SECURITIES PURCHASE AGREEMENT LAURUS MASTER FUND, LTD. and HOUSE OF BRUSSELS CHOCOLATES INC. Dated: March 29, 2005
LAURUS
MASTER FUND, LTD.
and
Dated:
March 29, 2005
|
1. |
Agreement to Sell and Purchase |
1 | |
|
2. |
Fees and Warrant |
1 | |
|
3. |
Closing, Delivery and Payment |
2 | |
|
3.1 |
Closing |
2 | |
|
3.2 |
Delivery |
2 | |
|
4. |
Representations and Warranties of the Company |
2 | |
|
4.1 |
Organization,
Good Standing and Qualification |
2 | |
|
4.2 |
Subsidiaries |
3 | |
|
4.3 |
Capitalization;
Voting Rights |
3 | |
|
4.4 |
Authorization;
Binding Obligations |
4 | |
|
4.5 |
Liabilities |
5 | |
|
4.6 |
Agreements;
Action |
5 | |
|
4.7 |
Obligations
to Related Parties |
6 | |
|
4.8 |
Changes |
7 | |
|
4.9 |
Title
to Properties and Assets; Liens, Etc |
8 | |
|
4.10 |
Intellectual
Property |
9 | |
|
4.11 |
Compliance
with Other Instruments |
9 | |
|
4.12 |
Litigation |
10 | |
|
4.13 |
Tax
Returns and Payments |
10 | |
|
4.14 |
Employees |
10 | |
|
4.15 |
Registration
Rights and Voting Rights |
11 | |
|
4.16 |
Compliance
with Laws; Permits |
11 | |
|
4.17 |
Environmental
and Safety Laws |
11 | |
|
4.18 |
Valid
Offering |
12 | |
|
4.19 |
Full
Disclosure |
12 | |
|
4.20 |
Insurance |
12 | |
|
4.21 |
SEC
Reports |
12 | |
|
4.22 |
Listing |
13 | |
|
4.23 |
No
Integrated Offering |
13 | |
|
4.24 |
Stop
Transfer |
13 | |
|
4.25 |
Dilution |
13 | |
|
4.26 |
Patriot
Act |
13 | |
|
4.27 |
ERISA |
14 | |
|
5. |
Representations and Warranties of the Purchaser |
14 | |
|
5.1 |
No
Shorting |
14 | |
|
5.2 |
Requisite
Power and Authority |
15 | |
|
5.3 |
Investment
Representations |
15 | |
|
5.4 |
The
Purchaser Bears Economic Risk |
15 | |
|
5.5 |
Acquisition
for Own Account |
15 | |
|
5.6 |
The
Purchaser Can Protect Its Interest |
16 | |
|
5.7 |
Accredited
Investor |
16 | |
|
5.8 |
Legends |
16 | |
i
|
6. |
Covenants of the Company |
17 | |
|
6.1 |
Stop-Orders |
17 | |
|
6.2 |
Listing |
17 | |
|
6.3 |
Market
Regulations |
17 | |
|
6.4 |
Reporting
Requirements |
17 | |
|
6.5 |
Use
of Funds |
17 | |
|
6.6 |
Access
to Facilities |
17 | |
|
6.7 |
Taxes |
18 | |
|
6.8 |
Insurance |
19 | |
|
6.9 |
Intellectual
Property |
20 | |
|
6.10 |
Properties |
20 | |
|
6.11 |
Confidentiality |
20 | |
|
6.12 |
Required
Approvals |
21 | |
|
6.13 |
Reissuance
of Securities |
22 | |
|
6.14 |
Opinion |
22 | |
|
6.15 |
Margin
Stock |
22 | |
|
6.16 |
Financing
Right of First Refusal |
22 | |
|
7. |
Covenants of the Purchaser |
23 | |
|
7.1 |
Confidentiality |
23 | |
|
7.2 |
Non-Public
Information |
23 | |
|
7.3 |
Limitation
on Acquisition of Common Stock of the Company |
23 | |
|
8. |
Covenants of the Company and the Purchaser Regarding Indemnification |
24 | |
|
8.1 |
Company
Indemnification |
24 | |
|
8.2 |
Purchaser’s
Indemnification |
24 | |
|
9. |
Conversion of Convertible Note |
24 | |
|
9.1 |
Mechanics
of Conversion |
24 | |
|
10. |
Registration Rights |
26 | |
|
10.1 |
Registration
Rights Granted |
26 | |
|
10.2 |
Offering
Restrictions |
26 | |
|
11. |
Miscellaneous |
26 | |
|
11.1 |
Governing
Law |
26 | |
|
11.2 |
Survival |
27 | |
|
11.3 |
Successors |
27 | |
|
11.4 |
Entire
Agreement; Maximum Interest |
28 | |
|
11.5 |
Severability |
28 | |
|
11.6 |
Amendment
and Waiver |
28 | |
|
11.7 |
Delays
or Omissions |
28 | |
|
11.8 |
Notices |
28 | |
|
11.9 |
Attorneys’
Fees |
29 | |
|
11.10 |
Titles
and Subtitles |
30 | |
|
11.11 |
Facsimile
Signatures; Counterparts |
30 | |
|
11.12 |
Broker’s
Fees |
30 | |
|
11.13 |
Construction |
30 | |
ii
LIST
OF EXHIBITS
|
Form
of Convertible Term Note |
Exhibit
A |
|
Form
of Warrant |
Exhibit
B |
|
Form
of Opinion |
Exhibit
C |
|
Form
of Escrow Agreement |
Exhibit
D |
iii
THIS
SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of
March 29, 2005, by and between HOUSE OF BRUSSELS CHOCOLATES INC., a Nevada
corporation (the “Company”), and LAURUS MASTER FUND, LTD., a Cayman Islands
company (the “Purchaser”).
RECITALS
WHEREAS,
the Company has authorized the sale to the Purchaser of a Secured Convertible
Term Note in the aggregate principal amount of Three Million Five Hundred
Thousand Dollars ($3,500,000) in the form of Exhibit A hereto (as amended,
modified or supplemented from time to time, the “Note”), which Note is
convertible into shares of the Company’s common stock, $0.001 par value per
share (the “Common Stock”) at an initial fixed conversion price of $0.88 per
share of Common Stock (“Fixed Conversion Price”);
WHEREAS,
the Company wishes to issue to the Purchaser a warrant in the form of Exhibit B
hereto (as amended, modified or supplemented from time to time, the “Warrant”)
to purchase up to 1,500,000 shares of the Company’s Common Stock (subject to
adjustment as set forth therein) in connection with the Purchaser’s purchase of
the Note;
WHEREAS,
the Purchaser desires to purchase the Note and the Warrant on the terms and
conditions set forth herein; and
WHEREAS,
the Company desires to issue and sell the Note and Warrant to the Purchaser on
the terms and conditions set forth herein.
AGREEMENT
NOW,
THEREFORE, in consideration of the foregoing recitals and the mutual promises,
representations, warranties and covenants hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Agreement
to Sell and Purchase.
Pursuant to the terms and conditions set forth in this Agreement, on the Closing
Date (as defined in Section 3), the Company shall sell to the Purchaser, and the
Purchaser shall purchase from the Company, the Note. The sale of the Note on the
Closing Date shall be known as the “Offering.” The Note will mature on the
Maturity Date (as defined in the Note). Collectively, the Note and Warrant and
Common Stock issuable upon conversion of the Note and upon exercise of the
Warrant are referred to as the “Securities.”
2. Fees
and Warrant. On the
Closing Date:
(a) The
Company will issue and deliver to the Purchaser the Warrant to purchase up to
1,500,000 shares of Common Stock (subject to adjustment as set forth therein) in
connection with the Offering, pursuant to Section 1 hereof. All the
representations, covenants, warranties, undertakings, and indemnification, and
other rights made or granted to or for the benefit of the Purchaser by the
Company are hereby also made and granted in respect of the Warrant and shares of
the Company’s Common Stock issuable upon exercise of the Warrant (the “Warrant
Shares”).
(b) Subject
to the terms of Section 2(d) below, the Company shall pay to Laurus Capital
Management, LLC, the manager of the Purchaser, a closing payment in an amount
equal to three and six tenths percent (3.60%) of the aggregate principal amount
of the Note. The foregoing fee is referred to herein as the “Closing
Payment.”
(c) The
Company shall reimburse the Purchaser for its reasonable expenses (including
legal fees and expenses) incurred in connection with the preparation and
negotiation of this Agreement and the Related Agreements (as hereinafter
defined), and expenses incurred in connection with the Purchaser’s due diligence
review of the Company and its Subsidiaries (as defined in Section 4.2) and all
related matters. Amounts required to be paid under this Section 2(c) together
with amounts required to be paid pursuant to Section 5(b)(iv) of the Security
Agreement (as defined below), will be paid on the Closing Date and shall be
$52,500, plus the cost of California real estate counsel and Canadian local
counsel for the Purchaser, for such expenses referred to in this Section
2(c).
(d) The
Closing Payment and the expenses referred to in the preceding clause (c) (net of
deposits previously paid by the Company) shall be paid at closing out of funds
held pursuant to the Escrow Agreement (as defined below) and a disbursement
letter (the “Disbursement Letter”).
3. Closing,
Delivery and Payment.
3.1 Closing. Subject
to the terms and conditions herein, the closing of the transactions contemplated
hereby (the “Closing”), shall take place on the date hereof, at such time or
place as the Company and the Purchaser may mutually agree (such date is
hereinafter referred to as the “Closing Date”).
3.2 Delivery.
Pursuant to the Escrow Agreement, at the Closing on the Closing Date, the
Company will deliver to the Purchaser, among other things, the Note and the
Warrant and the Purchaser will deliver to the Company, among other things, the
amounts set forth in the Disbursement Letter by certified funds or wire
transfer.
