EXHIBIT 99.1
NOTE AND WARRANT PURCHASE
AGREEMENT
DATED AS OF NOVEMBER 30, 2005
BY AND AMONG
IN TOUCH MEDIA GROUP, INC.
AND
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
Page
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ARTICLE I Purchase and Sale of Notes and Warrants.......................................................1
Section 1.1 Purchase and Sale of Notes and Warrants.............................................1
Section 1.2 Purchase Price and Closing..........................................................2
Section 1.3 Conversion Shares / Warrant Shares..................................................2
ARTICLE II Representations and Warranties................................................................2
Section 2.1 Representations and Warranties of the Company.......................................2
Section 2.2 Representations and Warranties of the Purchasers...................................12
ARTICLE III Covenants....................................................................................15
Section 3.1 Securities Compliance..............................................................16
Section 3.2 Registration and Listing...........................................................15
Section 3.3 Inspection Rights..................................................................15
Section 3.4 Compliance with Laws...............................................................16
Section 3.5 Keeping of Records and Books of Account............................................16
Section 3.6 Reporting Requirements.............................................................16
Section 3.7 Other Agreements...................................................................16
Section 3.8 Use of Proceeds....................................................................17
Section 3.9 Reporting Status...................................................................17
Section 3.10 Disclosure of Transaction..........................................................17
Section 3.11 Disclosure of Material Information.................................................18
Section 3.12 Pledge of Securities...............................................................18
Section 3.13 Amendments.........................................................................18
Section 3.14 Distributions......................................................................18
Section 3.15 Reservation of Shares..............................................................18
Section 3.16 Transfer Agent Instructions........................................................18
Section 3.17 Disposition of Assets..............................................................19
Section 3.18 Form SB-2 Eligibility..............................................................19
Section 3.19 Restrictions on Certain Issuances of Securities....................................19
Section 3.20 Increase in Authorized Shares of Common Stock......................................19
Section 3.21 Acquisition of Assets..............................................................20
Section 3.22 Subsequent Financings..............................................................20
ARTICLE IV Conditions...................................................................................21
Section 4.1 Conditions Precedent to the Obligation of the Company to Close and to
Sell the Securities................................................................21
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Close and to
Purchase the Securities............................................................21
Section 4.3 Conditions Precedent to the Obligation of the Purchasers to Close and to
Purchase the Notes.................................................................23
ARTICLE V Certificate Legend...........................................................................24
Section 5.1 Legend.............................................................................25
ARTICLE VI Indemnification..............................................................................26
Section 6.1 General Indemnity..................................................................26
Section 6.2 Indemnification Procedure..........................................................26
TABLE OF CONTENTS
(continued)
Page
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ARTICLE VII Miscellaneous................................................................................27
Section 7.1 Fees and Expenses..................................................................27
Section 7.2 Specific Performance; Consent to Jurisdiction; Venue...............................27
Section 7.3 Entire Agreement; Amendment........................................................28
Section 7.4 Notices............................................................................28
Section 7.5 Waivers............................................................................29
Section 7.6 Headings...........................................................................29
Section 7.7 Successors and Assigns.............................................................29
Section 7.8 No Third Party Beneficiaries.......................................................29
Section 7.9 Governing Law......................................................................29
Section 7.10 Survival...........................................................................29
Section 7.11 Counterparts.......................................................................30
Section 7.12 Publicity..........................................................................30
Section 7.13 Severability.......................................................................30
Section 7.14 Further Assurances.................................................................30
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE ii
NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT dated as of November 30, 2005
(this "Agreement") by and among In Touch Media Group, Inc., a Florida
corporation (the "Company"), and each of the purchasers of the senior
convertible promissory notes of the Company whose names are set forth on Exhibit
A attached hereto (each a "Purchaser" and collectively, the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTES AND WARRANTS
Section 1.1 Purchase and Sale of Notes and Warrants.
(a) Upon the following terms and conditions, the Company shall issue
and sell to the Purchasers, and the Purchasers shall purchase from the Company,
(i) Series A 9% senior convertible promissory notes in the aggregate principal
amount of One Million Dollars ($1,000,000), convertible into shares of the
Company's common stock, par value $0.001 per share (the "Common Stock"), in
substantially the form attached hereto as Exhibit B (the "Senior Notes"). The
Company and the Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Section 4(2) of the U.S. Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the "Securities Act"), including
Regulation D ("Regulation D"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments to be made hereunder.
(b) Upon the following terms and conditions, the Purchasers shall be
issued:
(i) Series A Warrants, in substantially the form attached
hereto as Exhibit C (the "Series A Warrants"), to purchase a number of
shares of Common Stock equal to one hundred percent (100%) of the
number of Conversion Shares issuable upon conversion of such
Purchaser's Senior Note at an exercise price per share equal to the
Warrant Price (as defined in the Series A Warrants) and a term of Five
(5) years following the Closing Date;
(ii) Series B Warrants, in substantially the form attached
hereto as Exhibit D (the "Series B Warrants"), to purchase a number of
shares of Common Stock equal to one hundred percent (100%) of the
number of Conversion Shares issuable upon conversion of such
Purchaser's Senior Note at an exercise price per share equal to the
Warrant Price (as defined in the Series B Warrants) and a term of Seven
(7) years following the Effective Date (as defined in Section 1.4
hereof); and
(iii) Series C Warrants, in substantially the form attached
hereto as Exhibit E (the "Series C Warrants"), to purchase a number of
shares of Common Stock equal to one hundred percent (100%) of the
number of Conversion Shares issuable upon conversion of such
Purchaser's Senior Note at an exercise price per share equal to the
Warrant Price (as defined in
the Series B Warrants) and a term of Ten (10) years following the
Effective Date (as defined in Section 1.4 hereof); and
The number of shares of Common Stock issuable upon exercise of the
Warrants issuable to each Purchaser is set forth opposite such Purchaser's name
on Exhibit A attached hereto.
Section 1.2 Purchase Price and Closing. Subject to the terms and
conditions hereof, the Company agrees to issue and sell to the Purchasers and,
in consideration of and in express reliance upon the representations,
warranties, covenants, terms and conditions of this Agreement, the Purchasers,
severally but not jointly, agree to purchase the Notes and Warrants for an
aggregate purchase price of One Million Dollars ($1,000,000) (the "Purchase
Price"). The Notes and Warrants shall be sold and funded in one closing (the
"Closing") which shall take place on or before November 30, 2005 (the "Closing
Date"). At the Closing, the purchase and sale of the Notes and Warrants to be
acquired by the Purchasers from the Company under this Agreement shall take
place the office of counsel for the Holders as set forth herein, at 10:00 a.m.,
New York time; provided, that all of the conditions set forth in Article IV
hereof and applicable to each Closing shall have been fulfilled or waived in
accordance herewith. Subject to the terms and conditions of this Agreement, at
each Closing the Company shall deliver or cause to be delivered to each
Purchaser (x) its Notes for the principal amount set forth opposite the name of
such Purchaser on Exhibit A hereto and (y) the Warrants to purchase such number
of shares of Common Stock as is set forth opposite the name of such Purchaser on
Exhibit A attached hereto. At each Closing, each Purchaser shall deliver its
Purchase Price by wire transfer of immediately available funds to an account
designated by the Company.
Section 1.3 Conversion Shares / Warrant Shares. The Company has
authorized and has reserved and covenants to continue to reserve, free of
preemptive rights and other similar contractual rights of stockholders, a number
of its authorized but unissued shares of Common Stock equal to one hundred
twenty percent (120%) of (a) the aggregate number of shares of Common Stock to
effect the conversion of the Notes and any interest accrued and outstanding
thereon and exercise of the Warrants as of the Closing Date. Any shares of
Common Stock issuable upon conversion of the Notes and any interest accrued and
outstanding on the Notes are herein referred to as the "Conversion Shares". Any
shares of Common Stock issuable upon exercise of the Warrants (and such shares
when issued) are herein referred to as the "Warrant Shares". The Notes, Warrants
and the Warrant Shares are sometimes collectively referred to herein as the
"Securities".
