SECURITIES PURCHASE AGREEMENT
SECURITIES
PURCHASE AGREEMENT (this “Agreement”), dated as of October 25,
2007, by and among EDOORWAYS CORP, a Delaware corporation, with headquarters
located at 0000 Xxxxxxxx Xxxxx, Xxxxxxx, Xxxxx 00000 (the
“Company”), and each of the purchasers set forth on the
signature pages hereto (the “Buyers”).
WHEREAS:
A. The
Company and the Buyers are executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by the rules and
regulations as promulgated by the United States Securities and Exchange
Commission (the “SEC”) under the Securities Act of 1933, as
amended (the “1933 Act”);
B. Buyers
desire to purchase and the Company desires to issue and sell, upon the terms
and
conditions set forth in this Agreement (i) 8% secured convertible notes of
the Company, in the form attached hereto as Exhibit “A”,
in the aggregate principal amount of Two Hundred Fifty Thousand Dollars
($250,000) (together with any note(s) issued in replacement thereof or as a
dividend thereon or otherwise with respect thereto in accordance with the terms
thereof, the “Notes”),convertible into shares
of common stock, par value $.001 per share, of the Company (the
“Common Stock”), upon the terms and subject to the limitations
and conditions set forth in such Notes and (ii) warrants, in the forms
attached hereto as Exhibit “B”, to purchase an aggregate of
10,000,000 shares of Common Stock (the
“Warrants”).
C. Each
Buyer wishes to purchase, upon the terms and conditions stated in this
Agreement, such principal amount of Notes and number of Warrants as is set
forth
immediately below its name on the signature pages hereto; and
D. Contemporaneous
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, in the form attached
hereto as Exhibit “C” (the “Registration Rights
Agreement”), pursuant to which the Company has agreed to provide
certain registration rights under the 1933 Act and the rules and regulations
promulgated thereunder, and applicable state securities laws.
NOW,
THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE
AND SALE OF NOTES AND WARRANTS.
a. Purchase
of Notes and Warrants. On the Closing
Date (as defined below), the Company shall issue and sell to each Buyer and
each
Buyer severally agrees to purchase from the Company such principal amount of
Notes and number of Warrants as is set forth immediately below such Buyer’s name
on the signature pages hereto.
b. Form
of Payment. On the Closing Date (as defined below),
(i) each Buyer shall pay the purchase price for the Notes and the Warrants
to be issued and sold to it at the Closing (as defined below) (the
“Purchase Price”) by wire transfer of immediately available
funds to the Company, in accordance with the Company’s written wiring
instructions, against delivery of the Notes in the principal amount equal to
the
Purchase Price and the number of Warrants as is set forth immediately below
such
Buyer’s name on the signature pages hereto, and (ii) the Company shall
deliver such Notes and Warrants duly executed on behalf of the Company, to
such
Buyer, against delivery of such Purchase Price.
c. Closing
Date. Subject to the satisfaction (or
written waiver) of the conditions thereto set forth in Section 6 and Section
7
below, the date and time of the issuance and sale of the Notes and the Warrants
pursuant to this Agreement (the “Closing Date”) shall be 12:00
noon, Eastern Standard Time on October 25, 2007, or such other mutually agreed
upon time. The closing of the transactions contemplated by this
Agreement (the “Closing”) shall occur on the Closing Date at
such location as may be agreed to by the parties.
2. BUYERS’
REPRESENTATIONS AND WARRANTIES. Each
Buyer severally (and not jointly) represents and warrants to the Company solely
as to such Buyer that:
a. Investment
Purpose. As of the date hereof, the
Buyer is purchasing the Notes and the shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Notes (including, without limitation,
such additional shares of Common Stock, if any, as are issuable (i) on
account of interest on the Notes, (ii) as a result of the events described
in Sections 1.3 and 1.4(g) of the Notes and Section 2(c) of the Registration
Rights Agreement or (iii) in payment of the Standard Liquidated Damages
Amount (as defined in Section 2(f) below) pursuant to this Agreement, such
shares of Common Stock being collectively referred to herein as the
“Conversion Shares”) and the Warrants and the shares of Common
Stock issuable upon exercise thereof (the “Warrant Shares” and,
collectively with the Notes, Warrants and Conversion Shares, the
“Securities”) for its own account and not with a present view
towards the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the 1933 Act; provided,
however, that by making the representations herein, the Buyer does
not
agree to hold any of the Securities for any minimum or other specific term
and
reserves the right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption under the 1933
Act.
b. Accredited
Investor Status. The Buyer is an
“accredited investor” as that term is defined in Rule 501(a) of Regulation
D (an
“Accredited Investor”).
c. Reliance
on Exemptions. The Buyer understands
that the Securities are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of United States federal and
state
securities laws and that the Company is relying upon the truth and accuracy
of,
and the Buyer’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
d. Information. The
Buyer and its advisors, if any, have been, and for so long as the Notes and
Warrants remain outstanding will continue to be, furnished with all materials
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Securities which have been requested
by
the Buyer or its advisors. The Buyer and its advisors, if any, have
been, and for so long as the Notes and Warrants remain outstanding will continue
to be, afforded the opportunity to ask questions of the
Company. Notwithstanding the foregoing, the Company has not disclosed
to the Buyer any material nonpublic information and will not disclose such
information unless such information is disclosed to the public prior to or
promptly following such disclosure to the Buyer. Neither such
inquiries nor any other due diligence investigation conducted by Buyer or any
of
its advisors or representatives shall modify, amend or affect Buyer’s right to
rely on the Company’s representations and warranties contained in Section 3
below. The Buyer understands that its investment in the Securities
involves a significant degree of risk.
e. Governmental
Review. The Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the
Securities.
