Exhibit 10.39
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") dated as of
January 30, 2002, between Diamond Entertainment Corporation, a New Jersey
corporation with principal executive offices located at 000 Xxxxxx Xxxx, Xxxxxx,
Xxxxxxxxxx 00000 (the "Company"), and the persons signatory hereto
(collectively, the "Buyers" and individually, "Buyer").
W I T N E S S E T H:
WHEREAS, Buyers desires to purchase from the Company, and the Company
desires to issue and sell to the Buyers, upon the terms and subject to the
conditions of this Agreement, (i) 15 shares of Series B Convertible Preferred
Stock, no par value (the "Preferred Stock"), having the rights, preferences and
privileges set forth in the Articles of Amendment of the Articles of
Incorporation of the Company designating the rights, preferences, privileges and
restrictions of Series B Preferred Stock attached hereto as Annex I (the
"Certificate of Designations"), and (ii) warrants to purchase an aggregate of
2,250,000 shares (the "Warrants") of the Company's common stock no par value
(the "Common Stock");
WHEREAS, upon the terms and subject to the conditions set forth in the
Certificate of Designations, the Preferred Stock is convertible into shares of
Common Stock; and
WHEREAS, the Warrants, upon the terms and subject to the conditions in
the Warrants, will for a period of five (5) years be exercisable to purchase
2,250,000 shares of Common Stock.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
I. PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS
A. Transaction. Each Buyer hereby agrees to purchase from the Company,
and the Company hereby agrees to issue and sell to each Buyer, in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (the "Securities Act"), the number of shares
of Preferred Stock and Warrants set forth on the signature page hereof. The
purchase and sale of the Preferred Stock and Warrants shall be made pursuant to
the provisions of this Agreement, which is one of several substantially
identical counterparts executed by the Buyers in connection with the offering
("Offering") by the Company of the Preferred Stock and Warrants for an aggregate
purchase price of $150,000 and which together shall govern the purchase and sale
of the shares of Preferred Stock and Warrants. As used herein, the term
"Agreement" shall mean this Agreement and all Exhibits, Annexes, Schedules and
amendments thereto together with all the other Agreements executed by the Buyers
in the Offering.
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B. Purchase Price; Form of Payment. The purchase price for the
Preferred Stock and Warrants to be purchased by each Buyer hereunder shall be
equal to ten thousand dollars ($10,000) times the number of shares of Preferred
Stock purchased (the "Purchase Price"). Each Buyer shall pay the Purchase Price
on the date hereof by wire transfer of immediately available funds to the escrow
agent (the "Escrow Agent") identified in those certain Escrow Instructions of
even date herewith, a copy of which is attached hereto as Annex II (the "Escrow
Instructions").
Simultaneously against receipt by the Escrow Agent of the Purchase
Price, the Company shall deliver one or more duly authorized, issued and
executed certificates (I/N/O Buyer) evidencing the Securities, to the Escrow
Agent or its designated depository. By executing and delivering this Agreement,
Buyer and the Company each hereby agrees to observe the terms and conditions of
the Escrow Instructions, all of which are incorporated herein by reference as if
fully set forth herein.
C. Method of Payment. Payment into escrow of the Purchase Price shall
be made by wire transfer of immediately available funds to:
Bank: Union Bank of California
The Private Bank - Newport Beach
Xxxxxx, XX 00000
ABA Routing: 122 000 496
Account No: 000 000 0000
Account Name: Xxxx X. Xxxxxxxxx
Attorney Fund Account III
Simultaneously with the execution of this Agreement, the Buyer shall deposit
with the Escrow Agent the Purchase Price and the Company shall deposit with the
Escrow Agent the Securities.
II. BUYERS' REPRESENTATIONS, WARRANTIES; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
Each Buyer represents and warrants to and covenants and agrees with the
Company as follows:
A. Buyer is purchasing the Preferred Stock, the Warrants, the Common
Stock issuable upon exercise of the Warrants (the "Warrant Shares") and the
shares of Common Stock issuable upon conversion of the Preferred Stock,
including payment of interest for its own account, for investment purposes only
and not with a view towards or in connection with the public sale or
distribution thereof in violation of the Securities Act.
B. Buyer (i) is an "accredited investor" within the meaning of Rule 501
of Regulation D under the Securities Act, (ii) is experienced in making
investments of the kind contemplated by this Agreement, (iii) is capable, by
reason of its business and financial experience, of evaluating the relative
merits and risks of an investment in the Securities, (iv) acknowledges that and
an investment in the Securities involves a high degree of risk, and (v) is able
to afford the loss of its entire investment in the Securities.
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C. Buyer understands that the Securities are being offered and sold by
the Company in reliance on an exemption from the registration requirements of
the Securities Act and equivalent state securities and "blue sky" laws; the
Securities are "restricted securities" as defined in Rule 144 promulgated under
the Securities Act, and that the Company is relying upon the accuracy of, and
Buyer's compliance with, Buyer's representations, warranties and covenants set
forth in this Agreement to determine the availability of such exemption and the
eligibility of Buyer to purchase the Securities;
D. Buyer has been furnished with or provided access to all materials
relating to the business, financial position and results of operations of the
Company, and all other materials requested by Buyer to enable it to make an
informed investment decision with respect to the Securities.
E. Buyer acknowledges that it has been furnished with, or had access to
through the XXXXX system of the Securities and Exchange Commission (the "SEC"),
copies of the Company's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 2001 and all other reports and documents heretofore filed by the
Company with the SEC pursuant to the Securities Act and the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), since March 31, 2001 (collectively
the "SEC Filings").