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchasers, as of the date hereof and each
Closing Date (except as set forth on the Schedule of Exceptions attached hereto
with each numbered Schedule corresponding to the section number herein), as
follows:
(a) Organization, Good Standing and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Florida
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 2
and has the requisite corporate power to own, lease and operate its properties
and assets and to conduct its business as it is now being conducted. The Company
does not have any Subsidiaries (as defined in Section 2.1(g)) or own securities
of any kind in any other entity except as set forth on Schedule 2.1(g) hereto.
The Company and each such Subsidiary (as defined in Section 2.1(g)) is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary except for any jurisdiction(s)
(alone or in the aggregate) in which the failure to be so qualified will not
have a Material Adverse Effect. For the purposes of this Agreement, "Material
Adverse Effect" means any material adverse effect on the business, operations,
properties, prospects, or financial condition of the Company and its
Subsidiaries and/or any condition, circumstance, or situation that would
prohibit or otherwise materially interfere with the ability of the Company to
perform any of its obligations under this Agreement in any material respect.
(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform this Agreement, the Notes, the
Warrants, the Registration Rights Agreement by and among the Company and the
Purchasers, dated as of the date hereof, substantially in the form of Exhibit F
attached hereto (the "Registration Rights Agreement"), and the Irrevocable
Transfer Agent Instructions (as defined in Section 3.16 hereof) (collectively,
the "Transaction Documents") and to issue and sell the Securities in accordance
with the terms hereof. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action, and, except as set forth on Schedule 2.1(b), no
further consent or authorization of the Company, its Board of Directors or
stockholders is required. When executed and delivered by the Company, each of
the Transaction Documents shall constitute a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, reorganization,
moratorium, liquidation, conservatorship, receivership or similar laws relating
to, or affecting generally the enforcement of, creditor's rights and remedies or
by other equitable principles of general application.
(c) Capitalization. The authorized capital stock and the issued and
outstanding shares of capital stock of the Company as of the Closing Date is set
forth on Schedule 2.1(c) hereto. All of the outstanding shares of the Common
Stock and any other outstanding security of the Company have been duly and
validly authorized. Except as set forth in this Agreement, the Commission
Documents (as defined in Section 2.1(f)) or as set forth on Schedule 2.1(c)
hereto, no shares of Common Stock or any other security of the Company are
entitled to preemptive rights or registration rights and there are no
outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company. Furthermore,
except as set forth in this Agreement and as set forth on Schedule 2.1(c)
hereto, there are no contracts, commitments, understandings, or arrangements by
which the Company is or may become bound to issue additional shares of the
capital stock of the Company or options, securities or rights convertible into
shares of capital stock of the Company. Except for customary transfer
restrictions contained in agreements entered into by the Company in order to
sell restricted securities or as provided on Schedule 2.1(c) hereto, the Company
is not a party to or bound by any agreement or understanding granting
registration or anti-dilution rights to any
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 3
person with respect to any of its equity or debt securities. Except as set forth
on Schedule 2.1(c), the Company is not a party to, and it has no knowledge of,
any agreement or understanding restricting the voting or transfer of any shares
of the capital stock of the Company.
(d) Issuance of Securities. The Notes and the Warrants to be issued at
each Closing have been duly authorized by all necessary corporate action and,
when paid for or issued in accordance with the terms hereof, the Notes shall be
validly issued and outstanding, free and clear of all liens, encumbrances and
rights of refusal of any kind. When the Conversion Shares and Warrant Shares are
issued and paid for in accordance with the terms of this Agreement and as set
forth in the Notes and Warrants, such shares will be duly authorized by all
necessary corporate action and validly issued and outstanding, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of refusal
of any kind and the holders shall be entitled to all rights accorded to a holder
of Common Stock.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the performance by the Company of its
obligations under the Notes and the consummation by the Company of the
transactions contemplated hereby and thereby, and the issuance of the Securities
as contemplated hereby, do not and will not (i) violate or conflict with any
provision of the Company's Articles of Incorporation (the "Articles") or Bylaws
(the "Bylaws"), each as amended to date, or any Subsidiary's comparable charter
documents, (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries'
respective properties or assets are bound, or (iii) result in a violation of any
federal, state, local or foreign statute, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations) applicable
to the Company or any of its Subsidiaries or by which any property or asset of
the Company or any of its Subsidiaries are bound or affected, except, in all
cases, for such conflicts, defaults, terminations, amendments, acceleration,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect (other than violations pursuant to clauses (i) or
(iii) (with respect to federal and state securities laws)). Neither the Company
nor any of its Subsidiaries is required under federal, state, foreign or local
law, rule or regulation to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under the
Transaction Documents or issue and sell the Securities in accordance with the
terms hereof (other than any filings, consents and approvals which may be
required to be made by the Company under applicable state and federal securities
laws, rules or regulations or any registration provisions provided in the
Registration Rights Agreement).
(f) Commission Documents, Financial Statements. The Common Stock of the
Company is currently listed on the OTC:BB and will be registered pursuant to
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the Company will have timely filed all reports, schedules,
forms, statements and other documents required to be filed by it with the
Commission pursuant to the reporting requirements of the Exchange Act (all of
the foregoing including filings incorporated by reference therein being referred
to herein as the "Commission Documents"). Any form 10-QSB and Form 10-KSB
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 4
filings to be made by the Company will not contain any untrue statement of a
material fact or omit 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. As of their respective dates, the
financial statements of the Company included in the Commission Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements), and fairly present
in all material respects the financial position of the Company and its
Subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each Subsidiary of
the Company, showing the jurisdiction of its incorporation or organization and
showing the percentage of each person's ownership of the outstanding stock or
other interests of such Subsidiary. For the purposes of this Agreement,
"Subsidiary" shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries. All of the
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. Except as set forth on
Schedule 2.1(g) hereto, there are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding upon any
Subsidiary for the purchase or acquisition of any shares of capital stock of any
Subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any Subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any Subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence except as set forth
on Schedule 2.1(g) hereto. Neither the Company nor any Subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any Subsidiary.
(h) No Material Adverse Change. Since June 30, 2005, the Company has
not experienced or suffered any Material Adverse Effect, except as disclosed on
Schedule 2.1(h) hereto.
(i) No Undisclosed Liabilities. Except as disclosed on Schedule 2.1(i)
hereto, neither the Company nor any of its Subsidiaries has incurred any
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) other than
those incurred in the ordinary course of the Company's or its Subsidiaries
respective businesses or which, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect.
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 5
(j) No Undisclosed Events or Circumstances. Since June 30, 2005, except
as disclosed on Schedule 2.1(j) hereto, no event or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
businesses, properties, prospects, operations or financial condition, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.
