Exhibit 4.1
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CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
BETWEEN
ACIEM MANAGEMENT, INC.
AND
THE PURCHASER(S) LISTED ON
SCHEDULE 1 HERETO
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AUGUST 12, 2004
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TABLE OF CONTENTS
ARTICLE I CERTAIN DEFINITIONS..................................................1
1.1 Certain Definitions...................................................1
ARTICLE II PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.........................5
2.2 Purchase and Sale; Purchase Price.....................................5
2.2 Execution and Delivery of Documents; the Closing......................6
2.3 The Post-Closing......................................................7
2.4 First Debenture B ....................................................8
ARTICLE III REPRESENTATIONS AND WARRANTIES.....................................8
3.1 Representations, Warranties and Agreements of the Company.............8
3.2 Representations and Warranties of the Purchaser......................12
ARTICLE IV OTHER AGREEMENTS OF THE PARTIES....................................13
4.1 Manner of Offering...................................................13
4.2 Furnishing of Information............................................13
4.3 Notice of Certain Events.............................................13
4.4 Copies and Use of Disclosure Documents and Non-Public Filings........14
4.5 Modification to Disclosure Documents.................................14
4.6 Blue Sky Laws........................................................14
4.7 Integration..........................................................14
4.8 Furnishing of Rule 144(c) Materials..................................15
4.9 Solicitation Materials...............................................15
4.10 Subsequent Financial Statements......................................15
4.11 Prohibition on Certain Actions.......................................15
4.12 Listing of Common Stock..............................................15
4.13 Escrow...............................................................16
4.14 Converion Proceedures; Maintenance of Escrow Shares..................16
4.15 Attorney-in-Fact.....................................................16
4.16 Indemnification......................................................17
4.17 Exclusivity..........................................................19
4.18 Purchaser's Ownership of Common Stock................................19
4.19 Purchaser's Rights if Trading in Common Stock is Suspended...........20
4.20 No Violation of Applicable Law.......................................20
4.21 Redemption Restrictions..............................................21
4.22 No Other Registration Rights.........................................21
4.23 Merger or Consolidation..............................................21
4.24 Registration of Escrow Shares........................................22
4.25 Liquidated Damages...................................................23
4.26 Short Sales..........................................................24
4.27 Fees.................................................................24
4.28 Additional Fees......................................................24
4.29 Changes to Federal and State Securities Laws.........................25
4.30 Merger Agreement.....................................................25
4.30 Future Financing.....................................................25
4.30 Applicability of Agreements after Post-Offering......................25
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ARTICLE V TERMINATION.........................................................26
5.1 Termination by the Company or the Purchaser..........................26
5.2 Remedies.............................................................27
ARTICLE VI LEGAL FEES AND DEFAULT INTEREST RATE...............................27
ARTICLE VII MISCELLANEOUS.....................................................27
7.1 Fees and Expenses....................................................27
7.2 Entire Agreement; Amendments.........................................28
7.3 Notices..............................................................28
7.4 Amendments; Waivers..................................................29
7.5 Headings.............................................................29
7.6 Successors and Assigns...............................................29
7.7 No Third Party Beneficiaries.........................................29
7.8 Governing Law; Venue; Service of Process.............................29
7.9 Survival.............................................................29
7.10 Counterpart Signatures...............................................30
7.11 Publicity............................................................30
7.12 Severability.........................................................30
7.13 Limitation of Remedies...............................................30
7.14 Omnibus Provision....................................................30
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THIS CONVERTIBLE DEBENTURE PURCHASE AGREEMENT ("Agreement") is made and
entered into as of August 12, 2004, between Aciem Management, Inc., a
corporation organized and existing under the laws of the State of New York (the
"Company"), and the purchaser(s) listed on SCHEDULE 1 hereto (the "Purchaser").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchaser and the
Purchaser desires to acquire from the Company (i) the Company's $480,000, 1.5%
Convertible Debentures, due August 11, 2009 in the aggregate amount of Four
Hundred Eighty Thousand Dollars ($480,000), at the aggregate price of Four
Hundred Eighty Thousand Five Hundred Dollars ($480,000) in the forms of EXHIBIT
A-1 ("First Debenture A") and EXHIBIT A-2 ("First Debenture B"), annexed hereto
and made a part hereof (the "First Debentures") and (ii) the Company's $20,000,
1.5% Convertible Debenture, due August 11, 2009, at the price of Twenty Thousand
Dollars ($20,000) in the form of EXHIBIT B annexed hereto and made a part hereof
(the "Second Debenture"; together, with the First Debentures, the "Debentures").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
the Company and each Purchaser agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"Affiliate" means, with respect to any Person, any Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with") shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or by contract or otherwise.
"Agreement" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Attorney-in-Fact" shall have the meaning set forth in Section
2.2(a)(iv) hereof.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York are authorized or required by law or other government actions to close.
"Closing" shall have the meaning set forth in Section 2.2(a).
"Closing Date" shall have the meaning set forth in Section 2.2(a).
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"Commission" means the Securities and Exchange Commission.
"Common Stock" means shares now or hereafter authorized of the class of
common stock, par value $.001, of the Company and stock of any other class into
which such shares may hereafter have been reclassified or changed.
"Company" shall have the meaning set forth in the introductory
paragraph.
"Control Person" shall have the meaning set forth in Section 4.16(a)(i)
hereof.
"Conversion Date" shall have the meaning set forth in the Debentures.
"Debenture Notice" shall have the meaning set forth in Section 4.18
hereof.
"Debentures" shall have the meaning set forth in the recital.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Disclosure Documents" means (a) all documents and written materials
provided to the Purchaser and/or its representatives in connection with the
Company and this offering, including, but not limited to, the Company's
unaudited balance sheet as at December 31, 2003 and profit and loss statement
for the period from inception to December 31, 2003 and (b) the Schedules
required to be furnished to the Purchaser by or on behalf of the Company
pursuant to Section 3.1 hereof.
"Effective Date" shall mean the date on which certificate of merger
(the "Certificate of Merger") annexed as EXHIBIT D hereto is filed with the
Secretary of State of the State of New York to effect the merger of SCRH
Acquisition Corp. ("Acquistion"), a New York corporation and a wholly owned
subsidiary of Scores Holding Company, Inc. ("SCRH"), a Utah corporation, with
and into the Company (the "Merger") pursuant to the Merger Agreement annexed as
EXHIBIT C hereto.
"Escrow Agent" means Gottbetter & Partners, 000 Xxxxxxx Xxxxxx, 00xx
Xxxxx, Xxx Xxxx, XX 00000; Tel: 000-000-0000; Fax: 000-000-0000.
"Escrow Agreement" shall have the meaning set forth in Section 4.13
hereof.
"Escrow Shares" means the certificates representing Sixty Million
(60,000,000) shares of duly issued Common Stock, without restriction and freely
tradable pursuant to Rule 504 of Regulation D of the Securities Act, in the
share denominations specified by the Purchaser, registered in the name of the
Purchaser and/or its assigns to be held in escrow pursuant to this Agreement and
the Escrow Agreement.
"Event of Default" shall have the meaning set forth in Section 5.1.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Execution Date" means the date of this Agreement first written above.
"First Debentures" shall have the meaning set forth in the recitals.
"Full Conversion Shares" shall have the meaning set forth in Section
4.14(b) hereof.
"G&P" means Gottbetter & Partners, LLP.
"Indemnified Party" shall have the meaning set forth in Section 4.16(b)
hereof.
"Indemnifying Party" shall have the meaning set forth in Section
4.16(b) hereof.
"Limitation on Conversion" shall have the meaning set forth in Section
4.18 hereof.
"Losses" shall have the meaning set forth in Section 4.16(a) hereof.
"Lump Sum Payment" shall have the meaning set forth in Section 4.31
hereof.
"Material" shall mean having a financial consequence in excess of
$100,000.
"Material Adverse Effect" shall have the meaning set forth in Section
3.1(e).
"Maximum Share Limit" shall have the meaning set forth in Section
4.14(c).
"Merger Agreement" means the Merger Agreement among SCRH, Acquisition
and the Company, annexed as EXHIBIT C hereto.
"NASD" means the National Association of Securities Dealers, Inc.
"Nasdaq" shall mean the Nasdaq Stock Market, Inc.(R)
"Non-Public Filings" shall have the meaning set forth in Section 4.2
hereof.
"Note" shall have the meaning set forth in Section 2.1(b)(ii) hereof.
"Notice of Conversion" shall have the meaning set forth in paragraph 1
of EXHIBIT E annexed hereto.
"Original Issuance Date," shall have the meaning set forth in the
Debentures.
"OTCBB" shall mean the NASD over-the counter Bulletin Board(R) or
similar organization or agency succeeding to its functions.
