par value $0.0001 per share (the
"Common Stock"), in the amounts set forth opposite such Purchaser's name on
Exhibit A hereto. The designation, rights, preferences and other terms and
provisions of the Series A Convertible Preferred Stock are set forth in the
Certificate of Designation of the Relative Rights and Preferences of the Series
A Convertible Preferred Stock attached hereto as Exhibit B (the "Certificate of
Designation"). The minimum purchase price hereunder shall be an amount not less
than $2,000,000 in the aggregate and the maximum purchase price shall be an
amount up to $5,500,000. The Company and the Purchasers are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded by Rule 506 of Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act") or Section 4(2) of the Securities Act.
Section 1.2 Warrants. Upon the following terms and conditions and for no
additional consideration, each of the Purchasers shall be issued (i) Series A
Warrants, in substantially the form attached hereto as Exhibit C-1 (the "Series
A Warrants"), to purchase the number of shares of Common Stock equal to
seventy-five percent (75%) of the number of Conversion Shares (as defined in
Section 1.3 hereof) issuable upon conversion of the Preferred Shares purchased
by each Purchaser pursuant to the terms of this Agreement, as set forth opposite
such Purchaser's name on Exhibit A hereto, (ii) Series B Warrants, in
substantially the form attached hereto as Exhibit C-2 (the "Series B Warrants"),
to purchase the number of shares of Common Stock equal to seventy-five percent
(75%) of the number of Conversion Shares issuable upon conversion of the
Preferred Shares purchased by each Purchaser pursuant to the terms of this
Agreement, as set forth opposite such Purchaser's name on Exhibit A hereto,
(iii) Series J Warrants, in substantially the form attached hereto as Exhibit
C-3 (the "Series J Warrants"), to purchase the number of shares of Common Stock
equal to one hundred percent (100%) of the number of Conversion Shares issuable
upon conversion of the Preferred Shares purchased by each Purchaser, provided
that such Purchaser purchases Preferred Shares for a purchase price equal to or
greater than $2,000,000 pursuant to the terms of this Agreement, as set forth
opposite such Purchaser's name on Exhibit A hereto, (iv) Series C Warrants, in
substantially the form attached hereto as Exhibit C-4 (the "Series C Warrants"),
to purchase the number of shares of Common Stock equal to seventy-five percent
(75%) of the number of Conversion Shares issuable upon conversion of the
Preferred Shares purchased by each Purchaser pursuant to the terms of this
Agreement, as set forth opposite such Purchaser's name on Exhibit A hereto, and
(v) Series D Warrants, in substantially the form attached hereto as Exhibit C-5
(the "Series D Warrants" and, together with the Series A Warrants, the Series B
Warrants, the Series J Warrants and the Series C Warrants, the "Warrants"), to
purchase the number of shares of Common Stock equal to seventy-five percent
(75%) of the number of Conversion Shares issuable upon conversion of the
Preferred Shares purchased by each Purchaser pursuant to the terms of this
Agreement, as set forth opposite such Purchaser's name on Exhibit A hereto. The
Warrants shall expire five (5) years following the Closing Date, except for the
Series J Warrants, which shall expire one (1) year following the Closing Date.
Each of the Warrants shall have an exercise price per share equal to the Warrant
Price (as defined in the applicable Warrant).
Section 1.3 Conversion Shares. The Company has authorized and has reserved
and covenants to continue to reserve, free of preemptive rights and other
similar contractual rights of stockholders, a number of shares of Common Stock
equal to the number of shares of Common Stock that are not currently issued or
reserved for issuance; provided, however, upon the Company filing the Charter
Amendment (as defined in Section 3.22 hereof), the Company shall authorize and
reserve and continue to reserve, free of preemptive rights and other similar
contractual rights of stockholders, a number of shares of Common Stock equal to
one hundred fifty percent (150%) of the number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all of the
Preferred Shares and exercise of the Warrants then outstanding. Any shares of
Common Stock issuable upon conversion of the Preferred Shares and exercise of
the Warrants (and such shares when issued) are herein referred to as the
"Conversion Shares" and the "Warrant Shares", respectively. The Preferred
Shares, the Conversion Shares and the Warrant Shares are sometimes collectively
referred to as the "Shares".
Section 1.4 Purchase Price and Closing. Subject to the terms and
conditions hereof, the Company agrees to issue and sell to the Purchasers and,
in consideration of and in express reliance upon the representations,
warranties, covenants, terms and conditions of this Agreement, the Purchasers,
severally but not jointly, agree to purchase the Preferred Shares and the
Warrants for an aggregate purchase price of up to $5,500,000 (the "Purchase
Price"). The closing of the purchase and sale of the Preferred Shares and the
Warrants to be acquired by the Purchasers from the Company under this Agreement
shall take place at the offices of Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx LLP, 0000
Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (the "Closing") at 10:00 a.m.,
New York time on such date as the Purchasers and the Company may agree upon;
provided, that all of the conditions set forth in Article IV hereof and
applicable to the Closing shall have been fulfilled or waived in accordance
herewith (the "Closing Date"). Subject to the terms and conditions of this
Agreement, at the Closing the Company shall deliver or cause to be delivered to
each Purchaser (x) a certificate for the number of Preferred Shares set forth
opposite the name of such Purchaser on Exhibit A hereto, (y) its Warrants to
purchase such number of shares of Common Stock as is set forth opposite the name
of such Purchaser on Exhibit A attached hereto and (z) any other documents
required to be delivered pursuant to Article IV hereof. At the Closing, each
Purchaser shall deliver its Purchase Price by wire transfer to the escrow
account pursuant to the Escrow Agreement (as hereafter defined).
2
ARTICLE II
Representations and Warranties
Section 2.1 Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchasers, as of the date hereof and the
Closing Date (except as set forth on the Schedule of Exceptions attached hereto
with each numbered Schedule corresponding to the section number herein), as
follows:
(a) Organization, Good Standing and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Nevada and has the requisite corporate power to own, lease and operate
its properties and assets and to conduct its business as it is now being
conducted. The Company does not have any subsidiaries except as set forth in the
Company's Form 10-KSB for the year ended February 28, 2006, including the
accompanying financial statements (the "Form 10-KSB"), or in the Company's Form
10-QSB for the fiscal quarters ended May 31, 2006, November 30, 2005 and August
31, 2005 (collectively, the "Form 10-QSB"), or on Schedule 2.1(g) hereto. The
Company and each such subsidiary is duly qualified as a foreign corporation to
do business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary except for any jurisdiction(s) (alone or in the aggregate) in which
the failure to be so qualified will not have a Material Adverse Effect (as
defined in Section 2.1(c) hereof) on the Company's financial condition.
(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform this Agreement, the Registration
Rights Agreement in the form attached hereto as Exhibit D (the "Registration
Rights Agreement"), the Lock-Up Agreement (as defined in Section 3.20 hereof) in
the form attached hereto as Exhibit E, the Escrow Agreement by and among the
Company, the Purchasers and the escrow agent, dated as of the date hereof,
substantially in the form of Exhibit F attached hereto (the "Escrow Agreement"),
the Irrevocable Transfer Agent Instructions (as defined in Section 3.13), the
Certificate of Designation, and the Warrants (collectively, the "Transaction
Documents") and to issue and sell the Shares and the Warrants in accordance with
the terms hereof. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors or stockholders is required. This Agreement
has been duly executed and delivered by the Company. The other Transaction
Documents will have been duly executed and delivered by the Company at the
Closing. Each of the Transaction Documents constitutes, or shall constitute when
executed and delivered, a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.
3
(c) Capitalization. The authorized capital stock of the Company and the
shares thereof currently issued and outstanding as of the date hereof are set
forth on Schedule 2.1(c) hereto. All of the outstanding shares of the Common
Stock and the Preferred Shares have been duly and validly authorized. Except as
set forth on Schedule 2.1(c) hereto, no shares of Common Stock are entitled to
preemptive rights or registration rights and there are no outstanding options,
warrants, scrip, rights to subscribe to, call or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company. There are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the Company.
Except as set forth on Schedule 2.1(c) hereto, the Company is not a party to any
agreement granting registration or anti-dilution rights to any person with
respect to any of its equity or debt securities. The Company is not a party to,
and it has no knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of the Company. The offer and sale of all
capital stock, convertible securities, rights, warrants, or options of the
Company issued prior to the Closing complied with all applicable Federal and
state securities laws, and no stockholder has a right of rescission or claim for
damages with respect thereto which would have a Material Adverse Effect (as
defined below). The Company has furnished or made available to the Purchasers
true and correct copies of the Company's Articles of Incorporation as in effect
on the date hereof (the "Articles"), and the Company's Bylaws as in effect on
the date hereof (the "Bylaws"). For the purposes of this Agreement, "Material
Adverse Effect" means any material adverse effect on the business, operations,
properties, prospects, or financial condition of the Company and its
subsidiaries and/or any condition, circumstance, or situation that would
prohibit or otherwise materially interfere with the ability of the Company to
perform any of its obligations under this Agreement in any material respect.
(d) Issuance of Shares. The Preferred Shares and the Warrants to be issued
at the Closing have been duly authorized by all necessary corporate action and
the Preferred Shares, when paid for or issued in accordance with the terms
hereof, shall be validly issued and outstanding, fully paid and nonassessable
and entitled to the rights and preferences set forth in the Certificate of
Designation. When the Conversion Shares and the Warrant Shares are issued in
accordance with the terms of the Certificate of Designation and the Warrants,
respectively, such shares will be duly authorized by all necessary corporate
action and validly issued and outstanding, fully paid and nonassessable, and the
holders shall be entitled to all rights accorded to a holder of Common Stock.
