Exhibit 10.4
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of August
29, 2014, by and between TUNGSTEN CORP., a NEVADA corporation, with headquarters
located at 0000 XX 000 XXXX, XXXXX, XX 00000 (the "Company"), and MAGNA EQUITIES
II, LLC, a New York corporation, with its address at 0 Xxxxxxx Xxxxxx, Xxx Xxxx,
Xxx Xxxx 00000 (the "Buyer").
WHEREAS:
A. The Company and the Buyer are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by the rules
and regulations as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act");
B. Buyer desires to purchase and the Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement an 12% convertible
note of the Company, in the form attached hereto as Exhibit A, in the aggregate
principal amount of $9,250 (together with any note(s) issued in replacement
thereof or as a dividend thereon or otherwise with respect thereto in accordance
with the terms thereof, the "Note"), convertible into shares of common stock of
the Company (the "Common Stock"), upon the terms and subject to the limitations
and conditions set forth in such Note.
C. The Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, such principal amount of Note as is set forth immediately below
its name on the signature pages hereto; and
NOW THEREFORE, the Company and the Buyer severally (and not jointly) hereby
agree as follows:
1. Purchase and Sale of Note.
a. Purchase of Note. On the initial Closing Date (as defined below), the
Company shall issue and sell to the Buyer and the Buyer agrees to purchase from
the Company such principal amount of Note as is set forth immediately below the
Buyer's name on the signature pages hereto.
b. Form of Payment. On the Closing Date (as defined below), (i) the Buyer
shall pay the purchase price for the Note to be issued and sold to it at the
Closing (as defined below) (the "Purchase Price") by wire transfer of
immediately available funds to the Company, in accordance with the Company's
written wiring instructions, against delivery of the Note in the principal
amount equal to the Purchase Price as is set forth immediately below the Buyer's
name on the signature pages hereto, and (ii) the Company shall deliver such duly
executed on behalf of the Company, to the Buyer, against delivery of such
Purchase Price.
c. Closing Date. Subject to the satisfaction (or written waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Note pursuant to this Agreement (the "Closing
Date") shall be 12:00 noon, Eastern Standard Time on August 29, 2014, or such
other mutually agreed upon time. The closing of the transactions contemplated by
this Agreement (the "Closing") shall occur on the Closing Date at such location
as may be agreed to by the parties.
2. Buyer's Representations and Warranties. The Buyer represents and
warrants to the Company that:
a. Investment Purpose. As of the date hereof, the Buyer is purchasing the
Note and the shares of Common Stock issuable upon conversion of or otherwise
pursuant to the Note (including, without limitation, such additional shares of
Common Stock, if any, as are issuable (i) on account of interest on the Note,
(ii) as a result of the events described in Sections 1.3 and 1.4(g) of the Note
or (iii) in payment of the Standard Liquidated Damages Amount (as defined in
Section 2(f) below) pursuant to this Agreement, such shares of Common Stock
being collectively referred to herein as the "Conversion Shares" and,
collectively with the Note, the "Securities") for its own account and not with a
present view towards the public sale or distribution thereof, except pursuant to
sales registered or exempted from registration under the 1933 Act; provided,
however, that by making the representations herein, the Buyer does not agree to
hold any of the Securities for any minimum or other specific term and reserves
the right to dispose of the Securities at any time in accordance with or
pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D (an "Accredited Investor").
c. Reliance on Exemptions. The Buyer understands that the Securities are
being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities.
d. Information. The Buyer and its advisors, if any, have been, and for so
long as the Note remain outstanding will continue to be, furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have been
requested by the Buyer or its advisors. The Buyer and its advisors, if any, have
been, and for so long as the Note remain outstanding will continue to be,
afforded the opportunity to ask questions of the Company. Notwithstanding the
foregoing, the Company has not disclosed to the Buyer any material nonpublic
information and will not disclose such information unless such information is
disclosed to the public prior to or promptly following such disclosure to the
Buyer. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify, amend
or affect Buyer's right to rely on the Company's representations and warranties
contained in Section 3 below. The Buyer understands that its investment in the
Securities involves a significant degree of risk. The Buyer is not aware of any
facts that may constitute a breach of any of the Company's representations and
warranties made herein.
e. Governmental Review. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Re-sale. The Buyer understands that (i) the sale or resale
of the Securities has not been and is not being registered under the 1933 Act or
any applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company,
at the cost of the Buyer, an opinion of counsel that shall be in form, substance
and scope customary for opinions of counsel in comparable transactions to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration, which opinion shall be accepted
by the Company, (c) the Securities are sold or transferred to an "affiliate" (as
defined in Rule 144 promulgated under the 1933 Act (or a successor rule) ("Rule
144")) of the Buyer who agrees to sell or otherwise transfer the Securities only
in accordance with this Section 2(f) and who is an Accredited Investor, (d) the
Securities are sold pursuant to Rule 144, or (e) the Securities are sold
pursuant to Regulation S under the 1933 Act (or a successor rule) ("Regulation
S"), and the Buyer shall have delivered to the Company, at the cost of the
Buyer, an opinion of counsel that shall be in form, substance and scope
customary for opinions of counsel in corporate transactions, which opinion shall
be accepted by the Company; (ii) any sale of such Securities made in reliance on
Rule 144 may be made only in accordance with the terms of said Rule and further,
if said Rule is not applicable, any re-sale of such Securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the 0000 Xxx) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case). Notwithstanding the foregoing or anything
else contained herein to the contrary, the Securities may be pledged as
collateral in connection with a bona fide margin account or other lending
arrangement.
g. Legends. The Buyer understands that the Note and, until such time as
the Conversion Shares have been registered under the 1933 Act may be sold
pursuant to Rule 144 or Regulation S without any restriction as to the number of
securities as of a particular date that can then be immediately sold, the
Conversion Shares may bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the
certificates for such Securities):
"NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933,
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AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED
BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES."
