EXHIBIT 10.11
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
May 23, 2005, by and among CalbaTech, Inc., a Nevada corporation,
with headquarters located at 00000 Xxxxxxxx Xxxxxxx, Xxxxx X-000,
Xxxxxx, XX 00000 (the "Company"), and each of the purchasers set
forth on the signature pages hereto (the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering
this Agreement in reliance upon the exemption from securities
registration afforded by the rules and regulations as promulgated by
the United States Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "1933 Act");
B. Buyers desire to purchase and the Company desires to issue
and sell, upon the terms and conditions set forth in this Agreement
(i) 10% secured convertible notes of the Company, in the form
attached hereto as Exhibit "A", in the aggregate principal amount of
Two Million Dollars ($2,000,000) (together with any note(s) issued in
replacement thereof or as a dividend thereon or otherwise with
respect thereto in accordance with the terms thereof, the "Notes"),
convertible into shares of common stock, par value $.001 per share,
of the Company (the "Common Stock"), upon the terms and subject to
the limitations and conditions set forth in such Notes and (ii)
warrants, in the form attached hereto as Exhibit "B", to purchase
12,143,290 shares of Common Stock (the "Warrants").
C. Each Buyer wishes to purchase, upon the terms and
conditions stated in this Agreement, such principal amount of Notes
and number of Warrants as is set forth immediately below its name on
the signature pages hereto; and
D. Contemporaneous with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a
Registration Rights Agreement, in the form attached hereto as Exhibit
"C" (the "Registration Rights Agreement"), pursuant to which the
Company has agreed to provide certain registration rights under the
1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
NOW THEREFORE, the Company and each of the Buyers severally (and
not jointly) hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
a. Purchase of Notes and Warrants. On the Closing
Date (as defined below), the Company shall issue and sell to each
Buyer and each Buyer severally agrees to purchase from the Company
such principal amount of Notes and number of Warrants as is set forth
immediately below such Buyer's name on the signature pages hereto.
b. Form of Payment. On the Closing Date (as defined
below), (i) each Buyer shall pay the purchase price for the Notes and
the Warrants to be issued and sold to it at the Closing (as defined
below) (the "Purchase Price") by wire transfer of immediately
available funds to the Company, in accordance with the Company's
written wiring instructions, against delivery of the Notes in the
principal amount equal to the Purchase Price and the number of
Warrants as is set forth immediately below such Buyer's name on the
signature pages hereto, and (ii) the Company shall deliver such Notes
and Warrants duly executed on behalf of the Company, to such Buyer,
against delivery of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or
written waiver) of the conditions thereto set forth in Section 6 and
Section 7 below, the date and time of the issuance and sale of the
Notes and the Warrants pursuant to this Agreement (the "Closing
Date") shall be 12:00 noon, Eastern Standard Time on May 23, 2005, or
such other mutually agreed upon time. The closing of the
transactions contemplated by this Agreement (the "Closing") shall
occur on the Closing Date at such location as may be agreed to by the
parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer
severally (and not jointly) represents and warrants to the Company
solely as to such Buyer that:
a. Investment Purpose. As of the date hereof, the
Buyer is purchasing the Notes and the shares of Common Stock issuable
upon conversion of or otherwise pursuant to the Notes (including,
without limitation, such additional shares of Common Stock, if any,
as are issuable (i) on account of interest on the Notes, (ii) as a
result of the events described in Sections 1.3 and 1.4(g) of the
Notes and Section 2(c) of the Registration Rights Agreement or (iii)
in payment of the Standard Liquidated Damages Amount (as defined in
Section 2(f) below) pursuant to this Agreement, such shares of Common
Stock being collectively referred to herein as the "Conversion
Shares") and the Warrants and the shares of Common Stock issuable
upon exercise thereof (the "Warrant Shares" and, collectively with
the Notes, Warrants and Conversion Shares, the "Securities") for its
own account and not with a present view towards the public sale or
distribution thereof, except pursuant to sales registered or exempted
from registration under the 1933 Act; provided, however, that by
making the representations herein, the Buyer does not agree to hold
any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an
exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of
Regulation D (an "Accredited Investor").
c. Reliance on Exemptions. The Buyer understands
that the Securities are being offered and sold to it in reliance upon
specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is
relying upon the truth and accuracy of, and the Buyer's compliance
with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of
the Buyer to acquire the Securities.
d. Information. The Buyer and its advisors, if any,
have been, and for so long as the Notes and Warrants remain
outstanding will continue to be, furnished with all materials
relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have
been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been, and for so long as the Notes and
Warrants remain outstanding will continue to be, afforded the
opportunity to ask questions of the Company. Notwithstanding the
foregoing, the Company has not disclosed to the Buyer any material
nonpublic information and will not disclose such information unless
such information is disclosed to the public prior to or promptly
following such disclosure to the Buyer. Neither such inquiries nor
any other due diligence investigation conducted by Buyer or any of
its advisors or representatives shall modify, amend or affect Buyer's
right to rely on the Company's representations and warranties
contained in Section 3 below. The Buyer understands that its
investment in the Securities involves a significant degree of risk.
e. Governmental Review. The Buyer understands that
no United States federal or state agency or any other government or
governmental agency has passed upon or made any recommendation or
endorsement of the Securities.