4. Representations
and Warranties of the Company. The
Company hereby represents and warrants to the Purchaser as follows (which
representations and warranties are supplemented by the Company’s filings under
the Securities Exchange Act of 1934 (“Exchange Act”) made prior to the date of
this Agreement (collectively, the “Exchange Act Filings”), copies of which have
been provided to the Purchaser):
4.1 Organization,
Good Standing and Qualification. Except
as set forth in Schedule 4.1, each of the Company and each of its Subsidiaries
is a corporation, partnership or limited liability company, as the case may be,
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Each of the Company and each of its Subsidiaries
has the corporate, limited liability company or partnership, as the case may be,
power and authority to own and operate its properties and assets and, insofar as
it is or shall be a party thereto, to (1) execute and deliver (i) this
Agreement, (ii) the Note and the Warrant to be issued in connection with this
Agreement, (iii) the Master Security Agreement dated as of the date hereof
between the Company, certain Subsidiaries of the Company and the Purchaser (as
amended, modified or supplemented from time to time, the “Master Security
Agreement”), (iv) the Registration Rights Agreement relating to the Securities
dated as of the date hereof between the Company and the Purchaser (as amended,
modified or supplemented from time to time, the “Registration Rights
Agreement”), (v) the Subsidiary Guaranty dated as of the date hereof made by
certain Subsidiaries of the Company (as amended, modified or supplemented from
time to time, the “Subsidiary Guaranty”), (vi) the Share Pledge Agreement dated
as of the date hereof among the Company, certain Subsidiaries of the Company and
the Purchaser (as amended, modified or supplemented from time to time, the
“Share Pledge Agreement”), (vii) the Funds Escrow Agreement dated as of the date
hereof among the Company, the Purchaser and the escrow agent referred to
therein, substantially in the form of Exhibit D hereto (as amended, modified or
supplemented from time to time, the “Escrow Agreement”), (viii) the Deed of
Trust, Assignment of Rents, Security Agreement and Fixture Filing dated as of
the date hereof made by Debas Chocolate Inc. in favor of Purchaser (as amended,
modified or supplemented from time to time, the “Deed of Trust”) and (x) all
other documents, instruments and agreements entered into in connection with the
transactions contemplated hereby and thereby (the preceding clauses (ii) through
(x), collectively, the “Related Agreements”); (2) issue and sell the Note and
the shares of Common Stock issuable upon conversion of the Note (the “Note
Shares”); (3) issue and sell the Warrant and the Warrant Shares; and (4)
carry out the provisions of this Agreement and the Related Agreements and to
carry on its business as presently conducted. Each of the Company and each of
its Subsidiaries is duly qualified and is authorized to do business and is in
good standing as a foreign corporation, partnership or limited liability
company, as the case may be, in all jurisdictions in which the nature or
location of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so has not, or could not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects of the
Company and its Subsidiaries, taken individually and as a whole (a “Material
Adverse Effect”).
2
4.2 Subsidiaries. Each
direct and indirect Subsidiary of the Company, the direct owner of such
Subsidiary and its percentage ownership thereof, is set forth on Schedule 4.2.
For the purpose of this Agreement, a “Subsidiary” of any person or entity means
(i) a corporation or other entity whose shares of stock or other ownership
interests having ordinary voting power (other than stock or other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the directors of such corporation, or other persons or
entities performing similar functions for such person or entity, are owned,
directly or indirectly, by such person or entity or (ii) a corporation or other
entity in which such person or entity owns, directly or indirectly, more than
50% of the equity interests at such time.
4.3 Capitalization;
Voting Rights.
(a) The
authorized capital stock of the Company, as of the date hereof consists of
64,000,000 shares, of which 60,000,000 are shares of Common Stock, par value
$0.001 per share, 31,104,579
shares of
which are issued and outstanding , and 4,000,000 are shares of preferred stock,
par value $0.001 per share of which 0 shares of preferred stock are issued and
outstanding. The authorized and outstanding capital stock of each Subsidiary of
the Company is set forth on Schedule 4.3.
3
(b) Except as
disclosed on Schedule 4.3, other than: (i) the shares reserved for issuance
under the Company’s stock option plans; and (ii) shares which may be granted
pursuant to this Agreement and the Related Agreements, there are no outstanding
options, warrants, rights (including conversion or preemptive rights and rights
of first refusal), proxy or stockholder agreements, or arrangements or
agreements of any kind for the purchase or acquisition from the Company of any
of its securities. Except as disclosed on Schedule 4.3, neither the offer,
issuance or sale of any of the Note or the Warrant, or the issuance of any of
the Note Shares or Warrant Shares, nor the consummation of any transaction
contemplated hereby will result in a change in the price or number of any
securities of the Company outstanding, under anti-dilution or other similar
provisions contained in or affecting any such securities.
(c) All
issued and outstanding shares of the Company’s Common Stock: (i) have been
duly authorized and validly issued and are fully paid and nonassessable; and
(ii) were issued in compliance with all applicable state and federal laws
concerning the issuance of securities.
(d) The
rights, preferences, privileges and restrictions of the shares of the Common
Stock are as stated in the Company’s Certificate of Incorporation (the
“Charter”). The Note Shares and Warrant Shares have been duly and validly
reserved for issuance. When issued in compliance with the provisions of this
Agreement and the Company’s Charter, the Securities will be validly issued,
fully paid and nonassessable, and will be free of any liens or encumbrances;
provided, however, that the Securities may be subject to restrictions on
transfer under state and/or federal securities laws as set forth herein or as
otherwise required by such laws at the time a transfer is proposed.
4.4 Authorization;
Binding Obligations. All
corporate, partnership or limited liability company, as the case may be, action
on the part of the Company and each of its Subsidiaries (including their
respective officers and directors) necessary for the authorization of this
Agreement and the Related Agreements, the performance of all obligations of the
Company and its Subsidiaries hereunder and under the other Related Agreements at
the Closing and, the authorization, sale, issuance and delivery of the Note and
Warrant has been taken or will be taken prior to the Closing. This Agreement and
the Related Agreements, when executed and delivered and to the extent it is a
party thereto, will be valid and binding obligations of each of the Company and
each of its Subsidiaries, enforceable against each such entity in accordance
with their terms, except:
(a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights;
and
4
(b) general
principles of equity that restrict the availability of equitable or legal
remedies.
The sale
of the Note and the subsequent conversion of the Note into Note Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with. The issuance of the Warrant and
the subsequent exercise of the Warrant for Warrant Shares are not and will not
be subject to any preemptive rights or rights of first refusal that have not
been properly waived or complied with.
4.5 Liabilities. Neither
the Company nor any of its Subsidiaries has any liabilities, except current
liabilities incurred in the ordinary course of business and liabilities
disclosed in any Exchange Act Filings.
4.6 Agreements;
Action. Except
as set forth on Schedule 4.6 or as disclosed in any Exchange Act
Filings:
(a) there are
no agreements, understandings, instruments, contracts, proposed transactions,
judgments, orders, writs or decrees to which the Company or any of its
Subsidiaries is a party or by which it is bound which may involve: (i)
obligations (contingent or otherwise) of, or payments to, the Company or any
such Subsidiary in excess of $100,000 (other than obligations of, or payments
to, the Company or any such Subsidiary arising from purchase or sale agreements
entered into in the ordinary course of business); or (ii) the transfer or
license of any patent, copyright, trade secret or other proprietary right to or
from the Company or any such Subsidiary (other than licenses arising from the
purchase of “off the shelf” or other standard products); or (iii) provisions
restricting the development, manufacture or distribution of the Company’s or any
such Subsidiary’s products or services; or (iv) indemnification by the Company
or any such Subsidiary with respect to infringements of proprietary
rights.
(b) Since
April 30, 2004 (the “Balance Sheet Date”), neither the Company nor any of its
Subsidiaries has: (i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock;
(ii) incurred any indebtedness for money borrowed or any other liabilities
(other than ordinary course obligations) individually in excess of $50,000 or,
in the case of indebtedness and/or liabilities individually less than $50,000,
in excess of $100,000 in the aggregate; (iii) made any loans or advances to any
person or entity not in excess, individually or in the aggregate, of $100,000,
other than ordinary course advances for travel expenses; or (iv) sold, exchanged
or otherwise disposed of any of its assets or rights, other than the sale of its
inventory in the ordinary course of business.
(c) For the
purposes of subsections (a) and (b) above, all indebtedness, liabilities,
agreements, understandings, instruments, contracts and proposed transactions
involving the same person or entity (including persons or entities the Company
or any applicable Subsidiary of the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual minimum
dollar amounts of such subsections.
5
(d) The
Company maintains disclosure controls and procedures (“Disclosure Controls”)
designed to ensure that information required to be disclosed by the Company in
the reports that it files or submits under the Exchange Act is recorded,
processed, summarized, and reported, within the time periods specified in the
rules and forms of the Securities and Exchange Commission (“SEC”).
(e) The
Company makes and keep books, records, and accounts, that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the Company’s
assets. The Company maintains internal control over financial reporting
(“Financial Reporting Controls”) designed by, or under the supervision of, the
Company’s principal executive and principal financial officers, and effected by
the Company’s board of directors, management, and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles (“GAAP”), including that:
(i)
transactions
are executed in accordance with management’s general or specific
authorization;
(ii)
unauthorized
acquisition, use, or disposition of the Company’s assets that could have a
material effect on the financial statements are prevented or timely
detected;
(iii) transactions
are recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that the Company’s receipts and expenditures are being
made only in accordance with authorizations of the Company’s management and
board of directors;
(iv) transactions
are recorded as necessary to maintain accountability for assets;
and
(v) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals, and appropriate action is taken with respect to any
differences.