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"Per Share Market Value" of the Common Stock means on any particular
date (a) the last sale price of shares of Common Stock on such date or, if no
such sale takes place on such date, the last sale price on the most recent prior
date, in each case as officially reported on the principal national securities
exchange on which the Common Stock is then listed or admitted to trading, or (b)
if the Common Stock is not then listed or admitted to trading on any national
securities exchange, the closing bid price per share as reported by Nasdaq, or
(c) if the Common Stock is not then listed or admitted to trading on the Nasdaq,
the closing bid price per share of the Common Stock on such date as reported on
the OTCBB or if there is no such price on such date, then the last bid price on
the date nearest preceding such date, or (d) if the Common Stock is not quoted
on the OTCBB, the closing bid price for a share of Common Stock on such date in
the over-the-counter market as reported by the Pinksheets LLC (or similar
organization or agency succeeding to its functions of reporting prices) or if
there is no such price on such date, then the last bid price on the date nearest
preceding such date, or (e) if the Common Stock is not publicly traded, the fair
market value of a share of the Common Stock as determined by an Appraiser (as
defined in and pursuant to the procedures set forth in Section 4(c)(iv) of the
Debentures) selected in good faith by the holders of a majority of the
Debentures; provided, however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an additional
Appraiser, in which case, the fair market value shall be equal to the average of
the determinations by each such Appraiser.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Post-Closing" shall have the meaning set forth in Section 2.3(a).
"Post-Closing Date" shall have the meaning set forth in Section 2.3(a).
"Power of Attorney" means the power of attorney in the form of EXHIBIT
G annexed hereto.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Purchase Price" shall have the meaning set forth in Section 2.1(a).
"Purchaser" shall have the meaning set forth in the introductory
paragraph.
"Registrable Securities" means the Underlying Shares and the Escrow
Shares entitled to registration pursuant to Section 4.24 and Section 4.29.
"Reporting Issuer" means a company that is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act.
"Required Approvals" shall have the meaning set forth in Section
3.1(f).
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"Restriction Period" shall have the meaning set forth in Section
4.17(a).
"Second Debenture" shall have the meaning set forth in the recital.
"Securities" means the Debentures, the Underlying Shares and the Escrow
Shares.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Short Sale" shall have the meaning set forth in Section 4.26 hereof.
"Successors-in-Interest" shall have the meaning set forth in Section
4.31 hereof.
"Trading Day" means (a) a day on which the Common Stock is quoted on
the Nasdaq, the OTCBB or the principal stock exchange on which the Common Stock
has been listed, or (b) if the Common Stock is not quoted on the Nasdaq, the
OTCBB or any stock exchange, a day on which the Common Stock is quoted in the
over-the-counter market, as reported by the Pinksheets LLC (or any similar
organization or agency succeeding its functions of reporting prices).
"Transaction Documents" means this Agreement and all exhibits and
schedules hereto and all other agreements executed pursuant to this Agreement.
"Underlying Shares" means the shares of duly issued Common Stock,
without restriction and freely tradable pursuant to Rule 504 of Regulation D of
the Securities Act, into which the First Debentures and Second Debenture are
convertible in accordance with the terms hereof, the First Debentures and the
Second Debenture.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
2.1 Purchase and Sale; Purchase Price.
(a) Subject to the terms and conditions set forth herein,
the Company shall issue and sell and the Purchaser shall purchase an aggregate
principal amount of Five Hundred Thousand Dollars ($500,000) (the "Purchase
Price") of the Debentures, of which Four Hundred Eighty Thousand Dollars
($480,000) shall be attributable to the First Debentures and Twenty Thousand
Dollars ($20,000) shall be attributable to the Second Debenture. The Debentures
shall have the respective rights, preferences and privileges as set forth in the
respective Debentures annexed as EXHIBIT X-0, XXXXXXX X-0 and EXHIBIT B hereto.
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(b) The Purchase Price shall be paid and attributable as
follows:
(i) for the First Debenture A substantially in
the form of EXHIBIT A-1 annexed hereto cash in the amount of Two
Hundred Thirty Thousand Dollars ($230,000);
(ii) for the First Debenture B, one promissory
note of the Purchaser in the aggregate amount of Two Hundred Fifty
Thousand Dollars ($250,000) annexed hereto as EXHIBIT K (the "Note"),
to be paid in accordance with the terms of the Note; and
(iii) for the Second Debenture substantially in
the form of EXHIBIT B, cash in the amount of Twenty Thousand Dollars
($20,000).
2.2 Execution and Delivery of Documents; The Closing.
(a) The Closing of the purchase and sale of the
Debentures (the "Closing") shall take place simultaneously with the execution
and delivery of this Agreement (the "Closing Date"). On the Closing Date,
(i) the parties shall execute and deliver the
Escrow Agreement to the Escrow Agent;
(ii) the Company shall deliver to the Purchaser
the (A) the Disclosure Documents, (B) a duly executed copy of the
Merger Agreement and (B) the legal opinions of counsel to the Company
substantially in the form of EXHIBIT H and EXHIBIT I annexed hereto,
addressed to the Purchaser and dated the date hereof;
(iii) the Company shall deliver to the Escrow
Agent (A) original and duly executed Debentures (First Debenture A,
First Debenture B and the Second Debenture) registered in the name of
the Purchaser and/or its assigns in the amount set forth in SCHEDULE 1,
(B) an original and duly executed Power of Attorney and (C)
certificates representing the original Escrow Shares;
(iv) the Company shall execute and deliver to the
Purchaser a certificate of its Chief Executive Officer, in the form of
EXHIBIT J annexed hereto, certifying that attached thereto is a copy of
resolutions duly adopted by the Board of Directors of the Company
authorizing the Company to execute and deliver the Transaction
Documents and to enter into the transactions contemplated thereby and
the appointment, pursuant to Section 4.14 hereof, of the
attorney-in-fact pursuant to the Power of Attorney annexed as EXHIBIT F
hereto (the "Attorney-in-Fact"); and
(v) the Purchaser shall deliver to the Escrow
Agent the Purchase Price by (A) wire transfer of immediately available
funds in the amount of Two Hundred Fifty Thousand ($250,000) pursuant
to written wire transfer instructions delivered by the Escrow Agent to
the Purchaser at least three (3) Business Days prior to the Closing and
(B) delivery of the original executed Note.
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(b) If this Agreement is terminated pursuant to Section
5.1 hereof, then, within two (2) Business Days from the date of termination,
either the Company or the Purchaser shall notify the Escrow Agent of same, and
(i) the Escrow Agent shall, within two (2)
Business Days of its receipt of such notice,
(A) return the Purchase Price to the
Purchaser;
(B) return the Note to the Purchaser;
(C) return the Debentures to the
Company; and
(D) return the Escrow Shares to the
Company.
2.3 The Post-Closing.
(a) The post-closing of the purchase and sale of the
Debentures (the "Post-Closing") shall take place immediately after the Effective
Date (the "Post-Closing Date") at the offices of Gottbetter & Partners, 000
Xxxxxxx Xxxxxx, Xxx Xxxx, XX 00000; provided, however, that all of the
transactions contemplated by the Merger Agreement annexed as EXHIBIT C hereto
shall have been consummated in accordance with the terms of the Merger Agreement
prior to the Post-Closing; and further, provided, that the Post-Closing may not
occur later than ten (10) days after the Closing Date (except if such 10th day
is not a Business Day, then the next Business Day), unless the Purchaser agrees
in writing in advance to an extension, which writing shall set forth the new
Post-Closing Date. The Merger Agreement shall be executed immediately after the
Closing.
(b) At the Post-Closing,
(i) the Escrow Agent shall deliver to the
Purchaser and/or its assigns an original and duly issued First
Debenture A and Second Debenture, each registered in the name of the
Purchaser and in denominations specified by the Purchaser in the
amounts set forth in SCHEDULE 1 hereto or with written notice to the
Escrow Agent prior to the Post-Closing ;
(ii) the Company shall deliver to the Purchaser
the following:
(A) certified copies of the Certificate
of Merger as filed with the Secretary of State of the State of
New York;
(B) a certificate in the form of
EXHIBIT L annexed hereto, dated the Post-Closing Date and
signed by the Secretary of the Company, certifying (1) that
attached thereto are true, correct and complete copies of (a)
the Company's Certificate of Incorporation, as amended to the
date thereof, (b) the Company's by-laws, as amended to the
date thereof, and (c) a certificate of good standing from the
Secretary of State of New York and (2) the incumbency of the
officer executing this Agreement;
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(C) a certificate of the Company's
Chief Executive Officer, dated the Post-Closing Date, in the
form of EXHIBIT M annexed hereto, certifying that the
representations and warranties of the Company contained in
Article III hereof are true and correct in all material
respects on the Post-Closing Date (except for representations
and warranties that speak of a specific date, which
representations and warrants shall be true, correct and
complete in all material respects as of such date); and
(D) all other documents, instruments
and writings required to have been delivered by the Company at
or prior to the Post-Closing pursuant to this Agreement.
(c) Upon receipt by the Purchaser of those items set
forth in Sections 2.3(b)(i) through (ii) above, the Escrow Agent shall as soon
as practicable deliver the following to or on behalf of SCRH, as applicable:
(i) the Purchase Price, (A) attributable to
First Debenture A and the Second Debenture, by wire transfer of
immediately available funds in the amount of Two Hundred Fifty Thousand
Dollars ($250,000), minus all fees and expenses due under the
Transaction Documents, to SCRH pursuant to written wire transfer
instructions delivered by SCRH to the Escrow Agent at least three (3)
Business Days prior to the Post-Closing Date and (B) attributable to
First Debenture B by delivery of the original executed Note to the
promisee of the Note; and
(ii) all documents, instruments, and writings
required to have been delivered or necessary at or prior to the
Post-Closing by the Purchaser pursuant to this Agreement.