f. Transfer or Re-sale. The Buyer understands that
(i) except as provided in the Registration Rights Agreement, the sale
or re-sale of the Securities has not been and is not being registered
under the 1933 Act or any applicable state securities laws, and the
Securities may not be transferred unless (a) the Securities are sold
pursuant to an effective registration statement under the 1933 Act,
(b) the Buyer shall have delivered to the Company an opinion of
counsel reasonably acceptable to the Company that shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from
such registration, which opinion shall be accepted by the Company,
(c) the Securities are sold or transferred to an "affiliate" (as
defined in Rule 144 promulgated under the 1933 Act (or a successor
rule) ("Rule 144")) of the Buyer who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(f) and
who is an Accredited Investor, (d) the Securities are sold pursuant
to Rule 144, or (e) the Securities are sold pursuant to Regulation S
under the 1933 Act (or a successor rule) ("Regulation S"), and the
Buyer shall have delivered to the Company an opinion of counsel that
shall be in form, substance and scope customary for opinions of
counsel in corporate transactions, which opinion shall be accepted by
the Company; (ii) any sale of such Securities made in reliance on
Rule 144 may be made only in accordance with the terms of said Rule
and further, if said Rule is not applicable, any re-sale of such
Securities under circumstances in which the seller (or the person
through whom the sale is made) may be deemed to be an underwriter (as
that term is defined in the 0000 Xxx) may require compliance with
some other exemption under the 1933 Act or the rules and regulations
of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the
1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than
pursuant to the Registration Rights Agreement). Notwithstanding the
foregoing or anything else contained herein to the contrary, the
Securities may be pledged as collateral in connection with a bona
fide margin account or other lending arrangement. In the event that
the Company does not accept the opinion of counsel provided by the
Buyer with respect to the transfer of Securities pursuant to an
exemption from registration, such as Rule 144 or Regulation S, within
three (3) business days of delivery of the opinion to the Company,
the Company shall pay to the Buyer liquidated damages of three
percent (3%) of the outstanding amount of the Notes per month plus
accrued and unpaid interest on the Notes, prorated for partial
months, in cash or shares at the option of the Company ("Standard
Liquidated Damages Amount"). If the Company elects to be pay the
Standard Liquidated Damages Amount in shares of Common Stock, such
shares shall be issued at the Conversion Price at the time of payment.
g. Legends. The Buyer understands that the Notes
and the Warrants and, until such time as the Conversion Shares and
Warrant Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement or otherwise may be
sold pursuant to Rule 144 or Regulation S without any restriction as
to the number of securities as of a particular date that can then be
immediately sold, the Conversion Shares and Warrant Shares may bear a
restrictive legend in substantially the following form (and a stop-
transfer order may be placed against transfer of the certificates for
such Securities):
"The securities represented by this certificate
have not been registered under the Securities Act
of 1933, as amended. The securities may not be
sold, transferred or assigned in the absence of
an effective registration statement for the
securities under said Act, or an opinion of
counsel, in form, substance and scope customary
for opinions of counsel in comparable
transactions, that registration is not required
under said Act or unless sold pursuant to Rule
144 or Regulation S under said Act."
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of any
Security upon which it is stamped, if, unless otherwise required by
applicable state securities laws, (a) such Security is registered for
sale under an effective registration statement filed under the 1933
Act or otherwise may be sold pursuant to Rule 144 or Regulation S
without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder
provides the Company with an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable
transactions which opinion shall be reasonably acceptable to the
Company's counsel, to the effect that a public sale or transfer of
such Security may be made without registration under the 1933 Act,
which opinion shall be accepted by the Company so that the sale or
transfer is effected or (c) such holder provides the Company with
reasonable assurances that such Security can be sold pursuant to Rule
144 or Regulation S. The Buyer agrees to sell all Securities,
including those represented by a certificate(s) from which the legend
has been removed, in compliance with applicable prospectus delivery
requirements, if any.
h. Authorization; Enforcement. This Agreement and
the Registration Rights Agreement have been duly and validly
authorized. This Agreement has been duly executed and delivered on
behalf of the Buyer, and this Agreement constitutes, and upon
execution and delivery by the Buyer of the Registration Rights
Agreement, such agreement will constitute, valid and binding
agreements of the Buyer enforceable in accordance with their terms.
i. Residency. The Buyer is a resident of the
jurisdiction set forth immediately below such Buyer's name on the
signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to each Buyer that:
a. Organization and Qualification. The Company and
each of its Subsidiaries (as defined below), if any, is a corporation
duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is incorporated, with full power and
authority (corporate and other) to own, lease, use and operate its
properties and to carry on its business as and where now owned,
leased, used, operated and conducted. Schedule 3(a) sets forth a
list of all of the Subsidiaries of the Company and the jurisdiction
in which each is incorporated. The Company and each of its
Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which its
ownership or use of property or the nature of the business conducted
by it makes such qualification necessary except where the failure to
be so qualified or in good standing would not have a Material Adverse
Effect. "Material Adverse Effect" means any material adverse effect
on the business, operations, assets, financial condition or prospects
of the Company or its Subsidiaries, if any, taken as a whole, or on
the transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith.
"Subsidiaries" means any corporation or other organization, whether
incorporated or unincorporated, in which the Company owns, directly
or indirectly, any equity or other ownership interest.
b. Authorization; Enforcement. (i) The Company has
all requisite corporate power and authority to enter into and perform
this Agreement, the Registration Rights Agreement, the Notes and the
Warrants and to consummate the transactions contemplated hereby and
thereby and to issue the Securities, in accordance with the terms
hereof and thereof, (ii) the execution and delivery of this
Agreement, the Registration Rights Agreement, the Notes and the
Warrants by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including without
limitation, the issuance of the Notes and the Warrants and the
issuance and reservation for issuance of the Conversion Shares and
Warrant Shares issuable upon conversion or exercise thereof) have
been duly authorized by the Company's Board of Directors and no
further consent or authorization of the Company, its Board of
Directors, or its shareholders is required, (iii) this Agreement has
been duly executed and delivered by the Company by its authorized
representative, and such authorized representative is the true and
official representative with authority to sign this Agreement and the
other documents executed in connection herewith and bind the Company
accordingly, and (iv) this Agreement constitutes, and upon execution
and delivery by the Company of the Registration Rights Agreement, the
Notes and the Warrants, each of such instruments will constitute, a
legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
c. Capitalization. As of the date hereof, the
authorized capital stock of the Company consists of (i) 200,000,000
shares of Common Stock, of which 43,980,227 shares are issued and
outstanding, 380,000 shares are reserved for issuance pursuant to the
Company's stock option plans, zero shares are reserved for issuance
pursuant to securities (other than the Notes and the Warrants)
exercisable for, or convertible into or exchangeable for shares of
Common Stock and 90,953,246 shares are reserved for issuance upon
conversion of the Notes and the Additional Notes (as defined in
Section 4(l)) and exercise of the Warrants and the Additional
Warrants (as defined in Section 4(l)) (subject to adjustment pursuant
to the Company's covenant set forth in Section 4(h) below); and (ii)
25,000,000 shares of preferred stock, of which 1,250,000 shares are
issued and outstanding. All of such outstanding shares of capital
stock are, or upon issuance will be, duly authorized, validly issued,
fully paid and nonassessable. No shares of capital stock of the
Company are subject to preemptive rights or any other similar rights
of the shareholders of the Company or any liens or encumbrances
imposed through the actions or failure to act of the Company. Except
as disclosed in Schedule 3(c), as of the effective date of this
Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of
any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of
the Company or any of its Subsidiaries, or arrangements by which the
Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its
Subsidiaries, (ii) there are no agreements or arrangements under
which the Company or any of its Subsidiaries is obligated to register
the sale of any of its or their securities under the 1933 Act (except
the Registration Rights Agreement) and (iii) there are no anti-
dilution or price adjustment provisions contained in any security
issued by the Company (or in any agreement providing rights to
security holders) that will be triggered by the issuance of the
Notes, the Warrants, the Conversion Shares or Warrant Shares. The
Company has furnished to the Buyer true and correct copies of the
Company's Articles of Incorporation as in effect on the date hereof
("Articles of Incorporation"), the Company's By-laws, as in effect on
the date hereof (the "By-laws"), and the terms of all securities
convertible into or exercisable for Common Stock of the Company and
the material rights of the holders thereof in respect thereto. The
Company shall provide the Buyer with a written update of this
representation signed by the Company's Chief Executive or Chief
Financial Officer on behalf of the Company as of the Closing Date.