F. Buyer acknowledges that in making its decision to purchase the
Securities it has been given an opportunity to ask questions of and to receive
answers from the Company's executive officers, directors and management
personnel concerning the business, financial position and results of operations
of the Company, as well as the terms and conditions of the private placement of
the Securities by the Company.
G. Buyer understands that the Securities have not been approved or
disapproved by the SEC or any state securities commission and that the foregoing
authorities have not reviewed any documents or instruments in connection with
the offer and sale to it of the Securities and have not confirmed or determined
the adequacy or accuracy of any such documents or instruments.
H. This Agreement has been duly and validly authorized, executed and
delivered by Buyer and is a valid and binding agreement of Buyer enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally.
III. COMPANY'S REPRESENTATIONS
The Company represents and warrants to Buyer that except as disclosed
on Schedule III hereto:
A. Capitalization. 1. The authorized capital stock of the Company
consists of 600,000,000 shares of Common Stock, no par value, of which
457,595,650 shares are outstanding on the date hereof and 4,999,950 share of
Convertible Preferred Stock, no par value, of which 483,251 are issued with
172,923 being held in treasury, plus 50 Series A Convertible Preferred Stock, no
par value, of which 40 shares are issued and outstanding. All of the issued and
outstanding shares of Common Stock have been duly authorized and validly issued
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and are fully paid and non-assessable. The Conversion Shares and Warrant Shares
have been duly and validly authorized and reserved for issuance by the Company,
and when issued by the Company upon conversion of the Preferred Shares
(including payment of interest), or on exercise of the Warrants in accordance
with their terms, will be duly and validly issued, fully paid and non-assessable
and will not subject the holder thereof to personal liability by reason of being
such holder. There are no preemptive, subscription, "call" or other similar
rights to acquire the Common Stock (including the Conversion Shares and Warrant
Shares) that have been issued or granted to any person.
2. The Company does have subsidiaries and does own or control, directly
or indirectly, interest in another corporation, partnership, limited liability
company, unincorporated business organization, association, trust or other
business entity.
B. Organization; Reporting Company Status.
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization and is duly
qualified as a foreign corporation in all jurisdictions in which the failure to
so qualify would have a material adverse effect on the business, properties,
prospects, condition (financial or otherwise) or results of operations of the
Company and its subsidiaries, taken as a whole, or on the consummation of any of
the transactions contemplated by this Agreement (a "Material Adverse Effect").
2. The Company has registered the Common Stock pursuant to Section 12
of the Exchange Act and has timely filed with the SEC all reports and
information required to be filed by it pursuant to all reporting obligations
under Section 13(a) or 15(d), as applicable, of the Exchange Act for the
12-month period immediately preceding the date hereof. The Common Stock is
currently listed and traded on the NASDAQ, OTC:BB Bulletin Board ("OTC") and the
Company has not received any notice regarding, and to its knowledge there is no
threat, of the termination or discontinuance of the eligibility of the Common
Stock for such listing.
C. Authorized Shares. The Company has duly and validly authorized and
reserved for issuance shares of Common Stock sufficient in number for the
conversion of the Preferred Stock (assuming for purposes of this Section III.C.
a Conversion Price of the lesser of the fixed price or the floating price (as
defined in the Certificate of Designations) and the exercise of the Warrants,
without regard to the anti-dilution provisions of the Preferred Stock and
Warrants. The Company agrees to increase number of shares on reserve upon the
increase in authorized shares which will be voted upon at the Company's 2002
annual shareholder meeting. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock of the issuance of the
Conversion Shares upon conversion of the Preferred Stock and the Warrant Shares
upon exercise of the Warrants. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Preferred Stock and
Warrant Shares upon exercise of the Warrants in accordance with this Agreement
is absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company, notwithstanding the commencement of any case under 11 U.S.C. ss. 101 et
seq. (the "Bankruptcy Code"). In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent permitted any
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rights to relief it may have under 11 U.S.C. ss. 362 in respect of the
conversion of the Preferred Stock and the exercise of the Warrants. The Company
agrees, without cost or expense to the Buyer, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss. 362.
D. Authority; Validity and Enforceability. The Company has the
requisite corporate power and authority to enter into this Agreement, the
Certificate of Designations, the Registration Rights Agreement of even date
herewith between the Company and Buyer, a copy of which is annexed hereto as
Annex IV (the "Registration Rights Agreement") and the Warrants and to perform
all of its obligations hereunder and thereunder (including the issuance, sale
and delivery to Buyer of the Securities). The execution, delivery and
performance by the Company of this Agreement, the Certificate of Designations,
the Warrants and the Registration Rights Agreement, and the consummation by the
Company of the transactions contemplated hereby and thereby (the issuance of the
Preferred Stock, the Warrants and the issuance and reservation for issuance of
the Conversion Shares and Warrant Shares), has been duly authorized by all
necessary corporate action on the part of the Company and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, except to the extent stockholder approval is required under NASDAQ
rules. Each of this Agreement, the Certificate of Designations, the Warrants and
the Registration Rights Agreement has been duly validly executed and delivered
by the Company and each instrument constitutes a valid and binding obligation of
the Company enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and general equitable principles. The Securities have been duly and validly
authorized for issuance by the Company against receipt of the consideration
thereof, and, when executed and delivered by the Company, will be valid and
binding obligations of the Company enforceable against it in accordance with
their terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and general equitable principles.