(k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the date
hereof all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For the
purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities for
borrowed money or amounts owed in excess of $100,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company's
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease payments in
excess of $25,000 due under leases required to be capitalized in accordance with
GAAP. Neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(l) Title to Assets. Each of the Company and the Subsidiaries has good
and valid title to all of its real and personal property reflected in the
Commission Documents, free and clear of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those indicated on Schedule
2.1(l) hereto or such that, individually or in the aggregate, do not cause a
Material Adverse Effect. Any leases of the Company and each of its Subsidiaries
are valid and subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary which questions the validity of this Agreement or any of the other
Transaction Documents or any of the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth in the Commission Documents or on Schedule 2.1(m) hereto, there is no
action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or other proceeding pending or, to the knowledge of the Company,
threatened against or involving the Company, any Subsidiary or any of their
respective properties or assets, which individually or in the aggregate, would
reasonably be expected, if adversely determined, to have a Material Adverse
Effect. There are no outstanding orders, judgments, injunctions, awards or
decrees of any court, arbitrator or governmental or regulatory body against the
Company or any Subsidiary or any officers or directors of the Company or
Subsidiary in their capacities as such, which individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
(n) Compliance with Law. The business of the Company and the
Subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Commission Documents or on Schedule
2.1(n) hereto or such that, individually or in the aggregate, the noncompliance
therewith could not reasonably be expected to have a Material Adverse Effect.
The Company and each of its Subsidiaries have all franchises, permits, licenses,
consents and
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 6
other governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
(o) Taxes. The Company and each of the Subsidiaries has accurately
prepared and filed all federal, state and other tax returns required by law to
be filed by it, has paid or made provisions for the payment of all taxes shown
to be due and all additional assessments, and adequate provisions have been and
are reflected in the financial statements of the Company and the Subsidiaries
for all current taxes and other charges to which the Company or any Subsidiary
is subject and which are not currently due and payable. Except as disclosed on
Schedule 2.1(o) hereto or in the Commission Documents, none of the federal
income tax returns of the Company or any Subsidiary have been audited by the
Internal Revenue Service. The Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
of any nature whatsoever, whether pending or threatened against the Company or
any Subsidiary for any period, nor of any basis for any such assessment,
adjustment or contingency.
(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto, the
Company has not employed any broker or finder or incurred any liability for any
brokerage or investment banking fees, commissions, finders' structuring fees,
financial advisory fees or other similar fees in connection with the Transaction
Documents.
(q) Disclosure. Except for the transactions contemplated by this
Agreement, the Company confirms that neither it nor any other person acting on
its behalf has provided any of the Purchasers or their agents or counsel with
any information that constitutes or might constitute material, nonpublic
information. To the best of the Company's knowledge, neither this Agreement or
the Schedules hereto nor any other documents, certificates or instruments
furnished to the Purchasers by or on behalf of the Company or any Subsidiary in
connection with the transactions contemplated by this Agreement contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made herein or therein, in the light of the
circumstances under which they were made herein or therein, not misleading.
(r) Operation of Business. Except as set forth on Schedule 2.1(r)
hereto, the Company and each of the Subsidiaries owns or possesses the rights to
all patents, trademarks, domain names (whether or not registered) and any
patentable improvements or copyrightable derivative works thereof, websites and
intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations which are necessary for the conduct of
its business as now conducted without any conflict with the rights of others.
(s) Environmental Compliance. To the best knowledge of the Company,
except as set forth on Schedule 2.1(s) hereto or in the Commission Documents,
the Company and each of its Subsidiaries have obtained all material approvals,
authorization, certificates, consents, licenses, orders and permits or other
similar authorizations of all governmental authorities, or from any other
person, that are required under any Environmental Laws. "Environmental Laws"
shall mean all applicable laws relating to the protection of the environment
including, without limitation, all requirements pertaining to reporting,
licensing, permitting, controlling,
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 7
investigating or remediating emissions, discharges, releases or threatened
releases of hazardous substances, chemical substances, pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. To the best of the Company's knowledge, the Company has all
necessary governmental approvals required under all Environmental Laws as
necessary for the Company's business or the business of any of its subsidiaries.
To the best of the Company's knowledge, the Company and each of its subsidiaries
are also in compliance with all other limitations, restrictions, conditions,
standards, requirements, schedules and timetables required or imposed under all
Environmental Laws. Except for such instances as would not individually or in
the aggregate have a Material Adverse Effect, there are no past or present
events, conditions, circumstances, incidents, actions or omissions relating to
or in any way affecting the Company or its Subsidiaries that violate or may
violate any Environmental Law after the Closing Date or that may give rise to
any environmental liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any hazardous substance.
(t) Books and Records; Internal Accounting Controls. The records and
documents of the Company and its Subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
Subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any Subsidiary. The Company and each of its Subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company'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 actions are taken
with respect to any differences.
(u) Material Agreements. Except for the Transaction Documents (with
respect to clause (i) only), as disclosed in the Commission Documents or as set
forth on Schedule 2.1(u) hereto, or as would not be reasonably likely to have a
Material Adverse Effect, (i) the Company and each of its Subsidiaries have
performed all obligations required to be performed by them to date under any
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, filed or required to be filed with the Commission (the "Material
Agreements"), (ii) neither the Company nor any of its Subsidiaries has received
any notice of default under any Material Agreement and, (iii) to the best of the
Company's knowledge, neither the Company nor any of its Subsidiaries is in
default under any Material Agreement now in effect.
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 8
(v) Transactions with Affiliates. Except as set forth on Schedule
2.1(v) hereto and in the Commission Documents, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions between (a) the Company, any Subsidiary or any
of their respective customers or suppliers on the one hand, and (b) on the other
hand, any officer, employee, consultant or director of the Company, or any of
its Subsidiaries, or any person owning at least 5% of the outstanding capital
stock of the Company or any Subsidiary or any member of the immediate family of
such officer, employee, consultant, director or stockholder or any corporation
or other entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee,
consultant, director or stockholder which, in each case, is required to be
disclosed in the Commission Documents or in the Company's most recently filed
definitive proxy statement on Schedule 14A, that is not so disclosed in the
Commission Documents or in such proxy statement.
(w) Securities Act of 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Securities hereunder. Neither the Company
nor anyone acting on its behalf, directly or indirectly, has or will sell, offer
to sell or solicit offers to buy any of the Securities or similar securities to,
or solicit offers with respect thereto from, or enter into any negotiations
relating thereto with, any person, or has taken or will take any action so as to
bring the issuance and sale of any of the Securities under the registration
provisions of the Securities Act and applicable state securities laws, and
neither the Company nor any of its affiliates, nor any person acting on its or
their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of any of the Securities.
(x) Employees. Neither the Company nor any Subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth on Schedule 2.1(x) hereto. Except as set forth on Schedule
2.1(x) hereto, neither the Company nor any Subsidiary has any employment
contract, agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement, or any other
similar contract or restrictive covenant, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or such
Subsidiary required to be disclosed in the Commission Documents that is not so
disclosed. No officer, consultant or key employee of the Company or any
Subsidiary whose termination, either individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect, has terminated or, to the
knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any Subsidiary.
(y) Absence of Certain Developments. Except as set forth in the
Commission Documents or provided on Schedule 2.1(y) hereto, since June 30, 2005,
neither the Company nor any Subsidiary has:
(i) issued any stock, bonds or other corporate securities or
any right, options or warrants with respect thereto;
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 9
(ii) borrowed any amount in excess of $100,000 or incurred or
become subject to any other liabilities in excess of $100,000 (absolute
or contingent) except current liabilities incurred in the ordinary
course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during
the comparable portion of its prior fiscal year, as adjusted to reflect
the current nature and volume of the business of the Company and its
Subsidiaries;
(iii) discharged or satisfied any lien or encumbrance in
excess of $100,000 or paid any obligation or liability (absolute or
contingent) in excess of $100,000, other than current liabilities paid
in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased
or redeemed, or made any agreements so to purchase or redeem, any
shares of its capital stock, in each case in excess of $50,000
individually or $100,000 in the aggregate;
(v) sold, assigned or transferred any other tangible assets,
or canceled any debts or claims, in each case in excess of $100,000,
except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible
assets or intellectual property rights in excess of $100,000, or
disclosed any proprietary confidential information to any person except
to customers in the ordinary course of business or to the Purchasers or
their representatives;
(vii) suffered any material losses or waived any rights of
material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(x) entered into any material transaction, whether or not in
the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$10,000;
(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their
employment; or
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 10
(xiv) entered into an agreement, written or otherwise, to take
any of the foregoing actions.