f. Transfer
or Re-sale. The Buyer understands that
(i) except as provided in the Registration Rights Agreement, the sale or
re-sale of the Securities has not been and is not being registered under the
1933 Act or any applicable state securities laws, and the Securities may not
be
transferred unless (a) the Securities are sold pursuant to an effective
registration statement under the 1933 Act, (b) the Buyer shall have
delivered to the Company an opinion of counsel that shall be in form, substance
and scope customary for opinions of counsel in comparable transactions to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration, which opinion shall be accepted
by the Company, (c) the Securities are sold or transferred to an
“affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or a
successor rule) (“Rule 144”)) of the Buyer who agrees to sell
or otherwise transfer the Securities only in accordance with this Section 2(f)
and who is an Accredited Investor, (d) the Securities are sold pursuant to
Rule 144, or (e) the Securities are sold pursuant to Regulation S under the
1933 Act (or a successor rule) (“Regulation S”), and the
Buyer shall have delivered to the Company an opinion of counsel that shall
be in
form, substance and scope customary for opinions of counsel in corporate
transactions, which opinion shall be accepted by the Company; (ii) any sale
of
such Securities made in reliance on Rule 144 may be made only in accordance
with
the terms of said Rule and further, if said Rule is not applicable, any re-sale
of such Securities under circumstances in which the seller (or the person
through whom the sale is made) may be deemed to be an underwriter (as that
term
is defined in the 0000 Xxx) may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC thereunder; and
(iii)
neither the Company nor any other person is under any obligation to register
such Securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder (in each case, other
than pursuant to the Registration Rights Agreement). Notwithstanding
the foregoing or anything else contained herein to the contrary, the Securities
may be pledged as collateral in connection with a bona fide
margin account or other lending arrangement. In the event that the
Company does not accept the opinion of counsel provided by the Buyer with
respect to the transfer of Securities pursuant to an exemption from
registration, such as Rule 144 or Regulation S, within three (3) business days
of delivery of the opinion to the Company, the Company shall pay to the Buyer
liquidated damages of three percent (3%) of the outstanding amount of the Notes
per month plus accrued and unpaid interest on the Notes, prorated for partial
months, in cash or shares at the option of the Company (“Standard
Liquidated Damages Amount”). If the Company elects to be pay
the Standard Liquidated Damages Amount in shares of Common Stock, such shares
shall be issued at the Conversion Price at the time of payment.
g. Legends. The
Buyer understands that the Notes and the Warrants and, until such time as the
Conversion Shares and Warrant Shares have been registered under the 1933 Act
as
contemplated by the Registration Rights Agreement or otherwise may be sold
pursuant to Rule 144 or Regulation S without any restriction as to the
number of securities as of a particular date that can then be immediately sold,
the Conversion Shares and Warrant Shares may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities):
“The
securities represented by this certificate have not been registered under the
Securities Act of 1933, as amended. The securities may not be sold,
transferred or assigned in the absence of an effective registration statement
for the securities under said Act, or an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions, that
registration is not required under said Act or unless sold pursuant to Rule
144
or Regulation S under said Act.”
The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it
is
stamped, if, unless otherwise required by applicable state securities laws,
(a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, to the effect that a public
sale or transfer of such Security may be made without registration under the
1933 Act, which opinion shall be accepted by the Company so that the sale or
transfer is effected or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144 or
Regulation S. The Buyer agrees to sell all Securities, including
those represented by a certificate(s) from which the legend has been removed,
in
compliance with applicable prospectus delivery requirements, if
any.
h. Authorization;
Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly
authorized. This Agreement has been duly executed and delivered on
behalf of the Buyer, and this Agreement constitutes, and upon execution and
delivery by the Buyer of the Registration Rights Agreement, such agreement
will
constitute, valid and binding agreements of the Buyer enforceable in accordance
with their terms.
i. Residency. The
Buyer is a resident of the jurisdiction set forth immediately below such Buyer’s
name on the signature pages hereto.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to each Buyer that:
a. Organization
and Qualification. The Company and each
of its Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other)
to
own, lease, use and operate its properties and to carry on its business as
and
where now owned, leased, used, operated and
conducted. Schedule 3(a) sets forth a list of all of
the Subsidiaries of the Company and the jurisdiction in which each is
incorporated. The Company and each of its Subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which its ownership or use of property or the nature
of
the business conducted by it makes such qualification necessary except where
the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. “Material Adverse Effect” means any of (i) a
material and adverse effect on the legality, validity or enforceability of
any
document executed in connection with this financing, (ii) a material and adverse
effect on the results of operations, assets, prospects, business or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a whole,
or (iii) an adverse impairment to the Company’s ability to perform under any of
the documents executed in connection with this
financing. “Subsidiaries” means any corporation or
other organization, whether incorporated or unincorporated, in which the Company
owns, directly or indirectly, any equity or other ownership
interest.
b. Authorization;
Enforcement. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Notes and the Warrants and
to
consummate the transactions contemplated hereby and thereby and to issue the
Securities, in accordance with the terms hereof and thereof, (ii) the execution
and delivery of this Agreement, the Registration Rights Agreement, the Notes
and
the Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation, the issuance
of
the Notes and the Warrants and the issuance and reservation for issuance of
the
Conversion Shares and Warrant Shares issuable upon conversion or exercise
thereof) have been duly authorized by the Company’s Board of Directors and no
further consent or authorization of the Company, its Board of Directors, or
its
shareholders is required, (iii) this Agreement has been duly executed and
delivered by the Company by its authorized representative, and such authorized
representative is the true and official representative with authority to sign
this Agreement and the other documents executed in connection herewith and
bind
the Company accordingly, and (iv) this Agreement constitutes, and upon execution
and delivery by the Company of the Registration Rights Agreement, the Notes
and
the Warrants, each of such instruments will constitute, a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms.
c. Capitalization. As
of the date hereof, the authorized capital stock of the Company consists of
(i)
500,000,000 shares of Common Stock, $0.001 par value, of which [] shares are
issued and outstanding, no shares are reserved for issuance pursuant to the
Company’s stock option plans, no shares are reserved for issuance pursuant to
securities (other than the Notes and the Warrants) exercisable for, or
convertible into or exchangeable for shares of Common Stock and, 300,000,000
shares are reserved for issuance upon conversion of the Notes and exercise
of
the Warrants (subject to adjustment pursuant to the Company’s covenant set forth
in Section 4(h) below); and (ii) 10,000,000 shares of preferred stock of which
200,000 shares are issued and outstanding. All of such outstanding
shares of capital stock are, or upon issuance will be, duly authorized, validly
issued, fully paid and nonassessable. No shares of capital stock of
the Company are subject to preemptive rights or any other similar rights of
the
shareholders of the Company or any liens or encumbrances imposed through the
actions or failure to act of the Company. Except as disclosed in
Schedule 3(c), as of the effective date of this Agreement, (i)
there are no outstanding options, warrants, scrip, rights to subscribe for,
puts, calls, rights of first refusal, agreements, understandings, claims or
other commitments or rights of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for any shares of capital
stock of the Company or any of its Subsidiaries, or arrangements by which the
Company or any of its Subsidiaries is or may become bound to issue additional
shares of capital stock of the Company or any of its Subsidiaries, (ii) there
are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of its or their securities
under the 1933 Act (except the Registration Rights Agreement) and (iii) there
are no anti-dilution or price adjustment provisions contained in any security
issued by the Company (or in any agreement providing rights to security holders)
that will be triggered by the issuance of the Notes, the Warrants, the
Conversion Shares or Warrant Shares. The Company has furnished to the
Buyer true and correct copies of the Company’s Certificate of Incorporation as
in effect on the date hereof (“Certificate of Incorporation”),
the Company’s By-laws, as in effect on the date hereof (the
“By-laws”), and the terms of all securities convertible into or
exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto. The Company shall provide the
Buyer with a written update of this representation signed by the Company’s Chief
Executive or Chief Financial Officer on behalf of the Company as of the Closing
Date.