d. Issuance of Shares. The Conversion Shares and
Warrant Shares are duly authorized and reserved for issuance and,
upon conversion of the Notes and exercise of the Warrants in
accordance with their respective terms, will be validly issued, fully
paid and non-assessable, and free from all taxes, liens, claims and
encumbrances with respect to the issue thereof and shall not be
subject to preemptive rights or other similar rights of shareholders
of the Company and will not impose personal liability upon the holder
thereof.
e. Acknowledgment of Dilution. The Company
understands and acknowledges the potentially dilutive effect to the
Common Stock upon the issuance of the Conversion Shares and Warrant
Shares upon conversion of the Note or exercise of the Warrants. The
Company further acknowledges that its obligation to issue Conversion
Shares and Warrant Shares upon conversion of the Notes or exercise of
the Warrants in accordance with this Agreement, the Notes and the
Warrants is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of
other shareholders of the Company.
f. No Conflicts. The execution, delivery and
performance of this Agreement, the Registration Rights Agreement, the
Notes and the Warrants by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance and reservation for
issuance of the Conversion Shares and Warrant Shares) will not (i)
conflict with or result in a violation of any provision of the
Articles of Incorporation or By-laws or (ii) violate or conflict
with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both could
become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture,
patent, patent license or instrument to which the Company or any of
its Subsidiaries is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal
and state securities laws and regulations and regulations of any
self-regulatory organizations to which the Company or its securities
are subject) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its
Subsidiaries is bound or affected (except for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a
Material Adverse Effect). Neither the Company nor any of its
Subsidiaries is in violation of its Articles of Incorporation, By-
laws or other organizational documents and neither the Company nor
any of its Subsidiaries is in default (and no event has occurred
which with notice or lapse of time or both could put the Company or
any of its Subsidiaries in default) under, and neither the Company
nor any of its Subsidiaries has taken any action or failed to take
any action that would give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture
or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as
would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its Subsidiaries, if any,
are not being conducted, and shall not be conducted so long as a
Buyer owns any of the Securities, in violation of any law, ordinance
or regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the 1933 Act and
any applicable state securities laws, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency, regulatory agency,
self regulatory organization or stock market or any third party in
order for it to execute, deliver or perform any of its obligations
under this Agreement, the Registration Rights Agreement, the Notes or
the Warrants in accordance with the terms hereof or thereof or to
issue and sell the Notes and Warrants in accordance with the terms
hereof and to issue the Conversion Shares upon conversion of the
Notes and the Warrant Shares upon exercise of the Warrants. Except
as disclosed in Schedule 3(f), all consents, authorizations, orders,
filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company is not in violation of the
listing requirements of the Over-the-Counter Bulletin Board (the
"OTCBB") and does not reasonably anticipate that the Common Stock
will be delisted by the OTCBB in the foreseeable future. The Company
and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
g. SEC Documents; Financial Statements. Except as
disclosed in Schedule 3(g), the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") (all of
the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and
documents (other than exhibits to such documents) incorporated by
reference therein, being hereinafter referred to herein as the "SEC
Documents"). The Company has delivered to each Buyer true and
complete copies of the SEC Documents, except for such exhibits and
incorporated documents. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of
the 1934 Act and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. None of the statements made in any such
SEC Documents is, or has been, required to be amended or updated
under applicable law (except for such statements as have been amended
or updated in subsequent filings prior the date hereof). As of their
respective dates, the financial statements of the Company included in
the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with United States
generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the
case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and
fairly present in all material respects the consolidated financial
position of the Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except
as set forth in the financial statements of the Company included in
the SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course
of business subsequent to December 31, 2004 and (ii) obligations
under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting
principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial
condition or operating results of the Company.
h. Absence of Certain Changes. Since December 31,
2004, there has been no material adverse change and no material
adverse development in the assets, liabilities, business, properties,
operations, financial condition, results of operations or prospects
of the Company or any of its Subsidiaries.
i. Absence of Litigation. There is no action, suit,
claim, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company or any of its
Subsidiaries, threatened against or affecting the Company or any of
its Subsidiaries, or their officers or directors in their capacity as
such, that could have a Material Adverse Effect. Schedule 3(i)
contains a complete list and summary description of any pending or,
to the knowledge of the Company, threatened proceeding against or
affecting the Company or any of its Subsidiaries, without regard to
whether it would have a Material Adverse Effect. The Company and its
Subsidiaries are unaware of any facts or circumstances which might
give rise to any of the foregoing.
j. Patents, Copyrights, etc. The Company and each
of its Subsidiaries owns or possesses the requisite licenses or
rights to use all patents, patent applications, patent rights,
inventions, know-how, trade secrets, trademarks, trademark
applications, service marks, service names, trade names and
copyrights ("Intellectual Property") necessary to enable it to
conduct its business as now operated (and, except as set forth in
Schedule 3(j) hereof, to the best of the Company's knowledge, as
presently contemplated to be operated in the future); there is no
claim or action by any person pertaining to, or proceeding pending,
or to the Company's knowledge threatened, which challenges the right
of the Company or of a Subsidiary with respect to any Intellectual
Property necessary to enable it to conduct its business as now
operated (and, except as set forth in Schedule 3(j) hereof, to the
best of the Company's knowledge, as presently contemplated to be
operated in the future); to the best of the Company's knowledge, the
Company's or its Subsidiaries' current and intended products,
services and processes do not infringe on any Intellectual Property
or other rights held by any person; and the Company is unaware of any
facts or circumstances which might give rise to any of the foregoing.