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, to the effect that a public
sale or transfer of such Security may be made without registration under the
1933 Act, which opinion shall be accepted by the Company so that the sale or
transfer is effected. The Buyer agrees to sell all Securities, including those
represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if any. In the
event that the Company does not accept the opinion of counsel provided by the
Buyer with respect to the transfer of Securities pursuant to an exemption from
registration, such as Rule 144 or Regulation S, at the Deadline, it will be
considered an Event of Default pursuant to Section 3.2 of the Note.
h. Authorization; Enforcement. This Agreement has been duly and validly
authorized. This Agreement has been duly executed and delivered on behalf of the
Buyer, and this Agreement constitutes a valid and binding agreement of the Buyer
enforceable in accordance with its terms.
i. Residency. The Buyer is a resident of the jurisdiction set forth
immediately below the Buyer's name on the signature pages hereto.
3. Representations and Warranties of the Company. The Company represents
and warrants to the Buyer that:
a. Organization and Qualification. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other) to
own, lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. Schedule 3(a) sets forth
a list of all of the Subsidiaries of the Company and the jurisdiction in which
each is incorporated. The Company and each of its Subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which its ownership or use of property or the nature of the
business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. "Material Adverse Effect" means any material adverse effect on the
business, operations, assets, financial condition or prospects of the Company or
its Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements or instruments to be entered into in connection
herewith. "Subsidiaries" means any corporation or other organization, whether
incorporated or unincorporated, in which the Company owns, directly or
indirectly, any equity or other ownership interest.
b. Authorization; Enforcement. (i) The Company has all requisite corporate
power and authority to enter into and perform this Agreement, the Note and to
consummate the transactions contemplated hereby and thereby and to issue the
Securities, in accordance with the terms hereof and thereof, (ii) the execution
and delivery of this Agreement, the Note by the Company and the consummation by
it of the transactions contemplated hereby and thereby (including without
limitation, the issuance of the Note and the issuance and reservation for
issuance of the Conversion Shares issuable upon conversion or exercise thereof)
have been duly authorized by the Company's Board of Directors and no further
consent or authorization of the Company, its Board of Directors, or its
shareholders is required, (iii) this Agreement has been duly executed and
delivered by the Company by its authorized representative, and such authorized
representative is the true and official representative with authority to sign
this Agreement and the other documents executed in connection herewith and bind
the Company accordingly, and (iv) this Agreement constitutes, and upon execution
and delivery by the Company of the Note, each of such instruments will
constitute, a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
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c. Capitalization. As of the date hereof, the authorized capital stock of
the Company consists of: (i) shares of Common Stock, of which shares are issued
and outstanding; no shares are reserved for issuance pursuant to the Company's
stock option plans, no shares are reserved for issuance pursuant to securities
(other than the Note) exercisable for, or convertible into or exchangeable for
shares of Common Stock and a suitable amount of shares are reserved for issuance
upon conversion of the Note (subject to adjustment pursuant to the Company's
covenant set forth in Section 4(g) below). All of such outstanding shares of
capital stock are, or upon issuance will be, duly authorized, validly issued,
fully paid and non-assessable and have been issued in compliance with all
federal and state securities laws. No shares of capital stock of the Company are
subject to preemptive rights or any other similar rights of the shareholders of
the Company or any liens or encumbrances imposed through the actions or failure
to act of the Company. As of the effective date of this Agreement, (i) there are
no outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other commitments
or rights of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of the Company
or any of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries, (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of its or their securities under the 1933 Act and (iii)
there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Note or the Conversion
Shares. The Company has furnished to the Buyer true and correct copies of the
Company's Certificate of Incorporation as in effect on the date hereof
("Certificate of Incorporation"), the Company's Bylaws, as in effect on the date
hereof (the "By-laws"), and the terms of all securities convertible into or
exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto. The Company shall provide the Buyer with a
written update of this representation signed by the Company's Chief Executive on
behalf of the Company as of the Closing Date.
d. Issuance of Shares. The Conversion Shares are duly authorized and
reserved for issuance and, upon conversion of the Note in accordance with its
respective terms, will be validly issued, fully paid and non-assessable, and
free from all taxes, liens, claims and encumbrances with respect to the issue
thereof and shall not be subject to preemptive rights or other similar rights of
shareholders of the Company and will not impose personal liability upon the
holder thereof.
e. Acknowledgment of Dilution. The Company understands and acknowledges
the potentially dilutive effect to the Common Stock upon the issuance of the
Conversion Shares upon conversion of the Note. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion of the Note in
accordance with this Agreement, the Note is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other shareholders of the Company.