(z) Public Utility Holding Company Act and Investment Company Act
Status. The Company is not a "holding company" or a "public utility company" as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon the Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(aa) ERISA. No liability to the Pension Benefit Guaranty Corporation
has been incurred with respect to any Plan by the Company or any of its
Subsidiaries which is or would be materially adverse to the Company and its
Subsidiaries. The execution and delivery of this Agreement and the issuance and
sale of the Securities will not involve any transaction which is subject to the
prohibitions of Section 406 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or in connection with which a tax could be imposed
pursuant to Section 4975 of the Internal Revenue Code of 1986, as amended,
provided that, if any of the Purchasers, or any person or entity that owns a
beneficial interest in any of the Purchasers, is an "employee pension benefit
plan" (within the meaning of Section 3(2) of ERISA) with respect to which the
Company is a "party in interest" (within the meaning of Section 3(14) of ERISA),
the requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable, are
met. As used in this Section 2.1(aa), the term "Plan" shall mean an "employee
pension benefit plan" (as defined in Section 3 of ERISA) which is or has been
established or maintained, or to which contributions are or have been made, by
the Company or any Subsidiary or by any trade or business, whether or not
incorporated, which, together with the Company or any Subsidiary, is under
common control, as described in Section 414(b) or (c) of the Code.
(bb) Independent Nature of Purchasers. The Company acknowledges that
the obligations of each Purchaser under the Transaction Documents are several
and not joint with the obligations of any other Purchaser, and no Purchaser
shall be responsible in any way for the performance of the obligations of any
other Purchaser under the Transaction Documents. The Company acknowledges that
the decision of each Purchaser to purchase Securities pursuant to this Agreement
has been made by such Purchaser independently of any other purchase and
independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company or of
its Subsidiaries which may have made or given by any other Purchaser or by any
agent or employee of any other Purchaser, and no Purchaser or any of its agents
or employees shall have any liability to any Purchaser (or any other person)
relating to or arising from any such information, materials, statements or
opinions. The Company acknowledges that nothing contained herein, or in any
Transaction Document, and no action taken by any Purchaser pursuant hereto or
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. The Company acknowledges that for reasons of
administrative convenience only, the Transaction Documents have been prepared by
counsel for one of the Purchasers and such counsel does not represent all of the
Purchasers but only such Purchaser and the other Purchasers have retained their
own
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 11
individual counsel with respect to the transactions contemplated hereby. The
Company acknowledges that it has elected to provide all Purchasers with the same
terms and Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by the Purchasers. The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Purchasers are in any way acting in concert
or as a group with respect to the Transaction Documents or the transactions
contemplated hereby or thereby.
(cc) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Regulation D and Rule 506 thereof under
the Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will the Company or any of its affiliates or subsidiaries take
any action or steps that would cause the offering of the Securities to be
integrated with other offerings. The Company does not have any registration
statement pending before the Commission or currently under the Commission's
review and except as set forth on Schedule 2.1(cc) hereto, since June 1, 2005,
the Company has not offered or sold any of its equity securities or debt
securities convertible into shares of Common Stock.
(dd) Xxxxxxxx-Xxxxx Act. The Company is in compliance with the
applicable provisions of the Xxxxxxxx-Xxxxx Act of 2002 (the "Xxxxxxxx-Xxxxx
Act"), and the rules and regulations promulgated thereunder, that are effective
and intends to comply with other applicable provisions of the Xxxxxxxx-Xxxxx
Act, and the rules and regulations promulgated thereunder, upon the
effectiveness of such provisions.
(ee) Dilutive Effect. The Company understands and acknowledges that its
obligation to issue Conversion Shares upon conversion of the Notes in accordance
with this Agreement and the Notes and its obligations to issue the Warrant
Shares upon the exercise of the Warrants in accordance with this Agreement and
the Warrants, is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interest of other
stockholders of the Company.
(ff) DTC Status. Except as set forth on Schedule 2.1(ff) hereto, the
Company's transfer agent is a participant in and the Common Stock is eligible
for transfer pursuant to the Depository Trust Company Automated Securities
Transfer Program. The name, address, telephone number, fax number, contact
person and email of the Company transfer agent is set forth on Schedule 2.1(ff)
hereto.
(gg) Acknowledgement Regarding Purchasers' Trading Activity. The
Company understands and acknowledges that, one or more Purchasers may engage in
hedging activities at various times during the period that the Securities are
outstanding.
Section 2.2 Representations and Warranties of the Purchasers. Each of
the Purchasers hereby represents and warrants to the Company with respect solely
to itself and not with respect to any other Purchaser as follows as of the date
hereof and as of each Closing Date:
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 12
(a) Organization and Standing of the Purchasers. If the Purchaser is an
entity, such Purchaser is a corporation, limited liability company or
partnership duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization and Power. Each Purchaser has the requisite power and
authority to enter into and perform the Transaction Documents and to purchase
the Securities being sold to it hereunder. The execution, delivery and
performance of the Transaction Documents by each Purchaser and the consummation
by it of the transactions contemplated hereby have been duly authorized by all
necessary corporate or partnership action, and no further consent or
authorization of such Purchaser or its Board of Directors, stockholders, or
partners, as the case may be, is required. When executed and delivered by the
Purchasers, the other Transaction Documents shall constitute valid and binding
obligations of each Purchaser enforceable against such Purchaser in accordance
with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by other
equitable principles of general application.
(c) No Conflict. The execution, delivery and performance of the
Transaction Documents by the Purchaser and the consummation by the Purchaser of
the transactions contemplated thereby and hereby do not and will not (i) violate
any provision of the Purchaser's charter or organizational documents, (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Purchaser is a party or by which the
Purchaser's respective properties or assets are bound, or (iii) result in a
violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Purchaser or by which any property or asset of
the Purchaser are bound or affected, except, in all cases, other than violations
pursuant to clauses (i) or (iii) (with respect to federal and state securities
laws) above, except, for such conflicts, defaults, terminations, amendments,
acceleration, cancellations and violations as would not, individually or in the
aggregate, materially and adversely affect the Purchaser's ability to perform
its obligations under the Transaction Documents.
(d) Acquisition for Investment. Each Purchaser is purchasing the
Securities solely for its own account and not with a view to or for sale in
connection with distribution. Each Purchaser does not have a present intention
to sell any of the Securities, nor a present arrangement (whether or not legally
binding) or intention to effect any distribution of any of the Securities to or
through any person or entity; provided, however, that by making the
representations herein, such Purchaser does not agree to hold the Securities for
any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with Federal and state securities laws
applicable to such disposition. Each Purchaser acknowledges that it (i) has such
knowledge and experience in financial and business matters such that Purchaser
is capable of evaluating the merits and risks of Purchaser's investment in the
Company, (ii) is able to bear the financial risks associated with an investment
in the Securities and (iii) has been given full access to such records of the
Company and the Subsidiaries and to
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 13
the officers of the Company and the Subsidiaries as it has deemed necessary or
appropriate to conduct its due diligence investigation.