d. Issuance
of Shares. The Conversion Shares and
Warrant Shares are duly authorized and reserved for issuance and, upon
conversion of the Notes and exercise of the Warrants in accordance with their
respective terms, will be validly issued, fully paid and non-assessable, and
free from all taxes, liens, claims and encumbrances with respect to the issue
thereof and shall not be subject to preemptive rights or other similar rights
of
shareholders of the Company and will not impose personal liability upon the
holder thereof.
e. Acknowledgment
of Dilution. The Company understands
and acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares and Warrant Shares upon conversion of the
Note
or exercise of the Warrants. The Company further acknowledges that
its obligation to issue Conversion Shares and Warrant Shares upon conversion
of
the Notes or exercise of the Warrants in accordance with this Agreement, the
Notes and the Warrants is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
shareholders of the Company.
f. No
Conflicts. The execution, delivery and
performance of this Agreement, the Registration Rights Agreement, the Notes
and
the Warrants by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation,
the
issuance and reservation for issuance of the Conversion Shares and Warrant
Shares) will not (i) conflict with or result in a violation of any provision
of
the Certificate of Incorporation or By-laws or (ii) violate or conflict with,
or
result in a breach of any provision of, or constitute a default (or an event
which with notice or lapse of time or both could become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent license or instrument
to which the Company or any of its Subsidiaries is a party, or
(iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and regulations of any self-regulatory organizations to which the Company or
its
securities are subject) applicable to the Company or any of its Subsidiaries
or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse
Effect). Neither the Company nor any of its Subsidiaries is in
violation of its Certificate of Incorporation, By-laws or other organizational
documents and neither the Company nor any of its Subsidiaries is in default
(and
no event has occurred which with notice or lapse of time or both could put
the
Company or any of its Subsidiaries in default) under, and neither the Company
nor any of its Subsidiaries has taken any action or failed to take any action
that would give to others any rights of termination, amendment, acceleration
or
cancellation of, any agreement, indenture or instrument to which the Company
or
any of its Subsidiaries is a party or by which any property or assets of the
Company or any of its Subsidiaries is bound or affected, except for possible
defaults as would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its Subsidiaries, if any,
are not being conducted, and shall not be conducted so long as a Buyer owns
any
of the Securities, in violation of any law, ordinance or regulation of any
governmental entity. Except as specifically contemplated by this
Agreement and as required under the 1933 Act and any applicable state securities
laws, the Company is not required to obtain any consent, authorization or order
of, or make any filing or registration with, any court, governmental agency,
regulatory agency, self regulatory organization or stock market or any third
party in order for it to execute, deliver or perform any of its obligations
under this Agreement, the Registration Rights Agreement, the Notes or the
Warrants in accordance with the terms hereof or thereof or to issue and sell
the
Notes and Warrants in accordance with the terms hereof and to issue the
Conversion Shares upon conversion of the Notes and the Warrant Shares upon
exercise of the Warrants. Except as disclosed in Schedule
3(f), all consents, authorizations, orders, filings and registrations
which the Company is required to obtain pursuant to the preceding sentence
have
been obtained or effected on or prior to the date hereof. The Company
is not in violation of the quotation requirements of the Over-the-Counter
Bulletin Board (the “OTCBB”) and does not reasonably anticipate
that the Common Stock will be delisted by the OTCBB in the foreseeable
future. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
g. SEC
Documents; Financial Statements. Except
as disclosed in Schedule 3(g), the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the “1934 Act”) (all of the
foregoing filed prior to the date hereof and all exhibits included therein
and
financial statements and schedules thereto and documents (other than exhibits
to
such documents) incorporated by reference therein, being hereinafter referred
to
herein as the “SEC Documents”). The Company has
delivered to each Buyer true and complete copies of the SEC Documents, except
for such exhibits and incorporated documents. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the 1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time
they
were filed with the SEC, contained any untrue statement of a material fact
or
omitted to state a material fact required to be stated therein or necessary
in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. None of the statements made in any
such SEC Documents is, or has been, required to be amended or updated under
applicable law (except for such statements as have been amended or updated
in
subsequent filings prior the date hereof). As of their respective
dates, the financial statements of the Company included in the SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance
with United States generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may not include footnotes
or
may be condensed or summary statements) and fairly present in all material
respects the consolidated financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of
unaudited statements, to normal year-end audit adjustments). Except
as set forth in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
December 31, 2004 and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial condition
or
operating results of the Company.
h. Absence
of Certain Changes. Since December 31,
2005, there has been no material adverse change and no material adverse
development in the assets, liabilities, business, properties, operations,
financial condition, results of operations or prospects of the Company or any
of
its Subsidiaries.
i. Absence
of Litigation. There is no action,
suit, claim, proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body pending or,
to
the knowledge of the Company or any of its Subsidiaries, threatened against
or
affecting the Company or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material Adverse
Effect. Schedule 3(i) contains a complete list and
summary description of any pending or threatened proceeding against or affecting
the Company or any of its Subsidiaries, without regard to whether it would
have
a Material Adverse Effect. The Company and its Subsidiaries are
unaware of any facts or circumstances which might give rise to any of the
foregoing.