f. No Conflicts. The execution, delivery and performance of this
Agreement, the Note by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance and reservation for issuance of the Conversion Shares) will not (i)
conflict with or result in a violation of any provision of the Certificate of
Incorporation or By-laws or (ii) violate or conflict with, or result in a breach
of any provision of, or constitute a default (or an event which with notice or
lapse of time or both could become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture, patent, patent license or instrument to which the Company
or any of its Subsidiaries is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Neither the Company nor any of its Subsidiaries is in violation
of its Certificate of Incorporation, By-laws or other organizational documents
and neither the Company nor any of its Subsidiaries is in default (and no event
has occurred which with notice or lapse of time or both could put the Company or
any of its Subsidiaries in default) under, and neither the Company nor any of
its Subsidiaries has taken any action or failed to take any action that would
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party or by which any property or assets of the
Company or any of its Subsidiaries is bound or affected, except for possible
defaults as would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its Subsidiaries, if any, are not
being conducted, and shall not be conducted so long as a Buyer owns any of the
Securities, in violation of any law, ordinance or regulation of any governmental
entity. Except as specifically contemplated by this Agreement and as required
under the 1933 Act and any applicable state securities laws, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
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registration with, any court, governmental agency, regulatory agency, self
regulatory organization or stock market or any third party in order for it to
execute, deliver or perform any of its obligations under this Agreement, the
Note in accordance with the terms hereof or thereof or to issue and sell the
Note in accordance with the terms hereof and to issue the Conversion Shares upon
conversion of the Note. All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company is not in violation of the listing requirements of the Over-the-Counter
Bulletin Board (the "OTCQB") and does not reasonably anticipate that the Common
Stock will be delisted by the OTCQB in the foreseeable future. The Company and
its Subsidiaries are unaware of any facts or circumstances which might give rise
to any of the foregoing.
g. SEC Documents; Financial Statements. The Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed
prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits to such
documents) incorporated by reference therein, being hereinafter referred to
herein as the "SEC Documents"). The Company has delivered to the Buyer true and
complete copies of the SEC Documents, except for such exhibits and incorporated
documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of the statements made in any such SEC Documents is, or has
been, required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings prior the date
hereof). As of their respective dates, the financial statements of the Company
included in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles,
consistently applied, during the periods involved and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to four
months prior to the date hereof and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not material to the
financial condition or operating results of the Company. The Company is subject
to the reporting requirements of the 1934 Act.
h. Absence of Certain Changes. Since the date of the latest financial
statements included in the SEC reports: (i) there has been no event, occurrence
or development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company's financial
statements pursuant to generally accepted accounting principles ("GAAP") or
disclosed in filings made with the SEC, (iii) the Company has not altered its
method of accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or affiliate, except pursuant to existing Company equity incentive
plans. The Company does not have pending before the SEC any request for
confidential treatment of information. Except for the issuance of the Securities
contemplated by this Agreement, no event, liability or development has occurred
or exists with respect to the Company or its Subsidiaries or their respective
business, properties, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws at the time this
representation is made or deemed made that has not been publicly disclosed at
least one trading day prior to the date that this representation is made.
i. Absence of Litigation. There is no action, suit, claim, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company
or any of its Subsidiaries, or their officers or directors in their capacity as
such, that could have a Material Adverse Effect. Schedule 3(i) contains a
complete list and summary description of any pending or, to the knowledge of the
Company, threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would have a Material Adverse Effect.
The Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
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j. Patents, Copyrights, etc. The Company and each of its Subsidiaries owns
or possesses the requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and copyrights
("Intellectual Property") necessary to enable it to conduct its business as now
operated (and, as presently contemplated to be operated in the future); there is
no claim or action by any person pertaining to, or proceeding pending, or to the
Company's knowledge threatened, which challenges the right of the Company or of
a Subsidiary with respect to any Intellectual Property necessary to enable it to
conduct its business as now operated (and, as presently contemplated to be
operated in the future); to the best of the Company's knowledge, the Company's
or its Subsidiaries' current and intended products, services and processes do
not infringe on any Intellectual Property or other rights held by any person;
and the Company is unaware of any facts or circumstances which might give rise
to any of the foregoing. The Company and each of its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of their Intellectual Property.
k. No Materially Adverse Contracts, Etc. Neither the Company nor any of
its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect. Neither the
Company nor any Subsidiary: (i) is in default under or in violation of (and no
event has occurred that has not been waived that, with notice or lapse of time
or both, would result in a default by the Company or any Subsidiary under), nor
has the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other material agreement or instrument to which it is a party
or by which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business
and all such laws that affect the environment, except in each of the foregoing
cases as could not have or reasonably be expected to result in a Material
Adverse Effect.
l. Tax Status. The Company and each of its Subsidiaries has made or filed
all federal, state and foreign income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not executed a
waiver with respect to the statute of limitations relating to the assessment or
collection of any foreign, federal, state or local tax. None of the Company's
tax returns is presently being audited by any taxing authority.
m. Certain Transactions. Except for arm's length transactions pursuant to
which the Company or any of its Subsidiaries makes payments in the ordinary
course of business upon terms no less favorable than the Company or any of its
Subsidiaries could obtain from third parties and other than the grant of stock
options disclosed on Schedule 3(c), none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
n. Disclosure. All information relating to or concerning the Company or
any of its Subsidiaries set forth in this Agreement and provided to the Buyer
pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed (assuming for this purpose that the Company's reports filed under the
1934 Act are being incorporated into an effective registration statement filed
by the Company under the 1933 Act).
