EXHIBIT 10.1
EXECUTION COPY
SILVER KEY MINING COMPANY, INC.
A Nevada Corporation
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of October 16, 2002 (the
"Agreement"), is entered into by and among Silver Key Mining Company, Inc. a
Nevada corporation (the "Company"), the Stockholders of the Company listed on
the signature page attached hereto (collectively the "Principal Stockholders")
and Stanford Venture Capital Holdings, Inc., a Delaware corporation (the
"Purchaser").
W I T N E S S E T H:
WHEREAS, the Company and the Purchaser are executing and delivering
this Agreement in reliance upon the exemptions from registration provided by
Regulation D ("Regulation D") promulgated by the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), and/or Section 4(2) of the Securities Act; and
WHEREAS, upon the terms and conditions of this Agreement, the Purchaser
has agreed to purchase, and the Company wishes to issue and sell, for an
aggregate purchase price of $2,200,000 (i) 1,880,342 shares of the Company's
Series A $1.17 Convertible Preferred Stock, $0.001 par value per share (the
"Series A Preferred Stock"), the terms of which are as set forth in the
Certificate of Designation of Series A $1.17 Convertible Preferred Stock
attached hereto as Exhibit A (the "Series A Certificate of Designation") and
(ii) warrants (the "Warrants") to purchase an aggregate of 1,880,342 shares of
the Company's common stock, $.001 par value per share (the "Common Stock"),
which Warrants will be in the form attached hereto as Exhibit B; and
WHEREAS, the Series A Preferred Stock shall be convertible into shares
of Common Stock pursuant to the terms set forth in the Series A Certificate of
Designation, and the Warrants may be exercised for the purchase of Common Stock,
pursuant to the terms set forth therein; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE
(a) Purchase of Preferred Stock and the Warrants. Subject to the
terms and conditions in this Agreement, the Purchaser hereby agrees to purchase
from the Company, and the Company hereby agrees to issue and sell to the
Purchaser (i) 1,880,342 shares of Series A Preferred Stock; and (ii) 1,880,342
Warrants, for an aggregate purchase price of $2,200,000, which shall be payable
in immediately available funds on the closing dates set forth in the Table of
Closing Dates (as shown below).
(b) Closings. The Series A Preferred Stock and the Warrants to be
purchased by the Purchaser hereunder, in the number set forth opposite each of
the Closing Dates (as defined below) in the Table of Closing Dates shown below
and in definitive form, and in such denominations and such names (provided any
name other than the Purchaser shall be an affiliate of Purchaser or an employee
of an affiliate of Purchaser) as the Purchaser or its representative, if any,
may request the Company upon at least three business days' prior notice of any
closing, shall be delivered by or on behalf of the Company for the account of
the Purchaser, against payment by the Purchaser of the aggregate purchase price
by wire transfer to an account of the Company, by 5:00 PM, Eastern Standard Time
on each of the six Closing Dates as set forth below in the Table of Closing
Dates, the first of such Closing Dates being referred to herein as the "First
Closing Date" and any such closing date being referred to herein as a "Closing
Date."
(c) Table of Closing Dates.
------------------------------- -------------------------- ---------------------------- ------------------------------
Number of Shares of Series Warrants to Purchase the
A Preferred Stock Number of Shares of Common
Closing Date Purchase Price Transferred Stock Transferred
------------------------------- -------------------------- ---------------------------- ------------------------------
October 22, 2002 Six Hundred Thousand 512,820 512,820
(the "First Closing Date") United States Dollars
($600,000)
------------------------------- -------------------------- ---------------------------- ------------------------------
November 13, 2002 (the Three Hundred Thousand 256,410 256,410
"Second Closing Date") United States Dollars
($300,000)
------------------------------- -------------------------- ---------------------------- ------------------------------
December 12, 2002 (the "Third Three Hundred Thousand 256,410 256,410
Closing Date") United States Dollars
($300,000)
------------------------------- -------------------------- ---------------------------- ------------------------------
January 13, 2003 (the "Fourth Four Hundred Thousand 341,881 341,881
Closing Date") United States Dollars
($400,000)
------------------------------- -------------------------- ---------------------------- ------------------------------
February 13, 2003 (the "Fifth Three Hundred Thousand 256,410 256,410
Closing Date") United States Dollars
($300,000)
------------------------------- -------------------------- ---------------------------- ------------------------------
March 13, 2003 (the "Final Three Hundred Thousand 256,410 256,410
Closing Date") United States Dollars
($300,000)
------------------------------- -------------------------- ---------------------------- ------------------------------
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2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION
The Purchaser represents and warrants to, and covenants and agrees
with, the Company as follows:
(a) Qualified Investor. The Purchaser is (i) experienced in making
investments of the kind described in this Agreement and the related documents,
(ii) able to afford the entire loss of its investment in the Series A Preferred
Stock and the Warrants, and (iv) an "Accredited Investor" as defined in Rule
501(a) of Regulation D and knows of no reason to anticipate any material change
in its financial condition for the foreseeable future.
(b) Restricted Securities. The securities are "restricted
securities" as defined in Rule 144 promulgated under the Securities Act. All
subsequent offers and sales by the Purchaser of the Note, the Series A Preferred
Stock and the Warrants and the Common Stock issuable upon conversion of the
Series A Preferred Stock or exercise of the Warrants shall be made pursuant to
an effective registration statement under the Securities Act or pursuant to an
applicable exemption from such registration.
(c) Reliance on Representations. The Purchaser understands that the
Series A Preferred Stock and the Warrants are being offered and sold to it in
reliance upon exemptions from the registration requirements of the United States
federal securities laws, and that the Company is relying upon the truthfulness
and accuracy of the Purchaser's representations and warranties, and the
Purchaser's compliance with its covenants and agreements, each as set forth
herein, in order to determine the availability of such exemptions and the
eligibility of the Purchaser to acquire the Series A Preferred Stock and the
Warrants.
(d) Access to Information. The Purchaser (i) has been provided with
sufficient information with respect to the business of the Company for the
Purchaser to determine the suitability of making an investment in the Company
and such documents relating to the Company as the Purchaser has requested and
the Purchaser has carefully reviewed the same, (ii) has been provided with such
additional information with respect to the Company and its business and
financial condition as the Purchaser, or the Purchaser's agent or attorney, has
requested, and (iii) has had access to management of the Company and the
opportunity to discuss the information provided by management of the Company and
any questions that the Purchaser had with respect thereto have been answered to
the full satisfaction of the Purchaser.
(e) Legality. The Purchaser has the requisite corporate power and
authority to enter into this Agreement.
(f) Authorization. This Agreement and any related agreements, and
the transactions contemplated hereby and thereby, have been duly and validly
authorized by the Purchaser, and such agreements, when executed and delivered by
each of the Purchaser and the Company will each be a valid and binding agreement
of the Purchaser, enforceable in accordance with their respective terms, except
to the extent that enforcement of each such agreement may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
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other similar laws now or hereafter in effect relating to creditors rights
generally and to general principles of equity.
