SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE
AGREEMENT (“Agreement”) is made
as of the 24th day of December, 2009, by and among Emerald Dairy Inc., a
Nevada corporation, with an address at 00000 Xxxxxx Xxxxxx, Xxxxx
000, Xxxxxx, XX 00000 (the “Company”), and the
Investors set forth on the signature pages affixed hereto (each an “Investor” and
collectively the “Investors”).
Recitals:
A. The
Company and the Investors are executing and delivering this Agreement in
connection with an offering of securities of the Company (the “Offering”), in
reliance upon the exemption from securities registration afforded by the
provisions of Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”), or
Regulation D promulgated thereunder (“Regulation D”);
and
B. The
Investors wish to purchase from the Company, and the Company wishes to sell and
issue to the Investors, upon the terms and conditions stated in this
Agreement:
(i) Promissory
notes in an aggregate principal amount of $1,750,000, with an interest rate of
ten (10%) percent per annum (the “Notes”), in
substantially the form attached hereto as Exhibit
A; and
(ii) Warrants
to purchase that number of shares of the Company’s Common Stock equal to fifty
(50%) percent of the principal dollar amount of the Notes purchased, divided by
$1.63, at an exercise price of $1.63 per share (the “Warrants”), in
substantially the form attached hereto as Exhibit
B; and
C. The
Notes will be secured by a pledge of 5,883,329 shares (the “Pledged Shares”) of
the Common Stock of the Company beneficially owned by Xxxx Xxxx Shan (the “Pledgor”), its Chief
Executive Officer, pursuant to the Pledge Agreement (the “Pledge Agreement”),
in substantially the form attached hereto as Exhibit
C; and
D. As
further inducement to the Investors to purchase the Notes and Warrants from the
Company:
(i) the
Company has agreed to deliver to the Investors an Irrevocable Payment
Instruction instructing the underwriters in any public offering the Company
consummates to pay all amounts due under the Notes from the proceeds of such
public offering directly to the Investors (the “Irrevocable Payment
Instruction”), in substantially the form attached hereto as Exhibit
D, and
(ii) concurrently
herewith, AFH Holding & Advisory, LLC (“AFH Advisory”) and
the Investors are entering into a Put Agreement, pursuant to which the Investors
shall have the right, but not the obligation, to require AFH Advisory to
purchase the Notes and Warrants from the Investors under certain circumstances
(the “Put
Agreement”), in substantially the form attached hereto as Exhibit
E.
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In consideration of the mutual promises
made herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. In addition to
those terms defined above and elsewhere in this Agreement, for the purposes of
this Agreement, the following terms shall have the meanings set forth
below:
“Affiliate” means,
with respect to any Person, any other Person which directly or indirectly
through one or more intermediaries Controls, is controlled by, or is under
common Control with, such Person.
“Business Day” means a
day, other than a Saturday or Sunday, on which banks in New York City are open
for the general transaction of business.
“Closing Fee” means
two (2%) percent of the Loan Amount.
“Common Stock” means
the Company’s common stock, par value $0.001 per share, and any securities into
which the common stock may be reclassified.
“Company’s Knowledge”
means the actual knowledge of the executive officers (as defined in Rule 405
under the 0000 Xxx) of the Company, after due inquiry.
“Confidential
Information” means trade secrets, confidential information and know-how
(including but not limited to ideas, formulae, compositions, processes,
procedures and techniques, research and development information, computer
program code, performance specifications, support documentation, drawings,
specifications, designs, business and marketing plans, and customer and supplier
lists and related information).
“Control” (including
the terms “controlling”, “controlled by” or “under common control with”) means
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
“Interest” means
interest at a rate of 10% per annum.
“Intellectual
Property” means all of the following: (i) patents, patent applications,
patent disclosures and inventions (whether or not patentable and whether or not
reduced to practice); (ii) trademarks, service marks, trade dress, trade names,
corporate names, logos, slogans and Internet domain names, together with all
goodwill associated with each of the foregoing; (iii) copyrights and
copyrightable works; (iv) registrations, applications and renewals for any of
the foregoing; and (v) proprietary computer software (including but not limited
to data, data bases and documentation).
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“Irrevocable Payment
Instruction” has the meaning set forth in Recital D above.
“Loan Amount” means
$1,750,000.
“Material Adverse
Effect” means a material adverse effect on (i) the assets, liabilities,
results of operations, condition (financial or otherwise), business, or
prospects of the Company and its Subsidiaries taken as a whole, or (ii) the
ability of the Company to perform its obligations under the Transaction
Documents.
“Notes” means the
promissory notes purchased in connection with the Offering in the aggregate
principal amount of the Loan Amount.
“Person” means an
individual, corporation, partnership, limited liability company, trust, business
trust, association, joint stock company, joint venture, sole proprietorship,
unincorporated organization, governmental authority or any other form of entity
not specifically listed herein.
“Pledge Agent” means
the Law Offices of Molino & Associates.
“Pledge Agreement” has
the meaning set forth in the Recitals above.
“Pledged Shares” means
the common shares of the Company to be pledged to the Investors by the Pledgor
pursuant to the Pledge Agreement (including any additional shares pledged by the
Pledgor pursuant to Section 4(e) of the Pledge Agreement).
“Pledgor” means Xxxx
Xxxx Shan, the Company’s Chief Executive Officer.
“Put Agreement” has
the meaning set forth in the Recitals above.
“SEC Filings” has the
meaning set forth in Section 4.6.
“Securities” means the
Notes, the Warrants and the Warrant Shares.
“Subsidiary” of any
Person means another Person, an amount of the voting securities, other voting
ownership or voting partnership interests of which is sufficient to elect at
least a majority of its Board of Directors or other governing body (or, if there
are no such voting interests, 50% or more of the equity interests of which) is
owned directly or indirectly by such first Person.
“Transaction
Documents” means this Agreement, the Notes, the Warrants, the Pledge
Agreement, the Irrevocable Payment Instruction, the Put Agreement and certain
other papers, agreements, documents, instruments and certificates necessary to
carry out the purposes thereof.
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“Warrants” means the
warrants to purchase an aggregate of 536,809 shares of Common Stock to be
purchased in connection with the Offering, as further set forth in Recital B(ii)
above.
“Warrant Shares” means
the 536,809 shares of Common Stock issuable upon the exercise of the
Warrants.
“1933 Act” has the
meaning set forth in the Recitals above.
“1934 Act” means the
Securities Exchange Act of 1934, as amended, or any successor statute, and the
rules and regulations promulgated thereunder.
2. Purchase
and Sale of Notes and Warrants. Subject to the
terms and conditions of this Agreement, at the Closing (as defined in Section 3
below), the Investors shall severally, and not jointly, purchase, and the
Company shall sell and issue to such Investors, the Notes and Warrants in the
respective amounts set forth opposite the Investors’ names on the signature
pages attached hereto in exchange for payment by each Investor of its pro rata
share of the Loan Amount; provided, however, that not
more than $1,750,000 of Notes, in the aggregate, shall be purchased in this
Offering.
3. Closing. At the closing
(the “Closing”), and provided each of the conditions set forth in Section 6
hereof have been satisfied or waived by the appropriate party or parties, (a)
each Investor shall deliver, or cause to be delivered, their pro rata share of
the Loan Amount to the Company, in immediately available funds, (b) the Company
shall deliver the appropriate amount of Notes and number of Warrants to the
applicable Investors (c) the Company shall pay the pro rata share of the Closing
Fee to each of the Investors and (d) the Pledgor shall deliver the Pledged
Shares into the custody of the Pledge Agent on behalf of the
Investors. For the purposes hereof, the date the Closing actually
takes place shall be referred to as the “Closing Date.” The Closing
shall take place at the offices of Xxxxx | Park LLP, 000 Xxxxxxxx Xxxxxxxxx, Xxx
Xxxxxxx, Xxxxxxxxxx 00000, or at such other location and on such other date as
the Company and the Investors shall mutually agree.