(f) There is
no weakness in any of the Company’s Disclosure Controls or Financial Reporting
Controls that is required to be disclosed in any of the Exchange Act Filings,
except as so disclosed.
4.7 Obligations
to Related Parties. Except
as set forth on Schedule 4.7, there are no obligations of the Company or any of
its Subsidiaries to officers, directors, stockholders who own greater than or
equal to 5% of the issued and outstanding common stock of the Company or any of
its Subsidiaries or key employees of the Company or any of its Subsidiaries
other than:
(a) for
payment of salary for services rendered and for bonus payments;
6
(b) reimbursement
for reasonable expenses incurred on behalf of the Company and its
Subsidiaries;
(c) for other
standard employee benefits made generally available to all employees (including
stock option agreements outstanding under any stock option plan approved by the
Board of Directors of the Company and each such Subsidiary of the Company, as
applicable); and
(d) obligations
listed in the Company’s and each of its Subsidiary’s financial statements or
disclosed in any of the Company’s Exchange Act Filings.
Except as
described above or set forth on Schedule 4.7, none of the officers, directors
or, to the best of the Company’s knowledge, key employees or
stockholders who own
greater than or equal to 5% of the issued and outstanding common stock
of the
Company or any of its Subsidiaries or any members of their immediate families,
are indebted to the Company or any of its Subsidiaries, individually or in the
aggregate, in excess of $50,000 or have any direct or indirect ownership
interest in any firm or corporation with which the Company or any of its
Subsidiaries is affiliated or with which the Company or any of its Subsidiaries
has a business relationship, or any firm or corporation which competes with the
Company or any of its Subsidiaries, other than passive investments in publicly
traded companies (representing less than one percent (1%) of such company) which
may compete with the Company or any of its Subsidiaries. Except as described
above, no officer, director or stockholder who own
greater than or equal to 5% of the issued and outstanding common
stock of the
Company or any of its Subsidiaries, or any member of their immediate families,
is, directly or indirectly, interested in any material contract with the Company
or any of its Subsidiaries and no agreements, understandings or proposed
transactions are contemplated between the Company or any of its Subsidiaries and
any such person. Except as set forth on Schedule 4.7, neither the Company nor
any of its Subsidiaries is a guarantor or indemnitor of any indebtedness of any
other person, firm or entity.
4.8 Changes. Since
the Balance Sheet Date, except as disclosed in any Exchange Act Filing or in any
Schedule to this Agreement or to any of the Related Agreements, there has not
been:
(a) any
change in the business, assets, liabilities, condition (financial or otherwise),
properties, operations or prospects of the Company or any of its Subsidiaries,
which individually or in the aggregate has had, or could reasonably be expected
to have, individually or in the aggregate, a Material Adverse
Effect;
(b) any
resignation or termination of any officer, key employee or group of employees of
the Company or any of its Subsidiaries;
(c) any
material change, except in the ordinary course of business, in the contingent
obligations of the Company or any of its Subsidiaries by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) any
damage, destruction or loss, whether or not covered by insurance, which has had,
or could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
7
(e) any
waiver by the Company or any of its Subsidiaries of a valuable right or of a
material debt owed to it;
(f) any
direct or indirect loans made by the Company or any of its Subsidiaries to any
stockholder, employee, officer or director of the Company or any of its
Subsidiaries, other than advances made in the ordinary course of
business;
(g) any
material change in any compensation arrangement or agreement with any key
employee, officer, director or stockholder of the Company or any of its
Subsidiaries;
(h) any
declaration or payment of any dividend or other distribution of the assets of
the Company or any of its Subsidiaries;
(i) any labor
organization activity related to the Company or any of its
Subsidiaries;
(j) any debt,
obligation or liability incurred, assumed or guaranteed by the Company or any of
its Subsidiaries, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) any sale,
assignment or transfer of any patents, trademarks, copyrights, trade secrets or
other intangible assets owned by the Company or any of its
Subsidiaries;
(l) any
change in any material agreement to which the Company or any of its Subsidiaries
is a party or by which either the Company or any of its Subsidiaries is bound
which either individually or in the aggregate has had, or could reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect;
(m) any other
event or condition of any character that, either individually or in the
aggregate, has had, or could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect; or
(n) any
arrangement or commitment by the Company or any of its Subsidiaries to do any of
the acts described in subsection (a) through (m) above.
4.9 Title
to Properties and Assets; Liens, Etc. Except
as set forth on Schedule 4.9, each of the Company and each of its
Subsidiaries has good and marketable title to its properties and assets, and
good title to its leasehold interests, in each case subject to no mortgage,
pledge, lien, lease, encumbrance or charge, other than:
(a) those
resulting from taxes which have not yet become delinquent;
(b) minor
liens and encumbrances which do not materially detract from the value of the
property subject thereto or materially impair the operations of the Company or
any of its Subsidiaries, so long as in each such case, such liens and
encumbrances have no effect on the lien priority of the Purchaser in such
property; and
8
(c) those
that have otherwise arisen in the ordinary course of business, so long as they
have no effect on the lien priority of the Purchaser therein.
All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 4.9, the Company and
its Subsidiaries are in compliance with all material terms of each lease to
which it is a party or is otherwise bound.
4.10 Intellectual
Property. Except
as set forth on schedule 4.10
(a) Each of
the Company and each of its Subsidiaries owns or possesses sufficient legal
rights to all patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information and other proprietary rights and processes
necessary for its business as now conducted and, to the Company’s knowledge, as
presently proposed to be conducted (the “Intellectual Property”), without any
known infringement of the rights of others. There are no outstanding options,
licenses or agreements of any kind relating to the foregoing proprietary rights,
nor is the Company or any of its Subsidiaries bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person or
entity other than such licenses or agreements arising from the purchase of “off
the shelf” or standard products.
(b) Neither
the Company nor any of its Subsidiaries has received any communications alleging
that the Company or any of its Subsidiaries has violated any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity, nor is the Company or any of
its Subsidiaries aware of any basis therefor.
(c) The
Company does not believe it is or will be necessary to utilize any inventions,
trade secrets or proprietary information of any of its employees made prior to
their employment by the Company or any of its Subsidiaries, except for
inventions, trade secrets or proprietary information that have been rightfully
assigned to the Company or any of its Subsidiaries.
4.11 Compliance
with Other Instruments. Neither
the Company nor any of its Subsidiaries is in violation or default of (x) any
term of its Charter or Bylaws, or (y) any provision of any indebtedness,
mortgage, indenture, contract, agreement or instrument to which it is party or
by which it is bound or of any judgment, decree, order or writ, which violation
or default, in the case of this clause (y), has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect. The execution, delivery and performance of and compliance with this
Agreement and the Related Agreements to which it is a party, and the issuance
and sale of the Note by the Company and the other Securities by the Company each
pursuant hereto and thereto, will not, with or without the passage of time or
giving of notice, result in any such material violation, or be in conflict with
or constitute a default under any such term or provision, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or any of its Subsidiaries or the
suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.
9
4.13 Tax
Returns and Payments. Except
as set forth on Schedule 4.13, each of the Company and each of its Subsidiaries
has timely filed all tax returns (federal, state and local) required to be filed
by it. All taxes shown to be due and payable on such returns, any assessments
imposed, and all other taxes due and payable by the Company or any of its
Subsidiaries on or before the Closing, have been paid or will be paid prior to
the time they become delinquent. Except as set forth on Schedule 4.13,
neither the Company nor any of its Subsidiaries has been advised:
(a) that any
of its returns, federal, state, provincial or other, have been or are being
audited as of the date hereof; or
(b) of any
adjustment, deficiency, assessment or court decision in respect of its federal,
state, provincial or other taxes.
The
Company has no knowledge of any liability for any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14 Employees. Except
as set forth on Schedule 4.14, neither the Company nor any of its Subsidiaries
has any collective bargaining agreements with any of its key employees. There is
no labor union organizing activity pending or, to the Company’s knowledge,
threatened with respect to the Company or any of its Subsidiaries. Except as
disclosed in the Exchange Act Filings or on Schedule 4.14, neither the Company
nor any of its Subsidiaries is a party to or bound by any currently effective
employment contract, deferred compensation arrangement, bonus plan, incentive
plan, profit sharing plan, retirement agreement or other employee compensation
plan or agreement. To the Company’s knowledge, no key employee of the Company or
any of its Subsidiaries, nor any consultant with whom the Company or any of its
Subsidiaries has contracted, is in violation of any term of any employment
contract, proprietary information agreement or any other agreement relating to
the right of any such individual to be employed by, or to contract with, the
Company or any of its Subsidiaries because of the nature of the business to be
conducted by the Company or any of its Subsidiaries; and to the Company’s
knowledge the continued employment by the Company and its Subsidiaries of their
present key employees, and the performance of the Company’s and its
Subsidiaries’ contracts with its independent contractors, will not result in any
such violation. Neither the Company nor any of its Subsidiaries is aware that
any of its key employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency that would
interfere with their duties to the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries has received any notice alleging that
any such violation has occurred. Except for key employees who have a current
effective employment agreement with the Company or any of its Subsidiaries, no
key employee of the Company or any of its Subsidiaries has been granted the
right to continued employment by the Company or any of its Subsidiaries or to
any material compensation following termination of employment with the Company
or any of its Subsidiaries. Except as set forth on Schedule 4.14, the Company is
not aware that any officer, key employee or group of employees intends to
terminate his, her or their employment with the Company or any of its
Subsidiaries, nor does the Company or any of its Subsidiaries have a present
intention to terminate the employment of any officer, key employee or group of
employees.