(d) The Escrow Agent shall retain and hold the Escrow
Shares and the First Debenture B, all of which shall be held in accordance with
the terms of this Agreement, the Note and the Escrow Agreement.
2.4 First Debenture B. Subject to Section 4.28, the Escrow Agent
will hold the First Debenture B in escrow until either (i) the obligations under
the Note by its terms becomes due and payable and subsequently paid in full by
the Purchaser, whereupon the Escrow Agent will deliver the First Debenture B to
the Purchaser or (ii) the obligations under the Note expire under its terms,
whereupon the First Debenture B will be delivered to the Company for
cancellation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the
Purchaser, all of which shall survive the Post-Closing;
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the State of New York, with the requisite corporate power and authority
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to own and use its properties and assets and to carry on its business as
currently conducted. The Company has no subsidiaries. The Company is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, would not, individually or
in the aggregate, have a material adverse effect on the results of operations,
assets, prospects, or financial condition of the Company, taken as a whole (a
"Material Adverse Effect").
(b) Authorization, Enforcement. The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated hereby and by each other Transaction Document and to
otherwise to carry out its obligations hereunder and thereunder. The execution
and delivery of this Agreement and each of the other Transaction Documents to
which it is a party by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. Each of this Agreement and each of
the other Transaction Documents to which it is a party has been or will be duly
executed by the Company and when delivered in accordance with the terms hereof
or thereof will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(c) Capitalization. The authorized, issued and
outstanding capital stock of the Company is set forth on SCHEDULE 3.1(C). No
Debentures have been issued as of the date hereof. No shares of Common Stock are
entitled to preemptive or similar rights, nor is any holder of the Common Stock
entitled to preemptive or similar rights arising out of any agreement or
understanding with the Company by virtue of this Agreement. Except as described
in this Agreement, or disclosed in SCHEDULE 3.1(C), there are no outstanding
options, voting agreements or merger agreements, arrangements, warrants, script,
rights to subscribe to, registration rights, calls or commitments of any
character whatsoever relating to, or, except as a result of the purchase and
sale of the Debentures hereunder, securities, rights or obligations convertible
into or exchangeable for, or giving any person any right to subscribe for or
acquire, any shares of Common Stock or other securities, or contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of Common Stock or other securities, or
securities or rights convertible or exchangeable into shares of Common Stock or
other securities. The Company is not in violation of any of the provisions of
its Certificate of Incorporation, bylaws or other charter documents.
(d) Issuance of Securities. The Debentures and the Escrow
Shares have been duly and validly authorized for issuance, offer and sale
pursuant to this Agreement and, when issued and delivered as provided hereunder
or in the Debentures against payment in accordance with the terms hereof, shall
be valid and binding obligations of the Company enforceable against the Company
in accordance with their respective terms. The Company has and at all times
while the Debentures are outstanding will continue to maintain an adequate
reserve of shares of Common Stock to enable it to perform its obligations under
this Agreement and the Debentures except as otherwise permitted in this
Agreement or the Debentures. When issued in accordance with the terms hereof and
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the Debentures, the Securities will be duly authorized, validly issued, fully
paid and non-assessable. Except as set forth in SCHEDULE 3.1(D) or SCHEDULE
3.1(C) hereto, there is no equity, equity equivalent security, debt or equity
lines of credit outstanding that is substantially similar to the Debentures,
including any security having a floating conversion substantially similar to the
Debentures; provided, however, that, except, as otherwise provided herein,
nothing contained in this Section 3.1(d) shall be deemed to permit the Company
to issue any convertible security or instrument or equity line of credit.
(e) No Conflicts. The execution, delivery and performance
of this Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not and will not (i) conflict with or violate any provision of its
Certificate of Incorporation or bylaws (each as amended through the date hereof)
or (ii) be subject to obtaining any of the consents referred to in Section
3.1(f), conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the
Company is subject (including, but not limited to, those of other countries and
the federal and state securities laws and regulations), or by which any property
or asset of the Company is bound or affected, except in the case of clause (ii),
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 is not being conducted in violation
in any material respect of any law, ordinance or regulation of any governmental
authority.
(f) Consents and Approvals. Other than the approval of
its board of directors and stockholders, which have been obtained, and Except as
specifically set forth in SCHEDULE 3.1(F), the Company is not required to obtain
any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of this Agreement and each of the other
Transaction Documents, except for the filing of the Certificate of Merger with
the Secretary of State of the State of New York to effect the Merger pursuant to
the Merger Agreement, which shall be filed no later than ten (10) days from the
Closing Date (together with the consents, waivers, authorizations, orders,
notices and filings referred to in SCHEDULE 3.1(F), the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically
disclosed in SCHEDULE 3.1(G), there is no action, suit, notice of violation,
proceeding or investigation pending or, to the best knowledge of the Company,
threatened against the Company or any of its properties before or by any court,
governmental or administrative agency or regulatory authority (federal, state,
county, local or foreign) which (i) relates to or challenges the legality,
validity or enforceability of any of the Transaction Documents, the Debentures
and the Underlying Shares (ii) could, individually or in the aggregate, have a
Material Adverse Effect or (iii) could, individually or in the aggregate,
materially impair the ability of the Company to perform fully on a timely basis
its obligations under the Transaction Documents.
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(h) No Default or Violation. Except as set forth in
SCHEDULE 3.1(H) hereto, the Company (i) is not in default under or in violation
of any indenture, loan or credit agreement or any other agreement or instrument
to which it is a party or by which it or any of its properties is bound, except
such defaults or violations as do not have a Material Adverse Effect, (ii) is
not in violation of any order of any court, arbitrator or governmental body,
except for such violations as do not have a Material Adverse Effect, or (iii) is
not in violation of any statute, rule or regulation of any governmental
authority which could (individually or in the aggregate) (x) adversely affect
the legality, validity or enforceability of this Agreement, (y) have a Material
Adverse Effect or (z) adversely impair the Company's ability or obligation to
perform fully on a timely basis its obligations under this Agreement.
(i) Certain Fees. No fees or commission will be payable
by the Company to any investment banker, broker, placement agent or bank with
respect to the consummation of the transactions contemplated hereby except as
provided in Section 4.27 hereof.
(j) Disclosure Documents. The Disclosure Documents taken
as a whole are accurate in all material respects and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
(k) Manner of Offering. Assuming the Purchaser's
representations and warranties contained in Section 3.2 are true and correct (a)
the Securities are being offered and sold to the Purchaser without registration
under the Securities Act in a private placement that is exempt from registration
pursuant to Rule 504 of Regulation D of the Securities Act and without
registration under the Minnesota Revised Statues, 1986 (the "Minnesota Act") in
reliance upon the exemption provided by Section 80A.15.2(a)(1) of the Minnesota
Act; and (b) accordingly, the Securities are being issued without restriction
and may be freely traded pursuant to Rule 504 of Regulation D of the Securities
Act.
(l) Non-Registered Offering. Neither the Company nor any
Person acting on its behalf has taken or will take any action (including,
without limitation, any offering of any securities of the Company under
circumstances which would require the integration of such offering with the
offering of the Securities under the Securities Act) which might subject the
offering, issuance or sale of the Securities to the registration requirements of
Section 5 of the Securities Act.
(m) Not a Reporting Company; Eligibility to use Exemption
under 504(b). The Company is not subject to the reporting requirements of
Section 13 or Section 15(d) of the Exchange Act. The Company has not sold any
securities under Rule 504(b) in the last twelve months. The Company is eligible
to issue securities exempt from registration pursuant to Rule 504 of Regulation
D promulgated under the Securities Act. The Company is a development stage
company that has a specific business plan that is other than to engage in a
merger or acquisition with an unidentified company or companies.
(n) No Undisclosed Liabilities. Except for the
transactions contemplated in this Agreement and the Merger Agreement, there are
no material liabilities of OS, whether absolute, accrued, contingent or
otherwise.
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The Purchaser acknowledges and agrees that the Company makes no representation
or warranty with respect to itself or the transactions contemplated hereby other
than those specifically set forth in Section 3.1 hereof.
3.2 Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows:
(a) Organization; Authority. The Purchaser is a limited
liability company, duly organized, validly existing and in good standing under
the laws of Minnesota with the requisite power and authority to enter into and
to consummate the transactions contemplated hereby and by the other Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder.
The acquisition of the Debentures to be purchased by the Purchaser hereunder has
been duly authorized by all necessary action on the part of the Purchaser. This
Agreement has been duly executed and delivered by the Purchaser and constitutes
the valid and legally binding obligation of the Purchaser, enforceable against
it in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to, or affecting generally the enforcement of, creditors rights and
remedies or by other general principles of equity.
(b) Investment Intent. The Purchaser is acquiring the
Debentures to be purchased by it hereunder, and will acquire the Underlying
Shares relating to such Debentures, for its own account for investment purposes
only and not with a view to or for distributing or reselling such Debentures or
Underlying Shares or any part thereof or interest therein, without prejudice,
however, to such Purchaser's right, subject to the provisions of this Agreement,
at all times to sell or otherwise dispose of all or any part of such Debentures
or Underlying Shares in compliance with applicable federal and state securities
laws.
(c) Purchaser Status. At the time the Purchaser was
offered the Debentures to be acquired by it hereunder, it was, at the date
hereof it is and at the Post-Closing it will be an "accredited investor" as
defined in Rule 501(a) under the Securities Act. Purchaser is a resident in the
State of Minnesota and no other jurisdiction.