4. Representations
and Warranties of the Company. The Company
hereby represents and warrants to the Investors that, except as set forth in the
schedules delivered herewith (collectively, the “Disclosure
Schedules”):
4.1 Organization, Good Standing
and Qualification. Each of the Company and its Subsidiaries is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to carry on its business as now conducted and to own its
properties. Each of the Company and its Subsidiaries is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property makes such qualification or leasing necessary unless the
failure to so qualify has not had and could not reasonably be expected to have a
Material Adverse Effect. The Company’s Subsidiaries are listed on
Schedule 4.1
hereto.
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4.2 Authorization. The
Company has full power and authority and, except
as described in Schedule 4.2, has taken all requisite action on the part of
the Company, its officers, directors and stockholders necessary for (i) the
authorization, execution and delivery of the Transaction Documents, as
applicable, (ii) the authorization of the performance of all obligations of the
Company hereunder or thereunder, and (iii) the authorization, issuance (or
reservation for issuance) and delivery of the Securities. The Company
has issued the Pledged Shares, and the Pledged Shares are validly existing,
fully paid and non-assessable. The Transaction Documents constitute
the legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability, relating to or affecting creditors’ rights
generally.
4.3 Capitalization. Schedule 4.3 sets
forth (a) the authorized capital stock of the Company on the date hereof; (b)
the number of shares of capital stock issued and outstanding; (c) the number of
shares of capital stock issuable pursuant to the Company’s stock plans; and (d)
the number of shares of capital stock issuable and reserved for issuance
pursuant to securities (other than the Securities) exercisable for, or
convertible into or exchangeable for any shares of capital stock of the
Company. All of the issued and outstanding shares of the Company’s
capital stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of pre-emptive rights and were issued in full compliance
with applicable state and federal securities law and any rights of third
parties. Except as described on Schedule 4.3, all of
the issued and outstanding shares of capital stock of each Subsidiary have been
duly authorized and validly issued and are fully paid, nonassessable and free of
pre-emptive rights, were issued in full compliance with applicable state and
federal securities law and any rights of third parties and are owned by the
Company, beneficially and of record, subject to no lien, encumbrance or other
adverse claim. Except as described on Schedule 4.3, no
Person is entitled to pre-emptive or similar statutory or contractual rights
with respect to any securities of the Company. Except as described on
Schedule 4.3,
there are no outstanding warrants, options, convertible securities or other
rights, agreements or arrangements of any character under which the Company or
any of its Subsidiaries is or may be obligated to issue any equity securities of
any kind and except as contemplated by this Agreement, neither the Company nor
any of its Subsidiaries is currently in negotiations for the issuance of any
equity securities of any kind. Except as described on Schedule 4.3, there
are no voting agreements, buy-sell agreements, option or right of first purchase
agreements or other agreements of any kind among the Company and any of the
securityholders of the Company relating to the securities of the Company held by
them. Except as described on Schedule 4.3, no
Person has the right to require the Company to register any securities of the
Company under the 1933 Act, whether on a demand basis or in connection with the
registration of securities of the Company for its own account or for the account
of any other Person.
Except as described on Schedule 4.3, the
issuance and sale of the Securities hereunder will not obligate the Company to
issue shares of Common Stock or other securities to any other Person (other than
the Investors) and will not result in the adjustment of the exercise,
conversion, exchange or reset price of any outstanding
security.
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Except as described on Schedule 4.3, the
Company does not have outstanding stockholder purchase rights or “poison pill”
or any similar arrangement in effect giving any Person the right to purchase any
equity interest in the Company upon the occurrence of certain
events.
4.4 Valid
Issuance. The Notes have been duly and validly authorized and
shall be free and clear of all encumbrances and restrictions (other than those
created by the Investors), except for restrictions on transfer set forth in the
Notes. The Warrants have been duly and validly authorized and shall
be free and clear of all encumbrances and restrictions (other than those created
by the Investor), except for restrictions on transfer set forth in the
Warrants. Upon the due exercise of the Warrants, the Warrant Shares
will be validly issued, fully paid and non-assessable free and clear of all
encumbrances and restrictions, except for restrictions on transfer set forth in
the Transaction Documents or imposed by applicable securities laws and except
for those created by the Investors. The Company has reserved a
sufficient number of shares of Common Stock for issuance upon the exercise of
the Warrants, free and clear of all encumbrances and restrictions, except for
restrictions on transfer set forth in the Transaction Documents or imposed by
applicable securities laws and except for those created by the
Investors.
4.5 Consents. Except
as described in Schedule 4.5, the execution, delivery and performance by the
Company of the Transaction Documents, and the offer, issuance and sale of the
Securities, require no consent of, action by or in respect of, or filing with,
any Person, governmental body, agency, or official other than filings that have
been made pursuant to applicable state securities laws and post-sale filings
pursuant to applicable state and federal securities laws or any other notices
required thereby, all of which the Company undertakes to file within the
applicable time periods. Subject to the accuracy of the
representations and warranties of each Investor set forth in Section 5 hereof,
the Company has taken all action necessary to exempt (i) the issuance and sale
of the Notes and Warrants, (ii) the issuance of the Warrant Shares upon due
exercise of the Warrants, and (iii) the other transactions contemplated by the
Transaction Documents from the provisions of any stockholder rights plan or
other “poison pill” arrangement, any anti-takeover, business combination or
control share law or statute binding on the Company or to which the Company or
any of its assets and properties may be subject and any provision of the
Company’s Articles of Incorporation, as amended, or Bylaws that is or could
reasonably be expected to become applicable to the Investors as a result of the
transactions contemplated hereby, including without limitation, the issuance of
the Securities and the ownership, disposition or voting of the Securities by the
Investors or the exercise of any right granted to the Investors pursuant to this
Agreement or the other Transaction Documents.
4.6 Delivery of SEC Filings;
Business. The Company has made available to the Investors
through the XXXXX system, true and complete copies of the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2008 (the “10-K”), and all other
reports filed by the Company pursuant to the 1934 Act since the filing of the
10-K and prior to the date hereof (collectively, the “SEC
Filings”). Except as indicated in the SEC Filings, the SEC
Filings are the only filings required of the Company pursuant to the 1934 Act
for such period. The Company and its Subsidiaries are engaged in all
material respects only in the business described in the SEC Filings and the SEC
Filings contain a complete and accurate description in all material respects of
the business of the Company and its Subsidiaries, taken as a
whole.
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4.7 Use of
Proceeds. The net proceeds from this Offering will be used
primarily for: (a) construction and equipping of a new milk powder production
facility, (b) expenses related to the Offering, and (c) general working capital
purposes.
4.8 No Material Adverse
Change. Since September 30, 2009, except as identified and
described on Schedule
4.8, there has not been:
(a) any
change in the consolidated assets, liabilities, financial condition or operating
results of the Company from that reflected in the financial statements included
in the Company’s Quarterly Report of Form 10-Q for the fiscal quarter ended
September 30, 2009, except for changes in the ordinary course of business which
have not had and could not reasonably be expected to have a Material Adverse
Effect, individually or in the aggregate;
(b) any
declaration or payment of any dividend, or any authorization or payment of any
distribution, on any of the capital stock of the Company, or any redemption or
repurchase of any securities of the Company;
(c) any
material damage, destruction or loss, whether or not covered by insurance to any
assets or properties of the Company or its Subsidiaries;
(d) any
waiver, not in the ordinary course of business, by the Company or any Subsidiary
of a material right or of a material debt owed to it;
(e) any
satisfaction or discharge of any lien, claim or encumbrance or payment of any
obligation by the Company or a Subsidiary, except in the ordinary course of
business and which is not material to the assets, properties, financial
condition, operating results or business of the Company and its Subsidiaries
taken as a whole (as such business is presently conducted and as it is proposed
to be conducted);
(f) any
change or amendment to the Company’s Articles of Incorporation, as amended, or
Bylaws, or material change to any material contract or arrangement by which the
Company or any Subsidiary is bound or to which any of their respective assets or
properties is subject;
(g) any
material labor difficulties or labor union organizing activities with respect to
employees of the Company or any Subsidiary;
(h) any
material transaction entered into by the Company or a Subsidiary other than in
the ordinary course of business;
(i) the
loss of the services of any key employee, or material change in the composition
or duties of the senior management of the Company or any
Subsidiary;
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(j) the
loss or threatened loss of any customer which has had or could reasonably be
expected to have a Material Adverse Effect; or
(k) any
other event or condition of any character that has had or could reasonably be
expected to have a Material Adverse Effect.