The Company and each of its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value
of their Intellectual Property.
k. No Materially Adverse Contracts, Etc. Neither
the Company nor any of its Subsidiaries is subject to any charter,
corporate or other legal restriction, or any judgment, decree, order,
rule or regulation which in the judgment of the Company's officers
has or is expected in the future to have a Material Adverse Effect.
Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement which in the judgment of the Company's officers
has or is expected to have a Material Adverse Effect.
l. Tax Status. Except as set forth on Schedule
3(l), the Company and each of its Subsidiaries has made or filed all
federal, state and foreign income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably
adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that
are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in
good faith and has set aside on its books provisions reasonably
adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There
are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company
know of no basis for any such claim. The Company has not executed a
waiver with respect to the statute of limitations relating to the
assessment or collection of any foreign, federal, state or local tax.
Except as set forth on Schedule 3(l), none of the Company's tax
returns is presently being audited by any taxing authority.
m. Certain Transactions. Except as set forth on
Schedule 3(m) and except for arm's length transactions pursuant to
which the Company or any of its Subsidiaries makes payments in the
ordinary course of business upon terms no less favorable than the
Company or any of its Subsidiaries could obtain from third parties
and other than the grant of stock options disclosed on Schedule 3(c),
none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company or any of its
Subsidiaries (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee
or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director,
trustee or partner.
n. Disclosure. All information relating to or
concerning the Company or any of its Subsidiaries set forth in this
Agreement and provided to the Buyers pursuant to Section 2(d) hereof
and otherwise in connection with the transactions contemplated hereby
is true and correct in all material respects and the Company has not
omitted to state any material fact necessary in order to make the
statements made herein or therein, in light of the circumstances
under which they were made, not misleading. No event or circumstance
has occurred or exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects,
operations or financial conditions, which, under applicable law, rule
or regulation, requires public disclosure or announcement by the
Company but which has not been so publicly announced or disclosed
(assuming for this purpose that the Company's reports filed under the
1934 Act are being incorporated into an effective registration
statement filed by the Company under the 1933 Act).
o. Acknowledgment Regarding Buyers' Purchase of
Securities. The Company acknowledges and agrees that the Buyers are
acting solely in the capacity of arm's length purchasers with respect
to this Agreement and the transactions contemplated hereby. The
Company further acknowledges that no Buyer is acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement and the transactions contemplated hereby
and any statement made by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation
and is merely incidental to the Buyers' purchase of the Securities.
The Company further represents to each Buyer that the Company's
decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.
p. No Integrated Offering. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf,
has directly or indirectly made any offers or sales in any security
or solicited any offers to buy any security under circumstances that
would require registration under the 1933 Act of the issuance of the
Securities to the Buyers. The issuance of the Securities to the
Buyers will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of any
shareholder approval provisions applicable to the Company or its
securities.
q. No Brokers. The Company has taken no action
which would give rise to any claim by any person for brokerage
commissions, transaction fees or similar payments relating to this
Agreement or the transactions contemplated hereby.
r. Permits; Compliance. The Company and each of its
Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions,
consents, certificates, approvals and orders necessary to own, lease
and operate its properties and to carry on its business as it is now
being conducted (collectively, the "Company Permits"), and there is
no action pending or, to the knowledge of the Company, threatened
regarding suspension or cancellation of any of the Company Permits.
Neither the Company nor any of its Subsidiaries is in conflict with,
or in default or violation of, any of the Company Permits, except for
any such conflicts, defaults or violations which, individually or in
the aggregate, would not reasonably be expected to have a Material
Adverse Effect. Since December 31, 2004, neither the Company nor any
of its Subsidiaries has received any notification with respect to
possible conflicts, defaults or violations of applicable laws, except
for notices relating to possible conflicts, defaults or violations,
which conflicts, defaults or violations would not have a Material
Adverse Effect.
s. Environmental Matters.
(i) Except as set forth in Schedule 3(s), there
are, to the Company's knowledge, with respect to the Company or any
of its Subsidiaries or any predecessor of the Company, no past or
present violations of Environmental Laws (as defined below), releases
of any material into the environment, actions, activities,
circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 or similar federal,
state, local or foreign laws and neither the Company nor any of its
Subsidiaries has received any notice with respect to any of the
foregoing, nor is any action pending or, to the Company's knowledge,
threatened in connection with any of the foregoing. The term
"Environmental Laws" means all federal, state, local or foreign laws
relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants contaminants, or
toxic or hazardous substances or wastes (collectively, "Hazardous
Materials") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as
all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders,
permits, plans or regulations issued, entered, promulgated or
approved thereunder.
(ii) Other than those that are or were stored,
used or disposed of in compliance with applicable law, no Hazardous
Materials are contained on or about any real property currently
owned, leased or used by the Company or any of its Subsidiaries, and
no Hazardous Materials were released on or about any real property
previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used
by the Company or any of its Subsidiaries, except in the normal
course of the Company's or any of its Subsidiaries' business.
(iii) Except as set forth in Schedule 3(s), there
are no underground storage tanks on or under any real property owned,
leased or used by the Company or any of its Subsidiaries that are not
in compliance with applicable law.
t. Title to Property. The Company and its
Subsidiaries have good and marketable title in fee simple to all real
property and good and marketable title to all personal property owned
by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances
and defects except such as are described in Schedule 3(t) or such as
would not have a Material Adverse Effect. Any real property and
facilities held under lease by the Company and its Subsidiaries are
held by them under valid, subsisting and enforceable leases with such
exceptions as would not have a Material Adverse Effect.
u. Insurance. The Company and each of its
Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the
businesses in which the Company and its Subsidiaries are engaged.