(d) Experience of Purchaser. The Purchaser, either alone
or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of an investment in the Securities to be acquired by it
hereunder, and has so evaluated the merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment. The
Purchaser is able to bear the economic risk of an investment in the Securities
to be acquired by it hereunder and, at the present time, is able to afford a
complete loss of such investment.
(f) Prohibited Transactions. The securities to be
acquired by the Purchaser hereunder are not being acquired, directly or
indirectly, with the assets of any "employee benefit plan," within the meaning
of Section 3(3) of the Employment Retirement Income Security Act of 1974, as
amended.
(g) Access to Information. The Purchaser acknowledges
receipt of the Disclosure Documents and further acknowledges that it has been
afforded (i) the opportunity to ask such questions as it has deemed necessary
12
of, and to receive answers from, representatives of the Company concerning the
terms and conditions of the Securities and the merits and risks of investing in
the Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment in the Securities;
and (iii) the opportunity to obtain such additional information which the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the investment
and to verify the accuracy and completeness of the information contained in the
Disclosure Documents.
(h) Reliance. The Purchaser understands and acknowledges
that (i) the Debentures being offered and sold to it hereunder are being offered
and sold without registration under the Securities Act in a private placement
that is exempt from the registration provisions of the Securities Act under Rule
504 of Regulation D under the Securities Act and (ii) the availability of such
exemption depends in part on, and that the Company will rely upon the accuracy
and truthfulness of, the foregoing representations and such Purchaser hereby
consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Manner of Offering. The Securities are being issued pursuant
to Rule 504 (b) of Regulation D of the Securities Act. The Securities will be
exempt from restrictions on transfer, and will carry no restrictive legend with
respect to the exemption from registration under the Securities Act. The Company
will use its best efforts to insure that it takes no actions that would
jeopardize the availability of the exemption from registration under Rule 504(b)
for the Securities and, if for any reason such exemption becomes unavailable due
to the Company's action or failure to act, the Company shall cause the
Securities to be registered under the Securities Act as required by Section
4.29.
4.2 Furnishing of Information. As long as the Purchaser owns any
of the Securities, and unless and until the Securities are assumed by SCRH or
the Company becomes subject to the reporting requirements under Section 13(a) or
15(b) of the Exchange Act, the Company will promptly furnish to the Purchaser
financial information similar to that required to be reported in annual and
quarterly reports comparable to those required by Section 13(a) or 15(d) of the
Exchange Act (the "Non-Public Filings").
4.3 Notice of Certain Events. The Company shall, on a continuing
basis, as long as the Purchaser owns any of the Securities, (i) advise the
Purchaser promptly after obtaining knowledge of, and, if requested by the
Purchaser, confirm such advice in writing, of (A) the issuance by any state
securities commission of any stop order suspending the qualification or
13
exemption from qualification of the Securities, for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purpose by any state
securities commission or other regulatory authority, or (B) any event that makes
any statement of a material fact made by the Company in Section 3.1 or in the
Disclosure Documents untrue or that requires the making of any additions to or
changes in Section 3.1 or in the Disclosure Documents in order to make the
statements therein, in each case at the time such Disclosure Documents were
delivered to the Purchaser and in the light of the circumstances under which
they were made, not misleading, (ii) use its commercially reasonable best
efforts to prevent the issuance of any stop order or order suspending the
qualification or exemption from qualification of the Securities under any state
securities or Blue Sky laws, and (iii) if at any time any state securities
commission or other regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Securities under any such
laws, use its commercially reasonable best efforts to obtain the withdrawal or
lifting of such order at the earliest possible time.
4.4 Copies and Use of Disclosure Documents and Non-Public Filings.
The Company (or, following the Post-Closing, SCRH) shall furnish the Purchaser,
without charge, as many copies of the Disclosure Documents and the Non-Public
Filings and any amendments or supplements thereto as the Purchaser may
reasonably request. The Company consents to the use of the Disclosure Documents
and the Non-Public Filings and any amendments and supplements to any of them by
the Purchaser in connection with resales of the Securities.
4.5 Modification to Disclosure Documents. If any event shall occur
as a result of which, in the reasonable judgment of the Company or the
Purchaser, it becomes necessary or advisable to amend or supplement any of the
Disclosure Documents or the Non-Public Filings in order to make the statements
therein, at the time such Disclosure Documents or the Non-Public Filings were
delivered to the Purchaser and in the light of the circumstances under which
they were made, not misleading, or if it becomes necessary to amend or
supplement any of the Disclosure Documents or the Non-Public Filings to comply
with applicable law, the Company shall as soon as practicable prepare an
appropriate amendment or supplement to each such document in form and substance
reasonably satisfactory to both the Purchaser and Company so that (i) as so
amended or supplemented, each such document will not include an untrue statement
of material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time it is
delivered to the Purchaser, not misleading and (ii) the Disclosure Documents and
the Non-Public Filings will comply with applicable law in all material respects.
4.6 Blue Sky Laws. The Company shall cooperate with the Purchaser
in connection with the exemption from registration of the Securities under the
securities or Blue Sky laws of such jurisdictions as the Purchaser may request;
provided, however, that the Company shall be not required in connection
therewith to (a) qualify as a foreign corporation where they are not now so
qualified, or (b) submit to taxation or general service of process in such
jurisdiction. The Company agrees that it will execute all necessary documents
and pay all necessary state filing or notice fees to enable the Company to sell
the Securities to the Purchaser.
4.7 Integration. The Company shall not and shall use its best
efforts to ensure that no Affiliate shall sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in Section
2 of the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchaser.
14
4.8 Furnishing of Rule 144(c) Materials. The Company shall, for so
long as any of the Securities remain outstanding and during any period in which
the Company is not subject to Section 13 or 15(d) of the Exchange Act, make
available to any registered holder of the Securities ("Holder" or "Holders") in
connection with any sale thereof and any prospective purchaser of such
Securities from such Person, such information in accordance with Rule 144(c)(2)
promulgated under the Securities Act as is required to sell the Securities under
Rule 144 promulgated under the Securities Act.
4.9 Solicitation Materials. The Company shall not (i) distribute
any offering materials in connection with the offering and sale of the
Debentures or the Underlying Shares other than the Disclosure Documents and any
amendments and supplements thereto prepared in compliance herewith or (ii)
solicit any offer to buy or sell the Debentures or the Underlying Shares by
means of any form of general solicitation or advertising.
4.10 Subsequent Financial Statements. (a) Until the Post-Closing
Date, if not otherwise publicly available, upon the written request of
Purchaser, the Company shall promptly furnish to the Purchaser a copy of all
financial statements for any period subsequent to the period covered by the
financial statements included in the Disclosure Documents until the full
conversion of the Debentures.
(b) After the Post-Closing Date, if not otherwise
publicly available, upon written request of Purchaser, SCRH shall promptly
furnish to the Purchaser a copy of all financial statements relating to SCRH for
any period subsequent to the period covered by the financial statements included
in the Disclosure Documents until the full conversion of the Debentures.
4.11 Prohibition on Certain Actions. From the date hereof through
the Post-Closing Date, the Company shall not, without the prior written consent
of the Purchaser, (i) amend its certificate or articles of incorporation,
by-laws or other charter documents so as to adversely affect any rights of the
Purchaser; (ii) split, combine or reclassify its outstanding capital stock;
(iii) declare, authorize, set aside or pay any dividend or other distribution
with respect to the Common Stock; (iv) redeem, repurchase or offer to repurchase
or otherwise acquire shares of its Common Stock; or (v) enter into any agreement
with respect to any of the foregoing other than the Merger Agreement.
4.12 Listing of Common Stock. Until the Post-Closing Date, if the
Common Stock shall become listed on the OTCBB or on another exchange, the
Company shall (a) use its commercially reasonable best efforts to maintain the
listing of its Common Stock on the OTCBB or such other exchange on which the
Common Stock is then listed until expiration of each of the periods during which
the Debentures may be converted and (b) shall provide to the Purchaser evidence
of such listing. After the Post-Closing Date, the references in this Section
4.12 to Company and Common Stock shall be deemed references to SCRH and the
common stock of SCRH, respectively.
15
4.13 Escrow. The Company and the Purchaser agree to execute and
deliver, simultaneously with the execution and delivery of this Agreement, the
escrow agreement attached hereto and made part hereof as EXHIBIT F (the "Escrow
Agreement"), and to issue into escrow (A) the certificates to be held by the
Escrow Agent, registered in the name of the Purchaser and without any
restrictive legend of any kind, pursuant to the terms of such escrow and (B) the
Note.
4.14 Conversion Procedures; Maintenance of Escrow Shares. (a)
EXHIBIT E attached hereto and made a part hereof sets forth the procedures with
respect to the conversion of the Debentures, including the forms of Notice of
Conversion to be provided upon conversion instructions as to the procedures for
conversion and such other information and instructions as may be reasonably
necessary to enable the Purchaser or its permitted transferee(s) to exercise the
right of conversion smoothly and expeditiously.