4.9 SEC
Filings.
(a) At
the time of filing thereof, the SEC Filings complied as to form in all material
respects with the requirements of the 1934 Act and did not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
(b) To
the Company’s Knowledge, each registration statement and any amendment thereto
filed by the Company pursuant to the 1933 Act and/or 1934 Act, and the rules and
regulations thereunder, as of the date such statement or amendment became
effective, complied as to form in all material respects with the 1933 Act and/or
1934 Act, and did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein not misleading; and each prospectus filed
pursuant to Rule 424(b) under the 1933 Act, as of its issue date and as of the
closing of any sale of securities pursuant thereto did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not
misleading.
4.10 No Conflict, Breach,
Violation or Default. The
execution, delivery and performance of the Transaction Documents by the Company
and the issuance and sale of the Securities will not conflict with or result in
a breach or violation of any of the terms and provisions of, or constitute a
default under (i) the Company’s Articles of Incorporation, as amended, or the
Company’s Bylaws, both as in effect on the date hereof (true and complete copies
of which have been made available to the Investors), or (ii)(a) any statute,
rule, regulation or order of any governmental agency or body or any court,
domestic or foreign, having jurisdiction over the Company, any Subsidiary or any
of their respective assets or properties, or (b) any agreement or instrument to
which the Company or any Subsidiary is a party or by which the Company or a
Subsidiary is bound or to which any of their respective assets or properties is
subject.
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4.11 Tax
Matters. The Company and each Subsidiary has timely prepared
and filed all tax returns required to have been filed by the Company or such
Subsidiary with all appropriate governmental agencies and timely paid all taxes
shown thereon or otherwise owed by it. The charges, accruals and
reserves on the books of the Company in respect of taxes for all fiscal periods
are adequate in all material respects, and there are no material unpaid
assessments against the Company or any Subsidiary nor, to the Company’s
Knowledge, any basis for the assessment of any additional taxes, penalties or
interest for any fiscal period or audits by any federal, state or local taxing
authority except for any assessment which is not material to the Company and its
Subsidiaries, taken as a whole. All taxes and other assessments and
levies that the Company or any Subsidiary is required to withhold or to collect
for payment have been duly withheld and collected and paid to the proper
governmental entity or third party when due. There are no tax liens
or claims pending or, to the Company’s Knowledge, threatened against the Company
or any Subsidiary or any of their respective assets or
property. Except as described on Schedule 4.11, there
are no outstanding tax sharing agreements or other such arrangements between the
Company and any Subsidiary or other corporation or entity.
4.12 Title to
Properties. Except as disclosed in Schedule 4.12, the
Company and each Subsidiary has good and marketable title to all real properties
and all other properties and assets owned by it, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or currently planned to be made thereof
by them; and except as disclosed in Schedule 4.12, the
Company and each Subsidiary holds any leased real or personal property under
valid and enforceable leases with no exceptions that would materially interfere
with the use made or currently planned to be made thereof by them.
4.13 Certificates, Authorities
and Permits. The Company and each Subsidiary possess adequate
certificates, authorities or permits issued by appropriate governmental agencies
or bodies necessary to conduct the business now operated by it, and neither the
Company nor any Subsidiary has received any notice of proceedings relating to
the revocation or modification of any such certificate, authority or permit
that, if determined adversely to the Company or such Subsidiary, could
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate.
4.14 Labor Matters.
(a) Except as set forth on Schedule 4.14, the Company is not a party to or bound by any
collective bargaining agreements or other agreements with labor
organizations. The Company has not violated in any material respect
any laws, regulations, orders or contract terms, affecting the collective
bargaining rights of employees, labor organizations or any laws, regulations or
orders affecting employment discrimination, equal opportunity employment, or
employees’ health, safety, welfare, wages and hours.
(b) (i) There are no labor disputes existing, or to the
Company’s Knowledge, threatened, involving strikes, slow-downs, work stoppages,
job actions, disputes, lockouts or any other disruptions of or by the Company’s
employees, (ii) there are no unfair labor practices or petitions for election
pending or, to the Company’s Knowledge, threatened before any governmental
agency or labor commission relating to the Company’s employees, (iii) no demand
for recognition or certification heretofore made by any labor organization or
group of employees is pending with respect to the Company, and (iv) to the
Company’s Knowledge, the Company enjoys good labor and employee relations with
its employees and labor organizations.
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(c) The Company is, and at all times has been, in compliance
in all material respects with all applicable laws respecting employment
(including laws relating to classification of employees and independent
contractors) and employment practices, terms and conditions of employment, wages
and hours, and immigration and naturalization.
(d) Except as disclosed in the SEC Filings or as described
on Schedule
4.14, the Company is not a party to, or
bound by, any employment or other contract or agreement that contains any
severance, termination pay or change of control liability or obligation,
including, without limitation, any “excess parachute payment,” as defined in
Section 2806(b) of the Internal Revenue Code.
(e) Except as specified in Schedule 4.14, to the Company’s Knowledge, none of the Company’s
employees is a Person who is either a United States citizen or a permanent
resident entitled to work in the United States. To the Company’s
Knowledge, the Company has no liability for the improper classification by the
Company of such employees as independent contractors or leased employees prior
to the Closing.
4.15 Intellectual
Property. Except as specified in Schedule
4.15:
(a) All
Intellectual Property of the Company and its Subsidiaries is currently in
compliance with all legal requirements (including timely filings, proofs and
payments of fees) and is valid and enforceable. No Intellectual
Property of the Company or its Subsidiaries which is necessary for the conduct
of Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted has been or is now involved
in any cancellation, dispute or litigation, and, to the Company’s Knowledge, no
such action is threatened. No patent of the Company or its
Subsidiaries has been or is now involved in any interference, reissue,
re-examination or opposition proceeding.
(b) All
of the licenses and sublicenses and consent, royalty or other agreements
concerning Intellectual Property which are necessary for the conduct of the
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted to which the Company or any
Subsidiary is a party or by which any of their assets are bound (other than
generally commercially available, non-custom, off-the-shelf software
application programs having a retail acquisition price of less than $10,000 per
license) (collectively, “License Agreements”)
are valid and binding obligations of the Company or its Subsidiaries that are
parties thereto and, to the Company’s Knowledge, the other parties thereto,
enforceable in accordance with their terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws affecting the
enforcement of creditors’ rights generally, and there exists no event or
condition which will result in a material violation or breach of or constitute
(with or without due notice or lapse of time or both) a default by the Company
or any of its Subsidiaries under any such License Agreement.
(c) The
Company and its Subsidiaries own or have the valid right to use all of the
Intellectual Property that is necessary for the conduct of the Company’s and
each of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted and for the ownership, maintenance and
operation of the Company’s and its Subsidiaries’ properties and assets, free and
clear of all liens, encumbrances, adverse claims or obligations to license all
such owned Intellectual Property and Confidential Information, other than
licenses entered into in the ordinary course of the Company’s and its
Subsidiaries’ businesses. The Company and its Subsidiaries have a
valid and enforceable right to use all third party Intellectual Property and
Confidential Information used or held for use in the respective businesses of
the Company and its Subsidiaries.
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(d) To
the Company’s Knowledge, the conduct of the Company’s and its Subsidiaries’
businesses as currently conducted does not infringe or otherwise impair or
conflict with (collectively, “Infringe”) any
Intellectual Property rights of any third party or any confidentiality
obligation owed to a third party, and, to the Company’s Knowledge, the
Intellectual Property and Confidential Information of the Company and its
Subsidiaries which are necessary for the conduct of Company’s and each of its
Subsidiaries’ respective businesses as currently conducted or as currently
proposed to be conducted are not being Infringed by any third
party. There is no litigation or order pending or outstanding or, to
the Company’s Knowledge, threatened or imminent, that seeks to limit or
challenge or that concerns the ownership, use, validity or enforceability of any
Intellectual Property or Confidential Information of the Company and its
Subsidiaries and the Company’s and its Subsidiaries’ use of any Intellectual
Property or Confidential Information owned by a third party, and, to the
Company’s Knowledge, there is no valid basis for the same.