4
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the performance by the Company of its
obligations under the Certificate of Designation and the consummation by the
Company of the transactions contemplated herein and therein do not and will not
(i) violate any provision of the Company's Articles or Bylaws, (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party or by which it or its properties or assets are
bound, (iii) create or impose a lien, mortgage, security interest, charge or
encumbrance of any nature on any property of the Company under any agreement or
any commitment to which the Company is a party or by which the Company is bound
or by which any of its respective properties or assets are bound, or (iv) result
in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including Federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries are bound
or affected, except, in all cases other than violations pursuant to clauses (i)
and (iv) above, for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. The business of the Company and its
subsidiaries is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity, except for possible violations which
singularly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under Federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under the Transaction
Documents, or issue and sell the Preferred Shares, the Warrants, the Conversion
Shares and the Warrant Shares in accordance with the terms hereof or thereof
(other than any filings which may be required to be made by the Company with the
Commission or state securities administrators subsequent to the Closing, any
registration statement which may be filed pursuant hereto, and the Certificate
of Designation); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Purchasers herein.
(f) Commission Documents, Financial Statements. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended the "Exchange Act"), and except as disclosed on Schedule
2.1(f), the Company has timely filed all reports, schedules, forms, statements
and other documents required to be filed by it with the Commission pursuant to
the reporting requirements of the Exchange Act, including material filed
pursuant to Section 13(a) or 15(d) of the Exchange Act (all of the foregoing
including filings incorporated by reference therein being referred to herein as
the "Commission Documents"). The Company has delivered or made available to each
of the Purchasers true and complete copies of the Commission Documents. The
Company has not provided to the Purchasers any material non-public information
or other information which, according to applicable law, rule or regulation, was
required to have been disclosed publicly by the Company but which has not been
so disclosed, other than with respect to the transactions contemplated by this
Agreement. At the times of their respective filings, the Form 10-KSB and the
Form 10-QSB complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder and other federal, state and local laws, rules and regulations
applicable to such documents, and, as of their respective dates, none of the
Form 10-KSB and the Form 10-QSB 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. The financial statements of the
Company included in the Commission Documents comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles ("GAAP") applied on a
consistent basis 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 financial position of the Company and its subsidiaries as of the
dates thereof and the results of operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).
5
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each subsidiary of the
Company, showing the jurisdiction of its incorporation or organization and
showing the percentage of each person's ownership. For the purposes of this
Agreement, "subsidiary" shall mean any corporation or other entity of which at
least a majority of the securities or other ownership interest having ordinary
voting power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of the
outstanding shares of capital stock of each subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any subsidiary for the purchase
or acquisition of any shares of capital stock of any subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence. Neither the Company nor any subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any subsidiary.
(h) No Material Adverse Change. Since February 28, 2006, the Company has
not experienced or suffered any Material Adverse Effect.
(i) No Undisclosed Liabilities. Neither the Company nor any of its
subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) other than those incurred in the ordinary course of the Company's
or its subsidiaries respective businesses since February 28, 2006 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company or its subsidiaries.
(j) No Undisclosed Events or Circumstances. No event or circumstance has
occurred or exists with respect to the Company or its subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
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.
(k) Indebtedness. The Form 10-KSB, Form 10-QSB or Schedule 2.1(k) hereto
sets forth as of a recent date all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or any
subsidiary has commitments. For the purposes of this Agreement, "Indebtedness"
shall mean (a) any liabilities for borrowed money or amounts owed in excess of
$100,000 (other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. Except as set forth on Schedule 2.1(k),
neither the Company nor any subsidiary is in default with respect to any
Indebtedness.
6
(l) Title to Assets. Each of the Company and the subsidiaries has good and
marketable title to all of its real and personal property reflected in the Form
10-KSB, free and clear of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those disclosed in the Form 10-KSB
or such that, individually or in the aggregate, do not cause a Material Adverse
Effect. All leases of the Company and each of its subsidiaries are valid and
subsisting and in full force and effect.
(m) Actions Pending. Except as disclosed on Schedule 2.1(m), there is no
action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or any other proceeding pending or, to the knowledge of the Company,
threatened against the Company or any subsidiary which questions the validity of
this Agreement or any of the other Transaction Documents or the transactions
contemplated hereby or thereby or any action taken or to be taken pursuant
hereto or thereto. There is no action, suit, claim, investigation, arbitration,
alternate dispute resolution proceeding or any other proceeding pending or, to
the knowledge of the Company, threatened, against or involving the Company, any
subsidiary or any of their respective properties or assets. There are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental or regulatory body against the Company or any
subsidiary or any officers or directors of the Company or subsidiary in their
capacities as such.
(n) Compliance with Law. The business of the Company and the subsidiaries
has been and is presently being conducted in accordance with all applicable
federal, state and local governmental laws, rules, regulations and ordinances,
except for such noncompliance that, individually or in the aggregate, would not
cause a Material Adverse Effect. The Company and each of its subsidiaries have
all franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
(o) Taxes. Except as disclosed on Schedule 2.1(o), the Company and each of
the subsidiaries has accurately prepared and filed all federal, state and other
tax returns required by law to be filed by it, has paid or made provisions for
the payment of all taxes shown to be due and all additional assessments, and
adequate provisions have been and are reflected in the financial statements of
the Company and the subsidiaries for all current taxes and other charges to
which the Company or any subsidiary is subject and which are not currently due
and payable. None of the federal income tax returns of the Company or any
subsidiary have been audited by the Internal Revenue Service. The Company has no
knowledge of any additional assessments, adjustments or contingent tax liability
(whether federal or state) of any nature whatsoever, whether pending or
threatened against the Company or any subsidiary for any period, nor of any
basis for any such assessment, adjustment or contingency.
7
(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto, no
brokers, finders or financial advisory fees or commissions will be payable by
the Company or any subsidiary or any Purchaser with respect to the transactions
contemplated by this Agreement.
(q) Disclosure. Neither this Agreement or the Schedules hereto nor any
other documents, certificates or instruments furnished to the Purchasers by or
on behalf of the Company or any subsidiary in connection with the transactions
contemplated by this Agreement contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements made
herein or therein, in the light of the circumstances under which they were made
herein or therein, not misleading.
(r) Operation of Business. The Company and each of the subsidiaries owns
or possesses all patents, trademarks, domain names (whether or not registered)
and any patentable improvements or copyrightable derivative works thereof,
websites and intellectual property rights relating thereto, service marks, trade
names, copyrights, licenses and authorizations as set forth in the Form 10-KSB,
and all rights with respect to the foregoing, which are necessary for the
conduct of its business as now conducted without any conflict with the rights of
others.
(s) Environmental Compliance. The Company and each of its subsidiaries
have obtained all material approvals, authorization, certificates, consents,
licenses, orders and permits or other similar authorizations of all governmental
authorities, or from any other person, that are required under any Environmental
Laws. The Form 10-KSB or Form 10-QSB describes all material permits, licenses
and other authorizations issued under any Environmental Laws to the Company or
its subsidiaries. "Environmental Laws" shall mean all applicable laws relating
to the protection of the environment including, without limitation, all
requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of hazardous substances, chemical substances, pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. The Company has all necessary governmental approvals required
under all Environmental Laws and used in its business or in the business of any
of its subsidiaries. The Company and each of its subsidiaries are also in
compliance with all other limitations, restrictions, conditions, standards,
requirements, schedules and timetables required or imposed under all
Environmental Laws. Except for such instances as would not individually or in
the aggregate have a Material Adverse Effect, there are no past or present
events, conditions, circumstances, incidents, actions or omissions relating to
or in any way affecting the Company or its subsidiaries that violate or may
violate any Environmental Law after the Closing Date or that may give rise to
any environmental liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any hazardous substance.
8
(t) Books and Record Internal Accounting Controls. The books and records
of the Company and its subsidiaries accurately reflect in all material respects
the information relating to the business of the Company and the subsidiaries,
the location and collection of their assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of the Company or any
subsidiary. The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient, in the judgment of the Company, to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP 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 actions is taken
with respect to any differences.
(u) Material Agreements. Neither the Company nor any subsidiary is a party
to any written or oral contract, instrument, agreement, commitment, obligation,
plan or arrangement, a copy of which would be required to be filed with the
Commission as an exhibit to a registration statement on Form S-3 or applicable
form (collectively, "Material Agreements") if the Company or any subsidiary were
registering securities under the Securities Act, except as may already be filed
as an exhibit to or otherwise included in the Commission Documents. The Company
and each of its subsidiaries has in all material respects performed all the
obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and are not in default under any
Material Agreement now in effect, the result of which could cause a Material
Adverse Effect. No written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement of the Company or of any subsidiary limits or
shall limit the payment of dividends on the Company's Preferred Shares, other
preferred stock, if any, or its Common Stock.
(v) Transactions with Affiliates. Except as set forth in the Commission
Documents, there are no loans, leases, agreements, contracts, royalty
agreements, management contracts or arrangements or other continuing
transactions between (a) the Company or any subsidiary on the one hand, and (b)
on the other hand, any officer, employee, consultant or director of the Company,
or any of its subsidiaries, or any person owning any capital stock of the
Company or any subsidiary or any member of the immediate family of such officer,
employee, consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant, director
or stockholder.