(b) The Company agrees that, at any time the conversion
price of the Debentures is such that the number of Escrow Shares for the
Debentures is less than 200% of the number of shares of Common Stock that would
be needed to satisfy full conversion of all of such Debentures then outstanding,
given the then current conversion price (the "Full Conversion Shares"), upon
five (5) Business Days written notice of such circumstance to the Company by the
Purchaser and/or the Escrow Agent, the Company shall issue additional share
certificates in the name of the Purchaser and/or its assigns in denominations
specified by the Purchaser, and deliver same to the Escrow Agent, such that the
new number of Escrow Shares with respect to the Debentures is equal to 200% of
the Full Conversion Shares.
(c) Subject to Section 4.14(d), the Purchaser shall not
be entitled to convert the First Debenture A, First Debenture B and the Second
Debenture into a number of shares of Common Stock exceeding 10,000,000 Escrow
Shares (the "Maximum Shares Limit").
(d) If the Per Share Market Value of the Common Stock is
such that the aggregate number of shares of Common Stock issued and then
issuable upon conversion of the Debentures would exceed 10,000,000 shares (as
adjusted for stock splits, reverse stock splits, and the like), then the Company
shall, at its option, (a) increase the Maximum Share Limit to comply with
Section 4.14(b) or (b) redeem the unconverted amount of the Debentures in whole
or in part at one hundred twenty five percent (125%) of the unconverted amount
of the Debentures being redeemed plus accrued interest thereon.
4.15 Attorney-in-Fact. To effectuate the terms and provisions of
this Agreement, the Escrow Agreement and the Note, the Company hereby agrees to
give a power of attorney as is evidenced by EXHIBIT G annexed hereto. All acts
done under such power of attorney are hereby ratified and approved and neither
the Attorney-in-Fact nor any designee or agent thereof shall be liable for any
acts of commission or omission, for any error of judgment or for any mistake of
fact or law, as long as the Attorney-in-Fact is operating within the scope of
the power of attorney and this Agreement and its exhibits. The power of
attorney, being coupled with an interest, shall be irrevocable while any of the
Debentures remain unconverted or any portion of this Agreement or the Escrow
Agreement remains unsatisfied. In addition, the Company shall give the
Attorney-in-Fact resolutions executed by the Board of Directors of the Company
which authorize transfers of the Debentures, future issuances of the Underlying
Shares for the Debentures, and which resolutions state that they are irrevocable
while any of the Debentures remain unconverted, or any portion of this Agreement
or the Escrow Agreement remains unsatisfied.
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4.16 Indemnification.
(a) Indemnification
(i) The Company shall, notwithstanding
termination of this Agreement, indemnify and hold harmless the
Purchaser and its officers, directors, agents, employees and
affiliates, each Person who controls the Purchaser (within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act)
(each such Person, a "Control Person") and the officers, directors,
agents, employees and affiliates of each such Control Person, to the
fullest extent permitted by applicable law, from and against any and
all losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and reasonable attorneys' fees) and
expenses (collectively, "Losses"), as incurred, arising out of, or
relating to, a breach or breaches of any representation, warranty,
covenant or agreement by the Company under this Agreement or any other
Transaction Document.
(ii) The Purchaser shall, notwithstanding
termination of this Agreement, indemnify and hold harmless the Company,
its officers, directors, agents and employees, each Control Person of
the Company and the officers, directors, agents and employees of each
Control Person, to the fullest extent permitted by applicable law, from
and against any and all Losses, as incurred, arising out of, or
relating to, a breach or breaches of any representation, warranty,
covenant or agreement by the Purchaser under this Agreement or any
other Transaction Documents.
(b) Conduct of Indemnification Proceedings. If any
Proceeding shall be brought or asserted against any Person entitled to indemnity
hereunder (an "Indemnified Party"), such Indemnified Party promptly shall notify
the Person from whom indemnity is sought (the "Indemnifying Party") in writing,
and the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in
any such] Proceeding and to participate in, but not control, the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed
to pay such fees and expenses; or (2) the Indemnifying Party shall have failed
promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impeded parties) include
both such Indemnified Party and the Indemnifying Party, and such Indemnified
Party shall have been advised by counsel that a conflict of interest is likely
17
to exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense of the claim against the Indemnified Party but will
retain the right to control the overall Proceedings out of which the claim arose
and such counsel employed by the Indemnified Party shall be reasonably
acceptable to the Indemnifying Party and shall be at the expense of the
Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the
subject matter of such Proceeding, provided, however, the Indemnifying Party may
settle or compromise any asserted liability without the consent of the
Indemnitee so long as such settlement or compromise releases the Indemnitee and
does not include any admission or statement of fault against the Indemnitee.
All fees and expenses of the Indemnified Party to which the Indemnified
Party is entitled hereunder (including reasonable fees and expenses to the
extent incurred in connection with investigating or preparing to defend such
Proceeding in a manner not inconsistent with this Section) shall be paid to the
Indemnified Party, as incurred, within ten (10) Business Days of written notice
thereof to the Indemnifying Party.
No right of indemnification under this Section 4.16 shall be available
as to a particular Indemnified Party if there is a non-appealable final judicial
determination that such Losses arise solely or substantially out of the
negligence or bad faith of such Indemnified Party in performing the obligations
of such Indemnified Party under this Agreement or a breach by such Indemnified
Party of its obligations under this Agreement.
(c) Contribution. If a claim for indemnification under
Section 4.16(a) is unavailable to an Indemnified Party or is insufficient to
hold such Indemnified Party harmless for any Losses in respect of which this
Section 4.16 would apply by its terms (other than by reason of exceptions
provided in this Section 4.16), then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses in such proportion
as is appropriate to reflect the relative benefits received by the Indemnifying
Party on the one hand and the Indemnified Party on the other and the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions or omissions that resulted in such Losses as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether there was a judicial determination that such Losses arise in part out of
the negligence or bad faith of the Indemnified Party in performing the
obligations of such Indemnified Party under this Agreement or the Indemnified
Party's breach of its obligations under this Agreement. The amount paid or
payable by a party as a result of any Losses shall be deemed to include any
attorneys' or other fees or expenses incurred by such party in connection with
any Proceeding to the extent such party would have been indemnified for such
fees or expenses if the indemnification provided for in this Section was
available to such party.
18
(d) Non-Exclusivity. The indemnity and contribution
agreements contained in this Section are in addition to any obligation or
liability that the Indemnifying Parties may have to the Indemnified Parties.
4.17 Exclusivity. During the five year period commencing on the
Post-Closing Date (the "Restriction Period") or until the Debentures are paid in
full which ever comes first, (A) except for the First Debenture B, the Company
and its Affiliates shall not issue or offer (i) any convertible security and
(ii) any security issued pursuant to Rule 504 of Regulation D promulgated under
the Securities Act and (B) the Company and its Affiliates shall not offer any
equity lines of credit. The Company may request that the restrictions in this
Section 4.17 be waived. Except as specifically set forth above, the Company may
engage in any other debt or equity financing during the Restriction Period.
4.18 Purchaser's Ownership of Common Stock. (a) In addition to and
not in lieu of the limitations on conversion set forth in the Debentures, the
conversion rights of the Purchaser set forth in the Debentures shall be limited,
solely to the extent required, from time to time, such that, unless the
Purchaser gives written notice 75 days in advance to the Company of the
Purchaser's intention to exceed the Limitation on Conversion as defined herein,
with respect to all or a specified amount of the Debentures and the
corresponding number of the Underlying Shares in no instance shall the Purchaser
(singularly, together with any Persons who in the determination of the
Purchaser, together with the Purchaser, constitute a group as defined in Rule
13d-5 of the Exchange Act) be entitled to convert the Debentures to the extent
such conversion would result in the Purchaser beneficially owning more than five
percent (5%) of the outstanding shares of Common Stock of the Company. For these
purposes, beneficial ownership shall be defined and calculated in accordance
with Rule 13d-3, promulgated under the Exchange Act (the foregoing being herein
referred to as the "Limitation on Conversion"); provided, however, that the
Limitation on Conversion shall not apply to any forced or automatic conversion
pursuant to this Agreement or the Debentures; and provided, further that if the
Purchaser shall have declared an Event of Default and, if a cure period is
provided, the Company shall not have properly and fully cured such Event of
Default within any such cure period, the provisions of this Section 4.18 shall
be null and void from and after such date. The Company shall, promptly upon its
receipt of a Notice of Conversion tendered by the Purchaser (or its sole
designee) for the Debentures, as applicable, notify the Purchaser by telephone
and by facsimile (the "Debenture Notice") of the number of shares of Common
Stock outstanding on such date and the number of Underlying Shares, which would
be issuable to the Purchaser (or its sole designee, as the case may be) if the
conversion requested in such Notice of Conversion were effected in full and the
number of shares of Common Stock outstanding giving full effect to such
conversion whereupon, in accordance with the Debentures, notwithstanding
anything to the contrary set forth in the Debentures, the Purchaser may, by
notice to the Company within one (1) Business Day of its receipt of the
Debenture Notice by facsimile, revoke such conversion to the extent (in whole or
in part) that such Purchaser determines that such conversion would result in the
ownership by such Purchaser of shares of Common Stock in excess of the
Limitation on Conversion. The Debenture Notice shall begin the 75 day advance
notice required in this Section 4.18.