(e) Rule 144. Each Purchaser understands that the Securities must be
held indefinitely unless such Securities are registered under the Securities Act
or an exemption from registration is available. Each Purchaser acknowledges that
such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such Purchaser has been advised that Rule 144 permits resales only
under certain circumstances. Each Purchaser understands that to the extent that
Rule 144 is not available, such Purchaser will be unable to sell any Securities
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(f) General. Each Purchaser understands that the Securities are being
offered and sold in reliance on a transactional exemption from the registration
requirements of federal and state securities laws and the Company is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Securities. Each Purchaser understands that no United
States federal or state agency or any government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
Commencing on the date that the Purchasers were initially contacted regarding an
investment in the Securities, none of the Purchasers has engaged in any short
sale of the Common Stock and will not engage in any short sale of the Common
Stock prior to the consummation of the transactions contemplated by this
Agreement.
(g) No General Solicitation. Each Purchaser acknowledges that the
Securities were not offered to such Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications. Each Purchaser, in making the decision to purchase the
Securities, has relied upon independent investigation made by it and has not
relied on any information or representations made by third parties.
(h) Accredited Investor. Each Purchaser is an "accredited investor" (as
defined in Rule 501 of Regulation D), and such Purchaser has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Securities. Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act and such
Purchaser is not a broker-dealer. Each Purchaser acknowledges that an investment
in the Securities is speculative and involves a high degree of risk.
(i) Certain Fees. The Purchasers have not employed any broker or finder
or incurred any liability for any brokerage or investment banking fees,
commissions, finders' structuring fees, financial advisory fees or other similar
fees in connection with the Transaction Documents.
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 14
(j) Independent Investment. No Purchaser has agreed to act with any
other Purchaser for the purpose of acquiring, holding, voting or disposing of
the Securities purchased hereunder for purposes of Section 13(d) under the
Exchange Act, and each Purchaser is acting independently with respect to its
investment in the Securities.
(k) Regulation M. Each Purchaser has complied and will comply with
Regulation M promulgated under the Exchange Act with respect to the transactions
contemplated by this Agreement.
ARTICLE III
COVENANTS
The Company covenants with each Purchaser as follows, which covenants
are for the benefit of each Purchaser and their respective permitted assignees.
Section 3.1 Securities Compliance. The Company shall notify the
Commission in accordance with its rules and regulations, of the transactions
contemplated by any of the Transaction Documents and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Securities to
the Purchasers, or their respective subsequent holders.
Section 3.2 Registration and Listing. The Company shall cause its
Common Stock to be registered under Sections 12(b) or 12(g) of the Exchange Act,
to comply in all respects with its reporting and filing obligations under the
Exchange Act, to comply with all requirements related to any registration
statement filed pursuant to this Agreement, and to not take any action or file
any document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange Act
or Securities Act, except as permitted herein. The Company will take all action
necessary to continue the listing or trading of its Common Stock on the OTC
Bulletin Board or other exchange or market on which the Common Stock is trading.
If required, the Company will promptly file the "Listing Application" for, or in
connection with, the issuance and delivery of the Shares and the Warrant Shares.
Subject to the terms of the Transaction Documents, the Company further covenants
that it will take such further action as the Purchasers may reasonably request,
all to the extent required from time to time to enable the Purchasers to sell
the Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act. Upon the request of the Purchasers, the Company shall deliver to
the Purchasers a written certification of a duly authorized officer as to
whether it has complied with such requirements.
Section 3.3 Inspection Rights. Provided same would not be in violation
of Regulation FD, the Company shall permit, during normal business hours and
upon reasonable request and reasonable notice, each Purchaser or any employees,
agents or representatives thereof, so long as such Purchaser shall be obligated
hereunder to purchase the Notes or shall beneficially own any Conversion Shares
or Warrant Shares, for purposes reasonably related to such Purchaser's interests
as a stockholder, to examine the publicly available, non-confidential records
and books of account of, and visit and inspect the properties, assets,
operations and
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 15
business of the Company and any Subsidiary, and to discuss the publicly
available, non-confidential affairs, finances and accounts of the Company and
any Subsidiary with any of its officers, consultants, directors, and key
employees.
Section 3.4 Compliance with Laws. The Company shall comply, and cause
each Subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which would be reasonably likely to have a Material
Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company shall
keep and cause each Subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 Reporting Requirements. If the Commission ceases making the
Company's periodic reports available via the Internet without charge, then the
Company shall furnish the following to each Purchaser so long as such Purchaser
shall be obligated hereunder to purchase the Securities or shall beneficially
own Securities:
(a) Quarterly Reports filed with the Commission on Form 10-QSB as soon
as practical after the document is filed with the Commission, and in any event
within five (5) days after the document is filed with the Commission;
(b) Annual Reports filed with the Commission on Form 10-KSB as soon as
practical after the document is filed with the Commission, and in any event
within five (5) days after the document is filed with the Commission; and
(c) Copies of all notices, information and proxy statements in
connection with any meetings, that are, in each case, provided to holders of
shares of Common Stock, contemporaneously with the delivery of such notices or
information to such holders of Common Stock.
Section 3.7 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any Subsidiary under any
Transaction Document.
Section 3.8 Use of Proceeds. The net proceeds from the sale of the
Securities hereunder shall be used by the Company for working capital and
general corporate purposes, including, but not limited to, growth and capital
initiatives, investor and public relations, acquisitions and drilling
activities, and not to redeem any Common Stock or securities convertible,
exercisable or exchangeable into Common Stock or to settle any outstanding
litigation.
Section 3.9 Reporting Status. So long as a Purchaser beneficially owns
any of the Securities, the Company shall timely file all reports required to be
filed with the Commission pursuant to the Exchange Act, and the Company shall
not terminate its status as an issuer
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 16
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination.
Section 3.10 Disclosure of Transaction. The Company shall issue a press
release describing the material terms of the transactions contemplated hereby
(the "Press Release") on the day of the Initial Closing but in no event later
than one hour after the Closing; provided, however, that if such Closing occurs
after 4:00 P.M. Eastern Time on any Trading Day, the Company shall issue the
Press Release no later than 9:00 A.M. Eastern Time on the first Trading Day
following the Closing Date. In addition, once the Company begins filing reports
with the Commission, the Company shall also file with the Commission a Current
Report on Form 8-K (the "Form 8-K") describing the material terms of the
transactions contemplated hereby (and attaching as exhibits thereto this
Agreement, each form of Note, the Registration Rights Agreement, the Security
Agreement, each series of Warrant and the Press Release) as soon as practicable
following the Closing Date but in no event more than two (2) Trading Days
following the Closing Date, which Press Release and Form 8-K shall be subject to
prior review and comment by the Purchasers. "Trading Day" means any day during
which the principal exchange on which the Common Stock is traded shall be open
for trading.
Section 3.11 Disclosure of Material Information. The Company covenants
and agrees that neither it nor any other person acting on its behalf has
provided or will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
Section 3.12 Pledge of Securities. The Company acknowledges that the
Securities may be pledged by a Purchaser in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Purchaser effecting a pledge
of the Securities shall be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to this Agreement
or any other Transaction Document; provided that a Purchaser and its pledgee
shall be required to comply with the provisions of Article V hereof in order to
effect a sale, transfer or assignment of Securities to such pledgee. At the
Purchasers' expense, the Company hereby agrees to execute and deliver such
documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by a Purchaser.
Section 3.13 Amendments. The Company shall not amend or waive any
provision of the Articles or Bylaws of the Company in any way that would
adversely affect exercise rights, voting rights, conversion rights, prepayment
rights or redemption rights of the holder of the Notes.
Section 3.14 Distributions. So long as any Notes or Warrants remain
outstanding, the Company agrees that it shall not (i) declare or pay any
dividends or make any distributions to any holder(s) of Common Stock or (ii)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 17
Section 3.15 Reservation of Shares. So long as any of the Notes or
Warrants remain outstanding, the Company shall take all action necessary to at
all times have authorized and reserved for the purpose of issuance, one hundred
twenty percent (120%) of the aggregate number of shares of Common Stock needed
to provide for the issuance of the Conversion Shares and the Warrant Shares.