(w) Securities Act of 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Shares and the Warrants hereunder. Neither
the Company nor anyone acting on its behalf, directly or indirectly, has or will
sell, offer to sell or solicit offers to buy any of the Shares, the Warrants or
similar securities to, or solicit offers with respect thereto from, or enter
into any preliminary conversations or negotiations relating thereto with, any
person, or has taken or will take any action so as to bring the issuance and
sale of any of the Shares and the Warrants under the registration provisions of
the Securities Act and applicable state securities laws, and neither the Company
nor any of its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of any of the Shares and the Warrants.
9
(x) Governmental Approvals. Except for the filing of any notice prior or
subsequent to the Closing Date that may be required under applicable state
and/or Federal securities laws (which if required, shall be filed on a timely
basis), including the filing of a Form D and a registration statement or
statements pursuant to the Registration Rights Agreement, and the filing of the
Certificate of Designation with the Secretary of State for the State of Nevada,
no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Preferred Shares
and the Warrants, or for the performance by the Company of its obligations under
the Transaction Documents.
(y) Employees. Neither the Company nor any subsidiary has any collective
bargaining arrangements or agreements covering any of its employees. Neither the
Company nor any subsidiary has any employment contract, agreement regarding
proprietary information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such subsidiary. No officer, consultant or
key employee of the Company or any subsidiary whose termination, either
individually or in the aggregate, could have a Material Adverse Effect, has
terminated or, to the knowledge of the Company, has any present intention of
terminating his or her employment or engagement with the Company or any
subsidiary.
(z) Absence of Certain Developments. Except as disclosed on Schedule
2.1(z), since February 28, 2006, neither the Company nor any subsidiary has:
(i) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current liabilities
paid in the ordinary course of business;
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(iv) declared or made any payment or distribution of cash or other
property to stockholders with respect to its stock, or purchased or redeemed, or
made any agreements so to purchase or redeem, any shares of its capital stock;
(v) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights, trademarks,
trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;
(vii) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(x) entered into any other transaction other than in the ordinary
course of business, or entered into any other material transaction, whether or
not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of $25,000;
(xii) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;
(xiii) experienced any material problems with labor or management in
connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the foregoing kind which in
the aggregate would be material to the Company or its subsidiaries; or
(xv) entered into an agreement, written or otherwise, to take any of
the foregoing actions.
(aa) Public Utility Holding Company Act and Investment Company Act Status.
The Company is not a "holding company" or a "public utility company" as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended.
The Company is not, and as a result of and immediately upon the Closing will not
be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
11
(bb) ERISA. No liability to the Pension Benefit Guaranty Corporation has
been incurred with respect to any Plan (as defined below) by the Company or any
of its subsidiaries which is or would be materially adverse to the Company and
its subsidiaries. The execution and delivery of this Agreement and the issuance
and sale of the Preferred Shares will not involve any transaction which is
subject to the prohibitions of Section 406 of ERISA or in connection with which
a tax could be imposed pursuant to Section 4975 of the Internal Revenue Code of
1986, as amended, provided that, if any of the Purchasers, or any person or
entity that owns a beneficial interest in any of the Purchasers, is an "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA) with respect
to which the Company is a "party in interest" (within the meaning of Section
3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(ac), the term "Plan" shall mean
an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is
or has been established or maintained, or to which contributions are or have
been made, by the Company or any subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.
(cc) Dilutive Effect. The Company understands and acknowledges that its
obligation to issue Conversion Shares upon conversion of the Preferred Shares in
accordance with this Agreement and the Certificate of Designation and its
obligations to issue the Warrant Shares upon the exercise of the Warrants in
accordance with this Agreement and the Warrants, is, in each case, absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interest of other stockholders of the Company.
(dd) 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 of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the Shares
pursuant to this Agreement to be integrated with prior offerings by the Company
for purposes of the Securities Act which would prevent the Company from selling
the Shares 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 Shares to be integrated with other offerings. The Company does
not have any registration statement pending before the Commission or currently
under the Commission's review and since March 1, 2006, the Company has not
offered or sold any of its equity securities or debt securities convertible into
shares of Common Stock.
(ee) Xxxxxxxx-Xxxxx Act. The Company is in compliance with the applicable
provisions of the Xxxxxxxx-Xxxxx Act of 2002 (the "Xxxxxxxx-Xxxxx Act"), and the
rules and regulations promulgated thereunder, that are effective, and intends to
comply with other applicable provisions of the Xxxxxxxx-Xxxxx Act, and the rules
and regulations promulgated thereunder, upon the effectiveness of such
provisions.
12
(ff) Independent Nature of Purchasers. The Company acknowledges that the
obligations of each Purchaser under the Transaction Documents are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under the Transaction Documents. The Company acknowledges that the
decision of each Purchaser to purchase securities pursuant to this Agreement has
been made by such Purchaser independently of any other purchase and
independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company or of
its Subsidiaries which may have made or given by any other Purchaser or by any
agent or employee of any other Purchaser, and no Purchaser or any of its agents
or employees shall have any liability to any Purchaser (or any other person)
relating to or arising from any such information, materials, statements or
opinions. The Company acknowledges that nothing contained herein, or in any
Transaction Document, and no action taken by any Purchaser pursuant hereto or
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. The Company acknowledges that each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose. The Company
acknowledges that for reasons of administrative convenience only, the
Transaction Documents have been prepared by counsel for one of the Purchasers
and such counsel does not represent all of the Purchasers but only such
Purchaser and the other Purchasers have retained their own individual counsel
with respect to the transactions contemplated hereby. The Company acknowledges
that it has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by the Purchasers.
(gg) DTC Status. The Company's transfer agent is a participant in and the
Common Stock is eligible for transfer pursuant to the Depository Trust Company
Automated Securities Transfer Program. The name, address, telephone number, fax
number, contact person and email address of the Company's transfer agent is set
forth on Schedule 2.1(gg) hereto.
Section 2.2 Representations and Warranties of the Purchasers. Each
Purchaser hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If the Purchaser is an
entity, such Purchaser is a corporation or partnership duly incorporated or
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization.
(b) Authorization and Power. Each Purchaser has the requisite power and
authority to enter into and perform this Agreement and to purchase the Preferred
Shares and Warrants being sold to it hereunder. The execution, delivery and
performance of this Agreement and the Registration Rights Agreement by such
Purchaser and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate or partnership
action, and no further consent or authorization of such Purchaser or its Board
of Directors, stockholders, or partners, as the case may be, is required. Each
of this Agreement and the Registration Rights Agreement has been duly
authorized, executed and delivered by such Purchaser and constitutes, or shall
constitute when executed and delivered, a valid and binding obligation of the
Purchaser enforceable against the Purchaser in accordance with the terms
thereof.
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(c) No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the consummation by such
Purchaser of the transactions contemplated hereby and thereby or relating hereto
do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or other organizational documents or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument or obligation to which such Purchaser is a party or by which its
properties or assets are bound, or result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Purchaser or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
material adverse effect on such Purchaser). Such Purchaser is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or the
Registration Rights Agreement or to purchase the Preferred Shares or acquire the
Warrants in accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, such Purchaser is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.
(d) Acquisition for Investment. Each Purchaser is acquiring the Preferred
Shares and the Warrants solely for its own account for the purpose of investment
and not with a view to or for sale in connection with distribution. Each
Purchaser does not have a present intention to sell the Preferred Shares or the
Warrants, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of the Preferred Shares or the Warrants to
or through any person or entity; provided, however, that by making the
representations herein and subject to Section 2.2(h) below, such Purchaser does
not agree to hold the Shares or the Warrants for any minimum or other specific
term and reserves the right to dispose of the Shares or the Warrants at any time
in accordance with Federal and state securities laws applicable to such
disposition. Each Purchaser acknowledges that it is able to bear the financial
risks associated with an investment in the Preferred Shares and the Warrants and
that it has been given full access to such records of the Company and the
subsidiaries and to the officers of the Company and the subsidiaries and
received such information as it has deemed necessary or appropriate to conduct
its due diligence investigation and has sufficient knowledge and experience in
investing in companies similar to the Company in terms of the Company's stage of
development so as to be able to evaluate the risks and merits of its investment
in the Company.
(e) Status of Purchasers. Each Purchaser is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act. Such Purchaser is
not required to be registered as a broker-dealer under Section 15 of the
Exchange Act and such Purchaser is not a broker-dealer.
14
(f) Opportunities for Additional Information. Each Purchaser acknowledges
that such Purchaser has had the opportunity to ask questions of and receive
answers from, or obtain additional information from, the executive officers of
the Company concerning the financial and other affairs of the Company, and to
the extent deemed necessary in light of such Purchaser's personal knowledge of
the Company's affairs, such Purchaser has asked such questions and received
answers to the full satisfaction of such Purchaser, and such Purchaser desires
to invest in the Company.
(g) No General Solicitation. Each Purchaser acknowledges that the
Preferred Shares and the Warrants were not offered to such Purchaser by means of
any form of general or public solicitation or general advertising, or publicly
disseminated advertisements or sales literature, including (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media, or broadcast over television or radio, or
(ii) any seminar or meeting to which such Purchaser was invited by any of the
foregoing means of communications.