(b) The Purchaser acknowledges that it is aware of the
"antidilution" provisions contained in the Acquisition Agreement dated March 31,
2003, as amended by Amendment No. 1 to the Acquisition Agreement, dated August
19
12, 2004, both among Go West Entertainment, Inc., Xxxxxxx Xxxxxxxx, Xxxxxx
Xxxxx, Xxxxxxx Xxxxx and SCRH in which SCRH may issue more shares of its common
stock without consideration to maintain Xxxxxxx Xxxxx'x 8.8% share interest in
SCRH, Xxxxxx Xxxxx'x 8.8% share interest in SCRH and Xxxxxxx Xxxxxxxx'x 46%
share interest in SCRH.
4.19 Purchaser's Rights if Trading in Common Stock is Suspended. If
the Common Stock is listed on any exchange, then at any time after the
Post-Closing if trading in the shares of the Common Stock is suspended (and not
reinstated within ten (10) Trading Days) on such stock exchange or market upon
which the Common Stock is then listed for trading (other than as a result of the
suspension of trading in securities on such market generally or temporary
suspensions pending the release of material information), or the Common Stock is
delisted from the OTCBB (and not reinstated within ten (10) Trading Days), then,
at the option of the Purchaser exercisable by giving written notice to the
Company (the "Redemption Notice"), the Company shall redeem, as applicable, all
of the Debentures and Underlying Shares owned by such Purchaser within seven (7)
Business Days at an aggregate purchase price equal to the sum of:
(i) the product of (1) the average Per Share Market Value
for the five (5) Trading Days immediately preceding (a) the date of the
Redemption Notice, (b) the date of payment in full of the repurchase price under
this Section 4.19 recalculated as of such payment date, or (c) the day when the
Common Stock was suspended, delisted or deleted from trading, whichever is
greater, multiplied by (2) the aggregate number of Underlying Shares then held
and owned by such Purchaser;
(ii) the greater of (A) the outstanding principal amount
and accrued and unpaid interest on the Debentures owned by such Purchaser and
(B) the product of (1) the average Per Share Market Value for the five (5)
Trading Days immediately preceding (a) the date of the Redemption Notice, (b)
the date of payment in full of the repurchase price under this Section 4.19
recalculated as of such payment date, or (c) the day when the Common Stock was
suspended, delisted or deleted from trading, whichever is greater, and (2) the
aggregate number of Underlying Shares issuable upon the conversion of the
outstanding Debentures then held and owned by the Purchaser utilizing the
conversion procedures contained in the Debentures (without taking into account
the Limitation on Conversion described in Section 4.18 hereof); and
(iii) interest on such amounts set forth in (i) and (ii)
above accruing from the seventh (7th) Business Day after the date of the
Redemption Notice until the repurchase price under this Section 4.19 is paid in
full, at the rate of fifteen percent (15%) per annum;
provided, however, if the Note have not been paid in full by the Purchaser to
the Company (whether or not it is otherwise then due or payable by its terms),
(i) any payments from the Company to the Purchaser pursuant to this Section 4.19
will be offset by the principal amount of the Note then not paid in full and
(ii) "Debentures" shall specifically refer to First Debenture A, First Debenture
B and the Second Debenture.
4.20 No Violation of Applicable Law. Notwithstanding any provision
of this Agreement to the contrary, if the redemption of the Debentures or the
Underlying Shares otherwise required under this Agreement or the Debentures
20
would be prohibited by the relevant provisions of New York law, such redemption
shall be effected as soon as it is permitted under such law; provided, however,
that interest payable by the Company with respect to any such redemption shall
accrue in accordance with Section 4.19.
4.21 Redemption Restrictions. Notwithstanding any provision of this
Agreement to the contrary, if any redemption of the Debentures or the Underlying
Shares otherwise required under this Agreement or the Debentures would be
prohibited in the absence of consent from any lender to the Company, or by the
holders of any class of securities of the Company, the Company shall use its
best efforts to obtain such consent as promptly as practicable after any such
redemption is required. Interest payable by the Company with respect to any such
redemption shall accrue in accordance with Section 4.19 until such consent is
obtained. Nothing contained in this Section 4.21 shall be construed as a waiver
by the Purchaser of any rights it may have by virtue of any breach of any
representation or warranty of the Company herein as to the absence of any
requirement to obtain any such consent.
4.22 No Other Registration Rights. During the period commencing on
the date hereof and ending on the Post-Closing Date, the Company shall not file
any registration statement that provides for the registration of shares of
Common Stock to be sold by security holders of the Company, other than the
Purchaser and/or its respective Affiliates or assigns, without the prior written
consent of the Purchaser or its assigns, provided, however, that the limitation
on the right to file registration statements contained in this Section 4.22
shall not apply to registration statements relating solely to (i) employee
benefit plans, notwithstanding the inclusion of a resale prospectus for
securities received under any such employee benefit plan, or (ii) business
combinations not otherwise prohibited by the terms of this Agreement or the
other Transaction Documents. This registration restriction is in addition to the
Company's registration restrictions set forth in Section 4.24.
4.23 Merger or Consolidation. Until the earlier of (a) the full
conversion of the Debentures and (b) the Maturity Date of the Debentures (as
that term is defined in the Debentures), the Company will not, in a single
transaction or a series of related transactions (other than the Merger), (i)
consolidate with or merge with or into any other Person, or (ii) permit any
other Person to consolidate with or merge into it, unless (w) either (A) the
Company shall be the survivor of such merger or consolidation or (B) the
surviving Person shall expressly assume by supplemental agreement all of the
obligations of the Company under the Debentures, this Agreement and the other
Transaction Documents; (x) immediately before and immediately after giving
effect to such transactions (including any indebtedness incurred or anticipated
to be incurred in connection with the transactions), no Event of Default shall
have occurred and be continuing; (y) if the Company is not the surviving entity,
such surviving entity's common shares will be listed on either The New York
Stock Exchange, American Stock Exchange, Nasdaq National Market or Nasdaq
SmallCap Market, or the OTCBB on or prior to the closing of such transaction(s)
and (z) the Company shall have delivered to the Purchaser an officer's
certificate and opinion of counsel, each stating that such consolidation, merger
(other than the Merger) or transfer complies with this Agreement, that the
agreements relating to such transaction(s) provide that the surviving Person
agrees to be bound by this Agreement and that all conditions precedent in this
Agreement relating to such transaction(s) have been satisfied.
21
4.24 Registration of Escrow Shares. (a) So long as the Purchaser
and/or its assigns owns any of the Securities and the Underlying Shares would
not be freely transferable without registration, the Company agrees not to file
a registration statement with the SEC without Purchaser's express written
consent, other than on Form 10, Form S-4 (except for a public reoffering or
resale) or Form S-8 without first having registered (or simultaneous
registering) the Registrable Securities for resale under the Securities Act and
in such states of the United States as the holders thereof shall reasonably
request.
(b) If the Company shall propose to file with the SEC any
registration statement other than a Form 10, Form S-4 (except for a public
reoffering or resale) or Form S-8 which would cause, or have the effect of
causing, the Company to become a Reporting Issuer or to take any other action,
other than the sale of the Debentures to the Purchaser hereunder, the effect of
which would be to cause the Underlying Shares to be restricted securities (as
such term is defined in Rule 144 promulgated under the Securities Act), the
Company agrees to give written notification of such to the holders of the
Securities at least two weeks prior to such filing or taking of the proposed
action. If any of the Securities are then outstanding, the Company agrees to
include in such registration statement the Registrable Securities unless the
Underlying Shares would be freely transferable upon conversion of the Debentures
without such registration, so as to permit the public resale thereof.
If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company will so advise
the holders of the Securities. In such event, these registration rights shall be
conditioned upon such holder's participation in such underwriting and the
inclusion of such holder's Registrable Securities in the underwriting to the
extent provided herein. All holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter selected by the Company. In the event
that the lead or managing underwriter in its good faith judgment determines that
material adverse market factors require a limitation on the number of shares to
be underwritten, the underwriter may limit the number of Registrable Securities.
In such event, the Company shall so advise all holders of securities requesting
registration, and the number of shares of the Registrable Securities that are
entitled to be included in the registration and underwriting shall be allocated
pro rata among all holders and other participants, including the Company, in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities and other securities which they had requested to be included in such
registration statement at the time of filing the registration statement. If any
holder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the underwriter,
provided such notice is delivered within sixty (60) days of full disclosure of
such terms to such holder, without thereby affecting the right of such holder to
participate in subsequent offerings hereunder.
(c) Notwithstanding the foregoing, if the Company for any
reason shall have taken any action, other than the sale of the Debentures to the
Purchaser hereunder, the effect of which would be to cause the Registrable
Securities to be restricted securities (as such term is defined in Rule 144
promulgated under the Securities Act), the Company agrees to use its best
efforts to file a registration statement with the SEC and use its best efforts
to have such registration statement declared effective by the SEC which would
permit the public resale of the Registrable Securities under the Securities Act
and in such states of the United States as the holders thereof shall reasonably
request.
22
(d) The Company agrees to keep any registration required
pursuant to this Section 4.24 continuously effective under the Securities Act
and with such states of the United States as the holders of the Registrable
Securities shall reasonably request until the earlier of (i) the date on which
all of the Registrable Securities covered by any such registration have been
sold, (ii) two (2) years from the effective date of any such registration, or
(iii) the date on which all of the Registrable Securities may be sold without
restriction pursuant to Rule 144 of the Securities Act. All costs and expenses
of any such registration and related Blue Sky filings and maintaining continuous
effectiveness of such registration and filings shall be borne by the Company,
other than underwriters and brokers, fees and commissions.