(g) Adequate Resources. The Purchaser, or an affiliate of the
Purchaser, has sufficient liquid assets to deliver the aggregate purchase price
on each of the Closing Dates as specified in the Table of Closing Dates.
(h) Investment. The Purchaser is acquiring the Series A Preferred
Stock and the Warrants for investment for the Purchaser's own account, not as a
nominee or agent, and not with the view to, or for resale in connection with,
any distribution thereof, nor with any present intention of distributing or
selling such Series A Preferred Stock or Warrants. The Purchaser is aware of the
limits on resale imposed by virtue of the transaction contemplated by this
Agreement and is aware that the Series A Preferred Stock and the Warrants will
bear restrictive legends.
(i) Litigation. There is no action, suit, proceeding or
investigation pending or, to the Knowledge of the Purchaser (as defined herein),
currently threatened against the Purchaser that questions the validity of the
Primary Documents (as defined below) or the right of Purchaser to enter into any
such agreements or to consummate the transactions contemplated hereby and
thereby, nor, to the Knowledge of Purchaser, is there any basis for the
foregoing. All references to the "Knowledge" means the actual knowledge of the
person in question or the knowledge such person could reasonably be expected to
have each after reasonable investigation and due diligence.
(j) Broker's Fees and Commissions. Neither the Purchaser nor any of
its officers, partners, employees or agents has employed any investment banker,
broker, or finder in connection with the transactions contemplated by the
Primary Documents.
3. REPRESENTATIONS OF THE COMPANY
The Principal Stockholders, to the best of their Knowledge, and the
Company represent and warrant to, and covenant and agree with, the Purchaser
that:
(a) Organization. The Company is a corporation duly organized and
validly existing and in good standing under the laws of the State of Nevada and
has all requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted after the Merger (as defined below).
The Company has no other interest in any other entities except for Healthcare
Quality Systems, Inc ("HQS"). The representations and warranties apply only to
the Company and no representations or warranties are made with respect to HQS
for any period subsequent to the Merger. The Company is duly qualified as a
foreign corporation and in good standing in all jurisdictions in which either
the ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification. The minute books and
stock record books and other similar records of the Company have been provided
or made available to the Purchaser or its counsel prior to the execution of this
Agreement, are complete and correct in all material respects and have been
maintained in accordance with sound business practices. Such minute books
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contain true and complete records of all actions taken at all meetings and by
all written consents in lieu of meetings of the directors, stockholders and
committees of the board of directors of the Company from the date of
organization through the date hereof. The Company has, prior to the execution of
this Agreement, delivered to the Purchaser true and complete copies of the
Company's Articles of Incorporation, and Bylaws, each as amended through the
date hereof. The Company is not in violation of any provisions of its Articles
of Incorporation or Bylaws.
(b) Capitalization. On the date hereof, the authorized capital of
the Company consists of: (i) 20,000,000 shares of Common Stock, par value $0.001
per share, of which 1,500,000 shares are issued and outstanding (including
500,000 shares held in escrow pursuant to that certain Escrow Agreement of even
date herewith entered into by and between the Company, the Principal
Stockholders, and Boylan, Brown, Code, Xxxxxx & Xxxxxx, LLP, as escrow agent);
and (ii) 5,000,000 shares of preferred stock, par value $0.001 per share, none
of which are issued and outstanding. Schedule 3(b) attached hereto sets forth a
complete list of all holders of capital stock of the Company and a complete list
of all options, warrants, notes, or any other rights or instruments which would
entitle the holder thereof to acquire shares of the Common Stock or other equity
interests in the Company upon conversion or exercise, setting forth for each
such holder the type of security, number of equity shares covered thereunder,
the exercise or conversion price thereof, the vesting schedule thereof (if any),
and the issuance date and expiration date thereof. Other than as disclosed in
Schedule 3(b) attached hereto, there are no outstanding rights, agreements,
arrangements or understandings to which the Company is a party (written or oral)
which would obligate the Company to issue any equity interest, option, warrant,
convertible note, or other types of securities or to register any shares in a
registration statement filed with the Commission. Other than disclosed in
Schedule 3(b) attached hereto, there is no agreement, arrangement or
understanding between or among any entities or individuals which affects,
restricts or relates to voting, giving of written consents, dividend rights or
transferability of shares with respect to any voting shares of the Company,
including without limitation any voting trust agreement or proxy. Schedule 3(b)
attached hereto contains a complete and accurate schedule of all the shares
subject to "lock-up" or similar agreement or arrangement by which any equity
shares are subject to resale restrictions and the Company has provided the
Purchaser complete and accurate copies of all such agreements, which agreements
are in full force and effect. Except as set forth in Schedule 3(b) attached
hereto, there are no outstanding obligations of the Company to repurchase,
redeem or otherwise acquire for value any outstanding shares of capital stock or
other ownership interests of the Company or to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any
other entity. There are no anti-dilution or price adjustment provisions
regarding any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the
Securities (as defined below).
(c) Concerning the Common Stock, the Preferred Stock and the
Warrants. The Series A Preferred Stock, the Warrants and the Common Stock
issuable upon conversion of the Series A Preferred Stock and upon exercise of
the Warrants when issued, shall be duly and validly issued, fully paid and
non-assessable and will not subject the holder thereof to personal liability by
reason of being such a holder.
(d) Authorized Shares. The Company shall have available a sufficient
number of authorized and unissued shares of Common Stock as may be necessary to
effect conversion of the Series A Preferred Stock and the exercise of the
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Warrants. The Company understands and acknowledges the potentially dilutive
effect to the Common Stock of the issuance of shares of Common Stock upon the
conversion of the Series A Preferred Stock and the exercise of the Warrants. The
Company further acknowledges that its obligation to issue shares of Common Stock
upon conversion of the Series A Preferred Stock and upon exercise of the
Warrants is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company.
(e) Legality. The Company has the requisite corporate power and
authority to enter into this Agreement, and to issue and deliver the Series A
Preferred Stock, the Warrants and the Common Stock issuable upon conversion of
the Series A Preferred Stock and the exercise of the Warrants.
(f) Transaction Agreements. This Agreement, the Merger Agreement,
the Warrants, the Registration Rights Agreement (as defined below), the Lock-Up
Agreements (as defined below) the Escrow Agreement, and the Series A Certificate
of Designation (collectively, the "Primary Documents"), and the transactions
contemplated hereby and thereby, have been duly and validly authorized by the
Company; this Agreement has been duly executed and delivered by the Company and
this Agreement is, and the other Primary Documents, when executed and delivered
by the Company, will each be, a valid and binding agreement of the Company,
enforceable in accordance with their respective terms, except to the extent that
enforcement of each of the Primary Documents may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to creditors' rights generally and to
general principles of equity.