E. Non-contravention. The execution and delivery by the Company of this
Agreement, the Certificate of Designations, the Warrant to Purchase Common Stock
and the Registration Rights Agreement, the issuance of the Securities, and the
consummation by the Company of the other transactions contemplated hereby and
thereby, do not and will not conflict with or result in a breach by the Company
of any of the terms or provisions of, or constitute a default (or an event
which, with notice, lapse of time or both, would constitute a default) under (i)
Articles of Incorporation or by-laws of the Company, (ii) except for such
conflict, breach or default which would not have a Material Adverse Effect, any
indenture, mortgage, deed of trust or other material agreement or instrument to
which the Company is a party or by which their respective properties or assets
are bound, or (iii) any law, rule, regulation, decree, judgment or order of any
court or public or governmental authority having jurisdiction over the Company
or any of the Company's properties or assets, nor is the Company otherwise in
violation of, conflict with or in default under any of the foregoing, except for
such conflict, breach or default which would not have a Material Adverse Affect.
F. Approvals. Except for the filing of the Certificate of Designations
with the State of New Jersey, no authorization, approval or consent of any court
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or public or governmental authority is required to be obtained by the Company
for the issuance and sale of the Preferred Stock and the Warrants (and the
Conversion Shares and Warrant Shares) to Buyer as contemplated by this
Agreement, except such authorizations, approvals and consents that have been
obtained by the Company prior to the date hereof.
G. SEC Filings. None of the SEC Filings contained at the time they were
filed any untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. The Company has not provided to Buyer any information that,
according to applicable law, rule or regulation, should have been disclosed
publicly prior to the date hereof by the Company, but which has not been so
disclosed.
H. Absence of Certain Changes. Except as disclosed in the SEC Filings
or the Financial Statements (as defined in Section III.L. hereto), since the
Balance Sheet Date (as defined in Section III.L.), there has not occurred any
change, event or development in the business, financial condition, prospects or
results of operations of the Company, and there has not existed any condition
having or reasonably likely to have, a Material Adverse Effect.
I. Full Disclosure. There is no fact known to the Company (other than
general economic or industry conditions known to the public generally) that has
not been fully disclosed in the SEC Filings or otherwise in writing to the Buyer
that (i) reasonably would be expected to have a Material Adverse Effect or (ii)
reasonably would be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to this Agreement, the
Certificate of Designations, the Warrants or the Registration Rights Agreement.
J. Absence of Litigation. Except as set forth in the SEC Filings or
Schedule III.J, there is no action, suit, claim, proceeding, inquiry or
investigation pending or, to the Company's knowledge, threatened, by or before
any court or public or governmental authority which, if determined adversely to
the Company, would have a Material Adverse Effect.
K. Absence of Events of Default. No "Event of Default" (as defined in
any agreement or instrument to which the Company is a party) and no event which,
with notice, lapse of time or both, would constitute an Event of Default (as so
defined), has occurred and is continuing, which could have a Material Adverse
Effect.
L. Financial Statements; No Undisclosed Liabilities. The Company has
delivered or made available to Buyer true and complete copies of its audited
balance sheet as at March 31, 2001 and the related audited statements of
operations and cash flows for the fiscal year ended March 31, 2001 including the
related notes and schedules thereto as well as the same unaudited financial
statements as of and for the six month period ended September 31, 2001
(collectively, the "Financial Statements"), and all management letters, if any,
from the Company's independent auditors relating to the dates and periods
covered by the Financial Statements. Each of the Financial Statements has been
prepared in accordance with United States Generally Accepted Accounting
Principles ("GAAP") (subject, in the case of the interim Financial Statements,
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to normal year end adjustments and the absence of footnotes) and in conformity
with the practices consistently applied by the Company without modification of
the accounting principles used in the preparation thereof, and fairly presents
the financial position, results of operations and cash flows of the Company as
at the dates and for the periods indicated. For purposes hereof, the audited
balance sheet of the Company as at March 31, 2001 is hereinafter referred to as
the "Balance Sheet" and March 31, 2001 is hereinafter referred to as the
"Balance Sheet Date". The Company has no indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise, and
whether due or to become due) that would have been required to be reflected in,
reserved against or otherwise described in the Balance Sheet or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the Balance Sheet or the notes thereto or was
not incurred in the ordinary course of business consistent with the Company's
past practices since the Balance Sheet Date or was not previously disclosed to
Astor Capital, Inc. as agent for Buyers or Buyer or disclosed in an SEC Filing .
M. Compliance with Laws; Permits. The Company is in compliance with all
laws, rules, regulations, codes, ordinances and statutes (collectively "Laws")
applicable to it or to the conduct of its business, except for such
non-compliance, which would not have a Material Adverse Effect. The Company
possesses all permits, approvals, authorizations, licenses, certificates and
consents from all public and governmental authorities, which are necessary to
conduct its business, except for those the absence of which would not have a
Material Adverse Effect.
N. Related Party Transactions. Neither the Company nor any of its
officers, directors or "Affiliates" (as such term is defined in Rule 12b-2 under
the Exchange Act) has borrowed any moneys from or has outstanding any
indebtedness or other similar obligations to the Company. Neither the Company
nor any of its officers, directors or Affiliates (i) owns any direct or indirect
interest constituting more than a one percent equity (or similar profit
participation) interest in, or controls or is a director, officer, partner,
member or employee of, or consultant to or lender to or borrower from, or has
the right to participate in the profits of, any person or entity which is (x) a
competitor, supplier, customer, landlord, tenant, creditor or debtor of the
Company, (y) engaged in a business related to the business of the Company , or
(z) a participant in any transaction to which the Company is a party (other than
in the ordinary course of the Company's business) or (ii) is a party to any
contract, agreement, commitment or other arrangement with the Company, other
than has already been disclosed in its current SEC filings.