j. Patents,
Copyrights, etc. The Company and each of its
Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names,
trade
names and copyrights (“Intellectual Property”) necessary to
enable it to conduct its business as now operated (and, except as set forth
in
Schedule 3(j) hereof, to the best of the Company’s knowledge,
as presently contemplated to be operated in the future); there is no claim
or
action by any person pertaining to, or proceeding pending, or to the Company’s
knowledge threatened, which challenges the right of the Company or of a
Subsidiary with respect to any Intellectual Property necessary to enable it
to
conduct its business as now operated (and, except as set forth in
Schedule 3(j) hereof, to the best of the Company’s knowledge,
as presently contemplated to be operated in the future); to the best of the
Company’s knowledge, the Company’s or its Subsidiaries’ current and intended
products, services and processes do not infringe on any Intellectual Property
or
other rights held by any person; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The
Company and each of its Subsidiaries have taken reasonable security measures
to
protect the secrecy, confidentiality and value of their Intellectual
Property.
k. No
Materially Adverse Contracts, Etc. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company’s officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment
of
the Company’s officers has or is expected to have a Material Adverse
Effect.
l. Tax
Status. Except as set forth on
Schedule 3(l), the Company and each of
its Subsidiaries has
made or filed all federal, state and foreign income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its Subsidiaries
has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to
be
due on such returns, reports and declarations, except those being contested
in
good faith and has set aside on its books provisions reasonably adequate for
the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim. The Company has not executed a waiver with respect to the
statute of limitations relating to the assessment or collection of any foreign,
federal, state or local tax. Except as set forth on Schedule
3(l), none of the Company’s tax returns is presently being audited by
any taxing authority.
m. Certain
Transactions. Except as set forth on
Schedule 3(m) and except for arm’s length transactions pursuant
to which the Company or any of its Subsidiaries makes payments in the ordinary
course of business upon terms no less favorable than the Company or any of
its
Subsidiaries could obtain from third parties and other than the grant of stock
options disclosed on Schedule 3(c), none of the officers,
directors, or employees of the Company is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
n. Disclosure. All
information relating to or concerning the Company or any of its Subsidiaries
set
forth in this Agreement and provided to the Buyers pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby
is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein
or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed
(assuming for this purpose that the Company’s reports filed under the 1934 Act
are being incorporated into an effective registration statement filed by the
Company under the 1933 Act).
o. Acknowledgment
Regarding Buyers’ Purchase of
Securities. The Company acknowledges
and agrees that the Buyers are acting solely in the capacity of arm’s length
purchasers with respect to this Agreement and the transactions contemplated
hereby. The Company further acknowledges that no Buyer is acting as a
financial advisor or fiduciary of the Company (or in any similar capacity)
with
respect to this Agreement and the transactions contemplated hereby and any
statement made by any Buyer or any of their respective representatives or agents
in connection with this Agreement and the transactions contemplated hereby
is
not advice or a recommendation and is merely incidental to the Buyers’ purchase
of the Securities. The Company further represents to each Buyer that
the Company’s decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.
p. No
Integrated Offering. Neither the
Company, nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales in any security
or
solicited any offers to buy any security under circumstances that would require
registration under the 1933 Act of the issuance of the Securities to the
Buyers. The issuance of the Securities to the Buyers will not be
integrated with any other issuance of the Company’s securities (past, current or
future) for purposes of any shareholder approval provisions applicable to the
Company or its securities.
q. No
Brokers. Except as set forth in
Schedule 3(q), the Company has taken no
action which would give
rise to any claim by any person for brokerage commissions, transaction fees
or
similar payments relating to this Agreement or the transactions contemplated
hereby.
r. Permits;
Compliance. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and
to
carry on its business as it is now being conducted (collectively, the
“Company Permits”), and there is no action pending or, to the
knowledge of the Company, threatened regarding suspension or cancellation of
any
of the Company Permits. Neither the Company nor any of its
Subsidiaries is in conflict with, or in default or violation of, any of the
Company Permits, except for any such conflicts, defaults or violations which,
individually or in the aggregate, would not reasonably be expected to have
a
Material Adverse Effect. Since December 31, 2004, neither the Company
nor any of its Subsidiaries has received any notification with respect to
possible conflicts, defaults or violations of applicable laws, except for
notices relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.
s. Environmental
Matters.
(i) Except
as
set forth in Schedule 3(s), there are, to the Company’s
knowledge, with respect to the Company or any of its Subsidiaries or any
predecessor of the Company, no past or present violations of Environmental
Laws
(as defined below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or
any
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws and
neither the Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to the Company’s
knowledge, threatened in connection with any of the foregoing. The
term “Environmental Laws” means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials, as well as
all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(ii) Other
than those that are or were stored, used or disposed of in compliance with
applicable law, no Hazardous Materials are contained on or about any real
property currently owned, leased or used by the Company or any of its
Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the Company’s
or any of its Subsidiaries’ business.
(iii) Except
as
set forth in Schedule 3(s), there are no underground storage
tanks on or under any real property owned, leased or used by the Company or
any
of its Subsidiaries that are not in compliance with applicable law.
t. Title
to Property. The Company and its
Subsidiaries have good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned by them which
is
material to the business of the Company and its Subsidiaries, in each case
free
and clear of all liens, encumbrances and defects except such as are described
in
Schedule 3(t) or such as would not have a Material Adverse
Effect. Any real property and facilities held under lease by the
Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as would not have a Material Adverse
Effect.
u. Insurance. The
Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts
as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its Subsidiaries are engaged. Neither the
Company nor any such Subsidiary has any reason to believe that it will not
be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse
Effect. The Company has provided to Buyer true and correct copies of
all policies relating to directors’ and officers’ liability coverage, errors and
omissions coverage, and commercial general liability coverage.
v. Internal
Accounting Controls. The Company and
each of its Subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the Company’s board of directors, to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management’s general
or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
w. Foreign
Corrupt Practices. Neither the Company,
nor any of its Subsidiaries, nor any director, officer, agent, employee or
other
person acting on behalf of the Company or any Subsidiary has, in the course
of
his actions for, or on behalf of, the Company, used any corporate funds for
any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
x. Solvency. The
Company (after giving effect to the transactions contemplated by this Agreement)
is solvent (i.e., its assets have a fair market value in excess of the
amount required to pay its probable liabilities on its existing debts as they
become absolute and matured) and currently the Company has no information that
would lead it to reasonably conclude that the Company would not, after giving
effect to the transaction contemplated by this Agreement, have the ability
to,
nor does it intend to take any action that would impair its ability to, pay
its
debts from time to time incurred in connection therewith as such debts
mature. The Company did not receive a qualified opinion from its
auditors with respect to its most recent fiscal year end and, after giving
effect to the transactions contemplated by this Agreement, does not anticipate
or know of any basis upon which its auditors might issue a qualified opinion
in
respect of its current fiscal year.
y. No
Investment Company. The Company is not,
and upon the issuance and sale of the Securities as contemplated by this
Agreement will not be an “investment company” required to be registered under
the Investment Company Act of 1940 (an “Investment
Company”). The Company is not controlled by an Investment
Company.
z. Breach
of Representations and Warranties by the
Company. If the Company breaches any of
the representations or warranties set forth in this Section 3, and in addition
to any other remedies available to the Buyers pursuant to this Agreement, the
Company shall pay to the Buyer the Standard Liquidated Damages Amount in cash
or
in shares of Common Stock at the option of the Company, until such breach is
cured. If the Company elects to pay the Standard Liquidated Damages
Amounts in shares of Common Stock, such shares shall be issued at the Conversion
Price at the time of payment.