10
4.15 Registration
Rights and Voting Rights. Except
as set forth on Schedule 4.15 and except as disclosed in Exchange Act
Filings, neither the Company nor any of its Subsidiaries is presently under any
obligation, and neither the Company nor any of its Subsidiaries has granted any
rights, to register any of the Company’s or its Subsidiaries’ presently
outstanding securities or any of its securities that may hereafter be issued.
Except as set forth on Schedule 4.15 and except as disclosed in Exchange Act
Filings, to the Company’s knowledge, no stockholder of the Company or any of its
Subsidiaries has entered into any agreement with respect to the voting of equity
securities of the Company or any of its Subsidiaries.
4.16 Compliance
with Laws; Permits. Neither
the Company nor any of its Subsidiaries is in violation of any provision of the
Xxxxxxxx-Xxxxx Act of 2002 or any
other applicable Canadian corporate governance law, or SEC
rule or rule of the Principal Market (as hereafter defined) promulgated
thereunder or any applicable statute, rule, regulation, order or restriction of
any domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties which
has had, or could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect. No governmental orders, permissions,
consents, approvals or authorizations are required to be obtained and no
registrations or declarations are required to be filed in connection with the
execution and delivery of this Agreement or any other Related Agreement and the
issuance of any of the Securities, except such as have been duly and validly
obtained or filed, or with respect to any filings that must be made after the
Closing, as will be filed in a timely manner. Each of the Company and its
Subsidiaries has all material franchises, permits, licenses and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could, either individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.
11
4.17 Environmental
and Safety Laws. Neither
the Company nor any of its Subsidiaries is in violation of any applicable
statute, law or regulation relating to the environment or occupational health
and safety, and to its knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
Except as set forth on Schedule 4.17, no Hazardous Materials (as defined below)
are used or have been used, stored, or disposed of by the Company or any of its
Subsidiaries or, to the Company’s knowledge, by any other person or entity on
any property owned, leased or used by the Company or any of its Subsidiaries.
For the purposes of the preceding sentence, “Hazardous Materials” shall
mean:
(a) materials
which are listed or otherwise defined as “hazardous” or “toxic” under any
applicable local, state, provincial, federal and/or foreign laws and regulations
that govern the existence and/or remedy of contamination on property, the
protection of the environment from contamination, the control of hazardous
wastes, or other activities involving hazardous substances, including building
materials; or
(b) any
petroleum products or nuclear materials.
4.18 Valid
Offering.
Assuming the accuracy of the representations and warranties of the Purchaser
contained in this Agreement, the offer, sale and issuance of the Securities will
be exempt from the registration requirements of the Securities Act of 1933, as
amended (the “Securities Act”), and will have been registered or qualified (or
are exempt from registration and qualification) under the registration, permit
or qualification requirements of all applicable state securities
laws.
4.19 Full
Disclosure. Each of
the Company and each of its Subsidiaries has provided the Purchaser with all
information requested in writing by the Purchaser in connection with its
decision to purchase the Note and Warrant, including all information the Company
and its Subsidiaries believe is reasonably necessary to make such investment
decision. Neither this Agreement, the Related Agreements, the exhibits and
schedules hereto and thereto nor any other document delivered by the Company or
any of its Subsidiaries to Purchaser or its attorneys or agents in connection
herewith or therewith or with the transactions contemplated hereby or thereby,
contain any untrue statement of a material fact nor omit to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading. Any financial
projections and other estimates provided to the Purchaser by the Company or any
of its Subsidiaries were based on the Company’s and its Subsidiaries’ experience
in the industry and on assumptions of fact and opinion as to future events which
the Company or any of its Subsidiaries, at the date of the issuance of such
projections or estimates, believed to be reasonable.
4.20 Insurance. Each of
the Company and each of its Subsidiaries has general commercial, product
liability, fire and casualty insurance policies with coverages which the Company
believes are customary for companies similarly situated to the Company and its
Subsidiaries in the same or similar business.
4.21 SEC
Reports. Except
as set forth on Schedule 4.21, the Company has filed all proxy statements,
reports and other documents required to be filed by it under the Securities
Xxxxxxxx Xxx 0000, as amended (the “Exchange Act”). The Company has furnished
the Purchaser copies of: (i) its Annual Reports on Form 10-KSB for its fiscal
year ended April 30, 2004; and (ii) its Quarterly Reports on Form 10-QSB for its
fiscal quarters ended July 31, 2004, October 31, 2004, and January 31, 2005, and
the Form 8-K filings which it has made after October 31, 2004 to date
(collectively, the “SEC Reports”). Except as set forth on Schedule 4.21, each
SEC Report was, at the time of its filing, in substantial compliance with the
requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material fact
or omitted 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.
12
4.22 Listing. The
Company’s Common Stock is listed for trading on a Principal Market (as hereafter
defined) and satisfies and at all times hereafter will satisfy all requirements
for the continuation of such listing. The Company has not received any notice
that its Common Stock will be delisted from the Principal Market or that its
Common Stock does not meet all requirements for listing. For
purposes hereof, the term “Principal Market” means the NASD OTC Bulletin Board,
NASDAQ SmallCap Market, NASDAQ National Marketing System, American Stock
Exchange or New York Stock Exchange (whichever of the foregoing is at the time
the principal trading exchange or market for the Common Stock).
4.23 No
Integrated Offering. Neither
the Company, nor any of its Subsidiaries or affiliates, nor any person acting on
its or their behalf, has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security (other
than a concurrent offering to the Purchaser under a Security Agreement among the
Company, certain Subsidiaries of the Company and the Purchaser dated as of the
date hereof (as amended, modified or supplemented from time to time, the
“Security Agreement”)) under
circumstances that would cause the offering of the Securities pursuant to this
Agreement or any of the Related Agreements to be integrated with prior offerings
by the Company for purposes of the Securities Act which would prevent the
Company from selling the Securities pursuant to Rule 506 under the Securities
Act, or any applicable exchange-related stockholder approval provisions, nor
will the Company or any of its affiliates or Subsidiaries take any action or
steps that would cause the offering of the Securities to be integrated with
other offerings.
4.24 Stop
Transfer. The
Securities are restricted securities as of the date of this Agreement. Neither
the Company nor any of its Subsidiaries will issue any stop transfer order or
other order impeding the sale and delivery of any of the Securities at such time
as the Securities are registered for public sale or an exemption from
registration is available, except as required by state and federal securities
laws.
4.25 Dilution. The
Company specifically acknowledges that its obligation to issue the shares of
Common Stock upon conversion of the Note and exercise of the Warrant is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the
Company.
4.26 Patriot
Act, etc.
The
Company certifies that, to the best of Company’s knowledge, neither the Company
nor any of its Subsidiaries has been designated, nor is or shall be owned or
controlled, by a “suspected terrorist” as defined in Executive Order 13224. The
Company hereby acknowledges that the Purchaser seeks to comply with all
applicable laws concerning money laundering and related activities. In
furtherance of those efforts, the Company hereby represents, warrants and
covenants that: (i) none of the cash or property that the Company or any of its
Subsidiaries will pay or will contribute to the Purchaser has been or shall be
derived from, or related to, any activity that is deemed criminal under United
States law or
Canadian law; and
(ii) no contribution or payment by the Company or any of its Subsidiaries to the
Purchaser, to the extent that they are within the Company’s and/or its
Subsidiaries’ control shall cause the Purchaser to be in violation of the United
States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001, or the
Canadian Proceeds of Crime (Money Laundering) and Terrorist Financing
Act. The
Company shall promptly notify the Purchaser if any of these representations,
warranties or covenants ceases to be true and accurate regarding the Company or
any of its Subsidiaries. The Company shall provide the Purchaser any and all
additional information regarding the Company or any of its Subsidiaries that the
Purchaser deems necessary or convenient to ensure compliance with all applicable
laws concerning money laundering and similar activities. The Company understands
and agrees that if at any time it is discovered that any of the foregoing
representations, warranties or covenants are incorrect, or if otherwise required
by applicable law or regulation related to money laundering or similar
activities, the Purchaser may undertake appropriate actions to ensure compliance
with applicable law or regulation, including but not limited to segregation
and/or redemption of the Purchaser’s investment in the Company. The Company
further understands that the Purchaser may release confidential information
about the Company and its Subsidiaries and, if applicable, any underlying
beneficial owners, to proper authorities if the Purchaser, in its sole
discretion, determines that it is in the best interests of the Purchaser in
light of relevant rules and regulations under the laws set forth in subsection
(ii) above.
13
4.27 ERISA. Based
upon the Employee Retirement Income Security Act of 1974 (“ERISA”), and
the regulations and published interpretations thereunder: (i) neither the
Company nor any of its Subsidiaries has engaged in any Prohibited Transactions
(as defined in Section 406 of ERISA and Section 4975 of the Internal
Revenue Code of 1986, as amended (the “Code”)); (ii)
each of the Company and each of its Subsidiaries has met all applicable minimum
funding requirements under Section 302 of ERISA in respect of its plans; (iii)
neither the Company nor any of its Subsidiaries has any knowledge of any event
or occurrence which would cause the Pension Benefit Guaranty Corporation to
institute proceedings under Title IV of ERISA to terminate any employee benefit
plan(s); (iv) neither the Company nor any of its Subsidiaries has any fiduciary
responsibility for investments with respect to any plan existing for the benefit
of persons other than the Company’s or such Subsidiary’s employees; and (v)
neither the Company nor any of its Subsidiaries has withdrawn, completely or
partially, from any multi-employer pension plan so as to incur liability under
the Multiemployer Pension Plan Amendments Act of 1980. Neither
the Company nor any of its Subsidiaries contributes to, or maintains, any
Canadian Pension Plan.
14
5.
Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
5.1 No
Shorting. The
Purchaser or any of its affiliates and investment partners has not, will not and
will not cause any person or entity, to directly engage or cause or participate
with any third party to directly engage in “short sales” of the Company’s Common
Stock as long as the Note shall be outstanding.