Section 3.16 Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Purchaser to the Company upon
conversion of the Notes or exercise of the Warrants in the form of Exhibit H
attached hereto (the "Irrevocable Transfer Agent Instructions"). Prior to
registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.16 will be given by the Company to its transfer agent and that
the Conversion Shares and Warrant Shares shall otherwise be freely transferable
on the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this Section 3.16
shall affect in any way each Purchaser's obligations and agreements set forth in
Section 5.1 to comply with all applicable prospectus delivery requirements, if
any, upon resale of the Conversion Shares and the Warrant Shares. If a Purchaser
provides the Company with an opinion of counsel, in a generally acceptable form,
to the effect that a public sale, assignment or transfer of the Conversion
Shares or Warrant Shares may be made without registration under the Securities
Act or the Purchaser provides the Company with reasonable assurances that the
Conversion Shares or Warrant Shares can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date that
can then be immediately sold, the Company shall permit the transfer, and, in the
case of the Conversion Shares and the Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Purchaser and without any restrictive legend.
The Company acknowledges that a breach by it of its obligations under this
Section 3.16 will cause irreparable harm to the Purchasers by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 3.16 will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 3.16, that
the Purchasers shall be entitled, in addition to all other available remedies,
to an order and/or injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
Section 3.17 Disposition of Assets. So long as the Notes remain
outstanding, neither the Company nor any subsidiary shall sell, transfer or
otherwise dispose of any of its properties, assets and rights including, without
limitation, its software and intellectual property, to any person except for
sales of obsolete assets and sales to customers in the ordinary course of
business or with the prior written consent of the holders of a majority of the
principal amount of the Notes then outstanding.
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 18
Section 3.18 Form SB-2 Eligibility. The Company currently meets, and
will take all necessary action to continue to meet, the "registrant eligibility"
and transaction requirements set forth in the general instructions to Form SB-2
applicable to "resale" registrations on Form SB-2 during the Effectiveness
Period (as defined in the Registration Rights Agreement) and the Company shall
file all reports required to be filed by the Company with the Commission in a
timely manner so as to maintain such eligibility for the use of Form SB-2.
Section 3.19 Restrictions on Certain Issuances of Securities. So long
as at least fifty percent (50%) of the aggregate principal amount of the Notes
purchased pursuant to this Agreement remains outstanding, the Company shall not
issue any securities that rank pari passu or senior to the Notes without the
prior written consent of at least seventy-five percent (75%) of the principal
amount of the Notes outstanding at such time.
Section 3.20 Increase in Authorized Shares. The Company shall not have
an obligation to increase the number of its authorized shares of Common Stock
prior to filing the Registration Statement.
Section 3.21 Acquisition of Assets. In the event the Company or any
Subsidiary acquires any assets or other properties, such assets or properties
shall constitute a part of the Collateral (as defined in the Security Agreement)
and the Company shall take all action necessary to perfect the Purchasers'
security interest in such assets or properties pursuant to the Security
Agreement.
Section 3.22 Subsequent Financings.
(a) There shall not be any Subsequent Financings for a period of Ninety
(90) days after the Closing Date of this financing. Thereafter, for the
remainder of one (1) year following the Closing Date so long as the Notes remain
outstanding, the Company covenants and agrees to promptly notify (in no event
later than five (5) days after making or receiving an applicable offer) in
writing (a "Rights Notice") the Purchasers of the terms and conditions of any
proposed offer or sale to, or exchange with (or other type of distribution to)
any third party (a "Subsequent Financing"), of Common Stock or any securities
convertible, exercisable or exchangeable into Common Stock, including
convertible debt securities (collectively, the "Financing Securities"). The
Rights Notice shall describe, in reasonable detail, the proposed Subsequent
Financing, the names and investment amounts of all investors participating in
the Subsequent Financing, the proposed closing date of the Subsequent Financing,
which shall be within twenty (20) calendar days from the date of the Rights
Notice, and all of the terms and conditions thereof and proposed definitive
documentation to be entered into in connection therewith. The Rights Notice
shall provide each Purchaser an option (the "Rights Option") during the ten (10)
Trading Days following delivery of the Rights Notice (the "Option Period") to
inform the Company whether such Purchaser will purchase up to its pro rata
portion of the securities being offered in such Subsequent Financing on the
same, absolute terms and conditions as contemplated by such Subsequent
Financing. If any Purchaser elects not to participate in such Subsequent
Financing, the other Purchasers may participate on a pro-rata basis so long as
such participation in the aggregate does not exceed the total Purchase Price
hereunder. For purposes of this Section, all references to "pro rata" means, for
any Purchaser electing to participate in such Subsequent Financing, the
percentage obtained by dividing (x) the principal amount of the Notes purchased
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 19
by such Purchaser at each Closing by (y) the total principal amount of all of
the Notes purchased by all of the participating Purchasers at each Closing.
Delivery of any Rights Notice constitutes a representation and warranty by the
Company that there are no other material terms and conditions, arrangements,
agreements or otherwise except for those disclosed in the Rights Notice, to
provide additional compensation to any party participating in any proposed
Subsequent Financing, including, but not limited to, additional compensation
based on changes in the Purchase Price or any type of reset or adjustment of a
purchase or conversion price or to issue additional securities at any time after
the closing date of a Subsequent Financing. If the Company does not receive
notice of exercise of the Rights Option from the Purchasers within the Option
Period, the Company shall have the right to close the Subsequent Financing on
the scheduled closing date with a third party; provided that all of the material
terms and conditions of the closing are substantially the same as those provided
to the Purchasers in the Rights Notice. If the closing of the proposed
Subsequent Financing does not occur on that date, any closing of the
contemplated Subsequent Financing or any other Subsequent Financing shall be
subject to all of the provisions of this Section 3.22(a), including, without
limitation, the delivery of a new Rights Notice. The provisions of this Section
3.22(a) shall not apply to issuances of securities in a Permitted Financing.
(b) For purposes of this Agreement, a Permitted Financing (as defined
hereinafter) shall not be considered a Subsequent Financing. A "Permitted
Financing" shall mean (i) securities issued (other than for cash) in connection
with a merger, acquisition, or consolidation, (ii) securities issued pursuant to
a bona fide firm underwritten public offering of the Company's securities, (iii)
securities issued pursuant to the conversion or exercise of convertible or
exercisable securities issued or outstanding on or prior to the date hereof or
issued pursuant to this Agreement and the Notes, (iv) the Warrant Shares, (v)
securities issued in connection with bona fide strategic license agreements or
other partnering arrangements so long as such issuances are not for the purpose
of raising capital, (vi) Common Stock issued or options to purchase Common Stock
granted or issued pursuant to the Company's employee stock purchase plans as
they now exist and stock incentive plans as they now exist, (vii) any warrants
issued to the placement agent and its designees for the transactions
contemplated by this Agreement, and (viii) the payment of any principal and
accrued interest in shares of Common Stock pursuant to the Notes.
(c) So long as the Notes are outstanding, if the Company enters into
any Subsequent Financing on terms more favorable than the terms governing the
Notes, then the Purchasers in their sole discretion may exchange the Notes,
valued at their stated value, together with accrued but unpaid interest (which
interest payments shall be payable, at the sole option of the Purchasers, in
cash or in the form of the new securities to be issued in the Subsequent
Financing), for the securities issued or to be issued in the Subsequent
Financing. The Company covenants and agrees to promptly notify in writing the
Purchasers of the terms and conditions of any such proposed Subsequent
Financing.