4. COVENANTS.
a. Best
Efforts. The parties shall use their
best efforts to satisfy timely each of the conditions described in Section
6 and
7 of this Agreement.
b. Form
D; Blue Sky Laws. The Company agrees to
file a Form D with respect to the Securities as required under Regulation D
and
to provide a copy thereof to each Buyer promptly after such
filing. The Company shall, on or before the Closing Date, take such
action as the Company shall reasonably determine is necessary to qualify the
Securities for sale to the Buyers at the applicable closing pursuant to this
Agreement under applicable securities or “blue sky” laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to each Buyer on or prior to the
Closing Date.
c. Reporting
Status; Eligibility to Use Form S-3, SB-2 or Form
S-1. The Company’s Common Stock is
registered under Section 12(g) of the 1934 Act. The Company represents and
warrants that it meets the requirements for the use of Form S-3 (or if the
Company is not eligible for the use of Form S-3 as of the Filing Date (as
defined in the Registration Rights Agreement), the Company may use the form
of
registration for which it is eligible at that time) for registration of the
sale
by the Buyer of the Registrable Securities (as defined in the Registration
Rights Agreement). So long as the Buyer beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed
with
the SEC pursuant to the 1934 Act, and the Company shall not terminate its status
as an issuer required to file reports under the 1934 Act even if the 1934 Act
or
the rules and regulations thereunder would permit such
termination. The Company further agrees to file all reports required
to be filed by the Company with the SEC in a timely manner so as to become
eligible, and thereafter to maintain its eligibility, for the use of Form S-3
or
such other form of registration for which it is eligible. The Company
shall issue a press release describing the material terms of the transaction
contemplated hereby as soon as practicable following the Closing Date but in
no
event more than two (2) business days of the Closing Date, which press release
shall be subject to prior review by the Buyers. The Company agrees
that such press release shall not disclose the name of the Buyers unless
expressly consented to in writing by the Buyers or unless required by applicable
law or regulation, and then only to the extent of such requirement.
d. Use
of Proceeds. The Company shall use the
net proceeds from the sale of the Notes and the Warrants in the manner set
forth
in Schedule 4(d) attached hereto and made a part hereof and
shall not, directly or indirectly, use such proceeds for (i) any loan to or
investment in any other corporation, partnership, enterprise or other person
(except in connection with its currently existing direct or indirect
Subsidiaries); (ii) the satisfaction of any portion of the Company’s debt (other
than payment of trade payables and accrued expenses in the ordinary course
of
the Company’s business and consistent with prior past practices), or (iii) the
redemption of any Common Stock.
e. Future
Offerings. Subject to the exceptions
described below, the Company will not, without the prior written consent of
a
majority-in-interest of the Buyers, negotiate or contract with any party to
obtain additional equity financing (including debt financing with an equity
component) that involves (A) the issuance of Common Stock at a discount to
the
market price of the Common Stock on the date of issuance (taking into account
the value of any warrants or options to acquire Common Stock issued in
connection therewith) or (B) the issuance of convertible securities that are
convertible into an indeterminate number of shares of Common Stock or (C) the
issuance of warrants during the period (the “Lock-up Period”)
beginning on the Closing Date and ending on the later of (i) two hundred seventy
(270) days from the Closing Date and (ii) one hundred eighty (180) days from
the
date the Registration Statement (as defined in the Registration Rights
Agreement) is declared effective (plus any days in which sales cannot be made
thereunder). In addition, subject to the exceptions described below,
the Company will not conduct any equity financing (including debt with an equity
component) (“Future Offerings”) during the period beginning on
the Closing Date and ending two (2) years after the end of the Lock-up Period
unless it shall have first delivered to each Buyer, at least twenty (20)
business days prior to the closing of such Future Offering, written notice
describing the proposed Future Offering, including the terms and conditions
thereof and proposed definitive documentation to be entered into in connection
therewith, and providing each Buyer an option during the fifteen (15) day period
following delivery of such notice to purchase its pro rata share (based on
the
ratio that the aggregate principal amount of Notes purchased by it hereunder
bears to the aggregate principal amount of Notes purchased hereunder) of the
securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in this
sentence and the preceding sentence are collectively referred to as the
“Capital Raising Limitations”). In the
event the terms and conditions of a proposed Future Offering are amended in
any
respect after delivery of the notice to the Buyers concerning the proposed
Future Offering, the Company shall deliver a new notice to each Buyer describing
the amended terms and conditions of the proposed Future Offering and each Buyer
thereafter shall have an option during the fifteen (15) day period following
delivery of such new notice to purchase its pro rata share of the securities
being offered on the same terms as contemplated by such proposed Future
Offering, as amended. The foregoing sentence shall apply to
successive amendments to the terms and conditions of any proposed Future
Offering. The Capital Raising Limitations shall not apply to any
transaction involving (i) issuances of securities in a firm commitment
underwritten public offering (excluding a continuous offering pursuant to Rule
415 under the 1933 Act, an equity line of credit or similar financing
arrangement) resulting in net proceeds to the Company of in excess of
$15,000,000, or (ii) issuances of securities as consideration for a merger,
consolidation or purchase of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or in connection with the disposition or acquisition of a
business, product or license by the Company. The Capital Raising
Limitations also shall not apply to the issuance of securities upon exercise
or
conversion of the Company’s options, warrants or other convertible securities
outstanding as of the date hereof or to the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option or restricted stock plan approved by the shareholders of the
Company. Notwithstanding anything in this section 4(e) to
the contrary, in the event the Company’s Board of Directors decides, in good
faith, to enter into a transaction or relationship in which the Company issues
shares of Common Stock or other securities of the Company to a person or any
entity which is, itself or through its subsidiaries, an operating company in
a
business synergistic with the business of the Company and in which the Company
received benefits in addition to the investment of funds, but shall not include
a transaction in which the Company is issuing securities primarily for the
purpose of raising capital or to an entity whose business is investing in
securities, the Company shall be permitted to do so.