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o. Acknowledgment Regarding Buyer' Purchase of Securities. The Company
acknowledges and agrees that the Buyer is acting solely in the capacity of arm's
length purchasers with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that no Buyer is acting as
a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated hereby and any
statement made by any Buyer or any of their respective representatives or agents
in connection with this Agreement and the transactions contemplated hereby is
not advice or a recommendation and is merely incidental to the Buyer' purchase
of the Securities. The Company further represents to the Buyer that the
Company's decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.
p. No Integrated Offering. Neither the Company, nor any of its affiliates,
nor any person acting on behalf of the Company or such affiliate, will sell,
offer for sale, or solicit offers to buy or otherwise negotiate with respect to
any security (as defined in the 1933 Act) which will be integrated with the sale
of the securities in a manner which would require the registration of the
securities under the Securities Act of 1933, or require stockholder approval,
under the rules and regulations of the trading market for the common stock. The
Company will take all action that is appropriate or necessary to assure that its
offerings of other securities will not be integrated for purposes of the
Securities Act of 1933 or the rules and regulations of the trading market, with
the issuance of securities contemplated hereby.
q. No Brokers. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, transaction fees or similar
payments relating to this Agreement or the transactions contemplated hereby.
r. Permits; Compliance. The Company and each of its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "Company Permits"), and there is
no action pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits. Neither the Company
nor any of its Subsidiaries is in conflict with, or in default or violation of,
any of the Company Permits, except for any such conflicts, defaults or
violations which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect. In the prior four months to the date
hereof, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
s. Environmental Matters.
(i) There are, to the Company's knowledge, with respect to the Company or
any of its Subsidiaries or any predecessor of the Company, no past or present
violations of Environmental Laws (as defined below), releases of any material
into the environment, actions, activities, circumstances, conditions, events,
incidents, or contractual obligations which may give rise to any common law
environmental liability or any liability under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 or similar federal, state,
local or foreign laws and neither the Company nor any of its Subsidiaries has
received any notice with respect to any of the foregoing, nor is any action
pending or, to the Company's knowledge, threatened in connection with any of the
foregoing. The term "Environmental Laws" means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or wastes
(collectively, "Hazardous Materials") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or disposed of in
compliance with applicable law, no Hazardous Materials are contained on or about
any real property currently owned, leased or used by the Company or any of its
Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the Company's
or any of its Subsidiaries' business.
7
(iii) There are no underground storage tanks on or under any real property
owned, leased or used by the Company or any of its Subsidiaries that are not in
compliance with applicable law.
t. Title to Property. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(t) or such
as would not have a Material Adverse Effect. Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as would not have
a Material Adverse Effect.
u. Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a Material
Adverse Effect. The Company has provided to Buyer true and correct copies of all
policies relating to directors' and officers' liability coverage, errors and
omissions coverage, and commercial general liability coverage.
v. Internal Accounting Controls. Except as set forth in the SEC Reports,
the Company is in material compliance with all provisions of the Xxxxxxxx-Xxxxx
Act of 2002 which are applicable to it as of the Closing Date. The Company and
the Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that: (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Company and designed such disclosure controls and procedures to ensure that
information required to be disclosed by the Company in the reports it files or
submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commission's rules and forms. The
Company's certifying officers have evaluated the effectiveness of the Company's
disclosure controls and procedures as of the end of the period covered by the
Company's most recently filed periodic report under the Exchange Act (such date,
the "Evaluation Date"). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no changes in the Company's internal control over financial reporting
(as such term is defined in the Exchange Act) that has materially affected, or
is reasonably likely to materially affect, the Company's internal control over
financial reporting.
w. Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended, or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee.
x. Solvency. The Company (after giving effect to the transactions
contemplated by this Agreement) is solvent (i.e., its assets have a fair market
value in excess of the amount required to pay its probable liabilities on its
existing debts as they become absolute and matured) and currently the Company
has no information that would lead it to reasonably conclude that the Company
would not, after giving effect to the transaction contemplated by this
Agreement, have the ability to, nor does it intend to take any action that would
impair its ability to, pay its debts from time to time incurred in connection
therewith as such debts mature. The Company did not receive a qualified opinion
from its auditors with respect to its most recent fiscal year end and, after
giving effect to the transactions contemplated by this Agreement, does not
anticipate or know of any basis upon which its auditors might issue a qualified
opinion in respect of its current fiscal year.
8
y. Application of Takeover Protections. The Company and the Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's certificate of incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Buyer as a result of the Buyer and the Company
fulfilling their obligations or exercising their rights under the Transaction
Documents, including without limitation as a result of the Company's issuance of
the Securities and the Buyer' ownership of the Securities.
z. No Investment Company. The Company is not, and upon the issuance and
sale of the Securities as contemplated by this Agreement will not be an
"investment company" required to be registered under the Investment Company Act
of 1940 (an "Investment Company"). The Company is not controlled by an
Investment Company.
aa. No Disagreements with Accountants and Lawyers; Outstanding SEC
Comments. There are no disagreements of any kind presently existing, or
reasonably anticipated by the Company to arise, between the Company and the
accountants and lawyers formerly or presently employed by the Company and the
Company is or immediately after the Closing Date will be current with respect to
any fees owed to its accountants which could affect the Company's ability to
perform any of its obligations under any of the Transaction Documents. There are
no unresolved comments or inquiries received by the Company or its Affiliates
from the SEC which remain unresolved as of the date hereof.
bb. Bad Actor Disqualification.
(i) No Disqualification Events. With respect to Securities to be offered
and sold hereunder in reliance on Rule 506 under the Securities Act ("Regulation
D Securities"), none of the Company, any of its predecessors, any affiliated
issuer, any director, executive officer, other officer of the Company
participating in the offering, any beneficial owner of 20% or more of the
Company's outstanding voting equity securities, calculated on the basis of
voting power, nor any promoter (as that term is defined in Rule 405 under the
Securities Act) connected with the Company in any capacity at the time of sale
(each, an "Issuer Covered Person" and, together, "Issuer Covered Persons") is
subject to any of the "Bad Actor" disqualifications described in Rule
506(d)(1)(i) to (viii) under the Securities Act (a "Disqualification Event"),
except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The
Company has exercised reasonable care to determine whether any Issuer Covered
Person is subject to a Disqualification Event. The Company has complied, to the
extent applicable, with its disclosure obligations under Rule 506(e), and has
furnished to the Placement Agent and the Purchaser a copy of any disclosures
provided thereunder.