(h) Rule 144. Such Purchaser understands that the Shares must be held
indefinitely unless such Shares are registered under the Securities Act or an
exemption from registration is available. Such Purchaser acknowledges that such
Purchaser is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such person has been advised that Rule 144 permits resales only under
certain circumstances. Such Purchaser understands that to the extent that Rule
144 is not available, such Purchaser will be unable to sell any Shares without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(i) General. Such Purchaser understands that the Shares are being offered
and sold in reliance on a transactional exemption from the registration
requirement of Federal and state securities laws and the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Shares.
(j) Independent Investment. Except as may be disclosed in any filings with
the Commission by the Purchasers under Section 13 and/or Section 16 of the
Exchange Act, no Purchaser has agreed to act with any other Purchaser for the
purpose of acquiring, holding, voting or disposing of the Shares purchased
hereunder for purposes of Section 13(d) under the Exchange Act, and each
Purchaser is acting independently with respect to its investment in the Shares.
(k) Trading Activities. Each Purchaser's trading activities with respect
to the Shares shall be in compliance with all applicable federal and state
securities laws. No Purchaser nor any of its affiliates has an open short
position in the Common Stock, each Purchaser agrees that it shall not, and that
it will cause its affiliates not to, engage in any short sales with respect to
the Common Stock.
15
ARTICLE III
Covenants
The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of the Purchasers and their permitted assignees
(as defined herein).
Section 3.1 Securities Compliance. The Company shall notify the Commission
in accordance with their rules and regulations, of the transactions contemplated
by any of the Transaction Documents, including filing a Form D with respect to
the Preferred Shares, Warrants, Conversion Shares and Warrant Shares as required
under Regulation D and applicable "blue sky" laws, 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 Preferred
Shares, the Warrants, the Conversion Shares and the Warrant Shares to the
Purchasers or subsequent holders.
Section 3.2 Registration and Listing. The Company shall cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, to comply in all respects with its reporting and filing obligations under
the Exchange Act, to comply with all requirements related to any registration
statement filed pursuant to this Agreement, and to not take any action or file
any document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange Act
or Securities Act, except as permitted herein. The Company will take all action
necessary to continue the listing or trading of its Common Stock on the OTC
Bulletin Board or other exchange or market on which the Common Stock is trading
or may be traded in the future. Subject to the terms of the Transaction
Documents, the Company further covenants that it will take such further action
as the Purchasers may reasonably request, all to the extent required from time
to time to enable the Purchasers to sell the Shares without registration under
the Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act. Upon the request of the Purchasers, the
Company shall deliver to the Purchasers a written certification of a duly
authorized officer as to whether it has complied with such requirements.
Section 3.3 Inspection Rights. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, each Purchaser
or any employees, agents or representatives thereof, so long as such Purchaser
shall be obligated hereunder to purchase the Preferred Shares or shall
beneficially own any Preferred Shares, or shall own Conversion Shares which, in
the aggregate, represent more than 2% of the total combined voting power of all
voting securities then outstanding, for purposes reasonably related to such
Purchaser's interests as a stockholder to examine and make reasonable copies of
and extracts from the records and books of account of, and visit and inspect the
properties, assets, operations and business of the Company and any subsidiary,
and to discuss the affairs, finances and accounts of the Company and any
subsidiary with any of its officers, consultants, directors, and key employees,
provided, however, that the Company shall not provide to or discuss with such
Purchaser any material non-public information, unless prior thereto such
Purchaser shall have executed a written agreement regarding the confidentiality
and use of such information.
16
Section 3.4 Compliance with Laws. The Company shall comply, and cause each
subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could have a Material Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company shall
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 Reporting Requirements. If the Commission ceases making
periodic reports filed under the Exchange Act available via the Internet, then
at a Purchaser's request the Company shall furnish the following to such
Purchaser so long as such Purchaser shall be obligated hereunder to purchase the
Preferred Shares or shall beneficially own any Shares:
(a) Quarterly Reports filed with the Commission on Form 10-QSB as
soon as practical after the document is filed with the Commission, and in any
event within five (5) days after the document is filed with the Commission;
(b) Annual Reports filed with the Commission on Form 10-KSB as soon
as practical after the document is filed with the Commission, and in any event
within five (5) days after the document is filed with the Commission; and
(c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.
Section 3.7 Amendments. The Company shall not amend or waive any provision
of the Articles or Bylaws of the Company in any way that would adversely affect
the liquidation preferences, dividends rights, conversion rights, voting rights
or redemption rights of the Preferred Shares; provided, however, that any
creation and issuance of another series of Junior Stock (as defined in the
Certificate of Designation) or any other class or series of equity securities
which by its terms shall rank on parity with the Preferred Shares shall not be
deemed to materially and adversely affect such rights, preferences or
privileges.
Section 3.8 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any subsidiary under any
Transaction Document.
Section 3.9 Distributions. So long as any Preferred Shares or Warrants
remain outstanding, the Company agrees that it shall not (i) declare or pay any
dividends or make any distributions to any holder(s) of Common Stock or (ii)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.
17
Section 3.10 Status of Dividends. The Company covenants and agrees that
(i) no Federal income tax return or claim for refund of Federal income tax or
other submission to the Internal Revenue Service (the "Service") will adversely
affect the Preferred Shares, any other series of its Preferred Stock, or the
Common Stock, and no deduction shall operate to jeopardize the availability to
Purchasers of the dividends received deduction provided by Section 243(a)(1) of
the Code or any successor provision, (ii) in no report to shareholders or to any
governmental body having jurisdiction over the Company or otherwise will it
treat the Preferred Shares other than as equity capital or the dividends paid
thereon other than as dividends paid on equity capital unless required to do so
by a governmental body having jurisdiction over the accounts of the Company or
by a change in generally accepted accounting principles required as a result of
action by an authoritative accounting standards setting body, and (iii) it will
take no action which would result in the dividends paid by the Company on the
Preferred Shares out of the Company's current or accumulated earnings and
profits being ineligible for the dividends received deduction provided by
Section 243(a)(1) of the Code. The preceding sentence shall not be deemed to
prevent the Company from designating the Preferred Stock as "Convertible
Preferred Stock" in its annual and quarterly financial statements in accordance
with its prior practice concerning other series of preferred stock of the
Company. In the event that the Purchasers have reasonable cause to believe that
dividends paid by the Company on the Preferred Shares out of the Company's
current or accumulated earnings and profits will not be treated as eligible for
the dividends received deduction provided by Section 243(a)(1) of the Code, or
any successor provision, the Company will, at the reasonable request of the
Purchasers of 51% of the outstanding Preferred Shares, join with the Purchasers
in the submission to the Service of a request for a ruling that dividends paid
on the Shares will be so eligible for Federal income tax purposes, at the
Purchasers expense. In addition, the Company will reasonably cooperate with the
Purchasers (at Purchasers' expense) in any litigation, appeal or other
proceeding challenging or contesting any ruling, technical advice, finding or
determination that earnings and profits are not eligible for the dividends
received deduction provided by Section 243(a)(1) of the Code, or any successor
provision to the extent that the position to be taken in any such litigation,
appeal, or other proceeding is not contrary to any provision of the Code.
Notwithstanding the foregoing, nothing herein contained shall be deemed to
preclude the Company from claiming a deduction with respect to such dividends if
(i) the Code shall hereafter be amended, or final Treasury regulations
thereunder are issued or modified, to provide that dividends on the Preferred
Shares or Conversion Shares should not be treated as dividends for Federal
income tax purposes or that a deduction with respect to all or a portion of the
dividends on the Shares is allowable for Federal income tax purposes, or (ii) in
the absence of such an amendment, issuance or modification and after a
submission of a request for ruling or technical advice, the Service shall issue
a published ruling or advise that dividends on the Shares should not be treated
as dividends for Federal income tax purposes. If the Service specifically
determines that the Preferred Shares or Conversion Shares constitute debt, the
Company may file protective claims for refund.
Section 3.11 Use of Proceeds. The net proceeds from the sale of the Shares
hereunder shall be used by the Company to pay indebtedness of $1,600,000 to NIR
Group and the balance shall be used for working capital and general corporate
purposes and not to redeem any Common Stock or securities convertible,
exercisable or exchangeable into Common Stock or to settle any outstanding
litigation.
18
Section 3.12 Reservation of Shares. So long as any of the Preferred Shares
or Warrants remain outstanding, the Company shall take all action necessary to
at all times have authorized, and reserved for the purpose of issuance, no less
than a number of shares of Common Stock equal to the number of shares of Common
Stock that are not currently issued or reserved for issuance; provided, however,
upon the Company filing the Charter Amendment, the Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, free of preemptive rights and other similar contractual rights of
stockholders, a number of shares of Common Stock equal to one hundred fifty
percent (150%) of the number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all of the Preferred Shares and
exercise of the Warrants then outstanding.
Section 3.13 Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Purchaser to the Company upon
conversion of the Preferred Shares or exercise of the Warrants in the form of
Exhibit G attached hereto (the "Irrevocable Transfer Agent Instructions"). Prior
to registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.13 will be given by the Company to its transfer agent and that
the Shares 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. If a Purchaser provides the Company with an opinion of
counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of all or some of such Purchaser's Shares may be made
without registration under the Securities Act or the Purchaser provides the
Company with reasonable assurances that such Shares can be sold pursuant to Rule
144 within the limitations of Rule 144, the Company shall permit the transfer,
and, in the case of the Conversion Shares and the Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates in such name and
in such denominations as specified by such Purchaser and without any restrictive
legend. The Company acknowledges that a breach by it of its obligations under
this Section 3.13 will cause irreparable harm to the Purchasers by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 3.13 will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 3.13, that
the Purchasers shall be entitled, in addition to all other available remedies,
to an order and/or injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
Section 3.14 Disposition of Assets. So long as any Preferred Shares remain
outstanding, neither the Company nor any Subsidiary shall sell, transfer or
otherwise dispose of any of its properties, assets and rights including, without
limitation, its software and intellectual property, to any person except for
sales to customers in the ordinary course of business or with the prior written
consent of the holders of a majority of the Preferred Shares then outstanding.