Neither the Company nor any such Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a
cost that would not have a Material Adverse Effect. The Company has
provided to Buyer true and correct copies of all policies relating to
directors' and officers' liability coverage, errors and omissions
coverage, and commercial general liability coverage.
v. Internal Accounting Controls. The Company and
each of its Subsidiaries maintain a system of internal accounting
controls sufficient, in the judgment of the Company's board of
directors, to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
w. Foreign Corrupt Practices. Neither the Company,
nor any of its Subsidiaries, nor any director, officer, agent,
employee or other person acting on behalf of the Company or any
Subsidiary has, in the course of his actions for, or on behalf of,
the Company, used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political
activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign
Corrupt Practices Act of 1977, as amended, or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
x. Solvency. The Company (after giving effect to
the transactions contemplated by this Agreement) is solvent (i.e.,
its assets have a fair market value in excess of the amount required
to pay its probable liabilities on its existing debts as they become
absolute and matured) and currently the Company has no information
that would lead it to reasonably conclude that the Company would not,
after giving effect to the transaction contemplated by this
Agreement, have the ability to, nor does it intend to take any action
that would impair its ability to, pay its debts from time to time
incurred in connection therewith as such debts mature. The Company
did not receive a qualified opinion from its auditors with respect to
its most recent fiscal year end and, after giving effect to the
transactions contemplated by this Agreement, does not anticipate or
know of any basis upon which its auditors might issue a qualified
opinion in respect of its current fiscal year.
y. No Investment Company. The Company is not, and
upon the issuance and sale of the Securities as contemplated by this
Agreement will not be an "investment company" required to be
registered under the Investment Company Act of 1940 (an "Investment
Company"). The Company is not controlled by an Investment Company.
z. Breach of Representations and Warranties by the
Company. If the Company materially breaches any of the
representations or warranties set forth in this Section 3, and in
addition to any other remedies available to the Buyers pursuant to
this Agreement, the Company shall pay to the Buyer the Standard
Liquidated Damages Amount in cash or in shares of Common Stock at the
option of the Company, until such breach is cured. If the Company
elects to pay the Standard Liquidated Damages Amounts in shares of
Common Stock, such shares shall be issued at the Conversion Price at
the time of payment.
4. COVENANTS.
a. Best Efforts. The parties shall use their best
efforts to satisfy timely each of the conditions described in Section
6 and 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to
file a Form D with respect to the Securities as required under
Regulation D and to provide a copy thereof to each Buyer promptly
after such filing. The Company shall, on or before the Closing Date,
take such action as the Company shall reasonably determine is
necessary to qualify the Securities for sale to the Buyers at the
applicable closing pursuant to this Agreement under applicable
securities or "blue sky" laws of the states of the United States (or
to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to each Buyer on or prior to the
Closing Date.
c. Reporting Status; Eligibility to Use Form S-3, SB-2 or Form
S-1. The Company's Common Stock is registered under Section 12(g) of
the 1934 Act. The Company represents and warrants that it meets the
requirements for the use of Form S-3 (or if the Company is not
eligible for the use of Form S-3 as of the Filing Date (as defined in
the Registration Rights Agreement), the Company may use the form of
registration for which it is eligible at that time) for registration
of the sale by the Buyer of the Registrable Securities (as defined in
the Registration Rights Agreement). So long as the Buyer beneficially
owns any of the Securities, the Company shall timely file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination. The Company
further agrees to file all reports required to be filed by the Company
with the SEC in a timely manner so as to become eligible, and
thereafter to maintain its eligibility, for the use of Form S-3. The
Company shall issue a press release describing the materials terms of
the transaction contemplated hereby as soon as practicable following
the Closing Date but in no event more than two (2) business days of
the Closing Date, which press release shall be subject to prior review
by the Buyers. The Company agrees that such press release shall not
disclose the name of the Buyers unless expressly consented to in
writing by the Buyers or unless required by applicable law or
regulation, and then only to the extent of such requirement.
d. Use of Proceeds. The Company shall use the
proceeds from the sale of the Notes and the Warrants in the manner
set forth in Schedule 4(d) attached hereto and made a part hereof
and shall not, directly or indirectly, use such proceeds for any loan
to or investment in any other corporation, partnership, enterprise or
other person (except in connection with its currently existing direct
or indirect Subsidiaries)
e. Future Offerings. Subject to the exceptions
described below, the Company will not, without the prior written
consent of a majority-in-interest of the Buyers, not to be
unreasonably withheld, negotiate or contract with any party to obtain
additional equity financing (including debt financing with an equity
component) that involves (A) the issuance of Common Stock at a
discount to the market price of the Common Stock on the date of
issuance (taking into account the value of any warrants or options to
acquire Common Stock issued in connection therewith) or (B) the
issuance of convertible securities that are convertible into an
indeterminate number of shares of Common Stock or (C) the issuance of
warrants during the period (the "Lock-up Period") beginning on the
Closing Date and ending on the later of (i) two hundred seventy (270)
days from the Closing Date and (ii) one hundred eighty (180) days
from the date the Registration Statement (as defined in the
Registration Rights Agreement) is declared effective (plus any days
in which sales cannot be made thereunder). In addition, subject to
the exceptions described below, the Company will not conduct any
equity financing (including debt with an equity component) ("Future
Offerings") during the period beginning on the Closing Date and
ending two (2) years after the end of the Lock-up Period unless it
shall have first delivered to each Buyer, at least twenty (20)
business days prior to the closing of such Future Offering, written
notice describing the proposed Future Offering, including the terms
and conditions thereof and proposed definitive documentation to be
entered into in connection therewith, and providing each Buyer an
option during the fifteen (15) day period following delivery of such
notice to purchase its pro rata share (based on the ratio that the
aggregate principal amount of Notes purchased by it hereunder bears
to the aggregate principal amount of Notes purchased hereunder) of
the securities being offered in the Future Offering on the same terms
as contemplated by such Future Offering (the limitations referred to
in this sentence and the preceding sentence are collectively referred
to as the "Capital Raising Limitations"). In the event the terms and
conditions of a proposed Future Offering are amended in any respect
after delivery of the notice to the Buyers concerning the proposed
Future Offering, the Company shall deliver a new notice to each Buyer
describing the amended terms and conditions of the proposed Future
Offering and each Buyer thereafter shall have an option during the
fifteen (15) day period following delivery of such new notice to
purchase its pro rata share of the securities being offered on the
same terms as contemplated by such proposed Future Offering, as
amended. The foregoing sentence shall apply to successive amendments
to the terms and conditions of any proposed Future Offering. The
Capital Raising Limitations shall not apply to any transaction
involving (i) issuances of securities in a firm commitment
underwritten public offering (excluding a continuous offering
pursuant to Rule 415 under the 0000 Xxx) or (ii) issuances of
securities as consideration for a merger, consolidation or purchase
of assets, or in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity
capital), or in connection with the disposition or acquisition of a
business, product or license by the Company. The Capital Raising
Limitations also shall not apply to the issuance of securities upon
exercise or conversion of the Company's options, warrants or other
convertible securities outstanding as of the date hereof or to the
grant of additional options or warrants, or the issuance of
additional securities, under any Company stock option or restricted
stock plan approved by the shareholders of the Company.