(e) The Escrow Shares shall be registered by the Company
under the Securities Act if required by Section 4.29 and subject to the
conditions stated therein.
(f) Each holder of Registrable Securities agrees to
cooperate and assist the Company in preparing and filing any registration
statement required to be filed pursuant to this Agreement, including, without
limitation, providing the Company with such information about the holder and
answering such questions as deemed reasonably necessary by the Company in order
to complete such registration statement. Until such time as the Company is no
longer required to keep the registration statement effective, each holder of
Registrable Securities agrees to immediately notify the Company of any change to
the information provided to the Company in connection with the preparation or
maintenance of the registration statement, and each such holder agrees to
certify to the accuracy and completeness of all information provided by it to
the Company or its representatives in connection with such registration
statement.
4.25 Liquidated Damages. The Company understands and agrees that a
breach by the Company of Section 4.1, Section 4.24, Section 4.29, Section 4.30
or an Event of Default as contained in this Agreement and/or any other
Transaction Document will result in substantial economic loss to the Purchaser,
which loss will be extremely difficult to calculate with precision. Therefore,
if, for any reason the Company breaches Sections 4.1, Section 4.24, Section
4.29, Section 4.30 or fails to cure any Event of Default under Section 5.1 (a)
(iii), (v), (vi) and (viii) within the time, if any, given to cure such Event of
Default, as compensation and liquidated damages for such breach or default, and
not as a penalty, the Company agrees to pay the Purchaser an amount equal to the
Purchase Price and the Purchaser, upon receipt of such payment, shall return any
unconverted Debentures to the Company. The Company shall, upon demand, pay the
Purchaser such liquidated damages by wire transfer of immediately available
funds to an account designated by the Purchaser. Nothing herein shall limit the
right of the Purchaser to pursue actual damages (less the amount of any
liquidated damages received pursuant to the foregoing) for the Company's breach
of Section 4.1, Section 4.24, Section 4.29, Section 4.30 or failure to cure an
Event of Default under Section 5.1 (a) (iii) (v) (vi) and (viii), consistent
with the terms of this Agreement. NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED IN THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS, THE COMPANY'S
OBLIGATIONS UNDER THIS SECTION SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT
OR THE OTHER TRANSACTION DOCUMENTS.
23
4.26 Short Sales. The Purchaser agrees it will not enter into any
Short Sales (as hereinafter defined) until the earlier to occur of the date that
the Purchaser no longer owns the Debentures and the Maturity Date. For purpose
hereof, a "Short Sale" shall mean a sale of Common Stock by the Purchaser that
is marked as a short sale and that is made at a time when there is no equivalent
offsetting long position in the Common Stock by the Purchaser. For the purposes
of determining whether there is an equivalent offsetting long position in the
Common Stock held by the Purchaser, shares of Common Stock issuable upon
conversion of the Debentures shall be deemed to be held long by the Purchaser
with respect to the Underlying Shares for which a Notice of Conversion is
delivered within two (2) Trading Days following the Trading Day that such Short
Sale is entered into.
4.27 Fees. The Company will pay the following fees and expenses in
connection with the transactions contemplated hereby: (a) to G&P (i) legal fees
for document production in the amount of $20,000 and (ii) all reasonable
out-of-pocket expenses incurred in connection with such document production, (b)
to the Escrow Agent, $5,000 for the escrow agent fee, and (c) to Jehu Hand (i)
legal fees in the amount of $5,000 and (ii) all reasonable out-of-pocket
expenses incurred. Unless paid prior, all fees and expenses will be paid at
Post-Closing and the Company and the Purchaser hereby authorize and direct the
Escrow Agent to deduct such fees and expenses directly from escrow prior to
distributing any funds to the Company. Except with respect to the fees set forth
in part (b) of this Section 4.27 and except as otherwise set forth in the
Retainer Agreement, all fees and expenses shall be paid regardless of whether
the transactions contemplated hereby are closed or otherwise completed. All fees
to be paid hereunder shall have no offsets, are non-refundable and
non-cancelable.
4.28 First Debenture B and Note. Notwithstanding anything contained
herein, in the Debentures, or in the Note to the contrary, the First Debenture B
shall not accrue interest, shall not be convertible, and shall not be subject to
repayment by the Company at its maturity, and the Note shall not be due and
payable and shall not be deemed part of the "Purchase Price" for purposes of
Section 4.25 hereof, unless and until:
(i) the Purchaser elects that Note shall become due and
payable; and
(ii) the number of Escrow Shares for the aggregate principal
amount of the Debentures then outstanding and First Debenture
B is at least 200% of the number of shares of common stock of
SCRH that would be needed to satisfy full conversion of all
such unconverted Debentures,
provided, however, that if subparagraph (i) is satisfied and
subparagraph (ii) is not, SCRH shall increase in accordance
with Section 4.14, the number of Escrow Shares to cover 200%
of the number of shares of common stock of SCRH that would be
needed to satisfy full conversion of all of such Debenture;
provided, further, that, notwithstanding the foregoing, the
First Debenture B shall not accrue interest, shall not be
convertible, and shall not be subject to repayment by the
Company at its maturity, and the Note shall not be deemed part
of the "Purchase Price" for purposes of Section 4.25 hereof,
unless and until the Note is paid in full by the Purchaser or
its successors and assigns.
24
4.29 Changes to Federal and State Securities Laws. If any of the
Securities require registration with or approval of any governmental authority
under any federal (including but not limited to the Securities Act or similar
federal statute then in force) or state law, or listing on any national
securities exchange, before they may be resold or transferred without any
restrictions on their resale or transfer for reasons including, but not limited
to, a material change in Rule 504 of Regulation D promulgated under the
Securities Act or a change to the exemption for sales made to Accredited
Investors in the state in which the Purchaser resides, the Company will, at its
expense, (a) as expeditiously as possible cause the Registrable Securities to be
duly registered or approved or listed on the relevant national securities
exchange, as the case may be, and (b) keep such registration, approval or
listing, as the case may be, continuously effective until the earlier of (i) the
date on which all of the Registrable Securities have been sold, (ii) two (2)
years from the effective date of any such registration, or (iii) the date on
which all of the Securities may be sold without restriction pursuant to Rule 144
of the Securities Act; subject to the terms and limitations set forth in section
4.24. The Registrable Securities shall be registered by the Company under the
Securities Act if required by Section 4.24 and subject to the conditions stated
therein.
4.30 Merger Agreement. Immediately upon the Effective Date, all of
the transactions contemplated by the Merger Agreement annexed hereto as EXHIBIT
C shall be consummated in accordance with the terms thereof.
4.31 Future Financing. If, at any time any of the Debentures are
outstanding, the Company, or its successors in interest due to mergers,
consolidations and/or acquisitions (the "Successors-in-Interest"), is funded an
amount equal to or exceeding Five Million United States Dollars ($5,000,000),
the Company or the Successors-in-Interest, as the case may be, agrees to pay the
Purchaser an amount equal to One Hundred Fifty Percent (150%) of the then
outstanding Debentures (the "Lump Sum Payment"). Upon the Purchaser's receipt of
the Lump Sum Payment, any and all remaining obligations then outstanding between
the Company or the Successors-in-Interest, as the case may be, and Purchaser in
connection with this Agreement and the Debentures shall be deem satisfied, and
the Agreement and the Debentures shall be terminated. This provision shall
survive both Closing and Post-Closing.
4.32 Applicability of Agreements after Post-Closing. At the
Effective Date or upon the consummation of any other merger or other transaction
pursuant to which the Company's obligations under the Debentures are assumed by
another party (whether or not such assumption is joint and several), the Company
shall be released from, and have no further obligation pursuant to Sections 4.1
through 4.6, 4.8, 4.10, 4.12, 4.14, 4.16 through 4.27, 4.29 and 4.31 hereof, and
any reference to the Company in such sections shall instead be deemed to refer
solely to the party that assumes the Debentures.
4.33 Company's Right of Redemption. In addition to any right of the
Company to redeem any unconverted amount of the Debentures, in whole or in parts
set forth in this Agreement, the Company shall have any redemption right set
forth in the Debentures.
25
ARTICLE V
TERMINATION
5.1 Termination by the Company or the Purchaser. This Agreement
shall be terminated as follows upon the occurrence of any of the following
events (each an "Event of Default"):
(a) Automatically terminated prior to Post-Closing if:
(i) there shall be in effect any statute, rule,
law or regulation, including an amendment to Regulation D or an
interpretive release promulgated or issued thereunder, that prohibits
the consummation of the Post-Closing or if the consummation of the
Post-Closing would violate any non-appealable final judgment, order,
decree, ruling or injunction of any court of or governmental authority
having competent jurisdiction;
(ii) the Post-Closing shall not have occurred by
the Post-Closing Date through no fault of the Company; (iii) the common
stock of SCRH is not registered under Section 12 of the Exchange Act;
(iv) SCRH is not current in its reporting
obligations under Section 13 or 15(d) of the Exchange Act;
(v) an event occurs prior to the Post-Closing
requiring SCRH to report such event to the SEC on Form 8-K and not
otherwise set forth in SCHEDULE 5.1, provided, however, such event
shall only include the following items under Form 8-K: Item 1; Item 2
to the extent that any event is reported under Item 2 that involves a
change in the nature of SCRH's business; Item 3; Item 4 (provided
further, that as to Item 4, only if the event requires disclosure under
Item 304 (a)(1)(iv) or under Regulation S-K); Item 9; or Item 12;
(vi) the Company causes the Post-Closing to not
occur by the Post-Closing Date;
(vii) trading in the common stock of SCRH has been
suspended, delisted, or otherwise ceased by the Commission or the NASD
or other exchange or the Nasdaq (whether the National Market or
otherwise), except for (a) any suspension of trading of limited
duration solely to permit dissemination of material information
regarding SCRH, and not reinstated within ten (10) Trading Days and (b)
any general suspension of trading for all companies trading on such
exchange or market or OTCBB; or
(viii) the Company fails to deliver or cause to be
delivered the Debentures and Escrow Shares as required by and by the
date set forth in Section 2.2 hereof.