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Section 3.15 Reporting Status. So long as a Purchaser beneficially owns
any of the Shares, the Company shall timely file all reports required to be
filed with the Commission pursuant to the Exchange Act, and the Company shall
not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination.
Section 3.16 Disclosure of Transaction. The Company shall issue a press
release describing the material terms of the transactions contemplated hereby
(the "Press Release") as soon as practicable after the Closing but in no event
later than 9:00 A.M. Eastern Time on the first Trading Day following the
Closing. The Company shall also file with the Commission a Current Report on
Form 8-K (the "Form 8-K") describing the material terms of the transactions
contemplated hereby (and attaching as exhibits thereto this Agreement, the
Registration Rights Agreement, the Certificate of Designation, the Lock-Up
Agreement, the form of each series of Warrant and the Press Release) as soon as
practicable following the Closing Date but in no event more than two (2) Trading
Days following the Closing Date, which Press Release and Form 8-K shall be
subject to prior review and comment by the Purchasers. "Trading Day" means any
day during which the OTC Bulletin Board (or other quotation venue or principal
exchange on which the Common Stock is traded) shall be open for trading.
Section 3.17 Disclosure of Material Information. The Company covenants and
agrees that neither it nor any other person acting on its behalf has provided or
will provide any Purchaser or its agents or counsel with any information that
the Company believes constitutes material non-public information (other than
with respect to the transactions contemplated by this Agreement), unless prior
thereto such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.
Section 3.18 Pledge of Securities. The Company acknowledges and agrees
that the Shares may be pledged by a Purchaser in connection with a bona fide
margin agreement or other loan or financing arrangement that is secured by the
Common Stock. The pledge of Common Stock shall not be deemed to be a transfer,
sale or assignment of the Common Stock hereunder, and no Purchaser effecting a
pledge of Common Stock shall be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to this Agreement
or any other Transaction Document; provided that a Purchaser and its pledgee
shall be required to comply with the provisions of Article V hereof in order to
effect a sale, transfer or assignment of Common Stock to such pledgee. At the
Purchasers' expense, the Company hereby agrees to execute and deliver such
documentation as a pledgee of the Common Stock may reasonably request in
connection with a pledge of the Common Stock to such pledgee by a Purchaser.
Section 3.19 Form SB-2 Eligibility. The Company currently meets the
"registrant eligibility" and transaction requirements set forth in the general
instructions to Form SB-2 applicable to "resale" registrations on Form SB-2 and
the Company shall file all reports required to be filed by the Company with the
Commission in a timely manner.
20
Section 3.20 Lock-Up Agreement. The persons listed on Schedule 3.20
attached hereto shall be subject to the terms and provisions of a lock-up
agreement in substantially the form as Exhibit E hereto (the "Lock-Up
Agreement"), which shall provide the manner in which such persons will sell,
transfer or dispose of their shares of Common Stock.
Section 3.21 Investor Relations Firm. Not later than November 15,
2006, the Company shall hire an investor relations firm and purchase a minimum
of one third party independent research report.
Section 3.22 Increase in Authorized Shares. Not later than ninety
(90) days following the Closing Date, the Company shall file an amendment to the
Articles (the "Charter Amendment") with the Nevada Secretary of State to effect
an increase in the number of its authorized shares of Common Stock from
40,000,000 to at least a number of shares of Common Stock sufficient to reserve
one hundred fifty percent (150%) of the number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all of the
Preferred Shares and exercise of the Warrants then outstanding (the "Share
Increase"). In the event that the Share Increase has not been effected within
ninety (90) days following the Closing Date, the term of each series of Warrant
issued pursuant to this Agreement shall be automatically extended for a period
of one (1) year (and the Company shall promptly issue to each Purchaser new
Warrants evidencing the extension of such Warrant term) and each Purchaser shall
have the right to redeem any Preferred Shares then held by it in accordance with
the terms of the Certificate of Designation.
Section 3.23 Subsequent Financings.
(a) For a period of one (1) year following the effective date of the
Registration Statement (as defined in the Registration Rights Agreement), the
Company covenants and agrees to promptly notify in writing (a "Rights Notice")
the Purchasers of the terms and conditions of any proposed offer or sale to, or
exchange with (or other type of distribution to) any third party (a "Subsequent
Financing"), of Common Stock or any debt or equity securities convertible,
exercisable or exchangeable into Common Stock; provided, however, prior to
delivering to each Purchaser a Rights Notice, the Company shall first deliver to
each Purchaser a written notice of its intention to effect a Subsequent
Financing ("Pre-Notice") within three (3) Trading Days of receiving an
applicable offer, which Pre-Notice shall ask such Purchaser if it wants to
review the details of such financing. Upon the request of a Purchaser, and only
upon a request by such Purchaser within three (3) Trading Days of receipt of a
Pre-Notice, the Company shall promptly, but no later than two (2) Trading Days
after such request, deliver a Rights Notice to such Purchaser. The Rights Notice
shall describe, in reasonable detail, the proposed Subsequent Financing, the
names and investment amounts of all investors participating in the Subsequent
Financing (if known), the proposed closing date of the Subsequent Financing,
which shall be no earlier than ten (10) Trading Days from the date of the Rights
Notice, and all of the terms and conditions thereof and proposed definitive
documentation to be entered into in connection therewith. The Rights Notice
shall provide each Purchaser an option (the "Rights Option") during the ten (10)
Trading Days following delivery of the Rights Notice (the "Option Period") to
inform the Company whether such Purchaser will purchase up to its pro rata
portion of all or a portion of the securities being offered in such Subsequent
Financing on the same, absolute terms and conditions as contemplated by such
Subsequent Financing, provided the amount of such purchase shall not exceed such
Purchaser's Purchase Price hereunder except as allowed by the following
sentence. If any Purchaser elects not to participate in such Subsequent
Financing, the other Purchasers may participate on a pro-rata basis so long as
such participation in the aggregate does not exceed the total Purchase Price
hereunder. For purposes of this Section, all references to "pro rata" means, for
any Purchaser electing to participate in such Subsequent Financing, the
percentage obtained by dividing (x) the number of Preferred Shares purchased by
such Purchaser at the Closing by (y) the total number of all of the Preferred
Shares purchased by all of the participating Purchasers at the Closing. Delivery
of any Rights Notice constitutes a representation and warranty by the Company
that there are no other material terms and conditions, arrangements, agreements
or otherwise except for those disclosed in the Rights Notice, to provide
additional compensation to any party participating in any proposed Subsequent
Financing, including, but not limited to, additional compensation based on
changes in the Purchase Price or any type of reset or adjustment of a purchase
or conversion price or to issue additional securities at any time after the
closing date of a Subsequent Financing. If the Company does not receive notice
of exercise of the Rights Option from any or all of Purchasers within the Option
Period, the Company shall have the right to close the Subsequent Financing on
the scheduled closing date set forth in the Rights Notice (or within thirty (30)
days thereafter) without the participation of any or all of such Purchasers;
provided that all of the material terms and conditions of the closing are the
same as those provided to the Purchasers in the Rights Notice. If the closing of
the proposed Subsequent Financing does not occur on the scheduled closing date
set forth in the Rights Notice (or within thirty (30) days thereafter), any
closing of the contemplated Subsequent Financing or any other Subsequent
Financing shall be subject to all of the provisions of this Section 3.23(a),
including, without limitation, the delivery of a new Rights Notice. The
provisions of this Section 3.23(a) shall not apply to issuances of securities in
a Permitted Financing.
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(b) For purposes of this Agreement, a Permitted Financing (as defined
hereinafter) shall not be considered a Subsequent Financing. A "Permitted
Financing" shall mean (i) securities issued (other than for cash) in connection
with a merger, acquisition, or consolidation, (ii) securities issued pursuant to
the conversion or exercise of convertible or exercisable securities issued or
outstanding on or prior to the date of this Agreement or issued pursuant to this
Agreement (so long as the conversion or exercise price in such securities are
not amended to lower such price and/or adversely affect the Purchasers), (iii)
securities issued in connection with bona fide strategic license agreements or
other partnering arrangements so long as such issuances are not for the purpose
of raising capital, (iv) Common Stock issued or the issuance or grants of
options to purchase Common Stock pursuant to the Company's stock option plans
and employee stock purchase plans outstanding as they exist on the date of this
Agreement, and (v) any warrants issued to the placement agent and its designees
for the transactions contemplated by the Purchase Agreement.
(c) For a period of two (2) years following the Closing Date, the Company
shall be prohibited from effecting or entering into an agreement to effect any
Subsequent Financing involving a "Variable Rate Transaction" without the prior
written consent of the holders of 75% of the Preferred Shares then outstanding.