f. Expenses. At the Closing, the Company shall
reimburse Buyers for expenses incurred by them in connection with the
negotiation, preparation, execution, delivery and performance of this
Agreement and the other agreements to be executed in connection
herewith ("Documents"), including, without limitation, attorneys' and
consultants' fees and expenses, transfer agent fees, fees for stock
quotation services, fees relating to any amendments or modifications
of the Documents or any consents or waivers of provisions in the
Documents, fees for the preparation of opinions of counsel, escrow
fees, and costs of restructuring the transactions contemplated by the
Documents. When possible, the Company must pay these fees directly,
otherwise the Company must make immediate payment for reimbursement
to the Buyers for all fees and expenses immediately upon written
notice by the Buyer or the submission of an invoice by the Buyer If
the Company fails to reimburse the Buyer in full within three (3)
business days of the written notice or submission of invoice by the
Buyer, the Company shall pay interest on the total amount of fees to
be reimbursed at a rate of 15% per annum.
g. Financial Information. The Company agrees to
send the following reports to each Buyer until such Buyer transfers,
assigns, or sells all of the Securities: (i) within ten (10) days
after the filing with the SEC, a copy of its Annual Report on Form
10-KSB its Quarterly Reports on Form 10-QSB and any Current Reports
on Form 8-K; (ii) within one (1) day after release, copies of all
press releases issued by the Company or any of its Subsidiaries; and
(iii) contemporaneously with the making available or giving to the
shareholders of the Company, copies of any notices or other
information the Company makes available or gives to such
shareholders.
h. Authorization and Reservation of Shares. The
Company shall at all times have authorized, and reserved for the
purpose of issuance, a sufficient number of shares of Common Stock to
provide for the full conversion or exercise of the outstanding Notes
and Warrants and issuance of the Conversion Shares and Warrant Shares
in connection therewith (based on the Conversion Price of the Notes
or Exercise Price of the Warrants in effect from time to time) and as
otherwise required by the Notes. The Company shall not reduce the
number of shares of Common Stock reserved for issuance upon
conversion of Notes and exercise of the Warrants without the consent
of each Buyer. The Company shall at all times maintain the number of
shares of Common Stock so reserved for issuance at an amount
("Reserved Amount") equal to no less than two (2) times the number
that is then actually issuable upon full conversion of the Notes and
Additional Notes and upon exercise of the Warrants and the Additional
Warrants (based on the Conversion Price of the Notes or the Exercise
Price of the Warrants in effect from time to time). If at any time
the number of shares of Common Stock authorized and reserved for
issuance ("Authorized and Reserved Shares") is below the Reserved
Amount, the Company will promptly take all corporate action necessary
to authorize and reserve a sufficient number of shares, including,
without limitation, calling a special meeting of shareholders to
authorize additional shares to meet the Company's obligations under
this Section 4(h), in the case of an insufficient number of
authorized shares, obtain shareholder approval of an increase in such
authorized number of shares, and voting the management shares of the
Company in favor of an increase in the authorized shares of the
Company to ensure that the number of authorized shares is sufficient
to meet the Reserved Amount. If the Company fails to obtain such
shareholder approval within thirty (30) days following the date on
which the number of Reserved Amount exceeds the Authorized and
Reserved Shares, the Company shall pay to the Borrower the Standard
Liquidated Damages Amount, in cash or in shares of Common Stock at
the option of the Buyer. If the Buyer elects to be paid the Standard
Liquidated Damages Amount in shares of Common Stock, such shares
shall be issued at the Conversion Price at the time of payment. In
order to ensure that the Company has authorized a sufficient amount
of shares to meet the Reserved Amount at all times, the Company must
deliver to the Buyer at the end of every month a list detailing (1)
the current amount of shares authorized by the Company and reserved
for the Buyer; and (2) amount of shares issuable upon conversion of
the Notes and upon exercise of the Warrants and as payment of
interest accrued on the Notes for one year. If the Company fails to
provide such list within five (5) business days of the end of each
month, the Company shall pay the Standard Liquidated Damages Amount,
in cash or in shares of Common Stock at the option of the Buyer,
until the list is delivered. If the Buyer elects to be paid the
Standard Liquidated Damages Amount in shares of Common Stock, such
shares shall be issued at the Conversion Price at the time of payment.
i. Listing. The Company shall promptly secure the
listing of the Conversion Shares and Warrant Shares upon each
national securities exchange or automated quotation system, if any,
upon which shares of Common Stock are then listed (subject to
official notice of issuance) and, so long as any Buyer owns any of
the Securities, shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Conversion Shares and
Warrant Shares from time to time issuable upon conversion of the
Notes or exercise of the Warrants. The Company will obtain and, so
long as any Buyer owns any of the Securities, maintain the listing
and trading of its Common Stock on the OTCBB or any equivalent
replacement exchange, the Nasdaq National Market ("Nasdaq"), the
Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New York Stock
Exchange ("NYSE"), or the American Stock Exchange ("AMEX") and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable. The
Company shall promptly provide to each Buyer copies of any notices it
receives from the OTCBB and any other exchanges or quotation systems
on which the Common Stock is then listed regarding the continued
eligibility of the Common Stock for listing on such exchanges and
quotation systems.
j. Corporate Existence. So long as a Buyer
beneficially owns any Notes or Warrants, the Company shall maintain
its corporate existence and shall not sell all or substantially all
of the Company's assets, except in the event of a merger or
consolidation or sale of all or substantially all of the Company's
assets, where the surviving or successor entity in such transaction
(i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and
(ii) is a publicly traded corporation whose Common Stock is listed
for trading on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
k. No Integration. The Company shall not make any
offers or sales of any security (other than the Securities) under
circumstances that would require registration of the Securities being
offered or sold hereunder under the 1933 Act or cause the offering of
the Securities to be integrated with any other offering of securities
by the Company for the purpose of any stockholder approval provision
applicable to the Company or its securities.