O. Insurance. The Company maintains property and casualty, general
liability and workers' compensation, insurance with financially sound and
reputable insurers that is adequate in light of the Company's historical claims
experience. The Company has not received notice from, and has no knowledge of
any threat by, any insurer (that has issued any insurance policy to the Company)
that such insurer intends to deny coverage under or cancel, discontinue or not
renew any insurance policy presently in force.
P. Securities Law Matters. Based, in part, upon the accuracy and
completeness of the representations, covenants and warranties of Buyer set forth
in Section II hereof, the offer and sale by the Company of the Securities is
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exempt from (i) the registration and prospectus delivery requirements of the
Securities Act and the rules and regulations of the SEC thereunder and (ii) the
registration and/or qualification provisions of all applicable state securities
and "blue sky" laws. Other than pursuant to an effective registration statement
under the Securities Act, the Company has not issued, offered or sold Preferred
Stock or any shares of Common Stock (including for this purpose any securities
of the same or a similar class as the Preferred Stock or Common Stock, or any
securities convertible into or exchangeable or exercisable for Preferred Stock
or Common Stock or any such other securities) within the six-month period next
preceding the date hereof, except as previously publicly disclosed or disclosed
in writing to Buyer or in a SEC Filing, and the Company shall not directly or
indirectly take, and shall not permit any of its directors, officers or
Affiliates directly or indirectly to take, any action (including, without
limitation, any offering or sale to any person or entity of Preferred Stock or
shares of Common Stock), so as to make unavailable the exemption from Securities
Act registration being relied upon by the Company for the offer and sale to
Buyer of the Preferred Stock (and the Conversion Shares) as contemplated by this
Agreement. No form of general solicitation or advertising has been used or
authorized by the Company or any of its officers, directors or Affiliates in
connection with the offer or sale of the Preferred Stock (and the Conversion
Shares) as contemplated by this Agreement or any other agreement to which the
Company is a party.
Q. Labor Matters. The Company is not party to any labor or collective
bargaining agreement and there are no labor or collective bargaining agreements,
which pertain to employees of the Company. No employees of the Company are
represented by any labor organization and none of such employees has made a
pending demand for recognition, and there are no representation proceedings or
petitions seeking a representation proceeding presently pending or, to the
Company's knowledge, threatened to be brought or filed, with the National Labor
Relations Board or other labor relations tribunal. There is no organizing
activity involving the Company or pending or to the Company's knowledge,
threatened by any labor organization or group of employees of the Company. There
are no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations or (ii)
material grievances or other labor disputes pending or, to the knowledge of the
Company, threatened against or involving the Company. There are no unfair labor
practice charges, grievances or complaints pending or, to the knowledge of the
Company, threatened by or on behalf of any employee or group of employees of the
Company.
R. ERISA Matters. The Company and its ERISA Affiliates are in
compliance in all material respects with all provisions of ERISA applicable to
it. Neither the Company nor any ERISA Affiliate maintains, contributes,
maintained or contributed to a plan subject to the provisions of Title IV of
ERISA or Section 412 of the Internal Revenue Code.
For purposes of this Section III.S.:
"ERISA" means the Employee Retirement Income Security Act of 1974, or
any successor statute, together with the final regulations promulgated
thereunder, as the same may be amended from time to time.
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"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is a member of a group of which the Company is a member and
which is treated as a single employer under ss. 414 of the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code").
S. Tax Matters. 1. The Company has filed all Tax Returns which it is
required to file under applicable Laws, except for such Tax Returns in respect
of which the failure to so file does not and could not have a Material Adverse
Effect; all such Tax Returns are true and accurate in all material respects and
have been prepared in compliance with all applicable Laws; the Company has paid
all Taxes due and owing by it (whether or not such Taxes are required to be
shown on a Tax Return) and have withheld and paid over to the appropriate taxing
authorities all Taxes which they are required to withhold from amounts paid or
owing to any employee, stockholder, creditor or other third parties; and since
December 31, 1999, the charges, accruals and reserves for Taxes with respect to
the Company (including any provisions for deferred income taxes) reflected on
the books of the Company are adequate to cover any Tax liabilities of the
Company if its current tax year were treated as ending on the date hereof.
2. No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that such corporation is or may be subject
to taxation by that jurisdiction. To the Company's knowledge, there are no
foreign, federal, state or local tax audits or administrative or judicial
proceedings pending or being conducted with respect to the Company; no
information related to Tax matters has been requested by any foreign, federal,
state or local taxing authority; and, except as disclosed above, no written
notice indicating an intent to open an audit or other review has been received
by the Company from any foreign, federal, state or local taxing authority. To
the Company's knowledge, there are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed or
entered into a closing agreement pursuant to ss. 7121 of the Internal Revenue
Code or any predecessor provision thereof or any similar provision of state,
local or foreign law; or (B) has not agreed to or is required to make any
adjustments pursuant to ss. 481 (a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or has any knowledge that the IRS has proposed
any such adjustment or change in accounting method, or has any application
pending with any taxing authority requesting permission for any changes in
accounting methods that relate to the business or operations of the Company. The
Company has not been a United States real property holding corporation within
the meaning of ss. 897(c)(2) of the Internal Revenue Code during the applicable
period specified in ss. 897(c)(1)(A)(ii) of the Internal Revenue Code.
3. The Company has not made an election under ss. 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could obligate it
to make any payments that would not be deductible under ss. 28OG of the Internal
Revenue Code.
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For purposes of this Section III:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
T. Property. The Company does not own any real property. Except as
disclosed in the SEC Filings or the Financial Statements, the Company has good
and marketable title to all personal property owned by it, free and clear of all
liens, encumbrances and defects except such as do not materially affect the
value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company; and any real property and
buildings held under lease by the Company are held by it under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company.