(ii) Other Covered Persons. The Company is not aware of any person that (i)
has been or will be paid (directly or indirectly) remuneration for solicitation
of Purchaser in connection with the sale of the Securities and (ii) who is
subject to a Disqualification Event.
(iii) Notice of Disqualification Events. The Company will notify the
Purchaser in writing of (i) any Disqualification Event relating to any Issuer
Covered Person and (ii) any event that would, with the passage of time, become a
Disqualification Event relating to any Issuer Covered Person, prior to any
Closing of this Offering.
cc. Breach of Representations and Warranties by the Company. If the Company
breaches any of the representations or warranties set forth in this Section 3,
and in addition to any other remedies available to the Buyer pursuant to this
Agreement, it will be considered an Event of default under Section 3.4 of the
Note.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts to satisfy timely
each of the conditions described in Section 6 and 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with respect
to the Securities as required under Regulation D and to provide a copy thereof
to the Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for sale to the Buyer at the applicable
closing pursuant to this Agreement under applicable securities or "blue sky"
9
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to the
Buyer on or prior to the Closing Date.
c. Use of Proceeds. The Company shall use the proceeds for general working
capital purposes.
d. Right of First Refusal. Unless it shall have first delivered to the
Buyer, at least seventy two (72) hours prior to the closing of such Future
Offering (as defined herein), written notice describing the proposed Future
Offering, including the terms and conditions thereof and proposed definitive
documentation to be entered into in connection therewith, and providing the
Buyer an option during the seventy two (72) hour period following delivery of
such notice to purchase the securities being offered in the Future Offering on
the same terms as contemplated by such Future Offering (the limitations referred
to in this sentence and the preceding sentence are collectively referred to as
the "Right of First Refusal") (and subject to the exceptions described below),
the Company will not conduct any equity financing (including debt with an equity
component) ("Future Offerings") during the period beginning on the Closing Date
and ending two (two) years following the Closing Date. In the event the terms
and conditions of a proposed Future Offering are amended in any respect after
delivery of the notice to the Buyer concerning the proposed Future Offering, the
Company shall deliver a new notice to the Buyer describing the amended terms and
conditions of the proposed Future Offering and the Buyer thereafter shall have
an option during the seventy two (72) hour period following delivery of such new
notice to purchase its pro rata share of the securities being offered on the
same terms as contemplated by such proposed Future Offering, as amended. The
foregoing sentence shall apply to successive amendments to the terms and
conditions of any proposed Future Offering. The Right of First Refusal shall not
apply to any transaction involving (i) issuances of securities in a firm
commitment underwritten public offering (excluding a continuous offering
pursuant to Rule 415 under the 0000 Xxx) or (ii) issuances of securities as
consideration for a merger, consolidation or purchase of assets, or in
connection with any strategic partnership or joint venture (the primary purpose
of which is not to raise equity capital), or in connection with the disposition
or acquisition of a business, product or license by the Company. The Right of
First Refusal also shall not apply to the issuance of securities upon exercise
or conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof or to the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option or restricted stock plan approved by the shareholders of the Company.
e. Expenses. At the Closing, the Company shall reimburse Buyer for expenses
incurred by them in connection with the negotiation, preparation, execution,
delivery and performance of this Agreement and the other agreements to be
executed in connection herewith ("Documents"), including, without limitation,
reasonable attorneys' and consultants' fees and expenses, transfer agent fees,
fees for stock quotation services, fees relating to any amendments or
modifications of the Documents or any consents or waivers of provisions in the
Documents, fees for the preparation of opinions of counsel, escrow fees, and
costs of restructuring the transactions contemplated by the Documents. When
possible, the Company must pay these fees directly, otherwise the Company must
make immediate payment for reimbursement to the Buyer for all fees and expenses
immediately upon written notice by the Buyer or the submission of an invoice by
the Buyer Notwithstanding anything herein to the contrary, the Company's
obligation to reimburse Buyer's expenses shall be $1,500.
f. Financial Information. Upon written request the Company agrees to send
or make available the following reports to the Buyer until the Buyer transfers,
assigns, or sells all of the Securities: (i) within two (2) days after the
filing with the SEC, a copy of its Annual Report on Form 10-K its Quarterly
Reports on Form 10-Q and any Current Reports on Form 8-K; (ii) within one (1)
day after release, copies of all press releases issued by the Company or any of
its Subsidiaries; and (iii) contemporaneously with the making available or
giving to the shareholders of the Company, copies of any notices or other
information the Company makes available or gives to such shareholders.
g. Authorization and Reservation of Shares. The Company shall at all times
have authorized, and reserved for the purpose of issuance, a sufficient number
of shares of Common Stock to provide for the full conversion or exercise of the
outstanding Note and issuance of the Conversion Shares in connection therewith
(based on the Conversion Price of the Note in effect from time to time) and as
otherwise required by the Note. The Company shall not reduce the number of
shares of Common Stock reserved for issuance upon conversion of Note without the
consent of the Buyer. The Company shall at all times maintain the number of
shares of Common Stock so reserved for issuance at an amount ("Reserved Amount")
equal to five times the number that is then actually issuable upon full
conversion of the Note and Additional Note (based on the Conversion Price of the
Note in effect from time to time). If at any time the number of shares of Common
Stock authorized and reserved for issuance ("Authorized and Reserved Shares") is
below the Reserved Amount, the Company will promptly take all corporate action
necessary to authorize and reserve a sufficient number of shares, including,
10
without limitation, calling a special meeting of shareholders to authorize
additional shares to meet the Company's obligations under this Section 4(g), in
the case of an insufficient number of authorized shares, obtain shareholder
approval of an increase in such authorized number of shares, and voting the
management shares of the Company in favor of an increase in the authorized
shares of the Company to ensure that the number of authorized shares is
sufficient to meet the Reserved Amount. If the Company fails to obtain such
shareholder approval within thirty (30) days following the date on which the
number of Reserved Amount exceeds the Authorized and Reserved Shares, it will be
considered an Event of default under Section 3.4 of the Note.