5.2 Requisite
Power and Authority. The
Purchaser has all necessary power and authority under all applicable provisions
of law to execute and deliver this Agreement and the Related Agreements and to
carry out their provisions. All corporate action on the Purchaser’s part
required for the lawful execution and delivery of this Agreement and the Related
Agreements have been or will be effectively taken prior to the Closing. Upon
their execution and delivery, this Agreement and the Related Agreements will be
valid and binding obligations of the Purchaser, enforceable in accordance with
their terms, except:
(a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights;
and
(b) as
limited by general principles of equity that restrict the availability of
equitable and legal remedies.
5.3 Investment
Representations. The
Purchaser understands that the Securities are being offered and sold pursuant to
an exemption from registration contained in the Securities Act based in part
upon the Purchaser’s representations contained in this Agreement, including,
without limitation, that the Purchaser is an “accredited investor” within the
meaning of Regulation D under the Securities Act of 1933, as amended (the
“Securities Act”). The Purchaser confirms that it has received or has had full
access to all the information it considers necessary or appropriate to make an
informed investment decision with respect to the Note and the Warrant to be
purchased by it under this Agreement and the Note Shares and the Warrant Shares
acquired by it upon the conversion of the Note and the exercise of the Warrant,
respectively. The Purchaser further confirms that it has had an opportunity to
ask questions and receive answers from the Company regarding the Company’s and
its Subsidiaries’ business, management and financial affairs and the terms and
conditions of the Offering, the Note, the Warrant and the Securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Purchaser or to which the
Purchaser had access.
5.4 The
Purchaser Bears Economic Risk. The
Purchaser has substantial experience in evaluating and investing in private
placement transactions of securities in companies similar to the Company so that
it is capable of evaluating the merits and risks of its investment in the
Company and has the capacity to protect its own interests. The Purchaser must
bear the economic risk of this investment until the Securities are sold pursuant
to: (i) an effective registration statement under the Securities Act; or (ii) an
exemption from registration is available with respect to such sale.
15
5.5 Acquisition
for Own Account. The
Purchaser is acquiring the Note and Warrant and the Note Shares and the Warrant
Shares for the Purchaser’s own account for investment only, and not as a nominee
or agent and not with a view towards or for resale in connection with their
distribution.
5.6 The
Purchaser Can Protect Its Interest. The
Purchaser represents that by reason of its, or of its management’s, business and
financial experience, the Purchaser has the capacity to evaluate the merits and
risks of its investment in the Note, the Warrant and the Securities and to
protect its own interests in connection with the transactions contemplated in
this Agreement and the Related Agreements. Further, the Purchaser is aware of no
publication of any advertisement in connection with the transactions
contemplated in the Agreement or the Related Agreements.
5.7 Accredited
Investor. The
Purchaser represents that it is an accredited investor within the meaning of
Regulation D under the Securities Act.
5.8 Legends.
(a) The Note
shall bear substantially the following legend:
“THIS
NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO HOUSE OF BRUSSELS CHOCOLATES INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.”
(b) The Note
Shares and the Warrant Shares, if not issued by DWAC system (as hereinafter
defined), shall bear a legend which shall be in substantially the following form
until such shares are covered by an effective registration statement filed with
the SEC:
“THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO HOUSE
OF BRUSSELS CHOCOLATES INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.”
16
The
Warrant shall bear substantially the following legend:
“THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE
UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO HOUSE OF BRUSSELS
CHOCOLATES INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”
6. Covenants
of the Company. The
Company covenants and agrees with the Purchaser as follows:
6.1 Stop-Orders. The
Company will advise the Purchaser, promptly after it receives notice of issuance
by the SEC, any state securities commission or any other regulatory authority of
any stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 Listing. The
Company shall promptly secure the listing of the shares of Common Stock issuable
upon conversion of the Note and upon the exercise of the Warrant on the
Principal Market upon which shares of Common Stock are listed (subject to
official notice of issuance) and shall maintain such listing so long as any
other shares of Common Stock shall be so listed. The Company will maintain the
listing of its Common Stock on the Principal Market, and will comply in all
material respects with the Company’s reporting, filing and other obligations
under the bylaws or rules of the National Association of Securities Dealers
(“NASD”) and such exchanges, as applicable.
6.3 Market
Regulations. The
Company shall notify the SEC, NASD and applicable state authorities, in
accordance with their requirements, of the transactions contemplated by this
Agreement, and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the legal and
valid issuance of the Securities to the Purchaser and promptly provide copies
thereof to the Purchaser.
6.4 Reporting
Requirements. The
Company shall timely file with the SEC all reports required to be filed pursuant
to the Exchange Act and refrain from terminating its status as an issuer
required by the Exchange Act to file reports thereunder even if the Exchange Act
or the rules or regulations thereunder would permit such
termination.
17
6.5
Use of
Funds. The
Company shall use (x) up to $1,400,000 of the proceeds of the sale of the Note
to refinance certain outstanding indebtedness of the Company and its
Subsidiaries and (y) the remainder of the proceeds of the sale of the Note and
the proceeds of the sale of the Warrant for general working capital
purposes.
6.6
Access
to Facilities. Each of
the Company and each of its Subsidiaries will permit any representatives
designated by the Purchaser (or any successor of the Purchaser), upon reasonable
notice and during normal business hours, at such person’s expense and
accompanied by a representative of the Company or any Subsidiary (provided that
no such prior notice shall be required to be given and no such representative of
the Company or any Subsidiary shall be required to accompany the Purchaser in
the event the Purchaser believes such access is necessary to preserve or protect
the Collateral (as defined in the Master Security Agreement) or following the
occurrence and during the continuance of an Event of Default (as defined in the
Note)), to:
6.6
Access
to Facilities. Each of
the Company and each of its Subsidiaries will permit any representatives
designated by the Purchaser (or any successor of the Purchaser), upon reasonable
notice and during normal business hours, at such person’s expense and
accompanied by a representative of the Company or any Subsidiary (provided that
no such prior notice shall be required to be given and no such representative of
the Company or any Subsidiary shall be required to accompany the Purchaser in
the event the Purchaser believes such access is necessary to preserve or protect
the Collateral (as defined in the Master Security Agreement) or following the
occurrence and during the continuance of an Event of Default (as defined in the
Note)), to:
(a) visit and
inspect any of the properties of the Company or any of its
Subsidiaries;
(b) examine
the corporate and financial records of the Company or any of its Subsidiaries
(unless such examination is not permitted by federal, state or local law or by
contract) and make copies thereof or extracts therefrom; and
(c) discuss
the affairs, finances and accounts of the Company or any of its Subsidiaries
with the directors, officers and independent accountants of the Company or any
of its Subsidiaries.
Notwithstanding
the foregoing, neither the Company nor any of its Subsidiaries will provide any
material, non-public information to the Purchaser unless the Purchaser signs a
confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.
6.7 Taxes.
(i) Each of the Company and each of its Subsidiaries will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company and its Subsidiaries; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company and/or such Subsidiary shall have set aside on
its books adequate reserves with respect thereto, and provided, further, that
the Company and its Subsidiaries will pay all such taxes, assessments, charges
or levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor.
(ii)
If Company or any of its Subsidiaries shall be required by law to deduct or
withhold in respect of any and all present or future taxes, levies, imposts,
deductions and other governmental charges or withholdings, and all interest,
penalties and other liabilities with respect thereto, imposed by any
jurisdiction (or any political subdivision thereof) (“Taxes”) other than, with
respect to the Purchaser, any Taxes (including income, branch profits or
franchise taxes) imposed on or measured by its net income (“Indemnified Taxes”)
from or in respect of any sum payable hereunder to the Purchaser,
then:
18
(a) the sum
payable shall be increased by such additional amount (the "Additional Amount")
as necessary so that after making all required deductions and withholdings
(including deductions and withholdings applicable to such Additional Amount) the
Purchaser receives an amount equal to the sum it would have received had no such
deductions or withholdings been made;
(b) the
Company or such Subsidiary shall make the appropriate deductions or withholdings
and shall pay the full amount deducted or withheld to the relevant taxing
authority or other authority in accordance with applicable law;
(c) within
thirty (30) days after the date of such payment, upon the Purchaser’s request,
the Company or such Subsidiary shall furnish to the Purchaser the original or a
certified copy of a receipt evidencing payment thereof, or other evidence of
payment reasonably satisfactory to the Purchaser;
(d) if the
Company or such Subsidiary fails to pay amounts in accordance with paragraph (b)
above, the Company or such Subsidiary shall indemnify the Purchaser for any
incremental Indemnified Taxes that is paid by the Purchaser as a result of the
failure;
(e) the
Company will indemnify the Purchaser for the full amount of any Taxes imposed by
any jurisdiction and paid by the Purchaser with respect to any Additional Amount
payable pursuant to paragraph (a) above and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto, whether or not
such Taxes are correctly asserted; and
(f) the
indemnification contemplated in paragraphs (d) and (e) above shall be made
within 30 days from the date the Purchaser makes written demand therefor (which
demand shall identify the nature and amount of Taxes for which indemnification
is being sought and shall include a copy of the relevant portion of any written
assessment from the governmental authority demanding payment of such
Taxes).