f. Expenses. At
the Closing, the Company shall reimburse Buyers for expenses incurred by them
in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and the other agreements to be executed in
connection herewith (“Documents”), including, without
limitation, attorneys’ and consultants’ fees and expenses, transfer agent fees,
fees for stock quotation services, fees relating to any amendments or
modifications of the Documents or any consents or waivers of provisions in
the
Documents, fees for the preparation of opinions of counsel, escrow fees, and
costs of restructuring the transactions contemplated by the
Documents. When possible, the Company must pay these fees directly,
otherwise the Company must make immediate payment for reimbursement to the
Buyers for all fees and expenses immediately upon written notice by the Buyer
or
the submission of an invoice by the Buyer If the Company fails to
reimburse the Buyer in full within three (3) business days of the written notice
or submission of invoice by the Buyer, the Company shall pay interest on the
total amount of fees to be reimbursed at a rate of 15% per annum.
g. Financial
Information. The Company agrees to send
the following reports to each Buyer until such Buyer transfers, assigns, or
sells all of the Securities: (i) within ten (10) days after the
filing with the SEC, a copy of its Annual Report on Form 10-KSB its Quarterly
Reports on Form 10-QSB and any Current Reports on Form 8-K; (ii) within one
(1) day after release, copies of all press releases issued by the Company or
any
of its Subsidiaries; and (iii) contemporaneously with the making available
or giving to the shareholders of the Company, copies of any notices or other
information the Company makes available or gives to such
shareholders.
h. Authorization
and Reservation of Shares. Upon the
increase in the number of authorized shares of the Company’s Common Stock to
500,000,000 shares within forty-five (45) days from the date hereof and subject
to Stockholder Approval, the Company shall at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of shares of Common
Stock to provide for the full conversion or exercise of the outstanding Notes
and Warrants and issuance of the Conversion Shares and Warrant Shares in
connection therewith (based on the Conversion Price of the Notes or Exercise
Price of the Warrants in effect from time to time) and as otherwise required
by
the Notes. The Company shall not reduce the number of shares of
Common Stock reserved for issuance upon conversion of Notes and exercise of
the
Warrants without the consent of each Buyer. The Company shall at all
times maintain the number of shares of Common Stock so reserved for issuance
at
an amount (“Reserved Amount”) equal to no less than two (2)
times the number that is then actually issuable upon full conversion of the
Notes and Additional Notes and upon exercise of the Warrants and the Additional
Warrants (based on the Conversion Price of the Notes or the Exercise Price
of
the Warrants in effect from time to time). If at any time the number
of shares of Common Stock authorized and reserved for issuance
(“Authorized and Reserved Shares”) is below the Reserved
Amount, the Company will promptly take all corporate action necessary to
authorize and reserve a sufficient number of shares, including, without
limitation, calling a special meeting of shareholders to authorize additional
shares to meet the Company’s obligations under this Section 4(h), in the case of
an insufficient number of authorized shares, obtain shareholder approval of
an
increase in such authorized number of shares, and voting the management shares
of the Company in favor of an increase in the authorized shares of the Company
to ensure that the number of authorized shares is sufficient to meet the
Reserved Amount. If the Company fails to obtain such shareholder
approval within thirty (30) days following the date on which the number of
Reserved Amount exceeds the Authorized and Reserved Shares, the Company shall
pay to the Borrower the Standard Liquidated Damages Amount, in cash or in shares
of Common Stock at the option of the Buyer. If the Buyer elects to be
paid the Standard Liquidated Damages Amount in shares of Common Stock, such
shares shall be issued at the Conversion Price at the time of
payment. In order to ensure that the Company has authorized a
sufficient amount of shares to meet the Reserved Amount at all times, the
Company must deliver to the Buyer at the end of every month a list detailing
(1)
the current amount of shares authorized by the Company and reserved for the
Buyer; and (2) amount of shares issuable upon conversion of the Notes and upon
exercise of the Warrants and as payment of interest accrued on the Notes for
one
year. If the Company fails to provide such list within five (5)
business days of the end of each month, the Company shall pay the Standard
Liquidated Damages Amount, in cash or in shares of Common Stock at the option
of
the Buyer, until the list is delivered. If the Buyer elects to be
paid the Standard Liquidated Damages Amount in shares of Common Stock, such
shares shall be issued at the Conversion Price at the time of
payment.
i. Listing. The
Company shall promptly secure the listing or quotation, as the case may be,
of
the Conversion Shares and Warrant Shares upon each national securities exchange
or automated quotation system, if any, upon which shares of Common Stock are
then listed or quoted, as the case may be, (subject to official notice of
issuance) and, so long as any Buyer owns any of the Securities, shall maintain,
so long as any other shares of Common Stock shall be so listed or quoted, as
the
case may be, such listing or quotation, as the case may be, of all Conversion
Shares and Warrant Shares from time to time issuable upon conversion of the
Notes or exercise of the Warrants. The Company will obtain and, so
long as any Buyer owns any of the Securities, maintain the listing or quotation,
as the case may be, and trading of its Common Stock on the OTCBB or any
equivalent replacement exchange, the Nasdaq National Market
(“Nasdaq”), the Nasdaq SmallCap Market (“Nasdaq
SmallCap”), the New York Stock Exchange (“NYSE”), or
the American Stock Exchange (“AMEX”) and will comply in all
respects with the Company’s reporting, filing and other obligations under the
bylaws or rules of the National Association of Securities Dealers
(“NASD”) and such exchanges, as applicable. The
Company shall promptly provide to each Buyer copies of any notices it receives
from the OTCBB and any other exchanges or quotation systems on which the Common
Stock is then listed or quoted, as the case may be, regarding the continued
eligibility of the Common Stock for listing or quotation, as the case may be,
on
such exchanges and quotation systems.