U. Intellectual Property. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being conducted.
To the Company's knowledge, the Company is not infringing upon or in conflict
with any right of any other person with respect to any Intangibles. No claims
have been asserted by any person to the ownership or use of any Intangibles and
the Company has no knowledge of any basis for such claim.
V. Internal Controls and Procedures. The Company maintains accurate
books and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company is a party or by which
its properties are bound are executed with management's authorization; (ii) the
reported accountability of the Company's assets is compared with existing assets
at regular intervals; (iii) access to the Company's assets is permitted only in
accordance with management's authorization; and (iv) all transactions to which
the Company is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with U.S. generally accepted accounting principles.
W. Payments and Contributions. Neither the Company nor any of its
directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment or
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other unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or domestic government
official or employee; (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person with respect to Company matters.
X. No Misrepresentation. No representation or warranty of the Company
contained in this Agreement, any schedule, annex or exhibit hereto or any
agreement, instrument or certificate furnished by the Company to Buyer pursuant
to this Agreement, contains any untrue statement of a material fact or omits to
state 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.
Y. Right of First Refusal. The Company has not granted any right of
first refusal to any person with respect to the issuance of the Preferred Stock,
Common Stock or securities convertible into Common Stock.
IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. Restrictive Legend. Buyer acknowledges and agrees that it will not
offer, sell or otherwise dispose of any of its Securities in violation of
federal and state securities laws, and upon issuance pursuant to this Agreement,
the certificates or other evidence of the Securities (and any shares of Common
Stock issued upon conversion of the Preferred Stock or upon exercise of the
Warrants) shall have endorsed thereon a legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the Securities
to the same effect):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE,
AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE SECURITIES MAY NOT BE
OFFERED, SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS."
B. Filings. The Company shall make all necessary SEC and "blue sky"
filings required to be made by the Company in connection with the sale of the
Securities to the Buyer as required by all applicable Laws, and shall provide a
copy thereof to the Buyer promptly after such filing.
C. Reporting Status. So long as the Buyer beneficially owns any of the
Securities, the Company shall use its best efforts to file all reports required
to be filed by it with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act.
D. Listing. So long as the Buyer beneficially owns any of the
Securities, except to the extent the Company lists its Common Stock on The New
York or American Stock Exchanges, the NASDAQ SmallCap Market or the OTC Bulletin
Board, the Company shall use its best efforts to maintain its listing of the
Common Stock on NASDAQ.
11
E. Reserved Conversion Shares.
(1) Subject to Section 8 of the Certificate of Designations and Section
2(d) of the Registration Rights Agreement, the Company at all times from and
after the date hereof shall have a sufficient number of shares of Common Stock
duly and validly authorized and reserved for issuance to satisfy the conversion,
in full, of the Preferred Stock, including payment of the Additional Amount
(assuming for purposes of this Section IV.E., a Conversion Price of as defined
in the Certificate of Designations), and upon the exercise of the Warrants.
(2) The Company agrees to increase the percentage of shares on reserve to 200%
upon conclusion of the 2002 annual shareholders meeting, , where the
shareholders will be voting on increasing the number of authorized shares..
F. Registration Rights Agreement. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all material respects with the terms thereof.
G. Notice of Certain Events Affecting Registration. The Company will
immediately notify the Buyer upon the occurrence of any of the following events
in respect of a registration statement or related prospectus in respect of an
offering of the Securities; (i) receipt of any request for additional
information by the SEC or any other federal or state governmental authority
during the period of effectiveness of the Registration Statement to be supplied
by amendments or supplements to the registration statement or related
prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate; and the Company
will promptly make available to Buyer any such supplement or amendment to the
related prospectus.
H. Consolidation; Merger. The Company shall not, at any time after the
date hereof, effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity (a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument or by operation of law
the obligation to deliver to Buyer such shares of stock and/or securities as
Buyer is entitled to receive pursuant to this Agreement.
12
I. Issuance of Preferred Shares and Warrant Shares. The sale of the
Preferred Stock and the issuance of the Warrant Shares pursuant to exercise of
the Warrant and the Conversion Shares upon conversion of the Preferred Stock
shall be made in accordance with the provisions and requirements of Section 4(2)
of the Securities Act and Regulation D promulgated thereunder and any applicable
state securities law. The Company shall make all necessary SEC and "blue sky"
filings required to be made by the Company in connection with the sale of the
Securities to Buyer as required by all applicable Laws, and shall provide a copy
thereof to Buyer promptly after such filing; provided, however, that each Buyer
agrees to furnish all such information as may reasonably be requested by the
Company in order to effect all such filings..
J. Limitation on Future Financing. The Company agrees that as long as
the Buyers own Preferred Stock it will not sell or enter into any agreement to
sell any of its securities or incur any indebtedness outside the ordinary
course of business, until twelve months after the Closing, without the written
notice to investors.
V. TRANSFER AGENT INSTRUCTIONS.
A. The Company undertakes and agrees that no instruction other than the
instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement will be given to its transfer
agent for the Common Stock and that the Common Stock issuable upon conversion of
the Preferred Stock, including the payment of interest, and upon exercise of the
Warrants otherwise shall be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement, the Registration Rights
Agreement and applicable Law, including, without limitation, the provisions of
the Securities Act and state securities laws. Nothing contained in this Section
V.A. shall affect in any way Buyer's obligations and agreement to comply with
all applicable securities laws upon resale of such Common Stock. If, at any
time, Buyer provides the Company with an opinion of counsel reasonably
acceptable to the Company in form and substance reasonably satisfactory to the
Company that registration of the resale by Buyer of such Common Stock is not
required under the Securities Act and that the removal of restrictive legends is
permitted under applicable law, the Company shall permit the transfer of such
Common Stock and, promptly instruct the Company's transfer agent to issue one or
more certificates for Common Stock without any restrictive legends endorsed
thereon.