h. Listing. The Company shall promptly secure the listing of the
Conversion Shares upon each national securities exchange or automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and, so long as any Buyer owns any of the
Securities, shall maintain, so long as any other shares of Common Stock shall be
so listed, such listing of all Conversion Shares from time to time issuable upon
conversion of the Note. The Company will obtain and, so long as any Buyer owns
any of the Securities, maintain the listing and trading of its Common Stock on
the OTCQB or any equivalent replacement exchange, the Nasdaq National Market
("Nasdaq"), the Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New York Stock
Exchange ("NYSE"), or the American Stock Exchange ("AMEX") and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the Financial Industry Regulatory Authority ("FINRA") and
such exchanges, as applicable. The Company shall promptly provide to the Buyer
copies of any notices it receives from the OTCQB and any other exchanges or
quotation systems on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on such exchanges and
quotation systems. If the market price of the Company's Common Stock shall at
any time fall below the price required to continue to be quoted on the Company's
then principal exchange or automated quotation system, the Company shall as soon
as practicable take all actions necessary to effect a reverse split of the
Company's Common Stock, such that the price would then be at least fifty percent
(50%) above the required price, post-split. If the Company fails to achieve the
required reverse split within thirty (30) days following the date on which the
price fell below the required minimum trading price, it will be considered an
Event of default under Section 3.4 of the Note.
i. Corporate Existence. So long as a Buyer beneficially owns any Note, the
Company shall maintain its corporate existence and shall not sell all or
substantially all of the Company's assets, except in the event of a merger or
consolidation or sale of all or substantially all of the Company's assets, where
the surviving or successor entity in such transaction (i) assumes the Company's
obligations hereunder and under the agreements and instruments entered into in
connection herewith and (ii) is a publicly traded corporation whose Common Stock
is listed for trading on the OTCQB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
j. No Integration. The Company shall not make any offers or sales of any
security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of the Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
k. Breach of Covenants. If the Company breaches any of the covenants set
forth in this Section 4, and in addition to any other remedies available to the
Buyer pursuant to this Agreement, it will be considered an Event of default
under Section 3.4 of the Note.
l. Failure to Comply with the 1934 Act. So long as the Buyer beneficially
owns the Note, the Company shall comply with the reporting requirements of the
1934 Act; and the Company shall continue to be subject to the reporting
requirements of the 1934 Act.
m. Trading Activities. Neither the Buyer nor their affiliates has an open
short position in the common stock of the Company and the Buyer agree that they
shall not, and that they will cause their affiliates not to, engage in any short
sales of or hedging transactions with respect to the common stock of the
Company.
n. Omitted Intentionally.
o. Non-Frustration of Purpose. So long as the Buyer or its affiliates
hold any Securities, neither the Company nor any of its affiliates or
subsidiaries, nor any of its or their respective officers, employees, directors,
agents or other representatives, will effect, enter into, announce or recommend
to its stockholders any agreement, plan, arrangement or transaction the terms of
which would or would reasonably be expected to (i) have a material adverse
effect on the Buyer's investment in the Note or Conversion Shares or (ii)
11
restrict, delay, conflict with or impair the ability or right of the Company to
timely perform its obligations under this Agreement or the Notes, including,
without limitation, the obligation of the Company to timely deliver shares of
Common Stock to the Buyer or its affiliates in accordance with this Agreement or
the Note.
p. Restricted Transactions. So long as any of the Securities being sold
to the Buyer in this offering remain outstanding, including Conversion Shares,
neither the Company nor any of its affiliates or subsidiaries, nor any of its or
their respective officers, employees, directors, agents or other
representatives, will, without the prior written consent of the Investor,
directly or indirectly, solicit, accept, enter into, announce, or otherwise
cooperate in any way, assist or participate in or facilitate or encourage, any
exchange (i) of any security of the Company or any of its subsidiaries for any
other security of the Company or any of its subsidiaries, except to the extent
(x) consummated pursuant to an exchange registered under a registration
statement of the Company filed pursuant to the 1933 Act and declared effective
by the SEC or (y) such exchange is exempt from registration pursuant to an
exemption provided under the 1933 Act (other than Section 3(a)(10) of the 0000
Xxx) or (ii) of any indebtedness or other securities of the Company or any of
its subsidiaries relying on the exemption provided by Section 3(a)(10) of the
1933 Act. Notwithstanding the foregoing or anything contained herein to the
contrary, neither the Company nor any of its affiliates or subsidiaries, nor any
of its or their respective officers, employees, directors, agents or other
representatives, will, without the prior written consent of the Investor (which
consent may be withheld, delayed or conditioned in the Investor's sole
discretion), directly or indirectly, cooperate in any way, assist or participate
in, facilitate or encourage any effort or attempt by any third party to effect
any acquisition of securities of the Company by such third party from an
existing holder of such securities in connection with a proposed exchange of
such securities of the Company (whether pursuant to Section 3(a)(9) or 3(a)(10)
of the 1933 Act or otherwise)..