(e) The
consummation of the transactions contemplated hereby and by the other
Transaction Documents will not result in the alteration, loss, impairment of or
restriction on the Company’s or any of its Subsidiaries’ ownership or right to
use any of the Intellectual Property or Confidential Information which is
necessary for the conduct of Company’s and each of its Subsidiaries’ respective
businesses as currently conducted or as currently proposed to be
conducted.
(f) The
Company and its Subsidiaries have taken reasonable steps to protect the
Company’s and its Subsidiaries’ rights in their Intellectual Property and
Confidential Information. Each employee, consultant and contractor
who has had access to Confidential Information which is necessary for the
conduct of Company’s and each of its Subsidiaries’ respective businesses as
currently conducted or as currently proposed to be conducted has executed an
agreement to maintain the confidentiality of such Confidential Information and
has executed appropriate agreements that are substantially consistent with the
Company’s standard forms thereof, except where the failure to do so has not had
and could not reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate. Except under confidentiality
obligations, there has been no material disclosure of any of the Company’s or
its Subsidiaries’ Confidential Information to any third party.
4.16 Environmental
Matters. Except as specified in Schedule 4.16, to the
Company’s Knowledge, neither the Company nor any Subsidiary (i) is in violation
of any statute, rule, regulation, decision or order of any governmental agency
or body or any court, domestic or foreign, relating to the use, disposal or
release of hazardous or toxic substances or relating to the protection or
restoration of the environment or human exposure to hazardous or toxic
substances (collectively, “Environmental Laws”),
(ii) owns or operates any real property contaminated with any substance that is
subject to any Environmental Laws, (iii) is liable for any off-site disposal or
contamination pursuant to any Environmental Laws, or (iv) is subject to any
claim relating to any Environmental Laws, which violation, contamination,
liability or claim has had or could reasonably be expected to have a Material
Adverse Effect, individually or in the aggregate; and there is no pending or, to
the Company’s Knowledge, threatened investigation that might lead to such a
claim.
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4.17 Litigation. Except
as described on Schedule 4.17, there
are no pending actions, suits or proceedings against or affecting the Company,
its Subsidiaries or any of its or their properties; and to the Company’s
Knowledge, no such actions, suits or proceedings are threatened or
contemplated.
4.18 Financial
Statements. The financial statements included in each SEC
Filing present fairly, in all material respects, the consolidated financial
position of the Company as of the dates shown and its consolidated results of
operations and cash flows for the periods shown, and such financial statements
have been prepared in conformity with United States generally accepted
accounting principles applied on a consistent basis (“GAAP”) (except as may
be disclosed therein or in the notes thereto, and, in the case of quarterly
financial statements, as permitted by Form 10-Q under the 1934
Act). Except as set forth in the financial statements of the Company
included in the SEC Filings filed prior to the date hereof or as described on
Schedule 4.18,
neither the Company nor any of its Subsidiaries has incurred any liabilities,
contingent or otherwise, except those incurred in the ordinary course of
business, consistent (as to amount and nature) with past practices since the
date of such financial statements, none of which, individually or in the
aggregate, have had or could reasonably be expected to have a Material Adverse
Effect.
4.19 Insurance
Coverage. Except as set forth on Schedule 4.19, the
Company and each Subsidiary maintains in full force and effect insurance
coverage that is customary for comparably situated companies for the business
being conducted and properties owned or leased by the Company and each
Subsidiary, and the Company reasonably believes such insurance coverage to be
adequate against all liabilities, claims and risks against which it is customary
for comparably situated companies to insure.
4.20 Brokers and
Finders. No Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim
against or upon the Company, any Subsidiary or an Investor for any commission,
fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of the Company, other than as
described in Schedule
4.20.
4.21 No Directed Selling Efforts
or General Solicitation. Neither the Company nor any Person
acting on its behalf has conducted any general solicitation or general
advertising (as those terms are used in Regulation D) in connection with the
offer or sale of any of the Securities.
4.22 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 Company security or solicited any offers to buy any
security, under circumstances that would adversely affect reliance by the
Company on Section 4(2) of the 1933 Act for the exemption from registration for
the transactions contemplated hereby or would require registration of the
Securities under the 1933 Act.
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4.23 Private
Placement. Assuming the accuracy of the representations of the
Investors set forth in Sections 5.3 and 5.9 hereof, he offer and sale of the
Securities to the Investors as contemplated hereby is exempt from the
registration requirements of the 1933 Act.
4.24 Questionable
Payments. Neither
the Company nor any of its Subsidiaries nor, to the Company’s Knowledge, any of
their respective current or former stockholders, directors, officers, employees,
agents or other Persons acting on behalf of the Company or any Subsidiary, has
on behalf of the Company or any Subsidiary or in connection with their
respective businesses: (a) used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity;
(b) made any direct or indirect unlawful payments to any governmental officials
or employees from corporate funds; (c) established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; (d) made any false or
fictitious entries on the books and records of the Company or any Subsidiary;
(e) made any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment of any nature; or (f) taken any actions that would
violate the U.S. Foreign Corrupt Practices Act of 1977, as amended.
4.25 Transactions with
Affiliates. Except as disclosed in the SEC Filings or as
disclosed on Schedule
4.25, none of the officers or directors of the Company and, to the
Company’s Knowledge, none of the employees of the Company is presently a party
to any transaction with the Company or any Subsidiary (other than as holders of
stock options and/or warrants, and 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 Company’s Knowledge, any entity in which
any officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
4.26 Internal
Controls. Except as set forth in the SEC Filings, the Company
is in material compliance with the provisions of
the Xxxxxxxx-Xxxxx Act of 2002 currently applicable to the
Company. 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 1934
Act Rules 13a-14 and 15d-14) for the Company and designed such disclosure
controls and procedures to ensure that material information relating to the
Company, including the Subsidiaries, is made known to the certifying officers by
others within those entities, particularly during the period in which the
Company’s most recently filed periodic report under the 1934 Act, as the case
may be, is being prepared. The Company’s certifying officers have
evaluated the effectiveness of the Company's controls and procedures as of the
end of the period covered by the most recently filed periodic report under the
1934 Act (such date, the “Evaluation
Date”). The Company presented in its most recently filed
periodic report under the 1934 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 significant changes in the Company’s internal controls (as
such term is defined in Item 308 of Regulation S-K) or, to the Company’s
Knowledge, in other factors that could significantly affect the Company’s
internal controls. The Company maintains and will continue to
maintain a standard system of accounting established and administered in
accordance with GAAP and the applicable requirements of the 1934
Act.
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4.27 Disclosures. Neither
the Company nor any Person acting on its behalf has provided the Investors or
their agents or counsel with any information that constitutes or might
constitute material, non-public information. The written materials
delivered to the Investors in connection with the transactions contemplated by
the Transaction Documents do not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading.
5. Representations
and Warranties of the Investors. Each of the
Investors hereby severally, and not jointly, represents and warrants to the
Company that:
5.1 Organization and
Existence. Such Investor is an individual or a validly
existing corporation, limited partnership, or limited liability company and has
all requisite individual, corporate, partnership or limited liability company
power and authority to invest in the Securities pursuant to this
Agreement.
5.2 Authorization. The
execution, delivery and performance by such Investor of the Transaction
Documents to which such Investor is a party have been duly authorized and will
each constitute the valid and legally binding obligation of such Investor,
enforceable against such Investor in accordance with their respective terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability, relating to or affecting
creditors’ rights generally.