B. The Company shall permit Buyer to exercise its right to convert the
Preferred Stock by telecopying an executed and completed Notice of Conversion to
the Company. Each date on which a Notice of Conversion is telecopied to and
received by the Company in accordance with the provisions hereof shall be deemed
a Conversion Date. The Company shall transmit the certificates evidencing the
shares of Common Stock issuable upon conversion of any Preferred Stock to Buyer
via express courier, by electronic transfer or otherwise, within five business
days after receipt by the Company of the Notice of Conversion (the "Delivery
Date").
C. The Company shall permit Buyer to exercise its right to purchase
shares of Common Stock pursuant to exercise of the Warrants in accordance with
its applicable terms of the Warrants. The last date that the Company may deliver
13
shares of Common Stock issuable upon any exercise of Warrants is referred to
herein as the "Warrant Delivery Date."
D. The Company understands that a delay in the issuance of the shares
of Common Stock issuable upon the conversion of the Preferred Stock (including
the payment of interest or upon exercise of the Warrants beyond the applicable
Delivery Date or Warrant Delivery Date could result in economic loss to Buyer.
As compensation to Buyer for such loss (and not as a penalty), the Company
agrees to pay to Buyer for late issuance of Common Stock issuable upon
conversion of the Preferred Stock or exercise of the Warrants in accordance with
the following schedule (where "No. Business Days" is defined as the number of
business days beyond five (5) days from the Delivery Date or the Warrant
Delivery Date, as applicable):
Compensation For Each
Share of Preferred
Stock Not Converted
Timely or Shares of Common
Stock Issuable Upon Exercise
of Each 1,000,000 Warrants
No. Business Days Not Issued Timely
1 $ 100
2 $ 200
3 $ 300
4 $ 400
5 $ 500
6 $ 600
7 $ 700
8 $ 800
9 $ 900
10 $1000
more than 10 $ 200 for each
Business Day Late
beyond 10 days
The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand. Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Common Stock to Buyer (which actual damages shall be reduced by the
amount of any compensation paid by the Company as described above in this
Section V. D.), and in addition to any other remedies which may be available to
Buyer, in the event the Company fails for any reason to effect delivery of such
shares of Common Stock within five business days after the relevant Delivery
Date or the Warrant Delivery Date, as applicable, Buyer shall be entitled to
rescind the relevant Notice of Conversion or exercise of Warrants by delivering
a notice to such effect to the Company whereupon the Company and Buyer shall
each be restored to their respective original positions immediately prior to
delivery of such Notice of Conversion on delivery. The Company may pay the
compensation described above in additional shares of Common Stock based upon the
Market Price (as defined in the Certificate of Designations) as determined on
the date of payment.
14
E. Upon the execution and delivery hereof, the Company is issuing to
the transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions relating to the
Securities. Such instructions shall be irrevocable by the Company from and after
the date hereof or from and after the issuance thereof to any such substitute or
replacement transfer agent, as the case may be, except as otherwise expressly
provided in the Registration Rights Agreement. It is the intent and purpose of
such instructions, to require the transfer agent for the Common Stock from time
to time upon transfer of Securities by Buyer to issue certificates evidencing
such Registrable Securities free of legends and without consultation by the
transfer agent with the Company or its counsel and without the need for any
further advice or instruction or documentation to the transfer agent by or from
the Company or its counsel or Buyer.
VI. DELIVERY INSTRUCTIONS.
The Securities shall be delivered by the Company on a
"delivery-against-payment basis" at the Closing.
VII. CLOSING DATE.
The date and time of the issuance and sale of the Preferred Shares (the
"Closing Date") shall be the date hereof or such other as shall be mutually
agreed upon in writing. The issuance and sale of the Securities shall occur on
the Closing Date at the offices of the Escrow Agent.
VIII. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Buyer understands that the Company's obligation to sell the
Securities on the Closing Date to Buyer pursuant to this Agreement is
conditioned upon:
A. Delivery by Buyer of the Purchase Price; provided, however, that the
Company shall have received not less that an aggregate of $150,000 in gross
proceeds from the sale of the Preferred Stock and Warrants to the Buyers (the
"Gross Proceeds") as contemplated by the Agreement.
B. The accuracy in all material respects on the Closing Date of the
representations and warranties of Buyers contained in this Agreement as if made
on the Closing Date (except for representations and warranties which, by their
express terms, speak as of and relate to a specified date, in which case such
accuracy shall be measured as of such specified date) and the performance by
Buyers in all material respects on or before the Closing Date of all covenants
and agreements of Buyers required to be performed by them pursuant to the
Agreement on or before the Closing Date;
C. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
15
IX. CONDITIONS TO BUYER'S OBLIGATIONS.
The Company understands that Buyer's obligation to purchase the
Securities on the Closing Date pursuant to this Agreement is conditioned upon:
A. Delivery by the Company of one or more certificates (I/N/O Buyer)
evidencing the Securities to be purchased by Buyer pursuant to this Agreement;
B. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Closing Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the performance
by the Company in all material respects on or before the Closing Date of all
covenants and agreements of the Company required to be performed by it pursuant
to this Agreement on or before the Closing Date;
C. Buyer having received an opinion of counsel for the Company, dated
the Closing Date, in form, scope and substance reasonably satisfactory to
counsel for Astor Capital, Inc., as agent for the Buyer.