(g) Financial Statements. The financial statements and related notes
thereto contained in the Company's filings with the Commission (the "Company
Financials") are correct and complete in all material respects, comply in all
material respects with the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission promulgated
thereunder and have been prepared in accordance with United States generally
accepted accounting principles applied on a basis consistent throughout the
periods indicated and consistent with each other. The Company Financials present
fairly and accurately the financial condition and operating results of the
Company in all material respects as of the dates and during the periods
indicated therein and are consistent with the books and records of the Company.
Except as set forth in the Company Financials, the Company has no material
liabilities, contingent or otherwise, other than liabilities disclosed on the
balance sheet as of June 30, 2002. Except as disclosed in Schedule 3(g) attached
hereto, since January 1, 2001, there has been no change in any accounting
policies, principles, methods or practices, including any change with respect to
reserves (whether for bad debts, contingent liabilities or otherwise), of the
Company.
(h) Commission Filings. The Company has made all filings with the
Commission that it has been required to make under the Securities Act and the
Exchange Act and has furnished or made available to the Purchaser true and
complete copies of all the documents it has filed with the Commission since its
inception, all in the forms so filed. As of their respective filing dates, such
filings already filed by the Company or to be filed by the Company after the
date hereof but before the First Closing Date complied or, if filed after the
date hereof, will comply in all material respects with the requirements of the
Securities Act and the Exchange Act, and the rules and regulations of the
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Commission promulgated thereunder, as the case may be, and none of the filings
with the Commission contained or will contain any untrue statement of a material
fact or omitted or will omit any material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances in
which they were made, not misleading, except to the extent such filings have
been all prior to the date of this Agreement corrected, updated or superseded by
a document subsequently filed with Commission.
(i) Non-Contravention. The execution and delivery of this Agreement
and each of the other Primary Documents, and the consummation by the Company of
the transactions contemplated by this Agreement and each of the other Primary
Documents, do not and will not conflict with, or result in a breach by the
Company of, or give any third party any right of termination, cancellation,
acceleration or modification in or with respect to, any of the terms or
provisions of, or constitute a default under, (A) its Articles of Incorporation
or Bylaws, as amended through the date hereof, (B) any material indenture,
mortgage, deed of trust, lease or other agreement or instrument to which the
Company is a party or by which it or any of its properties or assets are bound,
or (C) any existing applicable law, rule, or regulation or any applicable
decree, judgment or order of any court or federal, state, securities industry or
foreign regulatory body, administrative agency, or any other governmental body
having jurisdiction over the Company or any of their properties or assets
(collectively, "Legal Requirements"), other than those which have been waived or
satisfied on or prior to the First Closing Date.
(j) Approvals and Filings. Other than the completion of the filing
of the Series A Certificate of Designation, no authorization, approval or
consent of any court, governmental body, regulatory agency, self-regulatory
organization, stock exchange or market or the stockholders of the Company is
required to be obtained by the Company for the entry into or the performance of
this Agreement and the other Primary Documents.
(k) Compliance With Legal Requirements. Except as disclosed in
Schedule 3(k) attached hereto, the Company has not violated in any material
respect, and is not currently in material default under, any Legal Requirement
applicable to the Company, or any of the assets or properties of the Company,
where such violation could reasonably be expected to have material adverse
effect on the business or financial condition of the Company.
(l) Absence of Certain Changes. Since August 31, 1999, except as
previously disclosed to the Purchaser and listed on Schedule 3(l), there has
been no material adverse change nor any material adverse development in the
business, properties, operations, financial condition, prospects, outstanding
securities or results of operations of the Company, and no event has occurred or
circumstance exists that may result in such a material adverse change.
(m) Indebtedness to Officers, Directors and Stockholders. The
Company is not indebted to any of the Company's stockholders, officers or
directors or their Affiliates in any amount whatsoever (including, without
limitation, any deferred compensation, salaries or rent payable).
(n) Relationships With Related Persons. Except as set forth in
Schedule 3(n) attached hereto, no officer, director, or principal stockholder of
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the Company nor any Related Person (as defined below) of any of the foregoing
has, or since December 31, 1998 has had, any interest in any property (whether
real, personal, or mixed and whether tangible or intangible) used in or
pertaining to the business of the Company. Except as set forth in Schedule 3(n)
attached hereto, no officer, director, or principal stockholder of the Company
nor any Related Person of the any of the foregoing is, or since December 31,
1998 has owned an equity interest or any other financial or profit interest in,
a Person (as defined below) that has (i) had business dealings or a material
financial interest in any transaction with the Company, or (ii) engaged in
competition with the Company with respect to any line of the merchandise or
services of such company (a "Competing Business") in any market presently served
by such company except for ownership of less than one percent of the outstanding
capital stock of any Competing Business that is publicly traded on any
recognized exchange or in the over-the-counter market. Except as set forth in
Schedule 3(n) attached hereto, no director, officer, or principal stockholder of
the Company nor any Related Person of any of the foregoing is a party to any
Contract with, or has claim or right against, the Company. As used in this
Agreement, "Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or any governmental body; "Related Person" means, (X) with respect to a
particular individual, (a) each other member of such individual's Family (as
defined below); (b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family; (c) any Person in
which such individual or members of such individual's Family hold (individually
or in the aggregate) a Material Interest (as defined below); and (d) any Person
with respect to which such individual or one or more members of such
individual's Family serves as a director, officer, partner, executor, or trustee
(or in a similar capacity); (Y) with respect to a specified Person other than an
individual, (a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control with
such specified Person; (b) any Person that holds a Material Interest in such
specified Person; (c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity); (d)
any Person in which such specified Person holds a Material Interest; (e) any
Person with respect to which such specified Person serves as a general partner
or a trustee (or in a similar capacity); and (f) any Related Person of any
individual described in clause (b) or (c). For purposes of the foregoing
definition, (a) the "Family" of an individual includes (i) the individual, (ii)
the individual's spouse and former spouses, (iii) any other natural person who
is related to the individual or the individual's spouse within the second
degree, and (iv) any other natural person who resides with such individual, and
(b) "Material Interest" means direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act) of voting securities or other
voting interests representing at least 1% of the outstanding voting power of a
Person or equity securities or other equity interests representing at least 1%
of the outstanding equity securities or equity securities in a Person.
(o) Title to Properties; Liens and Encumbrances. The Company has
good and marketable title to all of its material properties and assets, both
real and personal, and has good title to all its leasehold interests. Except as
disclosed in Schedule 3(o) attached hereto, all material properties and assets
reflected in the Company Financials are free and clear of all Encumbrances (as
defined below) except liens for current Taxes not yet due. As used in this
Agreement, "Encumbrance" means any charge, claim, community property interest,
condition, equitable interest, lien, pledge, security interest, right of first
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refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
(p) Permits. The Company has all permits, licenses and any similar
authority necessary for the conduct of its business as now conducted, the lack
of which would materially and adversely affect the business or financial
condition of such company. The Company is not in default in any respect under
any of such permits, licenses or similar authority.