5.3 Purchase Entirely for Own
Account. The Securities to be received by such Investor
hereunder will be acquired for such Investor’s own account, not as nominee or
agent, and not with a view to the resale or distribution of any part thereof in
violation of the 1933 Act, and such Investor has no present intention of
selling, granting any participation in, or otherwise distributing the same in
violation of the 1933 Act without prejudice,
however, to such Investor’s right at all times to sell or otherwise dispose of
all or any part of such Securities in compliance with applicable federal and
state securities laws. Nothing contained herein shall be deemed a
representation or warranty by such Investor to hold the Securities for any
period of time. Such Investor is not a broker-dealer
registered with the SEC under the 1934 Act or an entity engaged in a business
that would require it to be so registered.
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5.4 Investment
Experience. Such Investor acknowledges that it can bear the
economic risk and complete loss of its investment in the Securities and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment contemplated
hereby.
5.5 Disclosure of
Information. Such Investor has had an opportunity to receive
all information related to the Company requested by it and to ask questions of
and receive answers from the Company regarding the Company, its business and the
terms and conditions of the offering of the Securities. Such Investor
acknowledges receipt of copies of the SEC Filings. Neither such
inquiries nor any other due diligence investigation conducted by such Investor
shall modify, amend or affect such Investor’s right to rely on the Company’s
representations and warranties contained in this Agreement.
5.6 Restricted
Securities. Such Investor understands that the Securities are
characterized as “restricted securities” under the U.S. federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the 1933 Act only in
certain limited circumstances.
5.7 Legends. It
is understood that, except as provided below, certificates evidencing the
Securities may bear the following or any similar legend:
(a) “The
securities represented hereby may not be transferred unless (i) such securities
have been registered for sale pursuant to the 1933 Act, as amended, or (ii) the
Company has received an opinion of counsel reasonably satisfactory to it that
such transfer may lawfully be made without registration under the 1933 Act, as
amended, or qualification under applicable state securities laws.”
(b) If
required by the authorities of any state in connection with the issuance of sale
of the Securities, the legend required by such state authority.
5.8 Accredited
Investor. Such Investor is an “accredited investor” within the
meaning of Rule 501(a) of Regulation D promulgated under the 1933 Act for the
reasons checked on Schedule
1 hereto.
5.9 No General
Solicitation. Such investor did not learn of the investment in
the Securities as a result of any public advertising or
solicitation.
5.10 Brokers and
Finders. Such Investor has not entered into an agreement with
a broker or finder for any commission, fee or other compensation pursuant to any
agreement, arrangement or understanding entered into by or on behalf of such
Investor, other than as described on Schedule
5.10.
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5.11 Prohibited
Transactions. During the last thirty (30) days prior to the
date hereof, neither such Investor nor any Affiliate of such Investor which (x)
had knowledge of the transactions contemplated hereby, (y) has or shares
discretion relating to such Investor’s investments or trading or information
concerning such Investor’s investments, including in respect of the Securities,
or (z) is subject to such Investor’s review or input concerning such Affiliate’s
investments or trading (collectively, “Trading Affiliates”)
has, directly or indirectly, effected or agreed to effect any short sale,
whether or not against the box, established any “put equivalent position” (as
defined in Rule 16a-1(h) under the 0000 Xxx) with respect to the Common Stock,
granted any other right (including, without limitation, any put or call option)
with respect to the Common Stock or with respect to any security that includes,
relates to or derived any significant part of its value from the Common Stock or
otherwise sought to hedge its position in the Securities (each, a “Prohibited
Transaction”). Prior to repayment of the Notes, such Investor
shall not, and shall cause its Trading Affiliates to not, engage, directly or
indirectly, in a Prohibited Transaction. Such Investor acknowledges
that the representations, warranties and covenants contained in this Section
5.11 are being made for the benefit of the Investors as well as the Company and
that each of the other Investors shall have an independent right to assert any
claims against such Investor arising out of any breach or violation of the
provisions of this Section 5.11.
5.12 Reliance on
Exemptions. Such Investor 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 such Investor’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of such Investor set forth herein in order to determine the
availability of such exemptions and the eligibility of such Investor to acquire
the Securities.
6. Conditions to
Closing.
6.1 Conditions to the Investors’
Obligations. The obligation of each Investor to purchase its pro rata
share of the Notes and the Warrants at the Closing is subject to the fulfillment
to such Investor’s satisfaction, on or prior to the Closing Date, of the
following conditions, any of which may be waived by such Investor in its sole
discretion (as to itself only):
(a) The
representations and warranties made by the Company in Section 4 hereof qualified
as to materiality shall be true and correct at all times prior to and on the
Closing Date, except to the extent any such representation or warranty expressly
speaks as of a specific date, in which case such representation or warranty
shall be true and correct as of such date, and, the representations and
warranties made by the Company in Section 4 hereof not qualified as to
materiality shall be true and correct in all material respects at all times
prior to and on the Closing Date, except to the extent any such representation
or warranty expressly speaks as of a specific date, in which case such
representation or warranty shall be true and correct in all material respects as
of such specific date.
(b) The
Company shall have performed in all material respects all obligations and
covenants herein required to be performed by it on or prior to the Closing
Date.
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(c) The
Company shall have obtained any and all consents, permits, approvals,
registrations and waivers necessary or appropriate
for consummation of the purchase and sale of the Notes and the Warrants and the
consummation of the other transactions contemplated by the Transaction Documents
to be consummated on or prior to the Closing Date, all of which shall be in full
force and effect.
(d) The
Company shall have executed and delivered the Warrants.
(e) No
judgment, writ, order, injunction, award or decree of or by any court, or judge,
justice or magistrate, including any bankruptcy court or judge, or any order of
or by any governmental authority, shall have been issued, and no action or
proceeding shall have been instituted by any governmental authority, enjoining
or preventing the consummation of the transactions contemplated hereby or in the
other Transaction Documents.
(f) The
Company shall have delivered a Certificate, executed on behalf of the Company by
its Chief Executive Officer or its Chief Financial Officer, dated as of the
Closing Date, certifying to the fulfillment of the conditions specified in
subsections (a), (b) and (c) of this Section 6.1.
(g) The
Company shall have delivered a Certificate, executed on behalf of the Company by
its Secretary, dated as of the Closing Date, certifying the resolutions adopted
by the Board of Directors of the Company approving the transactions contemplated
by this Agreement and the other Transaction Documents and the issuance of the
Securities, certifying the current versions of the Articles of Incorporation, as
amended, and Bylaws of the Company and certifying as to the signatures and
authority of persons signing the Transaction Documents and related documents on
behalf of the Company and certifying that the Securities and the Pledged Shares
have been duly and validly issued and are fully paid and
non-assessable.
(h) No
stop order or suspension of trading shall have been imposed by the SEC or any
other governmental or regulatory body with respect to public trading in the
Common Stock.
(i) The
Company shall have issued not more than $1,750,000, in the aggregate principal
amount of the Notes.
(j) The
Pledgor shall have delivered to the Pledge Agent a stock certificate
representing the Pledged Shares, which shall be registered in the name of the
Investors, for the purpose of perfecting Investors’ security interest in the
Pledged Shares pursuant to the terms of the Pledge Agreement.
(k) The
Pledge Agent shall have taken delivery of the Pledged Shares and shall have
executed and delivered to the Investor the Acknowledgement and Receipt
contemplated by the Pledge Agreement.
(l) The
Company shall have paid the Closing Fee to the Investors (which shall be
effected by a net payment by the Investors of the purchase price for the
Notes).
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(m) The
Transaction Documents, in form and substance satisfactory to the Investors,
shall have been executed and delivered by the parties thereto.
(n) Counsel
to the Company shall have delivered to the Investors its legal opinion, in form
and substance satisfactory to the Investors, as to the valid existence and good
standing of the Company, the enforceability of the Transaction Documents against
the Company and the Pledgor, the valid and proper issuance of the Pledged
Shares, the Warrants and the Notes, and the grant of a perfected security
interest to the Investors in the Pledged Shares.