6.8 Insurance. Each of
the Company and its Subsidiaries will keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss or
damage by fire, explosion and other risks customarily insured against by
companies in similar business similarly situated as the Company and its
Subsidiaries; and the Company and its Subsidiaries will maintain, with
financially sound and reputable insurers, insurance against other hazards and
risks and liability to persons and property to the extent and in the manner
which the Company reasonably believes is customary for companies in similar
business similarly situated as the Company and its Subsidiaries and to the
extent available on commercially reasonable terms. The Company, and each of its
Subsidiaries, will jointly and severally bear the full risk of loss from any
loss of any nature whatsoever with respect to the assets pledged to the
Purchaser as security for their respective obligations hereunder and under the
Related Agreements. At the Company’s and each of its Subsidiaries’ joint and
several cost and expense in amounts and with carriers reasonably acceptable to
the Purchaser, each of the Company and each of its Subsidiaries shall (i) keep
all its insurable properties and properties in which it has an interest insured
against the hazards of fire, flood, sprinkler leakage, those hazards covered by
extended coverage insurance and such other hazards, and for such amounts, as is
customary in the case of companies engaged in businesses similar to the
Company’s or the respective Subsidiary’s including business interruption
insurance; (ii) maintain a bond in such amounts as is customary in the case of
companies engaged in businesses similar to the Company’s or the respective
Subsidiary’s insuring against larceny, embezzlement or other criminal
misappropriation of insured’s officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of the
Company or any of its Subsidiaries either directly or through governmental
authority to draw upon such funds or to direct generally the disposition of such
assets; (iii) maintain public and product liability insurance against claims for
personal injury, death or property damage suffered by others; (iv) maintain all
such worker’s compensation or similar insurance as may be required under the
laws of any state or jurisdiction in which the Company or the respective
Subsidiary is engaged in business; and (v) furnish the Purchaser with (x) copies
of all policies and evidence of the maintenance of such policies at least thirty
(30) days before any expiration date, (y) excepting the Company’s workers’
compensation policy, endorsements to such policies naming the Purchaser as
“co-insured” or “additional insured” and appropriate loss payable endorsements
in form and substance satisfactory to the Purchaser, naming the Purchaser as
loss payee, and (z) evidence that as to the Purchaser the insurance coverage
shall not be impaired or invalidated by any act or neglect of the Company or any
Subsidiary and the insurer will provide the Purchaser with at least thirty (30)
days notice prior to cancellation. The Company and each Subsidiary shall
instruct the insurance carriers that in the event of any loss thereunder, the
carriers shall make payment for such loss to the Company and/or the Subsidiary
and the Purchaser jointly. In the event that as of the date of receipt of each
loss recovery upon any such insurance, the Purchaser has not declared an event
of default with respect to this Agreement or any of the Related Agreements, then
the Company and/or such Subsidiary shall be permitted to direct the application
of such loss recovery proceeds toward investment in property, plant and
equipment that would comprise “Collateral” secured by the Purchaser’s security
interest pursuant to the Master Security Agreement or such other security
agreement as shall be required by the Purchaser, with any surplus funds to be
applied toward payment of the obligations of the Company to the Purchaser. In
the event that the Purchaser has properly declared an event of default with
respect to this Agreement or any of the Related Agreements, then all loss
recoveries received by the Purchaser upon any such insurance thereafter may be
applied to the obligations of the Company hereunder and under the Related
Agreements, in such order as the Purchaser may determine. Any surplus (following
satisfaction of all Company obligations to the Purchaser) shall be paid by the
Purchaser to the Company or applied as may be otherwise required by law. Any
deficiency thereon shall be paid by the Company or the Subsidiary, as
applicable, to the Purchaser, on demand.
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6.9 Intellectual
Property. Each of
the Company and each of its Subsidiaries shall maintain in full force and effect
its existence, rights and franchises and all licenses and other rights to use
Intellectual Property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business.
6.10
Properties. Each of
the Company and each of its Subsidiaries will keep its properties in good
repair, working order and condition, reasonable wear and tear excepted, and from
time to time make all needful and proper repairs, renewals, replacements,
additions and improvements thereto; and each of the Company and each of its
Subsidiaries will at all times comply with each provision of all leases to which
it is a party or under which it occupies property if the breach of such
provision could, either individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
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6.11 Confidentiality. The
Company will not, and will not permit any of its Subsidiaries to, disclose, and
will not include in any public announcement, the name of the Purchaser, unless
expressly agreed to by the Purchaser or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement. Notwithstanding the foregoing, the Company may disclose the
Purchaser’s identity and the terms of this Agreement to its current and
prospective debt and equity financing sources.
6.12 Required
Approvals. For so
long as twenty-five percent (25%) of the principal amount of the Note is
outstanding, the Company, without the prior written consent of the Purchaser,
shall not, and shall not permit any of its Subsidiaries to:
(a) (i)
directly or indirectly declare or pay any dividends, other than dividends paid
to the parent of the Company or the parent of any Subsidiary of the Company,
(ii) issue any preferred stock that is manditorily redeemable prior to the
one year anniversary of Maturity Date (as defined in the Note) or (iii) redeem
any of its preferred stock or other equity interests;
(b) liquidate,
dissolve or effect a material reorganization (it being understood that in no
event shall the Company or any of its Subsidiaries dissolve, liquidate or merge
with any other person or entity (unless the Company or such Subsidiary, as
applicable, is the surviving entity);
(c) become
subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would (under any
circumstances) restrict the Company’s or any of its Subsidiaries right to
perform the provisions of this Agreement, any Related Agreement or any of the
agreements contemplated hereby or thereby;
(d) materially
alter or change the scope of the business of the Company and its Subsidiaries
taken as a whole;
(e) (i)
create, incur, assume or suffer to exist any indebtedness (exclusive of trade
debt and debt incurred to finance the purchase of equipment (not in excess of
eight percent (8%) of the fair market value of the Company’s and its
Subsidiaries’ assets)) whether secured or unsecured other than (x) the Company’s
indebtedness to the Purchaser, (y) indebtedness set forth on Schedule 6.12(e)
attached hereto and made a part hereof and any refinancings or replacements
thereof on terms no less favorable to the Purchaser than the indebtedness being
refinanced or replaced, and (z) any debt incurred in connection with the
purchase of assets in the ordinary course of business, or any refinancings or
replacements thereof on terms no less favorable to the Purchaser than the
indebtedness being refinanced or replaced, so long as any lien relating thereto
shall only encumber the fixed assets so purchased and no other assets of the
Company or any of its Subsidiaries; (ii) cancel any debt owing to it in excess
of $50,000 in the aggregate during any 12 month period; (iii) assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other person or entity, except the endorsement of
negotiable instruments by the Company for deposit or collection or similar
transactions in the ordinary course of business or guarantees of indebtedness
otherwise permitted to be outstanding pursuant to this clause (e);
and
21
(f) create or
acquire any Subsidiary after the date hereof unless (i) such Subsidiary is a
wholly-owned Subsidiary of the Company and (ii) such Subsidiary becomes a party
to the Master Security Agreement, the Stock Pledge Agreement and the Subsidiary
Guaranty (either by executing a counterpart thereof or an assumption or joinder
agreement in respect thereof) and, to the extent required by the Purchaser,
satisfies each condition of this Agreement and the Related Agreements as if such
Subsidiary were a Subsidiary on the Closing Date.
6.13 Reissuance
of Securities. The
Company agrees to reissue certificates representing the Securities without the
legends set forth in Section 5.8 above at such time as:
(a) the
holder thereof is permitted to dispose of such Securities pursuant to Rule
144(k) under the Securities Act; or
(b) upon
resale subject to an effective registration statement after such Securities are
registered under the Securities Act.
The
Company agrees to cooperate with the Purchaser in connection with all resales
pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to
allow such resales provided the Company and its counsel receive reasonably
requested representations from the Purchaser and broker, if any.
6.14 Opinion. On the
Closing Date, the Company will deliver to the Purchaser an opinion acceptable to
the Purchaser from the Company’s external legal counsel. The Company will
provide, at the Company’s expense, such other legal opinions in the future as
are deemed reasonably necessary by the Purchaser (and acceptable to the
Purchaser) in connection with the conversion of the Note and exercise of the
Warrant.
6.15 Margin
Stock. The
Company will not permit any of the proceeds of the Note or the Warrant to be
used directly or indirectly to “purchase” or “carry” “margin stock” or to repay
indebtedness incurred to “purchase” or “carry” “margin stock” within the
respective meanings of each of the quoted terms under Regulation U of the Board
of Governors of the Federal Reserve System as now and from time to time
hereafter in effect.
6.16 Financing
Right of First Refusal.
(a) The
Company hereby grants to the Purchaser a right of first refusal to provide any
Additional Financing (as defined below) to be issued by the Company and/or any
of its Subsidiaries, subject to the following terms and conditions. From and
after the date hereof, prior to the incurrence of any additional indebtedness of
the Company or any of its Subsidiaries
convertible into the Common Stock of the Company (an
“Additional Financing”), the Company and/or any Subsidiary of the Company, as
the case may be, shall notify the Purchaser of its intention to enter into such
Additional Financing. In connection therewith, the Company and/or the applicable
Subsidiary thereof shall submit a fully executed term sheet (a “Proposed Term
Sheet”) to the Purchaser setting forth the terms, conditions and pricing of any
such Additional Financing (such financing to be negotiated on “arm’s length”
terms and the terms thereof to be negotiated in good faith) proposed to be
entered into by the Company and/or such Subsidiary. The Purchaser shall have the
right, but not the obligation, to deliver its own proposed term sheet (the
“Purchaser Term Sheet”) setting forth the terms and conditions upon which the
Purchaser would be willing to provide such Additional Financing to the Company
and/or such Subsidiary. The Purchaser Term Sheet shall contain terms no less
favorable to the Company and/or such Subsidiary than those outlined in Proposed
Term Sheet. The Purchaser shall deliver such Purchaser Term Sheet within ten
business days of receipt of each such Proposed Term Sheet. If the provisions of
the Purchaser Term Sheet are at least as favorable to the Company and/or such
Subsidiary, as the case may be, as the provisions of the Proposed Term Sheet,
the Company and/or such Subsidiary shall enter into and consummate the
Additional Financing transaction outlined in the Purchaser Term
Sheet.