The term "Variable Rate Transaction" shall mean a transaction in which the
Company issues or sells (i) any debt or equity securities that are convertible
into, exchangeable or exercisable for, or include the right to receive
additional shares of Common Stock either (A) at a conversion, exercise or
exchange rate or other price that is based upon and/or varies with the trading
prices of or quotations for the shares of Common Stock at any time after the
initial issuance of such debt or equity securities, or (B) with a conversion,
exercise or exchange price that is subject to being reset at some future date
after the initial issuance of such debt or equity security or upon the
occurrence of specified or contingent events directly or indirectly related to
the business of the Company or the market for the Common Stock (other than
customary anti-dilution features) or (ii) enters into any agreement, including,
but not limited to, an equity line of credit, whereby the Company may sell
securities at a future determined price.
22
(d) For the period commencing on the Closing Date and ending on the date
that is one hundred eighty (180) days following the effective date of the
Registration Statement, the Company shall not file any registration statement
under the Securities Act without the prior written consent of the Purchasers,
other than the Registration Statement.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell
the Shares. The obligation hereunder of the Company to issue and sell the
Preferred Shares and the Warrants to the Purchasers is subject to the
satisfaction or waiver, at or before the Closing, of each of the conditions set
forth below. These conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.
(a) Accuracy of Each Purchaser's Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchasers. Each Purchaser shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by such Purchaser at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(d) Delivery of Purchase Price. The Purchase Price for the Preferred
Shares and Warrants has been delivered to the escrow agent pursuant to the
Escrow Agreement.
(e) Delivery of Transaction Documents. The Transaction Documents shall
have been duly executed and delivered by the Purchasers and, with respect to the
Escrow Agreement, the escrow agent, to the Company.
23
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Shares. The obligation hereunder of each Purchaser to acquire and
pay for the Preferred Shares and the Warrants is subject to the satisfaction or
waiver, at or before the Closing, of each of the conditions set forth below.
These conditions are for each Purchaser's sole benefit and may be waived by such
Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of the
representations and warranties of the Company in this Agreement and the
Registration Rights Agreement shall be true and correct in all respects as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that are expressly made as of a
particular date), which shall be true and correct in all respects as of such
date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
(c) No Suspension, Etc. Trading in the Company's Common Stock shall not
have been suspended by the Commission or the OTC Bulletin Board (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the applicable Closing), and, at any
time prior to the Closing Date, trading in securities generally as reported by
Bloomberg Financial Markets ("Bloomberg") shall not have been suspended or
limited, or minimum prices shall not have been established on securities whose
trades are reported by Bloomberg, or on the New York Stock Exchange, nor shall a
banking moratorium have been declared either by the United States or New York
State authorities, nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity or crisis
of such magnitude in its effect on, or any material adverse change in any
financial market which, in each case, in the judgment of such Purchaser, makes
it impracticable or inadvisable to purchase the Preferred Shares.
(d) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any subsidiary, or any of the officers, directors or affiliates
of the Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
24
(f) Certificate of Designation of Rights and Preferences. Prior to the
Closing, the Certificate of Designation in the form of Exhibit B attached hereto
shall have been filed with the Secretary of State of Nevada.
(g) Opinion of Counsel, Etc. At the Closing, the Purchasers shall have
received an opinion of counsel to the Company, dated the date of the Closing, in
the form of Exhibit H hereto, and such other certificates and documents as the
Purchasers or its counsel shall reasonably require incident to the Closing.
(h) Registration Rights Agreement. At the Closing, the Company shall have
executed and delivered the Registration Rights Agreement to each Purchaser.
(i) Certificates. The Company shall have executed and delivered to the
Purchasers the certificates (in such denominations as such Purchaser shall
request) for the Preferred Shares and the Warrants being acquired by such
Purchaser at the Closing (in such denominations as such Purchaser shall
request).
(j) Resolutions. The Board of Directors of the Company shall have adopted
resolutions consistent with Section 2.1(b) hereof in a form reasonably
acceptable to such Purchaser (the "Resolutions").
(k) Reservation of Shares. As of the Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Preferred Shares and the exercise of the
Warrants, a number of shares of Common Stock equal to one hundred fifty percent
(150%) of the aggregate number of Conversion Shares issuable upon conversion of
the Preferred Shares issued or to be issued pursuant to this Agreement and the
number of Warrant Shares issuable upon exercise of the number of Warrants issued
or to be issued pursuant to this Agreement.
(l) Transfer Agent Instructions. As of the Closing Date, the Irrevocable
Transfer Agent Instructions, in the form of Exhibit G attached hereto, shall
have been delivered to and acknowledged in writing by the Company's transfer
agent.
(m) Lock-Up Agreement. As of the Closing Date, the persons listed on
Schedule 3.20 hereto shall have delivered to the Purchasers a fully executed
Lock-Up Agreement in the form of Exhibit E attached hereto.
(n) Secretary's Certificate. The Company shall have delivered to such
Purchaser a secretary's certificate, dated as of the Closing Date, as to (i) the
Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the Certificate of
Designation, each as in effect at the Closing, and (iv) the authority and
incumbency of the officers of the Company executing the Transaction Documents
and any other documents required to be executed or delivered in connection
therewith.
25
(o) Officer's Certificate. The Company shall have delivered to the
Purchasers a certificate of an executive officer of the Company, dated as of the
Closing Date, confirming the accuracy of the Company's representations,
warranties and covenants as of the Closing Date and confirming the compliance by
the Company with the conditions precedent set forth in this Section 4.2 as of
the Closing Date.
(p) Convertible Securities. On or prior to the Closing Date, (i) Xxxxxx
Xxxxx shall have exchanged his promissory note issued by the Company in the
principal amount of $250,000 for Preferred Shares pursuant to the terms of this
Agreement, (ii) Pointe Capital Ltd. shall have exchanged its promissory notes
issued by the Company in the aggregate principal amount of $500,000 for
Preferred Shares pursuant to the terms of this Agreement, (iii) Infomax Company
Ltd. shall have exchanged its promissory notes issued by the Company in the
aggregate principal amount of $300,000 for Preferred Shares pursuant to the
terms of this Agreement, (iv) Wick Trust Ltd. shall have exchanged its
promissory notes issued by the Company in the principal amount of $450,000 for
Preferred Shares pursuant to the terms of this Agreement, and (v) any
outstanding securities of the Company that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common
Stock, at a conversion, exercise or exchange rate or other price that is based
upon and/or varies with the trading prices of or quotations for the shares of
Common Stock at any time after the initial issuance of such debt or equity
securities, shall have been converted, exchanged, exercised, redeemed or
otherwise cancelled.
(q) Voting Agreements. The Purchasers shall have received copies of
executed voting agreements of the Company's stockholders, in substantially the
form of Exhibit I hereto, evidencing such stockholder's agreement to vote in
favor of the Share Increase so that the number of shares of Common Stock held by
such stockholders (plus the number of shares of Common Stock held by Vision
Opportunity Master Fund, Ltd. following the conversion of 9.9% of its Preferred
Shares) is greater than fifty percent (50%) of the issued and outstanding shares
of Common Stock at such time.
(r) NIR Group. At or prior to the Closing Date, $1,600,000 of indebtedness
held by NIR Group shall have been converted into Common Stock or repaid.
(s) Escrow Agreement. At the Closing, the Company and the escrow agent
shall have executed and delivered the Escrow Agreement in the form of Exhibit F
attached hereto to each Purchaser.
(t) Pending Registration Statement. The registration statement filed by
the Company currently pending before the Commission shall have been withdrawn.
(u) Material Adverse Effect. No Material Adverse Effect shall have
occurred at or before the Closing Date.
ARTICLE V
Stock Certificate Legend
26
Section 5.1 Legend. Each certificate representing the Preferred Shares and
the Warrants, and, if appropriate, securities issued upon conversion thereof,
shall be stamped or otherwise imprinted with a legend substantially in the
following form (in addition to any legend required by applicable state
securities or "blue sky" laws):
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR ASTRATA GROUP
INCORPORATED SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION
OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing any of the
Conversion Shares and the Warrant Shares, without the legend set forth above if
at such time, prior to making any transfer of any such securities, such holder
thereof shall give written notice to the Company describing the manner and terms
of such transfer and removal as the Company may reasonably request. Such
proposed transfer and removal will not be effected until: (a) either (i) the
Company has received an opinion of counsel reasonably satisfactory to the
Company, to the effect that the registration of the Conversion Shares or the
Warrant Shares under the Securities Act is not required in connection with such
proposed transfer, (ii) a registration statement under the Securities Act
covering such proposed disposition has been filed by the Company with the
Commission and has become effective under the Securities Act, (iii) the Company
has received other evidence reasonably satisfactory to the Company that such
registration and qualification under the Securities Act and state securities
laws are not required, or (iv) the holder provides the Company with reasonable
assurances that such security can be sold pursuant to Rule 144 under the
Securities Act; and (b) either (i) the Company has received an opinion of
counsel reasonably satisfactory to the Company, to the effect that registration
or qualification under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition, or (ii) compliance with
applicable state securities or "blue sky" laws has been effected or a valid
exemption exists with respect thereto. The Company will respond to any such
notice from a holder within five (5) business days. In the case of any proposed
transfer under this Section 5.1, the Company will use reasonable efforts to
comply with any such applicable state securities or "blue sky" laws, but shall
in no event be required, (x) to qualify to do business in any state where it is
not then qualified, (y) to take any action that would subject it to tax or to
the general service of process in any state where it is not then subject, or (z)
to comply with state securities or "blue sky" laws of any state for which
registration by coordination is unavailable to the Company. The restrictions on
transfer contained in this Section 5.1 shall be in addition to, and not by way
of limitation of, any other restrictions on transfer contained in any other
section of this Agreement. Whenever a certificate representing the Conversion
Shares or Warrant Shares is required to be issued to a Purchaser without a
legend, in lieu of delivering physical certificates representing the Conversion
Shares or Warrant Shares (provided that a registration statement under the
Securities Act providing for the resale of the Warrant Shares and Conversion
Shares is then in effect), the Company shall cause its transfer agent to
electronically transmit the Conversion Shares or Warrant Shares to a Purchaser
by crediting the account of such Purchaser or such Purchaser's Prime Broker with
the Depository Trust Company ("DTC") through its Deposit Withdrawal Agent
Commission ("DWAC") system (to the extent not inconsistent with any provisions
of this Agreement).