6.2 Conditions to Obligations of
the Company. The Company’s obligation to sell and issue the Notes and the
Warrants at the Closing is subject to the fulfillment to the satisfaction of the
Company on or prior to the Closing Date of the following conditions, any of
which may be waived by the Company:
(a) The
representations and warranties made by the Investors in Section 5 hereof, other
than the representations and warranties contained in Sections 5.3, 5.4, 5.5,
5.6, 5.7, and 5.8 (the “Investment
Representations”), shall be true and correct in all material respects
when made, and shall be true and correct in all material respects on the Closing
Date with the same force and effect as if they had been made on and as of said
date. The Investment Representations shall be true and correct in all
respects when made, and shall be true and correct in all respects on the Closing
Date with the same force and effect as if they had been made on and as of said
date. The Investors shall have performed in all material respects all
obligations and covenants herein required to be performed by them on or prior to
the Closing Date.
(b) No
judgment, writ, order, injunction, award or decree of or by any court, or judge,
justice or magistrate, including any bankruptcy court or judge, or any order of
or by any governmental authority, shall have been issued, and no action or
proceeding shall have been instituted by any governmental authority, enjoining
or preventing the consummation of the transactions contemplated hereby or in the
other Transaction Documents.
(c) The
Company shall have received not less than $1,540,000, as payment for the Notes,
which represents the aggregate purchase price of $1,750,000 net of the Closing
Fee and the prepayment of interest.
(d) The
Pledgor shall have delivered to the Pledge Agent a certificate representing the
Pledged Shares.
(e) The
Transaction Documents, in form and substance satisfactory to the Investors,
shall have been executed and delivered by the parties thereto.
6.3 Termination of Obligations
to Effect Closing; Effects.
(a) The
outstanding obligations of the Company, on the one hand, and the Investors, on
the other hand, to effect the Closing shall terminate as
follows:
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(i) Upon
the mutual written consent of the Company and the Investors;
(ii) By
the Company if any of the conditions set forth in Section 6.2 shall have become
incapable of fulfillment, and shall not have been waived by the Company;
or
(iii) By
an Investor (with respect to itself only) if any of the conditions set forth in
Section 6.1 shall have become incapable of fulfillment, and shall not have been
waived by the Investor;
provided, however, that, except
in the case of clause (i) above, the party seeking to terminate its obligation
to effect the Closing shall not then be in breach of any of its representations,
warranties, covenants or agreements contained in this Agreement or the other
Transaction Documents if such breach has resulted in the circumstances giving
rise to such party’s seeking to terminate its obligation to effect the
Closing.
(b) In
the event of termination by any Investor of its obligations to effect the
Closing pursuant to this Section 6.3, written notice thereof shall forthwith be
given to the other Investors and the other Investors shall have the right to
terminate their obligations to effect such Closing upon written notice to the
Company and the other Investors. Nothing in this Section 6.3 shall be
deemed to release any party from any liability for any breach by such party of
the terms and provisions of this Agreement or the other Transaction Documents or
to impair the right of any party to compel specific performance by any other
party of its obligations under this Agreement or the other Transaction
Documents.
(c) The
indemnities set forth in Sections 7.7(c) and 8.2 of this Agreement shall survive
the termination of this Agreement.
7. Covenants
and Agreements of the Company.
7.1 Reservation of Common
Stock. The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of providing for the exercise of the Warrants, such number of shares
of Common Stock as shall from time to time equal the Warrant Shares issuable
from time to time.
7.2 Reports. For
such time as the Investors hold any of the Securities, the Company will furnish
to the Investors and/or their assignees such information relating to the Company
and its Subsidiaries as from time to time may reasonably be requested by the
Investors and/or their assignees; provided, however, that the Company shall not
disclose material nonpublic information to the Investors, or to advisors to or
representatives of the Investors, unless prior to disclosure of such information
the Company identifies such information as being material nonpublic information
and provides the Investors, such advisors and representatives with the
opportunity to accept or refuse to accept such material nonpublic information
for review and any Investor wishing to obtain such information enters into an
appropriate confidentiality agreement with the Company with respect
thereto.
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7.3 No Conflicting
Agreements. The Company will not take any action, enter into
any agreement or make any commitment that would conflict or interfere in any
material respect with the Company’s obligations to the Investors under the
Transaction Documents.
7.4 Insurance. For
such time as an Investor holds any of the Securities, the Company shall not
materially reduce the insurance coverages described in Section
4.19.
7.5 Compliance with
Laws. For such time as an Investor holds any of the
Securities, the Company will comply in all material respects with all applicable
laws, rules, regulations, orders and decrees of all governmental
authorities.
7.6 Listing of Underlying Shares
and Related Matters. If the Company applies to have its Common
Stock or other securities traded on any stock exchange or market, it shall
include in such application the Warrant Shares and the Pledged Shares and will
take such other action as is necessary to cause such Common Stock to be so
listed. Thereafter, the Company will use commercially reasonable
efforts to continue the listing and trading of its Common Stock on such exchange
or market and, in accordance, therewith, will use commercially reasonable
efforts to comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of such exchange or market, as
applicable.
7.7 Registration
Rights.
(a) Piggyback Registration
Rights.
(i) Each
holder of Warrants or Warrant Shares is hereby granted the right to “piggyback”
the Warrant Shares issuable and/or issued upon exercise of the Warrants (such
shares being referred to herein as “Registrable
Securities”) on each registration statement filed by the Company so long
as the registration form to be used is suitable for the registration of the
Registrable Securities (a “Piggyback
Registration”) (it being understood that the Form S-8 and Form S-4, or
any successor forms, may not be used for such purposes), all at the Company’s
cost and expense (except commissions or discounts and fees of any of the
holders’ own professionals, if any; it being understood that the Company shall
be obligated to pay the reasonable fees and expenses of Investors’ counsel);
provided, however, that this
paragraph (i) shall not apply to any Registrable Securities if such Registrable
Securities may then be sold within a six (6) month period under Rule 144
(assuming the holder’s compliance with the provisions of the Rule) with the
result that the sold securities are freely tradable without restriction and the
Company delivers an opinion to that effect to the transfer agent; and provided,
further, that if
the offering with respect to which a registration statement is filed is an
underwritten primary or secondary offering of the Company’s securities and the
managing underwriter advises the Company in writing that in its opinion the
number of securities requested to be included in such registration exceeds the
number that can be sold in such offering without adversely affecting such
underwriter’s ability to effect an orderly distribution of such securities or
otherwise adversely effecting such offering (including, without limitation,
causing a diminution in the offering price of the Company’s securities) the
Company will include in such registration statement: (A) first, the securities
being sold for the account of the Company; (B) second, the number of securities
with respect to which the Company has granted rights to participate in such
registration (including the Registrable Securities) that, in the opinion of such
underwriter, can be sold pro rata among the respective holders of such
securities on the basis of the amount of such securities then owned by each such
holder. The Company shall give each holder of Registrable Securities
at least fifteen (15) days written notice of the intended filing date of any
registration statement, other than a registration statement filed on Form S-4 or
Form S-8, or any successor forms, and each holder of Registrable Securities
shall have seven (7) days after receipt of such notice to notify the Company of
its intent to include the Registrable Securities in the registration
statement.
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(ii) If,
at any time after giving written notice of its intention to register any
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine for any reason
not to register or to delay registration of such securities, the Company may, at
its election, give written notice of such determination to all holders of the
Registrable Securities and (A) in the case of a determination not to register,
shall be relieved of its obligation to register any Registrable Securities in
connection with such abandoned registration and (B) in the case of a
determination to delay such registration of its securities, shall be permitted
to delay the registration of such Registrable Securities for the same period as
the delay in registering such other Company securities.
(b) Expenses. The
Company shall bear all fees and expenses attendant to registering the
Registrable Securities (except any underwriters’ discounts and commissions and
fees of any of the holders’ own professionals, if any; it being understood that
the Company shall be obligated to pay the reasonable fees and expenses of
Investors’ counsel). The Company agrees to use its best efforts to cause the
filing required herein to become effective promptly and to qualify to register
the Registrable Securities in such States as are reasonably requested by the
holder(s); provided, however, that in no
event shall the Company be required to register the Registrable Securities in a
State in which such registration would cause (i) the Company to be obligated to
register or license to do business in such State, (ii) subject the Company to
any material tax where it is not then so subject, (iii) require the Company to
file a general consent to service of process in such jurisdiction, or (iv) the
principal stockholders of the Company to be obligated to escrow any of their
shares of capital stock of the Company.