j. Corporate
Existence. So long as a Buyer
beneficially owns any Notes or Warrants, the Company shall maintain its
corporate existence and shall not sell all or substantially all of the Company’s
assets, except in the event of a merger or consolidation or sale of all or
substantially all of the Company’s assets, where the surviving or successor
entity in such transaction (i) assumes the Company’s obligations hereunder and
under the agreements and instruments entered into in connection herewith and
(ii) is a publicly traded corporation whose Common Stock is listed for trading
on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
k. No
Integration. The Company shall not make
any offers or sales of any security (other than the Securities) under
circumstances that would require registration of the Securities being offered
or
sold hereunder under the 1933 Act or cause the offering of the Securities to
be
integrated with any other offering of securities by the Company for the purpose
of any stockholder approval provision applicable to the Company or its
securities.
l. Key
Man Insurance. The Company shall use
its best efforts to obtain, on or before five (5) business days from the date
hereof, key man life insurance on all key executive employees.
m. Restriction
on Short Sales. The Buyers agree that,
so long as any of the Notes remain outstanding, but in no event less than two
(2) years from the date hereof, the Buyers will not enter into or effect any
“short sales” (as such term is defined in Rule 3b-3 of the 0000 Xxx) of the
Common Stock or hedging transaction which establishes a net short position
with
respect to the Common Stock.
n. Breach
of Covenants. If the Company breaches
any of the covenants set forth in this Section 4, and in addition to any other
remedies available to the Buyers pursuant to this Agreement, the Company shall
pay to the Buyers the Standard Liquidated Damages Amount, in cash or in shares
of Common Stock at the option of the Company, until such breach is
cured. If the Company elects to pay the Standard Liquidated Damages
Amount in shares, such shares shall be issued at the Conversion Price at the
time of payment.
5. TRANSFER
AGENT INSTRUCTIONS. The Company shall
issue irrevocable instructions to its transfer agent to issue certificates,
registered in the name of each Buyer or its nominee, for the Conversion Shares
and Warrant Shares in such amounts as specified from time to time by each Buyer
to the Company upon conversion of the Notes or exercise of the Warrants in
accordance with the terms thereof (the “Irrevocable Transfer Agent
Instructions”). Prior to registration of the Conversion
Shares and Warrant Shares under the 1933 Act or the date on which the Conversion
Shares and Warrant Shares may be sold pursuant to Rule 144 without any
restriction as to the number of Securities as of a particular date that can
then
be immediately sold, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants
that no instruction other than the Irrevocable Transfer Agent Instructions
referred to in this Section 5, and stop transfer instructions to give effect
to
Section 2(f) hereof (in the case of the Conversion Shares and Warrant Shares,
prior to registration of the Conversion Shares and Warrant Shares under the
1933
Act or the date on which the Conversion Shares and Warrant Shares may be sold
pursuant to Rule 144 without any restriction as to the number of Securities
as
of a particular date that can then be immediately sold), will be given by the
Company to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights
Agreement. Nothing in this Section shall affect in any way the
Buyer’s obligations and agreement set forth in Section 2(g) hereof to comply
with all applicable prospectus delivery requirements, if any, upon re-sale
of
the Securities. If a Buyer provides the Company with (i) an opinion
of counsel in form, substance and scope customary for opinions in comparable
transactions, to the effect that a public sale or transfer of such Securities
may be made without registration under the 1933 Act and such sale or transfer
is
effected or (ii) the Buyer provides reasonable assurances that the Securities
can be sold pursuant to Rule 144, the Company shall permit the transfer, and,
in
the case of the Conversion Shares and Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates, free from restrictive legend,
in such name and in such denominations as specified by such
Buyer. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers, by vitiating
the intent and purpose of the transactions contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law
for a breach of its obligations under this Section 5 may be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section, that the Buyers shall be entitled, in addition
to
all other available remedies, to an injunction restraining any breach and
requiring immediate transfer, without the necessity of showing economic loss
and
without any bond or other security being required.
6. CONDITIONS
TO THE COMPANY’S OBLIGATION TO
SELL. The obligation of the Company
hereunder to issue and sell the Notes and Warrants to a Buyer at the Closing
is
subject to the satisfaction, at or before the Closing Date of each of the
following conditions thereto, provided that these conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion:
a. The
applicable Buyer shall have executed this Agreement and the Registration Rights
Agreement, and delivered the same to the Company.
b. The
applicable Buyer shall have delivered the Purchase Price in accordance with
Section 1(b) above.
c. The
representations and warranties of the applicable Buyer shall be true and correct
in all material respects as of the date when made and as of the Closing Date
as
though made at that time (except for representations and warranties that speak
as of a specific date), and the applicable Buyer shall have performed, satisfied
and complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the applicable Buyer at or prior to the Closing Date.
d. No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or
in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
7. CONDITIONS
TO EACH BUYER’S OBLIGATION TO
PURCHASE. The obligation of each Buyer
hereunder to purchase the Notes and Warrants at the Closing is subject to the
satisfaction, at or before the Closing Date of each of the following conditions,
provided that these conditions are for such Buyer’s sole benefit and may be
waived by such Buyer at any time in its sole discretion:
a. The
Company shall have executed this Agreement and the Registration Rights
Agreement, and delivered the same to the Buyer.
b. The
Company shall have delivered to such Buyer duly executed Notes (in such
denominations as the Buyer shall request) and Warrants in accordance with
Section 1(b) above.
c. The
Irrevocable Transfer Agent Instructions, in form and substance satisfactory
to a
majority-in-interest of the Buyers, shall have been delivered to and
acknowledged in writing by the Company’s Transfer Agent.
d. The
representations and warranties of the Company shall be true and correct in
all
material respects as of the date when made and as of the Closing Date as though
made at such time (except for representations and warranties that speak as
of a
specific date) and the Company shall have performed, satisfied and complied
in
all material respects with the covenants, agreements and conditions required
by
this Agreement to be performed, satisfied or complied with by the Company at
or
prior to the Closing Date. The Buyer shall have received a
certificate or certificates, executed by the chief executive officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by such Buyer including, but not
limited to certificates with respect to the Company’s Certificate of
Incorporation, By-laws and Board of Directors’ resolutions relating to the
transactions contemplated hereby.
e. No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or
in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
f. No
event
shall have occurred which could reasonably be expected to have a Material
Adverse Effect on the Company.
g. The
Conversion Shares and Warrant Shares shall have been authorized for quotation
on
the OTCBB and trading in the Common Stock on the OTCBB shall not have
been suspended by the SEC or the OTCBB.
h. The
Buyer
shall have received an opinion of the Company’s counsel, dated as of the Closing
Date, in form, scope and substance reasonably satisfactory to the Buyer and
in
substantially the same form as Exhibit “D” attached
hereto.
i. The
Buyer
shall have received an officer’s certificate described in Section 3(c) above,
dated as of the Closing Date.