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ARTICLE VI
Indemnification
Section 6.1 General Indemnity. The Company agrees to indemnify and hold
harmless the Purchasers (and their respective directors, officers, managers,
partners, members, shareholders, affiliates, agents, successors and assigns)
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees, charges
and disbursements) incurred by the Purchasers as a result of any inaccuracy in
or breach of the representations, warranties or covenants made by the Company
herein. Each Purchaser severally but not jointly agrees to indemnify and hold
harmless the Company and its directors, officers, affiliates, agents, successors
and assigns from and against any and all losses, liabilities, deficiencies,
costs, damages and expenses (including, without limitation, reasonable
attorneys' fees, charges and disbursements) incurred by the Company as result of
any inaccuracy in or breach of the representations, warranties or covenants made
by such Purchaser herein. The maximum aggregate liability of each Purchaser
pursuant to its indemnification obligations under this Article VI shall not
exceed the portion of the Purchase Price paid by such Purchaser hereunder.
Section 6.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VI (an "indemnified party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VI to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VI shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
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ARTICLE VII
Miscellaneous
Section 7.1 Fees and Expenses. Except as otherwise set forth in this
Agreement and the other Transaction Documents, each party shall pay the fees and
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement, provided
that the Company shall pay all actual attorneys' fees and expenses (including
disbursements and out-of-pocket expenses) incurred by the Purchasers in
connection with (i) the preparation, negotiation, execution and delivery of this
Agreement and the other Transaction Documents and the transactions contemplated
thereunder, which payment shall be made at the Closing and shall not exceed
$30,000 (plus disbursements and out-of-pocket expenses), of which $7,500 has
been paid prior to the date hereof, (ii) the filing and declaration of
effectiveness by the Commission of the Registration Statement and (iii) any
amendments, modifications or waivers of this Agreement or any of the other
Transaction Documents. The Company shall also pay up to $15,000 to the
Purchasers at the Closing in connection with all due diligence expenses incurred
by the Purchasers and all reasonable fees and expenses incurred by the
Purchasers in connection with the enforcement of this Agreement or any of the
other Transaction Documents, including, without limitation, all reasonable
attorneys' fees and expenses.
Section 7.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Purchasers acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement or
the other Transaction Documents were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement or the Registration Rights
Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
29
(b) Each of the Company and the Purchasers (i) hereby irrevocably submits
to the jurisdiction of the United States District Court sitting in the Southern
District of New York and the courts of the State of New York located in New York
county for the purposes of any suit, action or proceeding arising out of or
relating to this Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby and (ii) hereby waives, and agrees
not to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Each of the Company and the Purchasers
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this Section 7.2
shall affect or limit any right to serve process in any other manner permitted
by law.
Section 7.3 Entire Agreement; Amendment. This Agreement and the
Transaction Documents contains the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the Transaction Documents, neither the Company nor any of
the Purchasers makes any representations, warranty, covenant or undertaking with
respect to such matters and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the holders of at least seventy-five
percent (75%) of the Preferred Shares then outstanding, and no provision hereof
may be waived other than by an a written instrument signed by the party against
whom enforcement of any such amendment or waiver is sought. No such amendment
shall be effective to the extent that it applies to less than all of the holders
of the Preferred Shares then outstanding. No consideration shall be offered or
paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents or holders of
Preferred Shares, as the case may be.
Section 7.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
30
If to the Company: Astrata Group Incorporated
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Chief Executive Officer
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
with copies to: Xxxxxx & Xxxxxx, LLP
000 Xxxxx 0 Xxxxx, Xxxxx 000
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
If to any Purchaser: At the address of such Purchaser
set forth on Exhibit A to this
Agreement, with copies to
Purchaser's counsel as set
forth on Exhibit A or as
specified in writing by such
Purchaser with copies to:
Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxxxxx X. Xxxxxxx
Tel No.: (000) 000-0000
Fax No.: (000) 000-0000
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 7.5 Waivers. No waiver by either party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provisions,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
Section 7.6 Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 7.7 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns.
31
Section 7.8 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Agreement
shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted.
Section 7.10 Survival. The representations and warranties of the Company
and the Purchasers shall survive the execution and delivery hereof and the
Closings hereunder.
Section 7.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other parties hereto, it being understood that all parties need
not sign the same counterpart. In the event that any signature is delivered by
facsimile transmission or scanned electronic mail (e-mail) attachment, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile or scanned signature were the original thereof.
Section 7.12 Publicity. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Purchasers without
the consent of the Purchasers unless and until such disclosure is required by
law or applicable regulation, and then only to the extent of such requirement.
Section 7.13 Severability. The provisions of this Agreement and the
Transaction Documents are severable and, in the event that any court of
competent jurisdiction shall determine that any one or more of the provisions or
part of the provisions contained in this Agreement or the Transaction Documents
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement or the Transaction
Documents and such provision shall be reformed and construed as if such invalid
or illegal or unenforceable provision, or part of such provision, had never been
contained herein, so that such provisions would be valid, legal and enforceable
to the maximum extent possible.
Section 7.14 Further Assurances. From and after the date of this
Agreement, upon the request of any Purchaser or the Company, each of the Company
and the Purchasers shall execute and deliver such instrument, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement, the
Preferred Shares, the Conversion Shares, the Warrants, the Warrant Shares, the
Certificate of Designation, and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
32
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date first above
written.
ASTRATA GROUP INCORPORATED
By:
-------------------------------
Name: Xxxxxx Xxxxxx Xxxxx
Title: Chief Executive Officer
PURCHASER
By:
-------------------------------
Name:
Title:
EXHIBIT A to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ASTRATA GROUP INCORPORATED
Names and Addresses Number of Preferred Shares Dollar Amount of
of Purchasers & Warrants Purchased Investment
------------------- -------------------------- ----------------
Vision Opportunity Master Fund, Ltd Preferred Shares: $2,500,000
00 X 00xx Xx., 0xx floor Series A Warrants:
Xxx Xxxx, XX 00000 Series B Warrants:
Series J Warrants:
Series C Warrants:
Series D Warrants:
Xxxxxx Xxxxx Preferred Shares: $250,000
Series A Warrants:
Series B Warrants:
Series J Warrants:
Series C Warrants:
Series D Warrants:
Pointe Capital Limited Preferred Shares: $500,000
X.X. Xxx 000, Xxxx Xxxxxx Series A Warrants:
Xxxxxxx Waterfront Plaza Series B Warrants:
Charlestown, Nevis, West Indies Series J Warrants:
Series C Warrants:
Series D Warrants:
Infomax Company Limited Preferred Shares: $300,000
Xxxxxx 0000-0, Xxxxx Xxxxx Xxxxxx Series A Warrants:
Harbour Road Series B Warrants:
Wanchai, Hong Kong Series J Warrants:
Series C Warrants:
Series D Warrants:
Wick Trust Limited Preferred Shares: $450,000
X.X. Xxx 000, Xxxx Xxxxxx Series A Warrants:
Xxxxxxx Waterfront Plaza Series B Warrants:
Charlestown, Nevis, West Indies Series J Warrants:
Attn: Mayfair Trust Company, Trustee Series C Warrants:
Series D Warrants:
EXHIBIT B to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ASTRATA GROUP INCORPORATED
FORM OF CERTIFICATE OF DESIGNATION
EXHIBIT C-1 to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ASTRATA GROUP INCORPORATED
FORM OF SERIES A WARRANT
EXHIBIT C-2 to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ASTRATA GROUP INCORPORATED
FORM OF SERIES B WARRANT
EXHIBIT C-3 to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ASTRATA GROUP INCORPORATED
FORM OF SERIES J WARRANT
EXHIBIT C-4 to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ASTRATA GROUP INCORPORATED
FORM OF SERIES C WARRANT
EXHIBIT C-5 to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ASTRATA GROUP INCORPORATED
FORM OF SERIES D WARRANT
EXHIBIT D to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ASTRATA GROUP INCORPORATED
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT E to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ASTRATA GROUP INCORPORATED
FORM OF LOCK-UP AGREEMENT
EXHIBIT F to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ASTRATA GROUP INCORPORATED
FORM OF ESCROW AGREEMENT
EXHIBIT G to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ASTRATA GROUP INCORPORATED
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
ASTRATA GROUP INCORPORATED
as of October 12, 2006
[Name and address of Transfer Agent]
Attn: _____________
Ladies and Gentlemen:
Reference is made to that certain Series A Convertible Preferred Stock
Purchase Agreement (the "Purchase Agreement"), dated as of October 12, 2006, by
and among Astrata Group Incorporated, a Nevada corporation (the "Company"), and
the purchasers named therein (collectively, the "Purchasers") pursuant to which
the Company is issuing to the Purchasers shares of its Series A Convertible
Preferred Stock, par value $0.0001 per share, (the "Preferred Shares") and
warrants (the "Warrants") to purchase shares of the Company's common stock, par
value $0.0001 per share (the "Common Stock"). This letter shall serve as our
irrevocable authorization and direction to you provided that you are the
transfer agent of the Company at such time) to issue shares of Common Stock upon
conversion of the Preferred Shares (the "Conversion Shares") and exercise of the
Warrants (the "Warrant Shares") to or upon the order of a Purchaser from time to
time upon (i) surrender to you of a properly completed and duly executed
Conversion Notice or Exercise Notice, as the case may be, in the form attached
hereto as Exhibit I and Exhibit II, respectively, (ii) in the case of the
conversion of Preferred Shares, a copy of the certificates (with the original
certificates delivered to the Company) representing Preferred Shares being
converted or, in the case of Warrants being exercised, a copy of the Warrants
(with the original Warrants delivered to the Company) being exercised (or, in
each case, an indemnification undertaking with respect to such share
certificates or the warrants in the case of their loss, theft or destruction),
and (iii) delivery of a treasury order or other appropriate order duly executed
by a duly authorized officer of the Company. So long as you have previously
received (x) written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares or Warrant
Shares, as applicable, has been declared effective by the Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act"), and no subsequent notice by the Company or its counsel of the
suspension or termination of its effectiveness and (y) a copy of such
registration statement, and if the Purchaser represents in writing that the
Conversion Shares or the Warrant Shares, as the case may be, were sold pursuant
to the Registration Statement, then certificates representing the Conversion
Shares and the Warrant Shares, as the case may be, shall not bear any legend
restricting transfer of the Conversion Shares and the Warrant Shares, as the
case may be, thereby and should not be subject to any stop-transfer restriction.