(q) Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board or body, or
arbitration tribunal pending or, to the Knowledge of the Company, threatened,
against or affecting the Company, in which an unfavorable decision, ruling or
finding would have a material adverse effect on the properties, business,
condition (financial or other) or results of operations of the Company, taken as
a whole, or the transactions contemplated by the Primary Documents, or which
would adversely affect the validity or enforceability of, or the authority or
ability of the Company to perform its obligations under, the Primary Documents.
All references to the "Knowledge of the Company" in this Agreement shall mean
the actual knowledge of the Company or the knowledge that the Company could
reasonably be expected to have, after reasonable investigation and due
diligence.
(r) No Default. The Company is not in default in the performance or
observance of any obligation, covenant or condition contained in any indenture,
mortgage, deed of trust or other instrument or agreement to which it is a party
or by which it or its property may be bound.
(s) Taxes.
(i) All Tax Returns (as defined below) required to have been
filed by or with respect to the Company (including any extensions) have been
filed. All such Tax Returns are true, complete and correct in all material
respects. All Taxes (as defined below) due and payable by the Company, whether
or not shown on any Tax Return, or claimed to be due by any Taxing Authority (as
defined below), have been paid or accrued on the balance sheet included in the
Company's latest filing with the Commission.
(ii) The Company does not have any material liability for Taxes
outstanding other than as reflected in the balance sheet included in the
Company's latest filing with the Commission or incurred subsequent to the date
of such filing in the ordinary course of business. The unpaid Taxes of the
Company (i) did not, as of the most recent fiscal month end, exceed by any
material amount the reserve for liability for income tax (other than the reserve
for deferred taxes established to reflect timing differences between book and
tax income) set forth on the face of the balance sheet included in the Company's
latest filing with the Commission, and (ii) will not exceed by any material
amount that reserve as adjusted for operations and transactions through the
First Closing Date.
(iii) The Company is not a party to any agreement extending the
time within which to file any Tax Return. No claim has ever been made by a
Taxing Authority of any jurisdiction in which the Company does not file Tax
Returns that the Company is or may be subject to taxation by that jurisdiction.
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(iv) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, creditor or independent contractor.
(v) There has been no action by any Taxing Authority in
connection with assessing additional Taxes against, or in respect of, the
Company for any past period. There is no dispute or claim concerning any Tax
liability of the Company either (i) claimed, raised or, to the Knowledge of the
Company, threatened by any Taxing Authority or (ii) of which the Company is
otherwise aware. There are no liens for Taxes upon the assets and properties of
the Company other than liens for Taxes not yet due. Schedule 3(s) attached
hereto indicates those Tax Returns, if any, of the Company, that have been
audited or examined by Taxing Authorities, and indicates those Tax returns of
the Company that currently are the subject of audit or examination. The Company
has made available to the Purchaser complete and correct copies of all federal,
state, local and foreign income Tax Returns filed by, and all Tax examination
reports and statements of deficiencies assessed against or agreed to by, the
Company since the fiscal year ended December 31, 1998.
(vi) There are no outstanding agreements or waivers extending
the statutory period of limitation applicable to any Tax Returns required to be
filed by, or which include or are treated as including, the Company or with
respect to any Tax assessment or deficiency affecting the Company.
(vii) The Company has not received any written ruling related to
Taxes or entered into any agreement with a Taxing Authority relating to Taxes.
(viii) Except for the liabilities, if any, of HQS, the Company
does not have any liability for the Taxes of any person or entity other than the
Company (i) under Section 1.1502-6 of the Treasury regulations (or any similar
provision of state, local or foreign Legal Requirements), (ii) as a transferee
or successor, (iii) by contract or (iv) otherwise.
(ix) The Company (i) has not agreed to make nor is required to
make any adjustment under Section 481 of the Internal Revenue Code by reason of
a change in accounting method and (ii) is not a "consenting corporation" within
the meaning of Section 341(f)(1) of the Internal Revenue Code.
(x) The Company is not a party to or bound by any obligations
under any tax sharing, tax allocation, tax indemnity or similar agreement or
arrangement.
(xi) The Company is not involved in, subject to, or a party to
any joint venture, partnership, contract or other arrangement that is treated as
a partnership for federal, state, local or foreign Tax purposes.
(xii) The Company was not included nor is includible, in the Tax
Return of any other entity.
As used in this Agreement, a "Tax Return" means any return, report, information
return, schedule, certificate, statement or other document (including any
related or supporting information) filed or required to be filed with, or, where
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none is required to be filed with a Taxing Authority, the statement or other
document issued by, a Taxing Authority in connection with any Tax; "Tax" means
any and all taxes, charges, fees, levies or other assessments, including,
without limitation, income, gross, receipts, excise, real or personal property,
sales, withholding, social security, retirement, unemployment, occupation, use,
service, service use, license, net worth, payroll, franchise, transfer and
recording taxes, fees and charges, imposed by Taxing Authority, whether computed
on a separate, consolidated, unitary, combined or any other basis; and such term
includes any interest whether paid or received, fines, penalties or additional
amounts attributable to, or imposed upon, or with respect to, any such taxes,
charges, fees, levies or other assessments; and "Taxing Authority" means any
governmental agency, board, bureau, body, department or authority of any United
States federal, state or local jurisdiction or any foreign jurisdiction, having
or purporting to exercise jurisdiction with respect to any Tax.
(t) Certain Prohibited Activities. Neither the Company nor any of
its directors, officers or other employees has (i) used any Company funds for
any unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to any political activity, (ii) made any direct or indirect
unlawful payment of Company funds to any foreign or domestic government official
or employee, (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person.
(u) Contracts; No Defaults. Schedule (u) attached hereto contains a
complete and accurate list, and the Company has made available to the Purchaser
true and complete copies, of any Contract of the Company.
As used in this Agreement, "Contract" means any agreement, contract, obligation,
promise, or undertaking (whether written or oral and whether express or implied)
that is legally binding; or any Contract (a) under which the Company has or may
acquire any rights, (b) under which the Company has or may become subject to any
obligation or liability, or (c) by which the Company or any of the assets owned
or used by it is or may become bound.
With respect to each Contract (i) the Company is, and has been, in material
compliance with all applicable terms and requirements of each Contract under
which the Company has or had any obligation or liability or by which the Company
or any of the assets owned or used by it is or was bound; (ii) each other person
or entity that has or had any obligation or liability under any Contract under
which the Company has or had any rights is, and has been, in material compliance
with all applicable terms and requirements of such Contract; (iii) no event has
occurred or circumstance exists that (with or without notice or lapse of time)
may contravene, conflict with, or result in a material violation or breach of,
or give the Company or other person or entity the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Contract; and (iv) the Company has not
given to or received from any other person or entity any notice or other
communication (whether oral or written) regarding any actual, alleged, possible,
or potential violation or breach of, or default under, any Contract.
Each Contract is valid, in full force, and binding on and enforceable against
the other party or parties to such contract in accordance with its terms and
provisions.