q. Prohibition on Variable Rate Transactions. So long as any of the
Securities being sold to the Buyer in this offering remain outstanding and owned
by the Buyer, including Conversion Shares, the Company shall not, directly or
indirectly, (i) issue or sell any convertible securities either (A) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of, or quotations for, the shares of Common Stock
at any time after the initial issuance of such convertible securities, or (B)
with a conversion, exercise or exchange price that is subject to being reset at
some future date after the initial issuance of such convertible securities or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock, or
(ii) enter into any agreement (including, without limitation, an "equity line of
credit" or an "at-the-market offering") whereby the Company or any of its
subsidiaries may sell securities at a future determined price (other than
standard and customary "preemptive" or "participation" rights). The Buyer shall
be entitled to obtain injunctive relief against the Company and its subsidiaries
to preclude any such issuance, which remedy shall be in addition to any right to
collect damages.
r. Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company covenants and agrees that after the Closing Date neither it, nor any
other person acting on its behalf, will provide Buyer or its agents or counsel
with any information that the Company believes constitutes material non-public
information, unless prior thereto the Buyer shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that the Buyer shall be relying on the foregoing
covenant in effecting transactions in securities of the Company. Each Buyer
acknowledges that it is aware that the United States securities laws prohibit
any person who has material non-public information about a company from
purchasing or selling securities of such company, or from communicating such
information to any other person under circumstances in which it is reasonably
foreseeable that such person is likely to purchase or sell such securities, and
the Buyer agrees not to engage in any unlawful trading in securities of the
Company or unlawful misuse or misappropriation of any such information. Buyer
agrees to maintain the confidentiality of and not disclose or use (except for
purposes relating to the transactions contemplated by this Agreement) any
confidential, proprietary or non-public information disclosed by the Company to
Buyer.
5. Transfer Agent Instructions. The Company covenants and agrees that it
will at all times while any Securities remain outstanding maintain a duly
qualified independent transfer agent. On or prior to the initial Closing Date,
the Company shall provide a copy of its agreement with the transfer agent to the
Buyer. If a new transfer agent is appointed at any time, the Company shall
provide the Buyer with a copy of the new agreement within three (3) business
days of its execution. The Company shall issue irrevocable instructions to its
transfer agent to issue certificates, registered in the name of the Buyer or its
nominee, for the Conversion Shares in such amounts as specified from time to
time by the Buyer to the Company upon conversion of the Note in accordance with
the terms thereof (the "Irrevocable Transfer Agent Instructions"). In the event
that the Borrower proposes to replace its transfer agent, the Borrower shall
provide, prior to the effective date of such replacement, a fully executed
Irrevocable Transfer Agent Instructions in a form as initially delivered
pursuant to the Purchase Agreement (including but not limited to the provision
to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by
12
the successor transfer agent to Borrower and the Borrower. Prior to registration
of the Conversion Shares under the 1933 Act or the date on which the Conversion
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately sold, all
such certificates shall bear the restrictive legend specified in Section 2(g) of
this Agreement. The Company warrants that: (i) no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop
transfer instructions to give effect to Section 2(f) hereof (in the case of the
Conversion Shares, prior to registration of the Conversion Shares under the 1933
Act or the date on which the Conversion Shares may be sold pursuant to Rule 144
without any restriction as to the number of Securities as of a particular date
that can then be immediately sold), will be given by the Company to its transfer
agent and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the Note; (ii) it will not direct its transfer agent not to transfer or
delay, impair, and/or hinder its transfer agent in transferring (or
issuing)(electronically or in certificated form) any certificate for Conversion
Shares to be issued to the Buyer upon conversion of or otherwise pursuant to the
Note as and when required by the Note and this Agreement; and (iii) it will not
fail to remove (or directs its transfer agent not to remove or impairs, delays,
and/or hinders its transfer agent from removing) any restrictive legend (or to
withdraw any stop transfer instructions in respect thereof) on any certificate
for any Conversion Shares issued to the Buyer upon conversion of or otherwise
pursuant to the Note as and when required by the Note and this Agreement.
Nothing in this Section shall affect in any way the Buyer's obligations and
agreement set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon re-sale of the Securities. If a
Buyer provides the Company, at the cost of the Buyer, with (i) an opinion of
counsel in form, substance and scope customary for opinions in comparable
transactions, to the effect that a public sale or transfer of such Securities
may be made without registration under the 1933 Act and such sale or transfer is
effected or (ii) the Buyer provides reasonable assurances that the Securities
can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in
the case of the Conversion Shares, promptly instruct its transfer agent to issue
one or more certificates, free from restrictive legend, in such name and in such
denominations as specified by the Buyer. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Buyer, by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 may be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Section,
that the Buyer shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach and requiring immediate transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
6. Conditions to the Company's Obligation to Sell. The obligation of the
Company hereunder to issue and sell the Note to a Buyer at the Closing is
subject to the satisfaction, at or before the Closing Date of each of the
following conditions thereto, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion:
a. The Buyer shall have executed this Agreement and delivered the same to
the Company.
b. The Buyer shall have delivered the Purchase Price in accordance with
Section 1(b) above.
c. The representations and warranties of the applicable Buyer shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the applicable Buyer shall
have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
d. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by or in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
7. Conditions to The Buyer's Obligation to Purchase. The obligation of the
Buyer hereunder to purchase the Note at the Closing is subject to the
satisfaction, at or before the Closing Date of each of the following conditions,
provided that these conditions are for the Buyer's sole benefit and may be
waived by the Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and delivered the same
to the Buyer.