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 20
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company to
Close and to Sell the Securities. The obligation hereunder of the Company to
close and issue and sell the Securities to the Purchasers at each Closing is
subject to the satisfaction or waiver, at or before each Closing of the
conditions set forth below. These conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion.
(a) Accuracy of the Purchasers' Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct in
all material respects as of the date when made and as of each Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchasers. Each Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Purchasers at or prior to each Closing Date.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) Delivery of Purchase Price. The Purchase Price for the Securities
shall have been delivered to the Company on each Closing Date.
(e) Delivery of Transaction Documents. The Transaction Documents shall
have been duly executed and delivered by the Purchasers to the Company.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
Close and to Purchase the Securities. The obligation hereunder of the Purchasers
to purchase the Securities and consummate the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before each Closing,
of each of the conditions set forth below. These conditions are for the
Purchasers' sole benefit and may be waived by the Purchasers at any time in
their sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of
the representations and warranties of the Company in this Agreement and the
other Transaction Documents shall be true and correct in all material respects
as of each Closing Date, except for representations and warranties that speak as
of a particular date, which shall be true and correct in all material respects
as of such date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 21
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to each Closing Date.
(c) No Suspension, Etc. Trading in the Common Stock shall not have been
suspended by the Commission, Pink Sheets or the OTC Bulletin Board (except for
any suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Initial Closing), and, at any time
prior to each Closing Date, trading in securities generally as reported by
Bloomberg Financial Markets ("Bloomberg") shall not have been suspended or
limited, or minimum prices shall not have been established on securities whose
trades are reported by Bloomberg, or on the New York Stock Exchange, nor shall a
banking moratorium have been declared either by the United States or New York
State authorities, nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity or crisis
of such magnitude in its effect on, or any material adverse change in any
financial market which, in each case, in the judgment of such Purchaser, makes
it impracticable or inadvisable to purchase the Securities. The Company shall
have an effective Form 211 under Rule 15(c)2-11 under the Securities Exchange
Act of 1934 on file with the NASD at all times.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any Subsidiary, or any of the officers, directors or affiliates
of the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(f) Opinion of Counsel. The Purchasers shall have received an opinion
of counsel to the Company, dated the date of each Closing, substantially in the
form of Exhibit I hereto, with such exceptions and limitations as shall be
reasonably acceptable to counsel to the Purchasers.
(g) Notes and Warrants. At or prior to each Closing, the Company shall
have delivered to the Purchasers the Notes (in such denominations as each
Purchaser may request) and the Warrants (in such denominations as each Purchaser
may request).
(h) Secretary's Certificate. The Company shall have delivered to the
Purchasers a secretary's certificate, dated as of the Closing Date, as to (i)
the resolutions adopted by the Board of Directors approving the transactions
contemplated hereby, (ii) the Articles, (iii) the Bylaws, each as in effect at
the Closing, and (iv) the authority and incumbency of the officers of the
Company executing the Transaction Documents and any other documents required to
be executed or delivered in connection therewith.
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 22
(i) Officer's Certificate. On each Closing Date, the Company shall have
delivered to the Purchasers a certificate signed by an executive officer on
behalf of the Company, dated as of each Closing Date, confirming the accuracy of
the Company's representations, warranties and covenants as of such Closing Date
and confirming the compliance by the Company with the conditions precedent set
forth in paragraphs (b)-(e) and (l) of this Section 4.2 as of each Closing Date
(provided that, with respect to the matters in paragraphs (d) and (e) of this
Section 4.2, such confirmation shall be based on the knowledge of the executive
officer after due inquiry).
(j) Registration Rights Agreement. As of the Closing Date, the Company
shall have executed and delivered the Registration Rights Agreement to each
Purchaser.
(k) Material Adverse Effect. No Material Adverse Effect shall have
occurred.
(l) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit H attached hereto, shall have been
delivered to the Company's transfer agent.
Section 4.3 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Notes. The obligation hereunder of each Purchaser to acquire and
pay for the Notes is subject to the satisfaction or waiver, at or before the
closing and sale of such Notes (the "Closing Date"), of each of the conditions
set forth below. These conditions are for each Purchaser's sole benefit and may
be waived by such Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of
the representations and warranties of the Company in this Agreement and the
other Transaction Documents shall be true and correct in all material respects
as of the Closing Date, except for representations and warranties that speak as
of a particular date, which shall be true and correct in all material respects
as of such date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date.
(c) No Suspension, Etc. Trading in the Common Stock shall not have been
suspended by the Commission, the Pink Sheets, or the OTC Bulletin Board (except
for any suspension of trading of limited duration agreed to by the Company,
which suspension shall be terminated prior to the Closing), and, at any time
prior to the Closing Date, trading in securities generally as reported by
Bloomberg Financial Markets ("Bloomberg") shall not have been suspended or
limited, or minimum prices shall not have been established on securities whose
trades are reported by Bloomberg, or on the New York Stock Exchange, nor shall a
banking moratorium have been declared either by the United States or New York
State authorities, nor shall a banking moratorium have been declared either by
the United States or New York State authorities, nor shall there have occurred
any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 23
material adverse change in any financial market which, in each case, in the
judgment of such Purchaser, makes it impracticable or inadvisable to purchase
the Notes.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any Subsidiary, or any of the officers, directors or affiliates
of the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(f) Opinion of Counsel, Etc. At the Closing Date, the Purchasers shall
have received an opinion of counsel to the Company, dated the date of the
Closing Date, in the form of Exhibit I hereto, and such other certificates and
documents as the Purchasers or its counsel shall reasonably require incident to
the Closing.
(g) Notes and Warrants. At or prior to the Closing Date, the Company
shall have delivered to the Purchasers the Notes (in such denominations as each
Purchaser may request) and the Warrants, in each case, being acquired by the
Purchasers at the Closing Date.
(h) Officer's Certificate. The Company shall have delivered to the
Purchasers a certificate of an executive officer of the Company, dated as of the
Closing Date, confirming the accuracy of the Company's representations,
warranties and covenants as of such Closing Date and confirming the compliance
by the Company with the conditions precedent set forth in this Section 4.3 as of
the Closing Date.
(i) Material Adverse Effect. No Material Adverse Effect shall have
occurred at or before the Closing Date.
(j) Effective Registration Statement. The Registration Statement shall
have been declared effective by the Commission.