11
Except as disclosed on Schedule (u) attached hereto, there are no renegotiation
of, attempts to renegotiate, or outstanding rights to renegotiate any material
amounts paid or payable to the Company under current or completed Contracts with
any person or entity and no such person or entity has made written demand for
such renegotiation.
(v) Agent Fees. The Company has not incurred any liability for any
finder's or brokerage fees or agent's commissions in connection with the
transactions contemplated by this Agreement.
(w) Insurance. Schedule (w) attached hereto sets forth a true and
correct list of all the insurance policies covering the business, properties and
assets of the Company presently in force (including as to each (i) risk insured
against, (ii) name of carrier, (iii) policy number, (iv) amount of coverage, (v)
amount of premium, (vi) expiration date and (vii) the property, if any,
insured). All of the insurance policies set forth on Schedule (w) attached
hereto are in full force and effect and all premiums, retention amounts and
other related expenses due have been paid, and the Company has not received any
written notice of cancellation with respect to any of the policies. Such
policies, taken together, provide adequate insurance coverage for the assets and
the operations of the Company for all risks normally insured against by
companies carrying on the same business or businesses as the Company.
(x) Employees. The Company has no employees and there is no accrued
vacation or sick pay due.
(y) Employee Benefits.
(i) The Company does not have, and has not at any time since
December 31, 1998 had, Plans (as defined below).
As used in this Agreement, "Plan" means (i) each of the "employee benefit plans"
(as such term is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA")), of which any of the Company or any member of
the same controlled group of businesses as the Company within the meaning of
Section 4001(a)(14) of ERISA (an "ERISA Affiliate") is or ever was a sponsor or
participating employer or as to which the Company or any of its ERISA Affiliates
makes contributions or is required to make contributions, and (ii) any similar
employment, severance or other arrangement or policy of any of the Company or
any of its ERISA Affiliates (whether written or oral) providing for health,
life, vision or dental insurance coverage (including self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits or retirement benefits, fringe benefits, or for profit
sharing, deferred compensation, bonuses, stock options, stock appreciation or
other forms of incentive compensation or post-retirement insurance, compensation
or benefits.
(z) Private Offering. Subject to the accuracy of the Purchaser's
representations and warranties set forth in Section 2 hereof, (i) the offer,
sale and issuance of the Series A Preferred Stock and the Warrants, (ii) the
issuance of Common Stock pursuant to the conversion and/or exercise of such
securities into shares of Common Stock, each as contemplated by the Primary
Documents, are exempt from the registration requirements of the Securities Act.
The Company agrees that neither the Company nor anyone acting on its behalf will
12
offer any of the Series A Preferred Stock, the Warrants or any similar
securities for issuance or sale, or solicit any offer to acquire any of the same
from anyone so as to render the issuance and sale of such securities subject to
the registration requirements of the Securities Act. The Company has not offered
or sold the Series A Preferred Stock or the Warrants by any form of general
solicitation or general advertising, as such terms are used in Rule 502(c) under
the Securities Act.
(aa) Mergers, Acquisitions and Divestitures. Except as set
forth on Schedule (aa) attached hereto, the Company has never acquired any
equity interest in or any major assets of any other Person, or sold the equity
interest or any major asset owned by it, in a deal the terms of which were not
based on arms' length negotiations. Except as set forth on Schedule (aa)
attached hereto, to the Knowledge of the Company, none of the officers and
directors of the Company has received any benefit in connection with any of the
foregoing transactions or is under any agreement or understanding with any
Person (including agreements or understandings among themselves) with respect to
the receipt of or entitlement to any such benefit.
(bb) Full Disclosure. There is no fact known to the Company
(other than general economic conditions known to the public generally) that has
not been disclosed to the Purchaser that could (i) reasonably be expected to
have a material adverse effect upon the condition (financial or otherwise) or
the earnings, business affairs, properties or assets of the Company or (ii)
reasonably be expected to materially and adversely affect the ability of the
Company to perform the obligations set forth in the Primary Documents. The
representations and warranties of the Company set forth in this Agreement do not
contain any untrue statement of a material fact or omit any material fact
necessary to make the statements contained herein, in light of the circumstances
under which they were made, not misleading.
4. CERTAIN COVENANTS, ACKNOWLEDGMENTS AND RESTRICTIONS
(a) Transfer Restrictions. The Purchaser acknowledges that (i)
neither the Series A Preferred Stock, the Warrants nor the Common Stock issuable
upon conversion of the Series A Preferred Stock or upon exercise of the Warrants
have been registered under the Securities Act, and such securities may not be
transferred unless (A) subsequently registered thereunder or (B) they are
transferred pursuant to an exemption from such registration, and (ii) any sale
of the Series A Preferred Stock, the Warrants or the Common Stock issuable upon
conversion, exercise or exchange thereof (collectively, the "Securities") made
in reliance upon Rule 144 under the Securities Act ("Rule 144") may be made only
in accordance with the terms of said Rule 144. The provisions of Section 4(a)
and 4(b) hereof, together with the rights of the Purchaser under this Agreement
and the other Primary Documents, shall be binding upon any subsequent transferee
of the Series A Preferred Stock and the Warrants.
(b) Restrictive Legend. The Purchaser acknowledges and agrees that,
until such time as the Securities shall have been registered under the
Securities Act or the Purchaser demonstrates to the reasonable satisfaction of
the Company and its counsel that such registration shall no longer be required,
such Securities may be subject to a stop-transfer order placed against the
transfer of such Securities, and such Securities shall bear a restrictive legend
in substantially the following form:
13
THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL OR OTHER
EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
SHALL NO LONGER BE REQUIRED.
(c) Filings. The Company undertakes and agrees that it will make all
required filings in connection with the sale of the Securities to the Purchaser
as required by federal and state laws and regulations, or by any domestic
securities exchange or trading market, and if applicable, the filing of a notice
on Form D (at such time and in such manner as required by the rules and
regulations of the Commission), and to provide copies thereof to the Purchaser
promptly after such filing or filings. With a view to making available to the
holders of the Securities the benefits of Rule 144 and any other rule or
regulation of the Commission that may at any time permit such holder to sell
securities of the Company to the public without registration or pursuant to a
registration on Form S-3 or Form SB-2, the Company shall (a) at all times make
and keep public information available, as those terms are understood and defined
in Rule 144, (b) file on a timely basis with the Commission all information that
the Commission may require under either of Section 13 or Section 15(d) of the
Exchange Act and, so long as it is required to file such information, take all
actions that may be required as a condition to the availability of Rule 144 (or
any successor exemptive rule hereafter in effect) with respect to the Common
Stock; and (d) furnish to any holder of the Securities forthwith upon request
(i) a written statement by the Company as to its compliance with the reporting
requirements of Rule 144, (ii) a copy of the most recent annual or quarterly
report of the Company as filed with the Commission, and (iii) any other reports
and documents that a holder of the Securities may reasonably request in order to
avail itself of any rule or regulation of the Commission allowing such holder to
sell any such Securities without registration.
(d) Reservation of Common Stock. The Company will at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the conversion of the Series A Preferred
Stock and the exercise of the Warrants.