Notwithstanding anything to the contrary contained above, this Section 6.16(a)
shall only apply to the extent that the aggregate principal amount of all
Additional Financings consummated in such fiscal year of the Parent (after
giving effect to the proposed Additional Financing) exceed
$100,000.
22
(b) The
Company will not, and will not permit its Subsidiaries to, agree, directly or
indirectly, to any restriction with any person or entity which limits the
ability of the Purchaser to consummate an Additional Financing with the Company
or any of its Subsidiaries.
7. Covenants
of the Purchaser. The
Purchaser covenants and agrees with the Company as follows:
7.1 Confidentiality. The
Purchaser will not disclose, and will not include in any public announcement,
the name of the Company, unless expressly agreed to by the Company or unless and
until such disclosure is required by law or applicable regulation, and then only
to the extent of such requirement.
7.2 Non-Public
Information. The
Purchaser will not effect any sales in the shares of the Company’s Common Stock
while in possession of material, non-public information regarding the Company if
such sales would violate applicable securities law.
7.3 Limitation
on Acquisition of Common Stock of the Company.
Notwithstanding anything to the contrary contained herein, in any Related
Agreement or any document, instrument or agreement entered into in connection
with any other transactions between the Purchaser and the Company, the Purchaser
may not acquire stock in the Company (including, without limitation, pursuant to
a contract to purchase, by exercising an option or warrant, by converting any
other security or instrument, by acquiring or exercising any other right to
acquire, shares of stock or other security convertible into shares of stock in
the Company, or otherwise, and such contracts, options, warrants, conversion or
other rights shall not be enforceable or exercisable) to the extent such stock
acquisition would cause any interest (including any original issue discount)
payable by the Company to Laurus not to qualify as “portfolio interest” within
the meaning of Section 881(c)(2) of the Code, by reason of
Section 881(c)(3) of the Code, taking into account the constructive
ownership rules under Section 871(h)(3)(C) of the Code (the “Stock Acquisition
Limitation”). The Stock Acquisition Limitation shall automatically become null
and void without any notice to the Company upon the earlier to occur of either
(a) the Company’s delivery to Laurus of a Notice of Redemption (as defined in
the Note) or (b) the existence of an Event of Default (as defined in the Note)
at a time when the average closing price of the Company’s common stock as
reported by Bloomberg, L.P. on the Principal Market for the immediately
preceding five trading days is greater than or equal to 150% of the Fixed
Conversion Price (as defined in the Note).
23
8. Covenants
of the Company and the Purchaser Regarding Indemnification.
8.1 Company
Indemnification. The
Company agrees to indemnify, hold harmless, reimburse and defend the Purchaser,
each of the Purchaser’s officers, directors, agents, affiliates, control
persons, and principal shareholders, against any and all claims, costs,
expenses, liabilities, obligations, losses or damages (including reasonable
legal fees) of any nature, incurred by or imposed upon the Purchaser which
result, arise out of or are based upon: (i) any misrepresentation by the Company
or any of its Subsidiaries or breach of any warranty by the Company or any of
its Subsidiaries in this Agreement, any Related Agreement or in any exhibits or
schedules attached hereto or thereto; or (ii) any breach or default in
performance by Company or any of its Subsidiaries of any covenant or undertaking
to be performed by Company or any of its Subsidiaries hereunder, under any
Related Agreement or any other agreement entered into by the Company and/or any
of its Subsidiaries and the Purchaser relating hereto or thereto.
8.2 Purchaser’s
Indemnification. The
Purchaser agrees to indemnify, hold harmless, reimburse and defend the Company
and each of the Company’s officers, directors, agents, affiliates, control
persons and principal shareholders, at all times against any claims, costs,
expenses, liabilities, obligations, losses or damages (including reasonable
legal fees) of any nature, incurred by or imposed upon the Company which result,
arise out of or are based upon: (i) any misrepresentation by the Purchaser or
breach of any warranty by the Purchaser in this Agreement or any Related
Agreement or in any exhibits or schedules attached hereto or thereto; or
(ii) any breach or default in performance by the Purchaser of any covenant
or undertaking to be performed by the Purchaser hereunder, under any Related
Agreement or any other agreement entered into by the Company and/or any of its
subsidiaries and the Purchaser relating hereto or thereto.
9. Conversion
of Convertible Note.
9.1 Mechanics
of Conversion.
(a) Provided
the Purchaser has notified the Company of the Purchaser’s intention to sell the
Note Shares and the Note Shares are included in an effective registration
statement or are otherwise exempt from registration when sold: (i) upon the
conversion of the Note or part thereof, the Company shall, at its own cost and
expense, take all necessary action (including the issuance of an opinion of
counsel reasonably acceptable to the Purchaser following a request by the
Purchaser) to assure that the Company’s transfer agent shall issue shares of the
Company’s Common Stock in the name of the Purchaser (or its nominee) or such
other persons as designated by the Purchaser in accordance with Section 9.1(b)
hereof and in such denominations to be specified representing the number of Note
Shares issuable upon such conversion; and (ii) the Company warrants that no
instructions other than these instructions have been or will be given to the
transfer agent of the Company’s Common Stock and that after the Effectiveness
Date (as defined in the Registration Rights Agreement) the Note Shares issued
will be freely transferable subject to the prospectus delivery requirements of
the Securities Act and the provisions of this Agreement, and will not contain a
legend restricting the resale or transferability of the Note
Shares.
24
(b) The
Purchaser will give notice of its decision to exercise its right to convert the
Note or part thereof by telecopying or otherwise delivering an executed and
completed notice of the number of shares to be converted to the Company (the
“Notice of Conversion”). The Purchaser will not be required to surrender the
Note until the Purchaser receives a credit to the account of the Purchaser’s
prime broker through the DWAC system (as defined below), representing the Note
Shares or until the Note has been fully satisfied. Each date on which a Notice
of Conversion is telecopied or delivered to the Company in accordance with the
provisions hereof shall be deemed a “Conversion Date.” Pursuant to the terms of
the Notice of Conversion, the Company will issue instructions to the transfer
agent accompanied by an opinion of counsel within one (1) business day of the
date of the delivery to the Company of the Notice of Conversion and shall cause
the transfer agent to transmit the certificates representing the Conversion
Shares to the Holder by crediting the account of the Purchaser’s prime broker
with the Depository Trust Company (“DTC”) through its Deposit Withdrawal Agent
Commission (“DWAC”) system within three (3) business days after receipt by the
Company of the Notice of Conversion (the “Delivery Date”).
(c) The
Company understands that a delay in the delivery of the Note Shares in the form
required pursuant to Section 9 hereof beyond the Delivery Date could result in
economic loss to the Purchaser. In the event that the Company fails to direct
its transfer agent to deliver the Note Shares to the Purchaser via the DWAC
system within the time frame set forth in Section 9.1(b) above and the Note
Shares are not delivered to the Purchaser by the Delivery Date, as compensation
to the Purchaser for such loss, the Company agrees to pay late payments to the
Purchaser for late issuance of the Note Shares in the form required pursuant to
Section 9 hereof upon conversion of the Note in the amount equal to the greater
of: (i) $500 per business day after the Delivery Date; or (ii) the Purchaser’s
actual damages from such delayed delivery. Notwithstanding the foregoing, the
Company will not owe the Purchaser any late payments if the delay in the
delivery of the Note Shares beyond the Delivery Date is solely out of the
control of the Company and the Company is actively trying to cure the cause of
the delay. The Company shall pay any payments incurred under this Section in
immediately available funds upon demand and, in the case of actual damages,
accompanied by reasonable documentation of the amount of such damages. Such
documentation shall show the number of shares of Common Stock the Purchaser is
forced to purchase (in an open market transaction) which the Purchaser
anticipated receiving upon such conversion, and shall be calculated as the
amount by which (A) the Purchaser’s total purchase price (including customary
brokerage commissions, if any) for the shares of Common Stock so purchased
exceeds (B) the aggregate principal and/or interest amount of the Note, for
which such Conversion Notice was not timely honored.
25
10. Registration
Rights.
10.1 Registration
Rights Granted. The
Company hereby grants registration rights to the Purchaser pursuant to the
Registration Rights Agreement.
10.2 Offering
Restrictions. Except
as previously disclosed in the SEC Reports or in the Exchange Act Filings, or
stock or stock options granted to employees or directors of the Company (these
exceptions hereinafter referred to as the “Excepted Issuances”), neither the
Company nor any of its Subsidiaries will, prior to the full repayment or
conversion of the Note (together with all accrued and unpaid interest and fees
related thereto), (x) enter into any equity line of credit agreement or similar
agreement or (y) issue, or enter into any agreement to issue, any securities
with a variable/floating conversion and/or pricing feature which are or could be
(by conversion or registration) free-trading securities (i.e. common stock
subject to a registration statement).
11. Miscellaneous.
11.1 Governing
Law, Jurisdiction and Waiver of Jury Trial.
(a) THIS
AGREEMENT AND THE OTHER RELATED AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.
(b) THE
COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN
THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO
HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY, ON THE ONE HAND,
AND THE PURCHASER, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE
RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT
OR ANY OF THE OTHER RELATED AGREEMENTS; PROVIDED, THAT
THE PURCHASER AND THE COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY
HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF
NEW YORK; AND FURTHER PROVIDED, THAT
NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE PURCHASER
FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO
COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL (AS DEFINED IN THE MASTER
SECURITY AGREEMENT) OR ANY OTHER SECURITY FOR THE OBLIGATIONS (AS DEFINED IN THE
MASTER SECURITY AGREEMENT), OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF THE PURCHASER. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE
COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM
NON CONVENIENS. THE
COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER
PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN SECTION 11.9 AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE COMPANY’S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
26
(c) THE
PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE PURCHASER AND/OR THE
COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY
OTHER RELATED AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR
THERETO.