l. Subsequent Investment. The Company and the
Buyers agree that, upon the filing by the Company of the Registration
Statement to be filed pursuant to the Registration Rights Agreement
(the "Filing Date"), the Buyers shall purchase additional Notes (the
"Filing Notes") in the aggregate principal amount of Six Hundred
Thousand Dollars ($600,000) and additional warrants (the "Filing
Warrants") to purchase an aggregate of 3,642,987 shares of Common
Stock, for an aggregate purchase price of Six Hundred Thousand
Dollars ($600,000), with the closing of such purchase to occur within
five (5) days of the Filing Date; provided, however, that the
obligation of each Buyer to purchase the Filing Notes and the Filing
Warrants is subject to the satisfaction, at or before the closing of
such purchase and sale, of the conditions set forth in Section 7.
The Company and the Buyers further agree that, upon the declaration
of effectiveness of the Registration Statement to be filed pursuant
to the Registration Rights Agreement (the "Effective Date"), the
Buyers shall purchase additional notes (the "Effectiveness Notes"
and, collectively with the Filing Notes, the "Additional Notes") in
the aggregate principal amount of Six Hundred Thousand Dollars
($600,000) and additional warrants (the "Effectiveness Warrants" and,
collectively with the Filing Warrants, the "Additional Warrants") to
purchase an aggregate of 3,642,987 shares of Common Stock, for an
aggregate purchase price of Six Hundred Thousand Dollars ($600,000),
with the closing of such purchase to occur within five (5) days of
the Effective Date; provided, however, that the obligation of each
Buyer to purchase the Additional Notes and the Additional Warrants is
subject to the satisfaction, at or before the closing of such
purchase and sale, of the conditions set forth in Section 7; and,
provided, further, that there shall not have been a Material Adverse
Effect as of such effective date. The terms of the Additional Notes
and the Additional Warrants shall be identical to the terms of the
Notes and Warrants, as the case may be, to be issued on the Closing
Date. The Common Stock underlying the Additional Notes and the
Additional Warrants shall be Registrable Securities (as defined in
the Registration Rights Agreement) and shall be included in the
Registration Statement to be filed pursuant to the Registration
Rights Agreement.
m. Key Man Insurance. The Company shall use its
best efforts to obtain, on or before five (5) business days from the
date hereof, key man life insurance on Xxxxx XxXxxxx, Xxxxxx Xxxxx
and Xxxx Xxxxxx.
n. Restriction on Short Sales. The Buyers agree
that, so long as any of the Notes remain outstanding, but in no event
less than two (2) years from the date hereof, the Buyers will not
enter into or effect any "short sales" (as such term is defined in
Rule 3b-3 of the 0000 Xxx) of the Common Stock or hedging transaction
which establishes a net short position with respect to the Common Stock.
o. Breach of Covenants. If the Company breaches any
of the covenants set forth in this Section 4, and in addition to any
other remedies available to the Buyers pursuant to this Agreement,
the Company shall pay to the Buyers the Standard Liquidated Damages
Amount, in cash or in shares of Common Stock at the option of the
Company, until such breach is cured. If the Company elects to pay
the Standard Liquidated Damages Amount in shares, such shares shall
be issued at the Conversion Price at the time of payment.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent to issue certificates,
registered in the name of each Buyer or its nominee, for the
Conversion Shares and Warrant Shares in such amounts as specified
from time to time by each Buyer to the Company upon conversion of the
Notes or exercise of the Warrants in accordance with the terms
thereof (the "Irrevocable Transfer Agent Instructions"). Prior to
registration of the Conversion Shares and Warrant Shares under the
1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to
the number of Securities as of a particular date that can then be
immediately sold, all such certificates shall bear the restrictive
legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5, and stop transfer
instructions to give effect to Section 2(f) hereof (in the case of
the Conversion Shares and Warrant Shares, prior to registration of
the Conversion Shares and Warrant Shares under the 1933 Act or the
date on which the Conversion Shares and Warrant Shares may be sold
pursuant to Rule 144 without any restriction as to the number of
Securities as of a particular date that can then be immediately
sold), will be given by the Company to its transfer agent and that
the Securities shall otherwise be freely transferable on the books
and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this
Section shall affect in any way the Buyer's obligations and agreement
set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon re-sale of the
Securities. If a Buyer provides the Company with (i) an opinion of
counsel in form, substance and scope customary for opinions in
comparable transactions, to the effect that a public sale or transfer
of such Securities may be made without registration under the 1933
Act and such sale or transfer is effected or (ii) the Buyer provides
reasonable assurances that the Securities can be sold pursuant to
Rule 144, the Company shall permit the transfer, and, in the case of
the Conversion Shares and Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates, free from
restrictive legend, in such name and in such denominations as
specified by such Buyer. The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the
Buyers, by vitiating the intent and purpose of the transactions
contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5
may be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section, that the
Buyers shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring
immediate transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The
obligation of the Company hereunder to issue and sell the Notes and
Warrants to a Buyer at the Closing is subject to the satisfaction, at
or before the Closing Date of each of the following conditions
thereto, provided that these conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole
discretion:
a. The applicable Buyer shall have executed this
Agreement and the Registration Rights Agreement, and delivered the
same to the Company.
b. The applicable Buyer shall have delivered the
Purchase Price in accordance with Section 1(b) above.
c. The representations and warranties of the
applicable Buyer shall be true and correct in all material respects
as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of
a specific date), and the applicable Buyer shall have performed,
satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the
Closing Date.
d. No litigation, statute, rule, regulation,
executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by or in any court or
governmental authority of competent jurisdiction or any self-
regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Notes and
Warrants at the Closing is subject to the satisfaction, at or before
the Closing Date of each of the following conditions, provided that
these conditions are for such Buyer's sole benefit and may be waived
by such Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement
and the Registration Rights Agreement, and delivered the same to the
Buyer.
b. The Company shall have delivered to such Buyer
duly executed Notes (in such denominations as the Buyer shall
request) and Warrants in accordance with Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in
form and substance satisfactory to a majority-in-interest of the
Buyers, shall have been delivered to and acknowledged in writing by
the Company's Transfer Agent.