(e) Registration Requirement. At the time of the First Closing Date,
holders of the Securities and the Company shall execute a registration rights
agreement in the form attached hereto as Exhibit C (the "Registration Rights
Agreement").
(f) Lock-Up Agreements. The members (other than the Purchaser) of
Provider Acquisition, LLC, a Florida limited liability company, and the Company
have executed lock-up agreements (the "Lock-Up Agreements"), substantially in
the form of Exhibit D attached hereto. The Company shall not waive any
restriction under any of the Lock-Up Agreements or otherwise consent to any such
waiver without the express written approval in advance by the Purchaser, which
approval can be withheld by the Purchaser in its sole and absolute discretion.
(g) Return of Certificates on Conversion and Warrants on Exercise.
14
(i) Upon any conversion by the Purchaser of less than all of the
Series A Preferred Stock pursuant to the terms of the Series A Certificate of
Designation, the Company shall issue and deliver to the Purchaser, within seven
business days of the date of conversion, a new certificate or certificates for,
as applicable, the total number of shares of the Series A Preferred Stock, which
the Purchaser has not yet elected to convert (with the number of and
denomination of such new certificate(s) designated by the Purchaser).
(ii) Upon any partial exercise by the Purchaser of the Warrants,
the Company shall issue and deliver to the Purchaser, within seven business days
of the date on which the Warrants is exercised, new Warrants representing the
number of adjusted shares of Common Stock covered thereby, in accordance with
the terms thereof.
(h) Replacement Certificates and Warrants.
(i) The certificate(s) representing the shares of the Series A
Preferred Stock held by the Purchaser shall be exchangeable, at the option of
the Purchaser at any time and from time to time at the office of Company, for
certificates with different denominations representing, as applicable, an equal
aggregate number of shares of the Series A Preferred Stock as requested by the
Purchaser upon surrendering the same. No service charge will be made for such
registration or transfer or exchange.
(ii) The Warrants will be exchangeable, at the option of the
Purchaser, at any time and from time to time at the office of the Company, for
other Warrants of different denominations entitling the holder thereof to
purchase in the aggregate the same number of shares of Common Stock as are
purchasable under such Warrants. No service charge will be made for such
transfer or exchange.
(i) Approval Rights. From the date hereof and until the Final
Closing Date as described in Section 1(c), the Company shall not take any of the
following actions without the prior written consent of the Purchaser, in its
sole discretion:
(i) sell a material portion of the assets of the Company or
merge the Company into or with another unaffiliated company, except as
contemplated hereby;
(ii) change the certificate of incorporation, bylaws or other
charter documents of the Company, except as contemplated hereby;
(iii) change substantially or materially the nature of the
business of the Company;
(iv) issue any equity securities or securities convertible into
equity securities of the Company other than the Series A Preferred Stock and the
Warrants pursuant to this Agreement;
(v) make any acquisition or any capital expenditure or agree to
a schedule of spending or payments for assets which, in the aggregate, exceeds
or would exceed $200,000 over a consecutive 12-month period, except for the
acquisition of inventory or other related assets in the ordinary course of
business;
15
(vi) enter into any credit facility or incur any material amount
of debt, other than incurring obligations for purchases of inventory or other
related assets in the ordinary course of business;
(vii) offer or sell any securities of the Company;
(viii) expand the number of members of the board of directors of
the Company;
(ix) declare or pay dividends or make any other distribution or
redeem securities; or
(x) enter into or modify a related-party transaction.
(j) Resignation and Replacement of Board Members. On or before the
First Closing Date, the Company's Board of Directors shall resign. The remaining
members of the Board of Directors (the "Remaining Board Members") shall fill the
newly created Board vacancies with three new members to be selected by the
Purchaser (the "New Board Members"). The members of Board of Directors as set
forth pursuant to this Section 4(j) shall serve until the next annual meeting of
the Company's stockholders.
(k) Right to Maintain Participation.
(i) For so long as any shares of the Series A Preferred Stock
shall remain outstanding and are held by Purchaser, the Company agrees that
prior to any sale and/or issuance by the Company of any shares of Common Stock
or any security exercisable for or, convertible into such Common Stock or any
security with voting rights (the "Common Equivalents") (other than a sale or
issuance excluded from the provisions of this Section 4(k)(i) by the provisions
of Section 4(k)(iii)), the Company shall give the Purchaser written notice (the
"Notice of Issuance") of the Company's intention to sell and/or issue such
Common Stock or Common Equivalents, setting forth the proposed price, quantity
and other material terms and conditions under which the Company proposes to make
such sale and/or issuance. If and when the Company consummates the sale or
issuance of Common Stock or Common Equivalents described in the Notice of
Issuance, the Purchaser shall have the right to purchase or otherwise acquire
(the "Right to Maintain Participation") a number of shares of Common Stock or
Common Equivalents on terms which, subject to this Section 4(k), are at least as
favorable to the Purchaser as the terms on which the Company sold or otherwise
issued such Common Stock or Common Equivalents to the persons who purchased or
otherwise acquired the Common Stock or Common Equivalents referred to in the
Notice of Issuance, such that, immediately after the purchase or other
acquisition by the Purchaser, Purchaser's ownership of the total number of
outstanding shares of Common Stock (assuming the exercise for or conversion of
all Common Equivalents into Common Stock) equals the same percentage of the
total shares of Common Stock (assuming the exercise for or conversion of all
Common Equivalents into Common Stock) as the Purchaser held immediately prior to
the sale or issuance described in the Notice of Issuance. The Purchaser shall
have 20 days from the giving of the Notice of Issuance (the "Election Date") to
notify the Company in writing that Purchaser elects to exercise its Right to
16
Maintain Participation (the date such notice is received by the Company is
hereinafter referred to as the "Notice Date").
(ii) If the Purchaser elects to exercise its Right to Maintain
Participation, the Purchaser and the Company shall use their reasonable best
efforts to consummate the purchase or acquisition and sale or issuance of such
Common Stock or Common Equivalents within 30 days after the Election Date and,
subject to this Section 4(k), the terms of such purchase or acquisition and sale
or issuance shall be at least as favorable to the Purchaser as those set forth
in the Notice of Issuance. The closing of such transaction shall take place as
promptly as practicable after all regulatory approvals required for the
consummation of such purchase have been obtained, at such time, on such date,
and at such location as the parties shall mutually agree. Payment for such
Common Stock or Common Equivalents shall be by wire transfer of immediately
available funds to an account designated by the Company by written notice
delivered to the Purchaser not less than two business days prior to the
scheduled closing of such purchase against delivery of the Common Stock or
Common Equivalents at the executive offices of the Company at the time of the
scheduled closing therefor. The Company shall take all such action as may
reasonably be required by any regulatory authority in connection with the
exercise by the Purchaser of the right to purchase Common Stock or Common
Equivalents as set forth in this Section 4(k).