D. There not having occurred (i) any general suspension of trading in,
or limitation on prices listed for, the Common Stock on the OTC:BB, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) the commencement of a war, armed hostilities
or other international or national calamity directly or indirectly involving the
United States or any of its territories, protectorates or possessions, or (iv)
in the case of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof.
E. There not having occurred any event or development, and there being
in existence no condition, having or which reasonably and foreseeably would have
a Material Adverse Effect.
F. The Company shall have authorized the Escrow Agent in the Release
Notice annexed to the Escrow Instructions to pay out of the Gross Proceeds
Buyers' out-of-pocket costs and expenses (not to exceed $10,000) incurred in
connection with the transactions contemplated by the Preferred Stock and the
Agreement (including the fees and disbursements of legal counsel).
G. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
K. Delivery of Irrevocable Instructions to the Transfer Agent.
X. TERMINATION.
A. Termination by Mutual Written Consent. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned, for any
reason and at any time prior to the Closing Date, by the mutual written consent
of the Company and Buyer.
16
B. Termination by the Company or Buyer. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by action
of the Company or Buyer if (i) the Closing shall not have occurred at or prior
to 5:00 p.m., New York City time, on February 28, 2002; provided, however, that
the right to terminate this Agreement pursuant to this Article X.B(i) shall not
be available to any party whose failure to fulfill any of its obligations under
this Agreement has been the cause of or resulted in the failure of the Closing
to occur at or before such time and date or (ii) any court or public or
governmental authority shall have issued an order, ruling, judgment or writ, or
there shall be in effect any Law, restraining, enjoining or otherwise
prohibiting the consummation of any of the transactions contemplated by this
Agreement.
C. Termination by Buyer. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by Buyer at any time prior to
the Closing Date, if (i) the Company shall have failed to comply in any material
respect with any of its covenants or agreements contained in this Agreement,
(ii) there shall have been a breach by the Company with respect to any
representation or warranty made by it in this Agreement, or (iii) there shall
have occurred any event or development, or there shall be in existence any
condition, having or reasonably and foreseeably likely to have a Material
Adverse Effect.
J. Termination by the Company. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by the Company at any time
prior to the Closing Date, if (i) any Buyer shall have failed to comply in any
material respect with any of its covenants or agreements contained in this
Agreement or (ii) there shall have been a breach by any Buyer with respect to
any representation or warranty made by it in this Agreement or (iii) there is a
failure of any condition to the Company's obligations as set forth in Section
VIII hereof .
K. Fees and Expenses of Termination. If this Agreement is terminated for any
reason, the Company shall reimburse n/a as agent for the Buyers for
their out-of-pocket costs and expenses incurred in connection with the
transactions contemplated by this Agreement in an amount not to exceed
$ n/a in the aggregate (including, but not limited to, the fees and
disbursements of Buyers' legal counsel.)
XI. SURVIVAL; INDEMNIFICATION.
A. The representations, warranties and covenants made by each of the
Company and Buyer in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement, shall survive the Closing and the consummation
of the transactions contemplated hereby until the second anniversary of the
Closing Date. In the event of a breach or violation of any of such
representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement , irrespective of any investigation made by or on behalf of
such party on or prior to the Closing Date.
17
B. The Company hereby agrees to indemnify and hold harmless the Buyer,
its Affiliates and their respective officers, directors, partners and members
(collectively, the "Buyer Indemnitees"), from and against any and all losses,
claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse the Buyer Indemnitees for all
out-of-pocket expenses (including the reasonable fees and expenses of legal
counsel), in each case promptly as incurred by the Buyer Indemnitees and to the
extent arising out of or in connection with:
1. any material misrepresentation, omission of fact or breach
of any of the Company's representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company pursuant to
this Agreement; or
2. any failure by the Company to perform in any material
respect any of its covenants, agreements, undertakings or obligations set forth
in this Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company pursuant to
this Agreement.
C. Buyer hereby agrees to indemnify and hold harmless the Company, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "Company Indemnitees"), from and against any and all Losses,
and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses
(including the reasonable fees and expenses of legal counsel), in each case
promptly as incurred by the Company Indemnitees and to the extent arising out of
or in connection with:
1. any material misrepresentation, omission of fact, or breach
of any of Buyer's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by Buyer pursuant to this Agreement; or
2. any failure by Buyer to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in this
Agreement or any instrument, certificate or agreement entered into or delivered
by Buyer pursuant to this Agreement. Here the amount the Buyer agrees to
indemnify will be limited to the amount of his investment.
D. Promptly after receipt by either party hereto seeking
indemnification pursuant to this Section XI (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section XI is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim, the Indemnifying Party shall be entitled to assume
the defense thereof. Notwithstanding the assumption of the defense of any Claim
18
by the Indemnifying Party, the Indemnified Party shall have the right to employ
separate legal counsel (together with appropriate local counsel) and to
participate in the defense of such Claim, and the Indemnifying Party shall bear
the reasonable fees, out-of-pocket costs and expenses of such separate legal
counsel to the Indemnified Party if (and only if): (x) the Indemnifying Party
shall have agreed to pay such fees, out-of-pocket costs and expenses, (y) the
Indemnified Party and the Indemnifying Party reasonably shall have concluded
that representation of the Indemnified Party and the Indemnifying Party by the
same legal counsel would not be appropriate due to actual or, as
reasonably-determined by legal counsel to the Indemnified Party, (i) potentially
differing interests between such parties in the conduct of the defense of such
Claim, or (ii) if there may be legal defenses available to the Indemnified Party
that are in addition to or disparate from those available to the Indemnifying
Party and which can not be presented by counsel to the Indemnifying Party, or
(z) the Indemnifying Party shall have failed to employ legal counsel reasonably
satisfactory to the Indemnified Party within a reasonable period of time after
notice of the commencement of such Claim. If the Indemnified Party employs
separate legal counsel in circumstances other than as described in clauses (x),
(y) or (z) above, the fees, costs and expenses of such legal counsel shall be
borne exclusively by the Indemnified Party. Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
Jurisdiction, be liable for the fees and expenses of more than one firm of legal
counsel for the Indemnified Party (together with appropriate local counsel). The
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party (which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment and does involve any continuing
obligations.
E. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration in Los Angeles, California
conducted in accordance with the commercial procedures and rules of the American
Arbitration Association. Judgment upon any award rendered by any arbitrators may
be entered in any court having competent jurisdiction thereof.
F. In no event shall any (i) Investor be required to undertake
liability to any person for any amounts in excess of the dollar amount of the
proceeds to be received by such Investor from the sale of such Investor's
Registrable Securities (after deducting any fees, discounts and commissions
applicable thereto) pursuant to any Registration Statement under which such
Registrable Securities are to be registered under the Securities Act and (ii)
underwriter be required to undertake liability to any Person hereunder for any
amounts in excess of the aggregate discount, commission or other compensation
payable to such underwriter with respect to the Registrable Securities
underwritten by it and distributed pursuant to the Registration Statement;
provided, however, in the event of fraud by the Investor (in the case of (i)
above) or underwriter (in the case of (ii) above), there shall be no such dollar
amount limitation.
19
XII. GOVERNING LAW; MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of California, without regard to the conflicts of law
principles of such state. Each of the parties consents to the jurisdiction of
the federal courts whose districts encompass any part of the City of Los Angeles
or the state courts of the State of California sitting in the City of Los
Angeles in connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on forum non conveniens, to the bringing of any such proceeding
in such jurisdictions. In any action or proceeding brought by a party arising
out of, resulting from or relating to the transactions contemplated by this
Agreement, the prevailing party shall be entitled to recover the reasonable
costs and expenses incurred by it in connection with that action or proceeding,
including but not limited to, attorney's fees. A facsimile transmission of this
signed Agreement shall be legal and binding on all parties hereto. This
Agreement may be signed in one or more counterparts, each of which shall be
deemed an original. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement. If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
XIII. NOTICES. Except as may be otherwise provided herein, any notice
or other communication or delivery required or permitted hereunder shall be in
writing and shall be delivered personally or sent by certified mail, postage
prepaid, or by a nationally recognized overnight courier service, and shall be
deemed given when so delivered personally or by overnight courier service, or,
if mailed, three (3) days after the date of deposit in the United States mails,
as follows:
(1) if to the Company, to:
Diamond Entertainment Corporation
000 Xxxxxx Xxxx
Xxxxxx, Xxxxxxxxxx 00000
Attention: President
with a copy to:
Xxxxxxxxx & Associates
00000 Xxxxxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxxxxxx
(2) if to Buyer, to the address set forth on the signature page
hereof.
with a copy to:
20
The Company or Buyer may change the foregoing address by notice given pursuant
to this Section XVIII.
XIV. CONFIDENTIALITY. Each of the Company and Buyer agrees to keep
confidential and not to disclose to or use for the benefit of any third party
the terms of this Agreement or any other information which at any time is
communicated by the other party as being confidential without the prior written
approval of the other party; provided, however, that this provision shall not
apply to information which, at the time of disclosure, is already part of the
public domain (except by breach of this Agreement) and information which is
required to be disclosed by law (including, without limitation, pursuant to Item
10 of Rule 601 of Regulation S-K under the Securities Act and the Exchange Act).
XV. ASSIGNMENT. This Agreement shall not be assignable by either of the
parties hereto prior to the Closing without the prior written consent of the
other party, and any attempted assignment contrary to the provisions hereby
shall be null and void; provided, however, that Buyer may assign its rights and
obligations hereunder, in whole or in part, to any affiliate of Buyer who
furnishes to the Company the representations and warranties set forth in Section
II hereof and otherwise agrees to be bound by the terms of this Agreement.
XVI. BROKERS. Each of the parties hereto represents that it has had no
dealings in connection with this transaction with any finder or broker who will
demand payment of any fee or commission from the other party whose fee shall be
paid by the Company. The Company on the one hand, and Buyer, on the other hand,
agree to indemnify the other against and hold the other harmless from any and
all liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
XVII. FEES AND EXPENSES. The Company agrees to pay Buyers' expenses
incident to the performance of its obligations hereunder (including, but not
limited to the fees, expenses and disbursements of Buyers' legal counsel) in an
amount not to exceed $5,000 in the aggregate.
[THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
21
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the date first above written.
DIAMOND ENTERTAINMENT CORPORATION
By: /s/ Xxxxx X.X. Xx
----------------------
Xxxxx X.X. Xx
President & Chief Executive Officer
BALMORE S.A.
By: /s/ Xxxxxx Kindle
----------------------
22
Name:
Title:
Jurisdiction of Incorporation:
Address:
--------------------
====================
--------------------
Telephone No. --------------------
Fax No. --------------------
e-mail --------------------
Social Security or E.I.N Number: --------------------
Amount of Investment:
Number of Preferred Shares to be Purchased:
Number of Warrants to be Purchased:
23
Purchaser / Number of Preferred Shares and Warrants
Name and Residence Number of Shares Dollar Amount
of Purchaser and Warrants Purchased of Investment
Balmore S.A. Preferred Shares: 15 $150,000.00
Warrant: to purchase
2,250,000 shares of
Fax No.: (000) 000-0000 Common Stock.
24