13
b. The Company shall have delivered to the Buyer duly executed Note (in
such denominations as the Buyer shall request) in accordance with Section 1(b)
above.
c. The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to a majority-in-interest of the Buyer, shall have been delivered
to and acknowledged in writing by the Company's Transfer Agent.
d. The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at such time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Buyer shall have received a
certificate or certificates, executed by the chief executive officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by the Buyer including, but not
limited to certificates with respect to the Company's Certificate of
Incorporation, By-laws and Board of Directors' resolutions relating to the
transactions contemplated hereby.
e. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by or in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
f. No event shall have occurred which could reasonably be expected to have
a Material Adverse Effect on the Company including but not limited to a change
in the 1934 Act reporting status of the Company or the failure of the Company to
be timely in its 1934 Act reporting obligations, or in the sole discretion of
Buyer, the transaction's risk profile, market pricing or implied volatility
substantially changes, due diligence concerns arise, or any other conditions
material to the successful closing of the transaction are not acceptable to the
Buyer.
g. The Conversion Shares shall have been authorized for quotation on the
OTCQB and trading in the Common Stock on the OTCQB or such equivalent exchange
and shall not have been suspended by the SEC or the OTCQB or such equivalent
exchange.
h. The Buyer shall have received an officer's certificate described in
Section 3(c) above, dated as of the Closing Date.
i. The Buyer shall have received an opinion of counsel for the Company, in form
and substance satisfactory to the Buyer.
8. Governing Law; Miscellaneous.
a. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the state
and county of New York.
The parties to this Agreement hereby irrevocably waive any objection to
jurisdiction and venue of any action instituted hereunder and shall not assert
any defense based on lack of jurisdiction or venue or based upon FORUM NON
CONVENIENS. The Company and Buyer waive trial by jury. The prevailing party
shall be entitled to recover from the other party its reasonable attorney's fees
and costs. In the event that any provision of this Agreement or any other
agreement delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any suit, action or proceeding in connection with this Agreement or
any other agreement or document executed in connection with this transaction
(each a "Transaction Document"), by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
14
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 contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law.
IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY
AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE
GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY,
IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
b. Counterparts; Signatures by Facsimile. This Agreement may be executed
in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission or by e-mail
delivery of a ".pdf" format data file, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or ".pdf"
signature page were an original thereof.
c. Headings. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the majority in interest of the Buyer.
f. Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, 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, to:
TUNGSTEN CORP.
0000 XX 000 XXXX
XXXXX, XX 00000
Attn: Xxx Xxxxxx, CEO
If to the Buyer:
MAGNA GROUP
0 XXXXXXX XXXXXX
XXX XXXX, XX 00000
Attn: Xxxxxx Xxxxx, Managing Member
facsimile: 000-000-0000
15
Each party shall provide notice to the other party of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. Neither the
Company nor any Buyer shall assign this Agreement or any rights or obligations
hereunder without the prior written consent of the other. Notwithstanding the
foregoing, subject to Section 2(f), any Buyer may assign its rights hereunder to
any person that purchases Securities in a private transaction from a Buyer or to
any of its "affiliates," as that term is defined under the 1934 Act, without the
consent of the Company.
h. Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
i. Survival. The representations and warranties of the Company and the
agreements and covenants set forth in this Agreement shall survive the closing
hereunder notwithstanding any due diligence investigation conducted by or on
behalf of the Buyer. The Company agrees to indemnify and hold harmless each of
the Buyer and all their officers, directors, employees and agents for loss or
damage arising as a result of or related to any breach or alleged breach by the
Company of any of its representations, warranties and covenants set forth in
this Agreement or any of its covenants and obligations under this Agreement,
including advancement of expenses as they are incurred.
j. Publicity. The Company, and each of the Buyer shall have the right to
review a reasonable period of time before issuance of any press releases, SEC,
OTCQB or FINRA filings, or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of each of the Buyer, to make any press
release or SEC, OTCQB (or other applicable trading market) or FINRA filings with
respect to such transactions as is required by applicable law and regulations
(although each of the Buyer shall be consulted by the Company in connection with
any such press release prior to its release and shall be provided with a copy
thereof and be given an opportunity to comment thereon).
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
m. Remedies. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyer by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that the
Buyer shall be entitled, in addition to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Agreement
and to enforce specifically the terms and provisions hereof, without the
necessity of showing economic loss and without any bond or other security being
required.
n. Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) any of
the other Transaction Documents, whenever Buyer exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then the
Buyer may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided,
however, that in the case of a rescission of a conversion of a Note, the Buyer
shall be required to return any shares of Common Stock subject to any such
rescinded conversion or exercise notice.
16
o. Usury. To the extent it may lawfully do so, the Company hereby agrees
not to insist upon or plead or in any manner whatsoever claim, and will resist
any and all efforts to be compelled to take the benefit or advantage of, usury
laws wherever enacted, now or at any time hereafter in force, in connection with
any claim, action or proceeding that may be brought by Buyer in order to enforce
any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly
agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the "Maximum Rate"),
and, without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents
from the effective date forward, unless such application is precluded by
applicable law. If under any circumstances whatsoever, interest in excess of the
Maximum Rate is paid by the Company to Buyer with respect to indebtedness
evidenced by the Transaction Documents, such excess shall be applied by the
Buyer to the unpaid principal balance of any such indebtedness or be refunded to
the Company, the manner of handling such excess to be at the Buyer's election.
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this
Agreement to be duly executed as of the date first above written.
TUNGSTEN CORP.
By: ___________________________________
Xxx Xxxxxx
CEO
MAGNA EQUITIES II, LLC
By: ___________________________________
Xxxxxx Xxxxx
Managing Member
0 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Note: $9,250
Aggregate Purchase Price: $9,250
17