8. GOVERNING
LAW; MISCELLANEOUS.
a. Governing
Law. THIS AGREEMENT SHALL BE ENFORCED,
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES
HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL
COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER
THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE
THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR
PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A
PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE
SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT
A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT
OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN
ANY DISPUTE ARISING UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES
AND
EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN
CONNECTION WITH SUCH DISPUTE.
b. Counterparts;
Signatures by Facsimile. This Agreement
may be executed in one or more counterparts, each of which shall be deemed
an
original but all of which shall constitute one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of
this
Agreement bearing the signature of the party so delivering this
Agreement.
c. Headings. The
headings of this Agreement are for convenience of reference only and shall
not
form part of, or affect the interpretation of, this Agreement.
d. Severability. In
the event that any provision of this Agreement is invalid or unenforceable
under
any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision
hereof which may prove invalid or unenforceable under any law shall not affect
the validity or enforceability of any other provision hereof.
e. Entire
Agreement; Amendments. This Agreement
and the instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except
as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to
such
matters. No provision of this Agreement may be waived or amended
other than by an instrument in writing signed by the party to be charged with
enforcement.
f. Notices. Any
notices required or permitted to be given under the terms of this Agreement
shall be sent by certified or registered mail (return receipt requested) or
delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five days after being placed
in
the mail, if mailed by regular United States mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service)
or
by facsimile, in each case addressed to a party. The addresses for
such communications shall be:
If
to the
Company:
0000
Xxxxxxxx Xxxxx
Xxxxxxx,
Xxxxx 00000
Attention:
Chief Executive Officer
Telephone: (000)
000-0000
Facsimile: (000)
000-0000
|
|
With
a copy to:
|
|
|
Xxxxxx
& Xxxxxx, LLP
|
000
Xxxxx 0, Xxxxx 000
Xxxxxxxxx,
XX 00000
Attention: Xxxxx
Xxxxxx, Esq.
Telephone: (000)
000-0000
Facsimile: (000)
000-0000
If
to a
Buyer: To the address set forth immediately below such Buyer’s name
on the signature pages hereto.
With
copy
to:
Xxxxxxx
Xxxxx Xxxxxxx & Xxxxxxxxx, LLP
0000
Xxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxxxxxx,
Xxxxxxxxxxxx 00000
Attention: Xxxxxx
X. Xxxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each
party shall provide notice to the other party of any change in
address.
g. Successors
and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns. Neither the Company nor any Buyer shall assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other. Notwithstanding the foregoing, subject to
Section 2(f), any Buyer may assign its rights hereunder to any person that
purchases Securities in a private transaction from a Buyer or to any of its
“affiliates,” as that term is defined under the 1934 Act, without the consent of
the Company.
h. Third
Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. Survival. The
representations and warranties of the Company and the agreements and covenants
set forth in Sections 3, 4, 5 and 8 shall survive the closing hereunder
notwithstanding any due diligence investigation conducted by or on behalf of
the
Buyers. The Company agrees to indemnify and hold harmless each of the
Buyers and all their officers, directors, employees and agents for loss or
damage arising as a result of or related to any breach or alleged breach by
the
Company of any of its representations, warranties and covenants set forth in
Sections 3 and 4 hereof or any of its covenants and obligations under this
Agreement or the Registration Rights Agreement, including advancement of
expenses as they are incurred.
j. Publicity. The
Company and each of the Buyers shall have the right to review a reasonable
period of time before issuance of any press releases, SEC, OTCBB or NASD
filings, or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of each of the Buyers, to make any press
release or SEC, OTCBB (or other applicable trading market) or NASD filings
with
respect to such transactions as is required by applicable law and regulations
(although each of the Buyers shall be consulted by the Company in connection
with any such press release prior to its release and shall be provided with
a
copy thereof and be given an opportunity to comment thereon).
k. Further
Assurances. Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order
to
carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
l. No
Strict Construction. The language used
in this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be applied
against any party.
m. Remedies. The
Company acknowledges that a breach by it of its obligations hereunder will
cause
irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Agreement will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement, that the Buyers
shall
be entitled, in addition to all other available remedies at law or in equity,
and in addition to the penalties assessable herein, to an injunction or
injunctions restraining, preventing or curing any breach of this Agreement
and
to enforce specifically the terms and provisions hereof, without the necessity
of showing economic loss and without any bond or other security being
required.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above
written.
Xxxx
X.
Xxxxxxx
Chief
Executive Officer
AJW
PARTNERS, LLC
By: SMS
Group, LLC
Xxxxx
X.
Xxxxxxxx
Manager
RESIDENCE: Delaware
ADDRESS: 0000
Xxxxxxxx Xxxxxxxxx
Xxxxx
000
Xxxxxx,
Xxx Xxxx 00000
Facsimile: (000)
000-0000
Telephone: (000)
000-0000
AGGREGATE
SUBSCRIPTION AMOUNT:
Aggregate
Principal Amount of
Notes: $________
Number
of
Warrants: ________
Aggregate
Purchase
Price: $________
AJW
MASTER FUND, LTD.
By: First
Street Manager II, LLC
Xxxxx
X.
Xxxxxxxx
Manager
RESIDENCE: Cayman
Islands
ADDRESS: AJW
Offshore, Ltd.
X.X.
Xxx 00000 XXX
Xxxxx
Xxxxxx, Xxxxxx Xxxxxx,
B.W.I.
AGGREGATE
SUBSCRIPTION AMOUNT:
Aggregate
Principal Amount of
Notes: $________
Number
of
Warrants: ________
Aggregate
Purchase
Price: $________
NEW
MILLENNIUM CAPITAL PARTNERS II, LLC
By: First
Street Manager II, LLP
Xxxxx
X.
Xxxxxxxx
Manager
RESIDENCE: New
York
ADDRESS: 0000
Xxxxxxxx Xxxxxxxxx
Xxxxx
000
Xxxxxx,
Xxx Xxxx 00000
Facsimile: (000)
000-0000
Telephone: (000)
000-0000
AGGREGATE
SUBSCRIPTION AMOUNT:
Aggregate
Principal Amount of
Notes: $________
Number
of
Warrants: ________
Aggregate
Purchase
Price: $________