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(c) Indemnification. The
Company shall indemnify and hold harmless each holder of the Registrable
Securities to be sold pursuant to any Registration Statement hereunder and each
of such holder’s officers, directors, employees, agents, partners, legal counsel
and accountants, and each person, if any, who controls each of the foregoing
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
1934 Act, as amended, against all loss, claim, damage, expense or liability
(including all reasonable attorneys’ fees and other expenses reasonably incurred
in investigating, preparing or defending against any claim whatsoever incurred
by the indemnified party in any action or proceeding between the indemnitor and
indemnified party or between the indemnified party and any third party or
otherwise) to which any of them may become subject under the Securities Act, the
Exchange Act or any other statute or at common law or otherwise under laws of
foreign countries, arising from such registration statement or based upon any
untrue statement or alleged untrue statement of a material fact contained in (i)
any preliminary prospectus, registration statement or prospectus (as from time
to time each may be amended and supplemented); (ii) in any post-effective
amendment or amendments or any new registration statement and prospectus in
which is included the Registrable Securities; or (iii) any application or other
document or written communication (collectively called “application”)
executed by the Company or based upon written information furnished by the
Company in any jurisdiction in order to qualify the Registrable Securities under
the securities laws thereof or filed with the commission, any state securities
commission or agency, Nasdaq or any securities exchange; or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; unless such statement or omission is made
in reliance upon, and in strict conformity with, written information furnished
to the Company with respect to the holders expressly for use in a preliminary
prospectus, registration statement or prospectus, or any amendment or supplement
thereof, or in any application, as the case may be. The Company agrees promptly
to notify the holders of the Registrable Securities of the commencement of any
litigation proceedings against the Company or any of its officers, directors or
controlling persons in connection with the issue and sale or resale of the
Registrable Securities or in connection with any such registration statement or
prospectus.
8. Survival and
Indemnification.
8.1 Survival. The
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing of the transactions contemplated by this
Agreement.
8.2 Indemnification. The
Company agrees to indemnify and hold harmless each Investor and its Affiliates
and their respective directors, officers, employees and agents from and against
any and all losses, claims, damages, liabilities and expenses (including without
limitation reasonable attorney fees and disbursements and other expenses
incurred in connection with investigating, preparing or defending any action,
claim or proceeding, pending or threatened and the costs of enforcement thereof)
(collectively, “Losses”) to which
such Person may become subject as a result of any breach of representation,
warranty, covenant or agreement made by or to be performed on the part of the
Company under the Transaction Documents, and will reimburse any such Person for
all such amounts as they are incurred by such Person.
- 22
-
8.3 Conduct of Indemnification
Proceedings. Promptly
after receipt by any Person (the “Indemnified Person”)
of notice of any demand, claim or circumstances which would or might give rise
to a claim or the commencement of any action, proceeding or investigation in
respect of which indemnity may be sought pursuant to Section 8.2, such
Indemnified Person shall promptly notify the Company in writing and the Company
shall assume the defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Person, and shall assume the payment of all
fees and expenses; provided, however, that the failure of any
Indemnified Person so to notify the Company shall not relieve the Company of its
obligations hereunder except to the extent that the Company is materially
prejudiced by such failure to notify. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless: (i) the Company and the Indemnified Person shall have mutually agreed to
the retention of such counsel; or (ii) in the reasonable judgment of counsel to
such Indemnified Person representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between
them. The Company shall not be liable for any settlement of any
proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. Without the prior
written consent of the Indemnified Person, which consent shall not be
unreasonably withheld, the Company shall not effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Person is
or could have been a party and indemnity could have been sought hereunder by
such Indemnified Party, unless such settlement includes an unconditional release
of such Indemnified Person from all liability arising out of such
proceeding.
9. Miscellaneous.
9.1 Successors and
Assigns. This Agreement may not be assigned by a party hereto
without the prior written consent of the Company or the Investors, as
applicable, provided, however, that an Investor may assign its rights and
delegate its duties hereunder in whole or in part to an Affiliate or to a third
party acquiring some or all of its Securities in a private transaction without
the prior written consent of the Company or the other Investors, after notice
duly given by such Investor to the Company provided, that no such assignment or
obligation shall affect the obligations of such Investor
hereunder. The provisions of this Agreement shall inure to the
benefit of and be binding upon the respective permitted successors and assigns
of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
9.2 Counterparts;
Faxes. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement
may also be executed via facsimile, which shall be deemed an
original.
9.3 Titles and
Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
9.4 Notices. Unless
otherwise provided, any notice required or permitted under this Agreement shall
be given in writing and shall be deemed effectively given as hereinafter
described (i) if given by personal delivery, then such notice shall be deemed
given upon such delivery, (ii) if given by telex or telecopier, then such notice
shall be deemed given upon receipt of confirmation of complete transmittal,
(iii) if given by mail, then such notice shall be deemed given upon the earlier
of (A) receipt of such notice by the recipient or (B) three days after such
notice is deposited in first class mail, postage prepaid, and (iv) if given by
an internationally recognized overnight air courier, then such notice shall be
deemed given one Business Day after delivery to such carrier. All
notices shall be addressed to the party to be notified at the address as
follows, or at such other address as such party may designate by ten days’
advance written notice to the other party:
- 23
-
If to the Company:
00000 Xxxxxx Xxxxxx, Xxxxx
000
Xxxxxx, XX 00000
Attn: Xxx Xxxxxx, Chief
Financial Officer
Fax: (000)
000-0000
With a copy to:
Blank
Rome LLP
000
Xxxxxxxxx Xxx.
Xxx Xxxx,
XX 00000
Attn:
Xxxxxxx X. Xxxxx, Esq.
Fax:
(000) 000-0000
If to the Investors:
To the addresses set forth on the
signature pages hereto
With a copy to:
Xxxxx | Park LLP
000 Xxxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx
00000
Attention: Xxxxxxx du
Quesnay
Fax: (000) 000-0000
9.5 Expenses. The
parties hereto shall pay their own costs and expenses in connection
herewith. In the event that legal proceedings are commenced by any
party to this Agreement against another party to this Agreement in connection
with this Agreement or the other Transaction Documents, the party or parties
which do not prevail in such proceedings shall severally, but not jointly, pay
their pro rata share of the reasonable attorneys’ fees and other reasonable
out-of-pocket costs and expenses incurred by the prevailing party in such
proceedings.
9.6 Amendments and
Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Investors. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Securities purchased under this Agreement at the time outstanding,
each future holder of all such Securities, and the
Company. Notwithstanding the foregoing, no consideration shall be
offered or paid by the Company to any Investor to amend or consent to a waiver
or modification of any provision of any of this Agreement unless the same
consideration also is offered to all of the holders of the Notes and/or
Warrants.
- 24
-
9.7 Publicity. No
public release or announcement concerning the transactions contemplated hereby
shall be issued by the Company or the Investors without the prior consent of the
Company (in the case of a release or announcement by the Investors) or the
Investors (in the case of a release or announcement by the Company) (which
consents shall not be unreasonably withheld), except as such release or
announcement may be required by law or the applicable rules or regulations of
any securities exchange or securities market, in which case the Company or the
Investors, as the case may be, shall allow the Investors or the Company, as
applicable, to the extent reasonably practicable in the circumstances,
reasonable time to comment on such release or announcement in advance of such
issuance.
9.8 Severability. Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof but shall be interpreted as if it were written so as to be
enforceable to the maximum extent permitted by applicable law, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the
extent permitted by applicable law, the parties hereby waive any provision of
law which renders any provision hereof prohibited or unenforceable in any
respect.
9.9 Entire
Agreement. This Agreement, including the Exhibits and the
Disclosure Schedules, and the other Transaction Documents constitute the entire
agreement among the parties hereof with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof.