(iii) The right contained in this Section 4(k) shall not apply
to the following sales and/or issuances by the Company on or after the date
hereof of Common Stock or Common Equivalents:
a. Common Stock or Common Equivalents issued to employees,
officers, directors and consultants pursuant to any stock option plan, stock
incentive or purchase plan or agreement approved by the Company's Board of
Directors or Common Stock issued upon exercise of Common Equivalents so issued;
b. Common Stock or Common Equivalents issued in connection
with or upon exercise or conversion of securities issued in connection with a
merger, consolidation, share exchange, or other reorganization or business
combination, involving the Company, in which the Company is the acquiring
corporation or stockholders of the Company immediately prior to such merger,
consolidation or other reorganization or business combination and own securities
with a majority of the voting power of the resulting entity;
c. Common Stock or Common Equivalents issued pursuant to
rights distributed to all holders of Common Stock generally or Common Stock
issued upon exercise of such Common Equivalents;
d. Common Stock or Common Equivalents issued in connection
with any stock split, stock dividend or recapitalization of the Company;
e. Common Stock issued pursuant to the exercise of any
currently outstanding stock options, warrants or any other securities
exchangeable for or convertible into or any other right to acquire shares of
Common Stock; and
17
f. Common Stock or Common Equivalents issued in connection
with a firmly underwritten public offering, which generates aggregate net
proceeds to the Company (after deduction for underwriters' discounts and
expenses relating to the issuance, including without limitation fees to the
Company's counsel) equal to or exceeding $15,000,000.
(iv) In the event a Purchaser exercises its Right to Maintain
Participation and a dispute arises as to the value of the Common Stock or Common
Equivalents that the Purchaser is acquiring to maintain such participation, an
independent third party ("Arbitrator") acceptable to both parties shall be
selected. The Arbitrator shall determine the consideration the Purchaser will
pay for the Common Stock or Common Equivalent and such determination shall be
binding, conclusive and final. The Purchaser and the Company shall pay equal
shares of all the fees and expenses of the Arbitrator.
5. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE THE SHARES AND THE
WARRANT
The Purchaser understands that the Company's obligation to issue the
Series A Preferred Stock and the Warrants on each Closing Date to the Purchaser
pursuant to this Agreement is conditioned upon the following, unless waived in
writing by the Company:
(a) The accuracy on each Closing Date of the representations and
warranties of the Purchaser contained in this Agreement as if made on each
Closing Date and the performance by the Purchaser on or before each Closing Date
of all covenants and agreements of the Purchaser required to be performed on or
before each Closing Date.
(b) The absence or inapplicability on each Closing Date of any and
all laws, rules or regulations prohibiting or restricting the transactions
contemplated hereby, or requiring any consent or approval, except for any
stockholder or Board of Director approval or consent contemplated herein, which
shall not have been obtained.
(c) All regulatory approvals or filings, if any, on each Closing
Date necessary to consummate the transactions contemplated by this Agreement
shall have been made as of each Closing Date.
(d) The receipt of good funds (or, in the case of the First Closing
Date, the original Note, marked "cancelled") as of each Closing Date as
scheduled in the Table of Closings in Section 1(c).
6. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE THE SHARES AND
THE WARRANT
The Company understands that the Purchaser's obligation to purchase the
Series A Preferred Stock and the Warrants on each Closing Date is conditioned
upon each of the following, unless waived in writing by the Purchaser:
(a) The Purchaser shall have completed to its satisfaction its due
diligence review of the Company, the Company's business, assets and liabilities,
and the Company shall have furnished to the Purchaser and its representatives,
such information as may be reasonably requested by them.
18
(b) The accuracy on each Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on such Closing
Date, and the performance by the Company on or before such Closing Date of all
covenants and agreements of the Company required to be performed on or before
the First Closing Date or such other Closing Date.
(c) The Company shall have executed and delivered to the Purchaser
(i) the Series A Preferred Stock and (ii) the Warrants as scheduled in the Table
of Closings in Section 1(c) with respect to each Closing Date.
(d) On each Closing Date, the Purchaser shall have received from the
Company such other certificates and documents as it or its representatives, if
applicable, shall reasonably request, and all proceedings taken by the Company
or the Board of Directors of the Company, as applicable, in connection with the
Primary Documents contemplated by this Agreement and the other Primary Documents
and all documents and papers relating to such Primary Documents shall be
satisfactory to the Purchaser.
(e) All regulatory approvals or filings, if any, necessary to
consummate the transactions contemplated by this Agreement shall have been made
as of each Closing Date.
(f) All the parties to the Lock-Up Agreements shall have executed
and delivered such agreements.
(g) The Purchaser shall have received a legal opinion from Boylan,
Brown, Code, Xxxxxx & Xxxxxx, LLP, dated the First Closing Date, in form and
content acceptable to the Purchaser.
(h) The Company shall have received a Closing Certificate
substantially in the form attached hereto as Exhibit E.
(i) On or prior to the First Closing Date, Healthcare Quality
Solutions, Inc., a Florida corporation wholly owned by the Company ("HQS"), the
Company and Provider Acquisition, LLC, a Florida limited liability company
("PAL") shall have executed a merger agreement acceptable to the Purchaser (the
"Merger Agreement") and consummated a merger (the "Merger") pursuant to which
PAL shall merge with and into HQS.
(j) With respect to the Second Closing Date only, the Company shall
have reimbursed the Purchaser the expenses incurred in connection with the
negotiation or performance of this Agreement pursuant to Section 7 hereof.
19
7. FEES AND EXPENSES
The Company shall bear its own costs, including attorney's fees,
incurred in the negotiation of this Agreement and consummating of the
transactions contemplated herein and in the Merger Agreement, the Escrow
Agreement and the corporate proceedings of the Company in contemplation hereof
and thereof, not to exceed $20,000. At the First Closing Date, the Company shall
reimburse the Purchaser for all of the Purchaser's reasonable out-of-pocket
expenses incurred in connection with the negotiation or performance of this
Agreement, including without limitation reasonable fees and disbursements of
counsel to the Purchaser.
8. SURVIVAL
The agreements, covenants, representations and warranties of the
Company, the Purchaser and PAL shall survive the execution and delivery of this
Agreement and the delivery of the Securities hereunder for a period of two years
from the date of the Final Closing Date, except that:
(a) the Company's representations and warranties regarding Taxes contained in
Section 3(s) of this Agreement shall survive as long as the Company remains
statutorily liable for any obligation referenced in Section 3(s), and
(b) the Company's representations and warranties contained in
Section 3(b) shall survive until the Purchaser and any of its affiliates are no
longer holders of any of the Securities purchased hereunder.