ARTICLE V
CERTIFICATE LEGEND
Section 5.1 Legend. Each certificate representing the Securities shall
be stamped or otherwise imprinted with a legend substantially in the following
form (in addition to any legend required by applicable state securities or "blue
sky" laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 24
ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR IN TOUCH MEDIA GROUP, INC. SHALL
HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH
SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to issue or reissue certificates representing any of
the Conversion Shares and the Warrant Shares, without the legend set forth above
if at such time, prior to making any transfer of any such Conversion Shares or
Warrant Shares, such holder thereof shall give written notice to the Company
describing the manner and terms of such transfer and removal as the Company may
reasonably request. Such proposed transfer and removal will not be effected
until: (a) either (i) the Company has received an opinion of counsel reasonably
satisfactory to the Company, to the effect that the registration of the
Conversion Shares or Warrant Shares under the Securities Act is not required in
connection with such proposed transfer, (ii) a registration statement under the
Securities Act covering such proposed disposition has been filed by the Company
with the Commission and has become effective under the Securities Act, (iii) the
Company has received other evidence reasonably satisfactory to the Company that
such registration and qualification under the Securities Act and state
securities laws are not required, or (iv) the holder provides the Company with
reasonable assurances that such security can be sold pursuant to Rule 144 under
the Securities Act; and (b) either (i) the Company has received an opinion of
counsel reasonably satisfactory to the Company, to the effect that registration
or qualification under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition, (ii) compliance with
applicable state securities or "blue sky" laws has been effected, or (iii) the
holder provides the Company with reasonable assurances that a valid exemption
exists with respect thereto. The Company will respond to any such notice from a
holder within three (3) business days. In the case of any proposed transfer
under this Section 5.1, the Company will use reasonable efforts to comply with
any such applicable state securities or "blue sky" laws, but shall in no event
be required, (x) to qualify to do business in any state where it is not then
qualified, (y) to take any action that would subject it to tax or to the general
service of process in any state where it is not then subject, or (z) to comply
with state securities or "blue sky" laws of any state for which registration by
coordination is unavailable to the Company. The restrictions on transfer
contained in this Section 5.1 shall be in addition to, and not by way of
limitation of, any other restrictions on transfer contained in any other section
of this Agreement. Whenever a certificate representing the Conversion Shares or
Warrant Shares is required to be issued to a Purchaser without a legend, in lieu
of delivering physical certificates representing the Conversion Shares or
Warrant Shares, provided the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program, the
Company shall use its reasonable best efforts to cause its transfer agent to
electronically transmit the Conversion Shares or Warrant Shares to a Purchaser
by crediting the account of such Purchaser's Prime Broker with DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system (to the extent not
inconsistent with any provisions of this Agreement).
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 25
ARTICLE VI
INDEMNIFICATION
Section 6.1 General Indemnity. The Company agrees to indemnify and hold
harmless the Purchasers (and their respective directors, officers, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by such Purchaser
herein. The maximum aggregate liability of each Purchaser pursuant to its
indemnification obligations under this Article VI shall not exceed the portion
of the Purchase Price paid by such Purchaser hereunder.
Section 6.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VI (an "indemnified party") will give written
notice to the indemnifying party of any matter giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnifying party a conflict of interest between it
and the indemnified party exists with respect to such action, proceeding or
claim (in which case the indemnifying party shall be responsible for the
reasonable fees and expenses of one separate counsel for the indemnified
parties), to assume the defense thereof with counsel reasonably satisfactory to
the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 26
indemnifying party shall not be liable for any settlement of any action, claim
or proceeding effected without its prior written consent. Notwithstanding
anything in this Article VI to the contrary, the indemnifying party shall not,
without the indemnified party's prior written consent, settle or compromise any
claim or consent to entry of any judgment in respect thereof which imposes any
future obligation on the indemnified party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
indemnified party of a release from all liability in respect of such claim. The
indemnification obligations to defend the indemnified party required by this
Article VI shall be made by periodic payments of the amount thereof during the
course of investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred, so long as the indemnified party shall
refund such moneys if it is ultimately determined by a court of competent
jurisdiction that such party was not entitled to indemnification. The indemnity
agreements contained herein shall be in addition to (a) any cause of action or
similar rights of the indemnified party against the indemnifying party or
others, and (b) any liabilities the indemnifying party may be subject to
pursuant to the law. No indemnifying party will be liable to the indemnified
party under this Agreement to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to the indemnified party's breach of
any of the representations, warranties or covenants made by such party in this
Agreement or in the other Transaction Documents.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Fees and Expenses. Each party shall pay the fees and
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement; provided,
however, that the Company shall pay all actual attorneys' fees and expenses
(including disbursements and out-of-pocket expenses) incurred by the Purchasers
in connection with (i) the preparation, negotiation, execution and delivery of
the Transaction Documents and the transactions contemplated thereunder, which
payment shall be made at Closing and shall not exceed $15,000, (plus
disbursements and out-of-pocket expenses), and (ii) any amendments,
modifications or waivers of this Agreement or any of the other Transaction
Documents. In addition, the Company shall pay all reasonable fees and expenses
incurred by the Purchasers in connection with the enforcement of this Agreement
or any of the other Transaction Documents, including, without limitation, all
reasonable attorneys' fees and expenses.
Section 7.2 Specific Performance; Consent to Jurisdiction; Venue.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the other Transaction Documents were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the other Transaction
Documents and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 27
(b) The parties agree that venue for any dispute arising under this
Agreement will lie exclusively in the state or federal courts located in New
York County, New York, and the parties irrevocably waive any right to raise
FORUM NON CONVENIENS or any other argument that New York is not the proper
venue. The parties irrevocably consent to personal jurisdiction in the state and
federal courts of the state of New York. The Company and each Purchaser consent
to process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 7.2 shall affect
or limit any right to serve process in any other manner permitted by law. The
Company and the Purchasers hereby agree that the prevailing party in any suit,
action or proceeding arising out of or relating to the Securities, this
Agreement or the other Transaction Documents, shall be entitled to reimbursement
for reasonable legal fees from the non-prevailing party. The parties hereby
waive all rights to a trial by jury.
Section 7.3 Entire Agreement; Amendment. This Agreement and the
Transaction Documents contain the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the other Transaction Documents, neither the Company nor
any Purchaser make any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the Purchasers holding at least a majority
of the principal amount of the Notes then held by the Purchasers. Any amendment
or waiver effected in accordance with this Section 7.3 shall be binding upon
each Purchaser (and their permitted assigns) and the Company.
Section 7.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Company: In Touch Media Group, Inc.
000 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
If to any Purchaser: At the address of such Purchaser set forth on Exhibit
A to this Agreement, with copies to Purchaser's
counsel as set forth on Exhibit A or as specified in
writing by such Purchaser with copies to:
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 28
Xxxx Xxxx, P.A.
000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxx, XX 00000
Attention: Xxxxx Xxxxx
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
Any party hereto may from time to time change its address for notices
by giving written notice of such changed address to the other party hereto.
Section 7.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter. No consideration shall be offered or
paid to any Purchaser to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. This provision
constitutes a separate right granted to each Purchaser by the Company and shall
not in any way be construed as the Purchasers acting in concert or as a group
with respect to the purchase, disposition or voting of Securities or otherwise.
Section 7.6 Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 7.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
After the Initial Closing, the assignment by a party to this Agreement of any
rights hereunder shall not affect the obligations of such party under this
Agreement. Subject to Section 5.1 hereof, the Purchasers may assign the
Securities and its rights under this Agreement and the other Transaction
Documents and any other rights hereto and thereto without the consent of the
Company.
Section 7.8 No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Agreement
shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted.
Section 7.10 Survival. The representations and warranties of the
Company and the Purchasers shall survive the execution and delivery hereof and
the Initial Closing until the second anniversary of the Closing Date, except the
agreements and covenants set forth in Articles I, III, V, VI and VII of this
Agreement shall survive the execution and delivery hereof and such Closing
hereunder.
NOTE AND WARRANT PURCHASE AGREEMENT
PAGE 29
Section 7.11 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart.
Section 7.12 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the names of the Purchasers
without the consent of the Purchasers, which consent shall not be unreasonably
withheld or delayed, or unless and until such disclosure is required by law,
rule or applicable regulation, including without limitation any disclosure
pursuant to the Registration Statement, and then only to the extent of such
requirement.
Section 7.13 Severability. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.
Section 7.14 Further Assurances. From and after the date of this
Agreement, upon the request of the Purchasers or the Company, the Company and
each Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement and the other
Transaction Documents.
IN WITNESS WHEREOF, the parties hereto have caused this Note and
Warrant Purchase Agreement to be duly executed by their respective authorized
officers as of the date first above written.
IN TOUCH MEDIA GROUP, INC.
/s/ Xxxxx Xxxxxxxx
-----------------------------------
By: Xxxxx Xxxxxxxx
Title: CEO
NOTE AND WARRANT PURCHASE AGREEMENT
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