26
(b) Prior to Post-Closing by the Purchaser, by giving
written notice of such termination to the Company, if the Company has materially
breached any representation, warranty, covenant or agreement contained in this
Agreement or the other Transaction Documents and such breach is not cured within
five (5) Business Days following receipt by the Company of notice of such
breach.
(c) Prior to Post-Closing by the Company, by giving
written notice of such termination to the Purchaser, if the Purchaser has
materially breached any representation, warranty, covenant or agreement
contained in this Agreement or the other Transaction Documents and such breach
is not cured within five (5) Business Days following receipt by the Purchaser of
notice of such breach.
5.2 Remedies. Notwithstanding anything else contained herein to
the contrary, if an Event of Default has occurred pursuant to Section 5.1, and
only with respect to Section 5.1(b) has not been cured within the cure period
provided for therein, the defaulting party shall be deemed in default hereof and
the non-defaulting party shall be entitled to pursue all available rights
without further notice. The defaulting party shall pay all attorney's fees and
costs incurred in enforcing this Agreement and the other Transaction Documents.
In addition, all unpaid amounts shall accrue interest at a rate of 15% per
annum.
ARTICLE VI
LEGAL FEES AND DEFAULT INTEREST RATE
In the event any party hereto commences legal action to enforce its
rights under this Agreement or any other Transaction Document, the
non-prevailing party shall pay all reasonable costs and expenses (including but
not limited to reasonable attorney's fees, accountant's fees, appraiser's fees
and investigative fees) incurred in enforcing such rights. In the event of an
uncured Event of Default by any party hereunder, interest shall accrue on all
unpaid amounts due the aggrieved party at the rate of 12% per annum, compounded
annually.
ARTICLE VII
MISCELLANEOUS
7.1 Fees and Expenses. Except as set forth in this Agreement each
party shall pay the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to
the negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay the fees of $5,000 to the Escrow Agent as set
forth in Section 4.27 hereto and all stamp and similar taxes and duties levied
in connection with the issuance of the Debentures (and, upon conversion, the
Underlying Shares) pursuant hereto. The Purchaser shall be responsible for any
taxes (other than income taxes) payable by the Purchaser that may arise as a
result of the investment hereunder or the transactions contemplated by this
Agreement or any other Transaction Document. Whether or not the transactions
contemplated hereby and thereby are consummated or this Agreement is terminated.
The Company shall pay (i) all costs, expenses, fees and all taxes incident to
and in connection with: (A) the preparation, printing and distribution of any
27
registration statement required hereunder and all amendments and supplements
thereto (including, without limitation, financial statements and exhibits), and
all preliminary and final Blue Sky memoranda and all other agreements,
memoranda, correspondence and other documents prepared and delivered in
connection herewith, (B) the issuance and delivery of the Securities, (C) the
exemption from registration of the Securities for offer and sale to the
Purchaser under the securities or Blue Sky laws of the applicable jurisdiction,
(D) furnishing such copies of any registration statement required hereunder, the
preliminary and final prospectuses and all amendments and supplements thereto,
as may reasonably be requested for use in connection with resales of the
Securities, and (E) the preparation of certificates for the Securities
(including, without limitation, printing and engraving thereof), (ii) all fees
and expenses of counsel and accountants of the Company and (iii) all expenses
and fees of listing on securities exchanges, if any.
7.2 Entire Agreement; Amendments. This Agreement, together with
all of the Exhibits and Schedules annexed hereto, and any other Transaction
Document contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters. This Agreement shall be deemed to
have been drafted and negotiated by both parties hereto and no presumptions as
to interpretation, construction or enforceability shall be made by or against
either party in such regard.
7.3 Notices. Any notice, request, demand, waiver, consent,
approval, or other communication which is required or permitted to be given to
any party hereunder shall be in writing and shall be deemed to have been duly
given only if delivered to the party personally or sent to the party by
facsimile upon electronic confirmation and receipt (promptly followed by a
hard-copy delivered in accordance with this Section 7.3) or three days after
being mailed by registered or certified mail (return receipt requested), with
postage and registration or if sent by nationally recognized overnight courier,
one day after being mailed certification fees thereon prepaid, addressed to the
party at its address set forth below:
If to the Company: Aciem Management, Inc.
000 Xxxx 00xx Xxxxxx, Xxxxx 00X
Xxx Xxxx, Xxx Xxxx 00000
Tel:
Fax:
If to the Purchaser: See SCHEDULE 1 attached hereto
With copies to: Gottbetter & Partners, LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxx X. Xxxxxxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
If to Escrow Agent: Gottbetter & Partners, LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxx X. Xxxxxxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
28
or such other address as may be designated hereafter by notice given pursuant to
the terms of this Section 7.3.
7.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser, or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
7.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
7.6 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement and any of the rights, interests or
obligations hereunder may be assigned by the Purchaser to an accredited investor
without the consent of the Company as long as such assignee agrees to be bound
by this Agreement. This Agreement and any of the rights, interests or
obligations hereunder may not be assigned by the Company without the prior
written consent of the Purchaser. It is agreed that the Company may assign all
of the rights, interests and obligations hereunder to SCRH pursuant to the
Merger Agreement.
7.7 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.
7.8 Governing Law; Venue; Service of Process. The parties hereto
acknowledge that the transactions contemplated by this Agreement and the
exhibits hereto bear a reasonable relation to the State of New York. The parties
hereto agree that the internal laws of the State of New York shall govern this
Agreement and the exhibits hereto, including, but not limited to, all issues
related to usury. Any action to enforce the terms of this Agreement or any of
its exhibits shall be brought exclusively in the state and/or federal courts
situated in the County and State of New York. Service of process in any action
by the Purchaser to enforce the terms of this Agreement may be made by serving a
copy of the summons and complaint, in addition to any other relevant documents,
by commercial overnight courier to the Company at its principal address set
forth in this Agreement.
7.9 Survival. The agreements and covenants of the parties
contained in Article IV and this Article VII shall survive the Post-Closing (or
any earlier termination of this Agreement).
29
7.10 Counterpart Signatures. This Agreement may be executed in two
or more counterparts, all of which when taken together shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party, it being understood that
both parties need not sign the same counterpart. In the event that any signature
is delivered by facsimile transmission, such signature shall create a valid and
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 signature
page were an original thereof.
7.11 Publicity. The Company and the Purchaser shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and neither party shall
issue any such press release or otherwise make any such public statement without
the prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, unless counsel for the disclosing party deems such public
statement to be required by applicable federal and/or state securities laws.
Except as otherwise required by applicable law or regulation, the Company will
not disclose to any third party the names of the Purchaser.
7.12 Severability. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affected or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefore, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
7.13 Limitation of Remedies. With respect to claims by the Company
or the Purchaser or any person acting by or through the Company or the Purchaser
for remedies at law or at equity relating to or arising out of a breach of this
Agreement, liability, if any, shall, in no event, include loss of profits or
incidental, indirect, exemplary, punitive, special or consequential damages of
any kind.
7.14 Omnibus Provision. Anything contained herein or in the other
Transaction Documents notwithstanding, in the event that the Common Stock shall
become listed on the American Stock Exchange and subsequently ceases to be
listed for trading on the American Stock Exchange, then any reference thereto in
this Agreement or the other Transaction Documents shall be deemed to be a
reference to (a) the principal national securities exchange on which the Common
Stock is then listed or admitted to trading, or (b) if the Common Stock is not
then listed or admitted to trading on any national securities exchange, Nasdaq,
or (c) if the Common Stock is not then listed or admitted to trading on Nasdaq,
OTCBB, or (d) if the Common Stock is not then listed or admitted to trading on
OTCBB, then the over-the-counter market reported by the Pinksheets LLC (or
similar organization or agency succeeding to its functions of reporting prices).
[SIGNATURE PAGE FOLLOWS]
30
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first indicated above.
Company:
ACIEM MANAGEMENT, INC.
By: /s/ Xxxx Xxxxxxx
------------------------------------------
Name: Xxxx Xxxxxxx
Title: President
Purchaser:
HEM MUTUAL ASSURANCE LLC
By: /s/ Xxxxxx Xxxxxxxx
------------------------------------------
Name: Xxxxxx Xxxxxxxx
Title: Manager
HIGHGATE HOUSE, LLC
By: HH Advisors, LLC, its Managing Member
By: /s/ Xxxx X. Xxxxxxxxxx
------------------------------------------
Name: Xxxx X. Xxxxxxxxxx
Title: Managing Member
31