11.2 Severability.
Wherever possible each provision of this Agreement and the Related Agreements
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement or any Related Agreement
shall be prohibited by or invalid under applicable law such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions
thereof.
11.3 Survival. The
representations, warranties, covenants and agreements made herein shall survive
any investigation made by the Purchaser and the closing of the transactions
contemplated hereby to the extent provided therein. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or
instrument.
11.4 Successors. Except
as otherwise expressly provided herein, the provisions hereof shall inure to the
benefit of, and be binding upon, the successors, heirs, executors and
administrators of the parties hereto and shall inure to the benefit of and be
enforceable by each entity which shall be a holder of the Securities from time
to time, other than the holders of Common Stock which has been sold by the
Purchaser pursuant to Rule 144 or an effective registration statement. The
Purchaser may not assign its rights hereunder to a competitor of the
Company.
27
11.5 Entire
Agreement; Maximum Interest. This
Agreement, the Related Agreements, the exhibits and schedules hereto and thereto
and the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and no party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein. Nothing contained herein or in any document referred
to herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
amount permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Purchaser and thus refunded
to the Company.
11.6 Severability. In case
any provision of the Agreement shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
11.7 Amendment
and Waiver.
(a) This
Agreement may be amended or modified only upon the written consent of the
Company and the Purchaser.
(b) The
obligations of the Company and the rights of the Purchaser under this Agreement
may be waived only with the written consent of the Purchaser.
(c) The
obligations of the Purchaser and the rights of the Company under this Agreement
may be waived only with the written consent of the Company.
11.8 Delays
or Omissions. It is
agreed that no delay or omission to exercise any right, power or remedy accruing
to any party, upon any breach, default or noncompliance by another party under
this Agreement or the Related Agreements, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of or in any similar breach,
default or noncompliance thereafter occurring. All remedies, either under this
Agreement or the Related Agreements, by law or otherwise afforded to any party,
shall be cumulative and not alternative.
11.9 Notices. All
notices required or permitted hereunder shall be in writing and shall be deemed
effectively given:
(a) upon
personal delivery to the party to be notified;
(b) when sent
by confirmed facsimile if sent during normal business hours of the recipient, if
not, then on the next business day;
28
(c) three (3)
business days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or
(d) one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt.
All
communications shall be sent as follows:
|
If
to the Company, to: |
Xxx
Xxxxxxxx, Xxxxx 0000
Xxxxxxx,
Xxxxx 00000
Attention: Xxxxxx
Xxxxxxx, Chief Financial Officer
Facsimile: | ||
|
with
a copy to: | |||
|
Xxxxxxx,
Xxxxx & Xxxxxxxxx
0000
Xxxxxxxx Xxxxx, Xxx. 000
Xxxxxxx,
Xxxxx 00000
Attention: Xxxxxx
X. Xxxxxxx
Facsimile: 000-000-0000 | |||
|
If
to the Purchaser, to: |
Laurus
Master Fund, Ltd.
c/o
M&C Corporate Services Limited
X.X.
Xxx 000 XX
Xxxxxx
Xxxxx
Xxxxxx
Xxxx
South
Church Street
Grand
Cayman, Cayman Islands
Facsimile: 000-000-0000 | ||
|
with
a copy to: | |||
|
Xxxx
X. Xxxxxx, Esq.
000
Xxxxx Xxxxxx 00xx Xxxxx
Xxx
Xxxx, XX 00000
Facsimile: 000-000-0000 |
or at
such other address as the Company or the Purchaser may designate by written
notice to the other parties hereto given in accordance herewith.
11.10 Attorneys’
Fees. In the
event that any suit or action is instituted to enforce any provision in this
Agreement or any Related Agreement, the prevailing party in such dispute shall
be entitled to recover from the losing party all fees, costs and expenses of
enforcing any right of such prevailing party under or with respect to this
Agreement and/or such Related Agreement, including, without limitation, such
reasonable fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
29
11.11 Titles
and Subtitles. The
titles of the sections and subsections of this Agreement are for convenience of
reference only and are not to be considered in construing this
Agreement.
11.12 Facsimile
Signatures; Counterparts. This
Agreement may be executed by facsimile signatures and in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one agreement.
11.13 Broker’s
Fees. Except
as set forth on Schedule 11.13 hereof, each party hereto represents and warrants
that no agent, broker, investment banker, person or firm acting on behalf of or
under the authority of such party hereto is or will be entitled to any broker’s
or finder’s fee or any other commission directly or indirectly in connection
with the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 11.13 being
untrue.
11.14 Construction. Each
party acknowledges that its legal counsel participated in the preparation of
this Agreement and the Related Agreements and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Agreement or any
Related Agreement to favor any party against the other.
[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
30
IN
WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.
|
COMPANY: |
PURCHASER: | |
|
LAURUS
MASTER FUND, LTD. | ||
|
By:
|
By:
| |
|
Name:
|
Name:
| |
|
Title:
|
Title:
| |
31
EXHIBIT
A
FORM
OF CONVERTIBLE NOTE
A-1
EXHIBIT
B
FORM
OF WARRANT
B-1
EXHIBIT
C
FORM
OF OPINION1
1. Each of
the Company and each of its Subsidiaries is a corporation duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
formation and has all requisite corporate power and authority to own, operate
and lease its properties and to carry on its business as it is now being
conducted.
2. Each of
the Company and each of its Subsidiaries has the requisite corporate power and
authority to execute, deliver and perform its obligations under the Agreement
and the Related Agreements. All corporate action on the part of the Company and
each of its Subsidiaries and its officers, directors and stockholders necessary
has been taken for: (i) the authorization of the Agreement and the Related
Agreements and the performance of all obligations of the Company and each of its
Subsidiaries thereunder; and (ii) the authorization, sale, issuance and delivery
of the Securities pursuant to the Agreement and the Related Agreements. The Note
Shares and the Warrant Shares, when issued pursuant to and in accordance with
the terms of the Agreement and the Related Agreements and upon delivery shall be
validly issued and outstanding, fully paid and non assessable.
3. The
execution, delivery and performance by each of the Company and each of its
Subsidiaries of the Agreement and the Related Agreements (to which it is a
party) and the consummation of the transactions on its part contemplated by any
thereof, will not, with or without the giving of notice or the passage of time
or both:
(a) Violate
the provisions of their respective Charter or bylaws; or
(b) Violate
any judgment, decree, order or award of any court binding upon the Company or
any of its Subsidiaries; or
(c) Violate
any [insert jurisdictions in which counsel is qualified] or federal
law
4. The
Agreement and the Related Agreements will constitute, valid and legally binding
obligations of each of the Company and each of its Subsidiaries (to the extent
such entity is a party thereto), and are enforceable against each of the Company
and each of its Subsidiaries party thereto in accordance with their respective
terms, except:
(a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights;
and
_______________________
1 Please
provide corresponding opinions for the Security Agreement and the Ancillary
Agreements.
C-1
(b) general
principles of equity that restrict the availability of equitable or legal
remedies.
5. To such
counsel’s knowledge, the sale of the Note and the subsequent conversion of the
Note into Note Shares are not subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with. To such
counsel’s knowledge, the sale of the Warrant and the subsequent exercise of the
Warrant for Warrant Shares are not subject to any preemptive rights or, to such
counsel’s knowledge, rights of first refusal that have not been properly waived
or complied with.
6. Assuming
the accuracy of the representations and warranties of the Purchaser contained in
the Agreement, the offer, sale and issuance of the Securities on the Closing
Date will be exempt from the registration requirements of the Securities Act. To
such counsel’s knowledge, neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf, has directly or indirectly made any
offers or sales of any security or solicited any offers to buy and security
under circumstances that would cause the offering of the Securities pursuant to
the Agreement or any Related Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions.
7. There is
no action, suit, proceeding or investigation pending or, to such counsel’s
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the right of the Company or any of its Subsidiaries to enter into
this Agreement or any Related Agreement, or to consummate the transactions
contemplated thereby. To such counsel’s knowledge, the Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality; nor is there any action,
suit, proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
8. The terms
and provisions of the Master Security Agreement and the Stock Pledge Agreement
create a valid security interest in favor of the Purchaser, in the respective
rights, title and interests of the Company and its Subsidiaries in and to the
Collateral (as defined in each of the Master Security Agreement and the Stock
Pledge Agreement). Each UCC-1 Financing Statement naming the Company or any
Subsidiary thereof as debtor and the Purchaser as secured party are in proper
form for filing and assuming that such UCC-1 Financing Statements have been
filed with the Secretary of State of [Nevada] [Insert other jurisdictions], the
security interest created under the Master Security Agreement will constitute a
perfected security interest under the Uniform Commercial Code in favor of the
Purchaser in respect of the Collateral that can be perfected by filing a
financing statement. After giving effect to the delivery to the Purchaser of the
stock certificates representing the ownership interests of each Subsidiary of
the Company (together with effective endorsements) and assuming the continued
possession by the Purchaser of such stock certificates in the State of New York,
the security interest created in favor of the Purchaser under the Stock Pledge
Agreement constitutes a valid and enforceable first perfected security interest
in such ownership interests (and the proceeds thereof) in favor of the
Purchaser, subject to no other security interest. No filings, registrations or
recordings are required in order to perfect (or maintain the perfection or
priority of) the security interest created under the Stock Pledge Agreement in
respect of such ownership interests.
X-0
XXXXXXX
X
XXXX
XX XXXXXX XXXXXXXXX
X-0