9. INDEMNIFICATION
(a) Each of the Company and the Principal Stockholders, jointly and
severally, on the one side, and the Purchaser (each in such capacity under this
section, the "Indemnifying Party") agrees to indemnify the other party and each
officer, director, employee, agent, partner, stockholder, member and affiliate
of such other party (collectively, the "Indemnified Parties") for, and hold each
Indemnified Party harmless from and against: (i) any and all damages, losses,
claims, diminution in value and other liabilities of any and every kind,
including, without limitation, judgments and costs of settlement, and (ii) any
and all reasonable out-of-pocket costs and expenses of any and every kind,
including, without limitation, reasonable fees and disbursements of counsel for
such Indemnified Parties (all of which expenses periodically shall be reimbursed
as incurred), in each case, arising out of or suffered or incurred in connection
with any of the following, whether or not involving a third party claim: (a) any
misrepresentation or any breach of any warranty made by the Indemnifying Party
herein or in any of the other Primary Documents, (b) any breach or
non-fulfillment of any covenant or agreement made by the Indemnifying Party
herein or in any of the other Primary Documents, or (c) any claim relating to or
arising out of a violation of applicable federal or state securities laws by the
Indemnifying Party in connection with the sale or issuance of the Series A
Preferred Stock or Warrants by the Indemnifying Party to the Indemnified Party
(collectively, the "Indemnified Liabilities"). To the extent that the foregoing
20
undertaking by the Indemnifying Party may be unenforceable for any reason, the
Indemnifying Party shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
No indemnification shall be payable in respect of any Indemnified
Liability (i) where the claiming Indemnified Party had actual knowledge of or
notice from information set forth in the schedules hereto of the facts giving
rise to such Indemnified Liability prior to the First Closing Date or (ii) where
such Indemnified Party entered into a settlement of an Indemnified Liability
without the prior written consent of the applicable Indemnifying Party.
10. NOTICES
Any notice required or permitted hereunder shall be given in writing
(unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free transmission
and mailing a copy of such confirmation, postage prepaid by certified mail,
return receipt requested) or two business days following deposit of such notice
with an internationally recognized courier service, with postage prepaid and
addressed to each of the other parties thereunto entitled at the following
addresses, or at such other addresses as a party may designate by five days
advance written notice to each of the other parties hereto.
Company: Silver Key Mining Company, Inc.
000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxxxxx 000
Xxxxx, Xxxxxxx 00000
Attention: President
Telephone: 000-000-0000
Facsimile: 813-282-8907
with a copy to: Xxxxxx & Xxxx, P.A.
0000 X. Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxx, Xxxxxxx 00000
Attention: Xxxx X. Xxxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
Principal Stockholders: At the address and facsimile set
forth on the signature page.
Purchaser: Stanford Venture Capital Holdings, Inc.
0000 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx, President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to: Stanford Financial Group
0000 Xxxxxxxxxx
Xxxxxxx, XX 00000
Attention: Xxxxxxxx Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
21
11. GOVERNING LAW; JURISDICTION
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Florida, without regard to its principles of conflict
of laws. Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement may be brought against any party in
the federal courts of Florida or the state courts of the State of Florida,
Miami-Dade County and each of the parties consents to the jurisdiction of such
courts and hereby waives, to the maximum extent permitted by law, any objection,
including any objections based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions.
12. MISCELLANEOUS
(a) Entire Agreement. This Agreement supersedes all prior agreements
and understandings among the parties hereto with respect to the subject matter
hereof. This Agreement, together with the other Primary Documents, including any
certificate, schedule, exhibit or other document delivered pursuant to their
terms, constitutes the entire agreement among the parties hereto with respect to
the subject matters hereof and thereof, and supersedes all prior agreements and
understandings, whether written or oral, among the parties with respect to such
subject matters.
(b) Amendments. This Agreement may not be amended except by an
instrument in writing signed by the party to be charged with enforcement.
(c) Waiver. No waiver of any provision of this Agreement shall be
deemed a waiver of any other provisions or shall a waiver of the performance of
a provision in one or more instances be deemed a waiver of future performance
thereof.
(d) Construction. This Agreement and each of the Primary Documents
have been entered into freely by each of the parties, following consultation
with their respective counsel, and shall be interpreted fairly in accordance
with its respective terms, without any construction in favor of or against
either party.
(e) Binding Effect of Agreement. This Agreement shall inure to the
benefit of, and be binding upon the successors and assigns of each of the
parties hereto, including any transferees of the Series A Preferred Stock and
the Warrants.
(f) Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or unenforceability of this
Agreement in any other jurisdiction.
22
(g) Attorneys' Fees. If any action should arise between the parties
hereto to enforce or interpret the provisions of this Agreement, the prevailing
party in such action shall be reimbursed for all reasonable expenses incurred in
connection with such action, including reasonable attorneys' fees.
(h) Headings. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of this
Agreement.
(i) Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original and all of which, when
taken together, will be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed by each of
the undersigned as of the 16th day of October, 2002.
SILVER KEY MINING COMPANY, INC.
By: /s/ X. Xxxxxxxx Xxxxx
--------------------------------------------
Name: X. Xxxxxxxx Xxxxx
-----------------------------------------
Title: President
----------------------------------------
PRINCIPAL STOCKHOLDERS:
/s/ Xxxxxx X. Xxxxx
-----------------------------------------
Xxxxxx X. Xxxxx, an Individual
00 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Phone: 000-000-0000
Fax: 000-000-0000
/s/ H. Xxxxxxx Xxxxxxxx
-----------------------------------------
H. Xxxxxxx Xxxxxxxx, an Individual
00 Xxxx 000 Xxxxx Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
Phone: 000-000-0000
Fax: 000-000-0000
23
/s/ Xxxxxx Xxxxxxxxx
-----------------------------------------
Xxxxxx Xxxxxxxxx, an Individual
0000 Xxxx Xxxxxx Xxxx #0
Xxxxxxx, XX 00000
Phone: 000-000-0000
Fax: 000-000-0000
/s/ X. Xxxxxxxx Xxxxx
-----------------------------------------
X. Xxxxxxxx Xxxxx, an
Individual X.X. Xxx 0000
Xxxx Xxxx, XX 00000 Phone:
000-000-0000 Fax:
000-000-0000
STANFORD VENTURE CAPITAL HOLDINGS, INC.
By: /s/ Xxx Xxxxx
--------------------------------------
Name: Xxx Xxxxx
------------------------------------
Title: President
-----------------------------------
24
EXHIBIT INDEX
EXHIBIT A CERTIFICATE OF DESIGNATION OF SERIES A
$1.17 CONVERTIBLE PREFERRED STOCK
EXHIBIT B FORM OF WARRANT
EXHIBIT C REGISTRATION RIGHTS AGREEMENT
EXHIBIT D FORM OF LOCK-UP AGREEMENT
EXHIBIT E CLOSING CERTIFICATE
25
SCHEDULE INDEX
Schedule Description
-------- -----------
3(a) Organization
3(b) Capitalization
3(g) Financial Statements
3(k) Compliance With Legal Requirements
3(l) Absence of Certain Changes
3(n) Relationships With Related Persons
3(o) Title to Properties; Liens and Encumbrances
3(r) No Default
3(s) Taxes
3(u) Contracts; No Defaults
(w) Insurance
(aa) Mergers, Acquisitions and Divestitures
26