d. The representations and warranties of the Company
shall be true and correct in all material respects as of the date
when made and as of the Closing Date as though made at such time
(except for representations and warranties that speak as of a
specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or
complied with by the Company at or prior to the Closing Date. The
Buyer shall have received a certificate or certificates, executed by
the chief executive officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be
reasonably requested by such Buyer including, but not limited to
certificates with respect to the Company's Articles of Incorporation,
By-laws and Board of Directors' resolutions relating to the
transactions contemplated hereby.
e. No litigation, statute, rule, regulation,
executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by or in any court or
governmental authority of competent jurisdiction or any self-
regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
f. No event shall have occurred which could
reasonably be expected to have a Material Adverse Effect on the
Company.
g. The Conversion Shares and Warrant Shares shall
have been authorized for quotation on the OTCBB and trading in the
Common Stock on the OTCBB shall not have been suspended by the SEC
or the OTCBB.
h. The Buyer shall have received an opinion of the
Company's counsel, dated as of the Closing Date, in form, scope and
substance reasonably satisfactory to the Buyer and in substantially
the same form as Exhibit "D" attached hereto.
i. The Buyer shall have received an officer's
certificate described in Section 3(c) above, dated as of the Closing
Date.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. THIS AGREEMENT SHALL BE ENFORCED,
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF
LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION
OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK
WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR
PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON
A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT
EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES
AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER.
THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER THIS
AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH
SUCH DISPUTE.
b. Counterparts; Signatures by Facsimile. This
Agreement may be executed in one or more counterparts, each of which
shall be deemed an original but all of which shall constitute one and
the same agreement and shall become effective when counterparts have
been signed by each party and delivered to the other party. This
Agreement, once executed by a party, may be delivered to the other
party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
c. Headings. The headings of this Agreement are for
convenience of reference only and shall not form part of, or affect
the interpretation of, this Agreement.
d. Severability. In the event that any provision of
this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be
deemed modified to conform with such statute or rule of law. Any
provision hereof which may prove invalid or unenforceable under any
law shall not affect the validity or enforceability of any other
provision hereof.
e. Entire Agreement; Amendments. This Agreement and
the instruments referenced herein contain the entire understanding of
the parties with respect to the matters covered herein and therein
and, except as specifically set forth herein or therein, neither the
Company nor the Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in
writing signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be
given under the terms of this Agreement shall be sent by certified or
registered mail (return receipt requested) or delivered personally or
by courier (including a recognized overnight delivery service) or by
facsimile and shall be effective five days after being placed in the
mail, if mailed by regular United States mail, or upon receipt, if
delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile, in each case addressed to a party.
The addresses for such communications shall be:
If to the Company:
Calbatech, Inc.
00000 Xxxxxxxx Xxxxxxx
Xxxxx X-000
Xxxxxx, XX 00000
Attention: Chief Executive Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to:
Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to a Buyer: To the address set forth immediately below such
Buyer's name on the signature pages hereto.
With copy to:
Xxxxxxx Xxxxx Xxxxxxx & Xxxxxxxxx, LLP
0000 Xxxxxx Xxxxxx
00xx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each party shall provide notice to the other party of any change
in address.
g. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their
successors and assigns. Neither the Company nor any Buyer shall
assign this Agreement or any rights or obligations hereunder without
the prior written consent of the other. Notwithstanding the
foregoing, subject to Section 2(f), any Buyer may assign its rights
hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term
is defined under the 1934 Act, without the consent of the Company.
h. Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor
may any provision hereof be enforced by, any other person.
i. Survival. The representations and warranties of
the Company and the agreements and covenants set forth in Sections 3,
4, 5 and 8 shall survive the closing hereunder notwithstanding any
due diligence investigation conducted by or on behalf of the Buyers.
The Company agrees to indemnify and hold harmless each of the Buyers
and all their officers, directors, employees and agents for loss or
damage arising as a result of or related to any breach or alleged
breach by the Company of any of its representations, warranties and
covenants set forth in Sections 3 and 4 hereof or any of its
covenants and obligations under this Agreement or the Registration
Rights Agreement, including advancement of expenses as they are incurred.
j. Publicity. The Company and each of the Buyers
shall have the right to review a reasonable period of time before
issuance of any press releases, SEC, OTCBB or NASD filings, or any
other public statements with respect to the transactions contemplated
hereby; provided, however, that the Company shall be entitled,
without the prior approval of each of the Buyers, to make any press
release or SEC, OTCBB (or other applicable trading market) or NASD
filings with respect to such transactions as is required by
applicable law and regulations (although each of the Buyers shall be
consulted by the Company in connection with any such press release
prior to its release and shall be provided with a copy thereof and be
given an opportunity to comment thereon).
k. Further Assurances. Each party shall do and
perform, or cause to be done and performed, all such further acts and
things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish
the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. No Strict Construction. The language used in
this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict
construction will be applied against any party.
m. Remedies. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the
Buyers by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Agreement
will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement, that the
Buyers shall be entitled, in addition to all other available remedies
at law or in equity, and in addition to the penalties assessable
herein, to an injunction or injunctions restraining, preventing or
curing any breach of this Agreement and to enforce specifically the
terms and provisions hereof, without the necessity of showing
economic loss and without any bond or other security being required.
IN WITNESS WHEREOF, the undersigned Buyers and the Company have
caused this Agreement to be duly executed as of the date first above
written.
CALBATECH, INC.
________________________________
Xxxxx XxXxxxx
Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
______________________________________
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: Delaware
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $________
Number of Warrants: ________
Aggregate Purchase Price: $________
AJW OFFSHORE, LTD.
By: First Street Manager II, LLC
______________________________________
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: Cayman Islands
ADDRESS: AJW Offshore, Ltd.
X.X. Xxx 00000 XXX
Xxxxx Xxxxxx, Xxxxxx Xxxxxx, B.W.I.
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes:
$_______
Number of Warrants:
_______
Aggregate Purchase Price:
$_______
AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC
____________________________________
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: New York
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes:
$________
Number of Warrants:
________
Aggregate Purchase Price:
$________
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: First Street Manager II, LLP
____________________________________
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: New York
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes:
$______
Number of Warrants:
______
Aggregate Purchase Price:
$______