Provided, however, that if you have not previously received those items and
representations listed above, then the certificates for the Conversion Shares
and the Warrant Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT OR
APPLICABLE STATE SECURITIES LAWS, OR ASTRATA GROUP INCORPORATED SHALL
HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH
SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for the Conversion Shares
and the Warrant Shares in the event a registration statement covering the
Conversion Shares and the Warrant Shares is subject to amendment for events then
current.
A form of written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares and the Warrant
Shares has been declared effective by the SEC under the 1933 Act is attached
hereto as Exhibit III.
Please be advised that the Purchasers are relying upon this letter as an
inducement to enter into the Purchase Agreement and, accordingly, each Purchaser
is a third party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at ___________.
Very truly yours,
ASTRATA GROUP INCORPORATED
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
ACKNOWLEDGED AND AGREED:
[TRANSFER AGENT]
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
Date:
------------------
EXHIBIT I
ASTRATA GROUP INCORPORATED
CONVERSION NOTICE
Reference is made to the Certificate of Designation of the Relative Rights and
Preferences of the Series A Preferred Stock of Astrata Group Incorporated (the
"Certificate of Designation"). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series A Preferred Stock, par value $0.0001 per share (the
"Preferred Shares"), of Astrata Group Incorporated, a Nevada corporation (the
"Company"), indicated below into shares of Common Stock, par value $0.0001 per
share (the "Common Stock"), of the Company, by tendering the stock
certificate(s) representing the share(s) of Preferred Shares specified below as
of the date specified below.
Date of Conversion:
---------------------------------------------------
Number of Preferred Shares to be converted:
--------
Stock certificate no(s). of Preferred Shares to be converted:
---------
The Common Stock have been sold pursuant to the Registration Statement (as
defined in the Registration Rights Agreement): YES ____ NO____
Please confirm the following information:
Conversion Price:
---------------------------------------------------
Number of shares of Common Stock
to be issued:
---------------------------------------------------
Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the Date of Conversion: _________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
---------------------------------------------------
---------------------------------------------------
Facsimile Number:
---------------------------------------------------
Authorization:
---------------------------------------------------
By:
-------------------------------------------
Title:
--------------------------------------------
Dated:
EXHIBIT II
FORM OF EXERCISE NOTICE
EXERCISE FORM
ASTRATA GROUP INCORPORATED
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of Astrata Group
Incorporated covered by the within Warrant.
Dated: _________________ Signature __________________________
Address __________________________
__________________________
Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the date of Exercise: _________________________
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.
Dated: _________________ Signature __________________________
Address __________________________
__________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.
Dated: _________________ Signature __________________________
Address __________________________
__________________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day
of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.
EXHIBIT III
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[Name and address of Transfer Agent]
Attn: _____________
Re: Astrata Group Incorporated
Ladies and Gentlemen:
We are counsel to Astrata Group Incorporated, a Nevada corporation (the
"Company"), and have represented the Company in connection with that certain
Series A Convertible Preferred Stock Purchase Agreement (the "Purchase
Agreement"), dated as of October 12, 2006, by and among the Company and the
purchasers named therein (collectively, the "Purchasers") pursuant to which the
Company issued to the Purchasers shares of its Series A Convertible Preferred
Stock, par value $0.0001 per share, (the "Preferred Shares") and warrants (the
"Warrants") to purchase shares of the Company's common stock, par value $0.0001
per share (the "Common Stock"). Pursuant to the Purchase Agreement, the Company
has also entered into a Registration Rights Agreement with the Purchasers (the
"Registration Rights Agreement"), dated as of October 12, 2006, pursuant to
which the Company agreed, among other things, to register the Registrable
Securities (as defined in the Registration Rights Agreement), including the
shares of Common Stock issuable upon conversion of the Preferred Shares and
exercise of the Warrants, under the Securities Act of 1933, as amended (the
"1933 Act"). In connection with the Company's obligations under the Registration
Rights Agreement, on ________________, 2006, the Company filed a Registration
Statement on Form SB-2 (File No. 333-________) (the "Registration Statement")
with the Securities and Exchange Commission (the "SEC") relating to the resale
of the Registrable Securities which names each of the present Purchasers as a
selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and accordingly, the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
By:
-----------------------------------
cc: [LIST NAMES OF PURCHASERS]
EXHIBIT H to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ASTRATA GROUP INCORPORATED
FORM OF OPINION OF COUNSEL
1. The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Nevada and has the requisite
corporate power to own, lease and operate its properties and assets, and to
carry on its business as presently conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Transaction Documents and to issue
the Preferred Stock, the Warrants and the Common Stock issuable upon conversion
of the Preferred Stock and exercise of the Warrants. The execution, delivery and
performance of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly and
validly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. Each of the Transaction Documents have been duly executed and
delivered, and the Preferred Stock and the Warrants have been duly executed,
issued and delivered by the Company and each of the Transaction Documents
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms. The Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants are
not subject to any preemptive rights under the Articles of Incorporation or the
Bylaws.
3. The Preferred Stock and the Warrants have been duly authorized and,
when delivered against payment in full as provided in the Purchase Agreement,
will be validly issued, fully paid and nonassessable. The shares of Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants,
have been duly authorized and reserved for issuance, and, when delivered upon
conversion or against payment in full as provided in the Certificate of
Designation and the Warrants, as applicable, will be validly issued, fully paid
and nonassessable.
4. The execution, delivery and performance of and compliance with the
terms of the Transaction Documents and the issuance of the Preferred Stock, the
Warrants and the Common Stock issuable upon conversion of the Preferred Stock
and exercise of the Warrants do not (i) violate any provision of the Articles of
Incorporation or Bylaws, (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which the
Company is a party, (iii) create or impose a lien, charge or encumbrance on any
property of the Company under any agreement or any commitment to which the
Company is a party or by which the Company is bound or by which any of its
respective properties or assets are bound, or (iv) result in a violation of any
federal, state, local or foreign statute, rule, regulation, order, judgment,
injunction or decree (including Federal and state securities laws and
regulations) applicable to the Company or by which any property or asset of the
Company is bound or affected, except, in all cases other than violations
pursuant to clauses (i) and (iv) above, for such conflicts, default,
terminations, amendments, acceleration, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect.
5. No consent, approval or authorization of or designation, declaration or
filing with any governmental authority on the part of the Company is required
under Federal, state or local law, rule or regulation in connection with the
valid execution and delivery of the Transaction Documents, or the offer, sale or
issuance of the Preferred Stock, the Warrants or the Common Stock issuable upon
conversion of the Preferred Stock and exercise of the Warrants other than the
Certificate of Designation and the Registration Statement.
6. There is no action, suit, claim, investigation or proceeding pending or
threatened against the Company which questions the validity of this Agreement or
the transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. There is no action, suit, claim, investigation or proceeding
pending, or to our knowledge, threatened, against or involving the Company or
any of its properties or assets and which, if adversely determined, is
reasonably likely to result in a Material Adverse Effect. There are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental or regulatory body against the Company or any
officers or directors of the Company in their capacities as such.
7. The offer, issuance and sale of the Preferred Stock and the Warrants
and the offer, issuance and sale of the shares of Common Stock issuable upon
conversion of the Preferred Stock and exercise of the Warrants pursuant to the
Purchase Agreement, the Certificate of Designation and the Warrants, as
applicable, are exempt from the registration requirements of the Securities Act.
8. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
Very truly yours,
EXHIBIT I to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ASTRATA GROUP INCORPORATED
FORM OF VOTING AGREEMENT