9.10 Further
Assurances. The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
9.11 Governing Law; Consent to
Jurisdiction; Waiver of Jury Trial. This Agreement shall be
governed by, and construed in accordance with, the internal laws of the State of
New York without regard to the choice of law principles thereof. Each
of the parties hereto irrevocably submits to the exclusive jurisdiction of the
courts of the State of California located in Los Angeles County and the United
States District Court for the Central District of California for the purpose of
any suit, action, proceeding or judgment relating to or arising out of this
Agreement and the transactions contemplated hereby. Service of
process in connection with any such suit, action or proceeding may be served on
each party hereto anywhere in the world by the same methods as are specified for
the giving of notices under this Agreement. Each of the parties
hereto irrevocably consents to the jurisdiction of any such court in any such
suit, action or proceeding and to the laying of venue in such
court. Each party hereto irrevocably waives any objection to the
laying of venue of any such suit, action or proceeding brought in such courts
and irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY
RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS
AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS
WAIVER.
- 25
-
9.12 Independent Nature of
Investors’ Obligations and Rights. The obligations of each Investor under any
Transaction Document are several and not joint with the obligations of any other
Investor, and no Investor shall be responsible in any way for the performance of
the obligations of any other Investor under any Transaction
Document. The decision of each Investor to purchase Securities
pursuant to the Transaction Documents has been made by such Investor
independently of any other Investor. Nothing contained herein or in
any Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction
Documents. Each Investor acknowledges that no other Investor has
acted as agent for such Investor in connection with making its investment
hereunder and that no Investor will be acting as agent of such Investor in
connection with monitoring its investment in the Securities or enforcing its
rights under the Transaction Documents. Each Investor shall be
entitled to independently protect and enforce its rights, including, without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Investor to
be joined as an additional party in any proceeding for such
purpose. The Company acknowledges that each of the Investors has been
provided with the same Transaction Documents for the purpose of closing a
transaction with multiple Investors and not because it was required or requested
to do so by any Investor.
[The
remainder of this page is left blank intentionally. Signature pages
follow.]
- 26
-
IN WITNESS WHEREOF, the
parties have executed this Agreement or caused their duly authorized officers to
execute this Agreement as of the date first above written.
|
By:
|
|
/s/ Xxxx Xxxx Shan
|
|
Name:
Xxxx Xxxx Shan
|
||
|
Title:
Chief Executive Officer
|
||
- 27
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COUNTERPART
SIGNATURE PAGE
By signing below, the undersigned
agrees to the terms of the Securities Purchase Agreement and to purchase the
Note and Warrants set forth below.
|
INVESTOR:
|
||
|
Principal
amount of Note being purchased:
|
Xxxxxx
Investment Company
|
|
|
$250,000
|
By:
|
/s/
Xxx Xxxxxx
|
|
Warrant
Shares:
|
Name:
Xxx Xxxxxx
|
|
|
Title:
Owner
|
||
|
76,687
|
||
|
Address:
0000 Xxxxxxxx Xxxx. Xxx. 000
|
||
|
Xxx
Xxxxxxx, XX
|
||
|
Loan
Amount:
|
Facsimile:
(000) 000-0000
|
|
|
$250,000
|
with
a copy to:
|
|
|
Please
complete the following:
|
||||
|
1.
|
The
exact name that your Note and Warrants are to be registered in (this is
the name that will appear on your Note and Warrant certificates). You may
use a nominee name if appropriate:
|
|
||
|
2.
|
The
relationship between the Investors and the Registered Holder listed in
response to item 1 above:
|
|
||
|
3.
|
The
mailing address and facsimile number of the Registered Holder listed in
response to item 1 above (if different from above):
|
Facsimile:_____________________________________
|
||
|
4.
|
(For United States
Investors:) The Social Security Number or Tax
Identification Number of the Registered Holder listed in the response to
item 1 above:
|
|
||
- 28
-
COUNTERPART
SIGNATURE PAGE
By signing below, the undersigned
agrees to the terms of the Securities Purchase Agreement and to purchase the
Note and Warrants set forth below.
|
INVESTOR:
|
||
|
Principal
amount of Note being purchased:
|
Xxxxxx,
LLC
|
|
|
$500,000
|
By:
|
/s/
Xxx Xxxxxx
|
|
Warrant
Shares:
|
Name:
Xxx Xxxxxx
|
|
|
Title:
Owner
|
||
|
153,374
|
||
|
Address:
0000 Xxxxxxxx Xxxx. Xxx. 000
|
||
|
Xxx
Xxxxxxx, XX
|
||
|
Loan
Amount:
|
Facsimile:
(000) 000-0000
|
|
|
$500,000
|
with
a copy to:
|
|
|
Please
complete the following:
|
||||
|
1.
|
The
exact name that your Note and Warrants are to be registered in (this is
the name that will appear on your Note and Warrant certificates). You may
use a nominee name if appropriate:
|
|
||
|
|
||||
|
2.
|
The
relationship between the Investors and the Registered Holder listed in
response to item 1 above:
|
|
||
|
|
||||
|
3.
|
The
mailing address and facsimile number of the Registered Holder listed in
response to item 1 above (if different from above):
|
Facsimile:_____________________________________
|
||
|
|
||||
|
4.
|
(For United States
Investors:) The Social Security Number or Tax
Identification Number of the Registered Holder listed in the response to
item 1 above:
|
|
||
- 29
-
COUNTERPART
SIGNATURE PAGE
By signing below, the undersigned
agrees to the terms of the Securities Purchase Agreement and to purchase the
Note and Warrants set forth below.
|
INVESTOR:
|
||
|
Principal
amount of Note being purchased:
|
Knight
Insurance Company, Ltd.
|
|
|
$1,000,000
|
By:
|
/s/
Xxxx X. Xxxxxx
|
|
Warrant
Shares:
|
Name:
Xxxx X. Xxxxxx
|
|
|
Title:
President
|
||
|
306,748
|
||
|
Address:
c/o Knight Insurance Group
|
||
|
0000
Xxxxxxxx Xxxx. Ste. 111
|
||
|
Loan
Amount:
|
Xxx
Xxxxxxx, XX 00000
|
|
|
Facsimile:
(000) 000-0000
|
||
|
$1,000,000
|
with
a copy to:
|
|
|
Please
complete the following:
|
||||
|
1.
|
The
exact name that your Note and Warrants are to be registered in (this is
the name that will appear on your Note and Warrant certificates). You may
use a nominee name if appropriate:
|
|
||
|
2.
|
The
relationship between the Investors and the Registered Holder listed in
response to item 1 above:
|
|||
|
3.
|
The
mailing address and facsimile number of the Registered Holder listed in
response to item 1 above (if different from above):
|
Facsimile:_____________________________________
|
||
|
4.
|
(For United States
Investors:) The Social Security Number or Tax
Identification Number of the Registered Holder listed in the response to
item 1 above:
|
|
||
- 30
-
Schedule
1
Accredited
Investor Status
Investor
Name (please print):
Please initial below the items which
apply to your status as an Accredited Investor.
|
_____________
|
An
individual having a net worth with spouse (excluding automobiles,
principal residence and furnishings) at the time of purchase, individually
or jointly, in excess of
$1,000,000.
|
|
_____________
|
An
individual whose individual net income was in excess of $200,000 in each
of the two most recent years, or whose joint net income with his or her
spouse was in excess of $300,000 in each of those years, and who
reasonably expects his individual or joint income with such investor’s
spouse to reach such level in the current
year.
|
|
_____________
|
A
corporation or partnership, not formed for the specific purpose of
acquiring the purchased securities, having total assets in excess of
$5,000,000.
|
|
_____________
|
A
small business investment company licensed by the U.S. Small Business
Administration under section 301(c) or (d) of the Small Business
Investment Act of 1958.
|
|
_____________
|
A
self-directed benefit plan within the meaning of ERISA, with investment
decisions made solely by persons who are accredited investors as defined
in Rule 501(2) of Regulations D.
|
|
_____________
|
A
trust with total assets in excess of $5,000,000 not formed for the
specific purpose of acquiring the purchased securities, whose purchase is
directed by a sophisticated person (i.e., a person who has such knowledge
and experience in financial and business matters that he, she or it is
capable of evaluating the merits and risks of an investment in the
purchased securities).
|
|
_____________
|
An
entity in which all of the equity owners are accredited
investors.
|
|
_____________
|
Other
(describe):
|
|
- 31
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