SECURITIES PURCHASE AGREEMENT
EXECUTION
COPY
SECURITIES
PURCHASE AGREEMENT
(the
"Agreement"),
dated
as of January 5, 2006, by and among Phantom Fiber Corporation, a Delaware
corporation, with headquarters located at 000 Xxxxx Xxxxxx, Xxxxx 000, Xxxxxxx,
Xxxxxxx, Xxxxxx X0X 0X0 (the "Company"),
and
the investors listed on the Schedule of Buyers attached hereto (individually,
a
"Buyer"
and
collectively, the "Buyers").
WHEREAS:
A. The
Company and each Buyer is executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2)
of the
Securities Act of 1933, as amended (the "1933
Act"),
and
Rule 506 of Regulation D ("Regulation D")
as
promulgated by the United States Securities and Exchange Commission (the
"SEC")
under
the 1933 Act.
B. The
Company has authorized a new series of senior convertible notes of the Company,
which Notes shall be convertible into the Company's common stock, $0.001
par
value per share (the "Common
Stock"),
in
accordance with the terms of the Notes.
C. Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms
and
conditions stated in this Agreement, (i) that aggregate principal amount
of
Notes, in substantially the form attached hereto as Exhibit
A
(the
"Notes"),
set
forth opposite such Buyer's name in column (3) on the Schedule of Buyers
(which
aggregate amount for all Buyers shall be $3,500,000) (as converted,
collectively, the "Conversion
Shares")
and
(ii) Series A Warrants and Series B Warrants, in substantially the form attached
hereto as Exhibit
B
(collectively, the "Warrants"),
to
acquire that number of shares of Common Stock (as exercised, collectively,
the
"Warrant
Shares")
set
forth opposite such Buyer's name in column (4) on the Schedule of
Buyers.
D. The
Notes
bear interest, which, subject to certain conditions, may be paid in Common
Stock
("Interest
Shares").
E. Contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, substantially in
the
form attached hereto as Exhibit
C
(the
"Registration
Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration
rights
with respect to the Conversion Shares, Interest Shares and Warrant Shares
under
the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
F. The
Notes, the Conversion Shares, the Interest Shares, the Warrants and the Warrant
Shares, are collectively are referred to herein as the "Securities".
NOW,
THEREFORE,
the
Company and each Buyer hereby agree as follows:
1. PURCHASE
AND SALE OF NOTES AND WARRANTS.
(a) Amount.
Subject
to the satisfaction (or waiver) of the conditions set forth in Sections 6
and 7
below, the Company shall issue and sell to each Buyer, and each Buyer severally,
but not jointly, agrees to purchase from the Company on the Closing Date
(as
defined below), a principal amount of Notes, as is set forth opposite such
Buyer's name in column (3) on the Schedule of Buyers, along
with Warrants to acquire that number of Warrant Shares as is set forth opposite
such Buyer's name in column (4) on the Schedule of Buyers.
(b) Closing.
The
closing (the "Closing")
of the
purchase of the Notes and the Warrants by the Buyers shall occur at the offices
of Xxxxxxx Xxxx & Xxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000. The
date and time of the Closing (the "Closing
Date")
shall
be 10:00 a.m., New York City Time, on the date hereof, subject to notification
of satisfaction (or waiver) of the conditions to the Closing set forth in
Sections 6 and 7 below (or such later date as is mutually agreed to by the
Company and each Buyer).
(c) Purchase
Price.
The
purchase price for each Buyer (the "Purchase
Price")
of the
Notes and related Warrants to be purchased by each Buyer at the Closing shall
be
equal to $1.00 for each $1.00 of principal amount of Notes being purchased
by
such Buyer at the Closing. The aggregate Purchase Price to be paid by each
Buyer
at the Closing is as set forth opposite such Buyer's name in column (3) on
the
Schedule of Buyers.
(d) Form
of Payment.
On the
Closing Date, (A) each Buyer shall pay its aggregate Purchase Price to the
Company for the Notes and the Warrants to be issued and sold to such Buyer
at
the Closing, by wire transfer of immediately available funds in accordance
with
the Company's written wire instructions, and (B) the Company shall deliver
to each Buyer the Notes (in
such
principal amount
as
is set forth opposite such Buyer's name in column (3) on the Schedule
of
Buyers),
along with the Warrants (exercisable for the number of shares of Common Stock
as
is set forth opposite such Buyer's name in column (4) on the Schedule of
Buyers), each duly executed on behalf of the Company and registered in the
name
of such Buyer or its designee.
2. BUYER'S
REPRESENTATIONS AND WARRANTIES.
Each
Buyer represents and warrants with respect to only itself that:
(a) Organization;
Authority.
Such
Buyer is an entity duly organized, validly existing and in good standing
under
the laws of the jurisdiction of its organization with the requisite power
and
authority to enter into and to consummate the transactions contemplated by
the
Transaction Documents (as defined below) to which it is a party and otherwise
to
carry out its obligations hereunder and thereunder.
(b) No
Public Sale or Distribution.
Such
Buyer is (i) acquiring the Notes and the Warrants, (ii) upon conversion of
the
Notes will acquire the Conversion Shares, and (iii) upon exercise of the
Warrants will acquire the Warrant Shares, in each case, for its own account
and
not with a view towards, or for resale in connection with, the public sale
or
distribution thereof, except pursuant to sales registered or exempted under
the
1933 Act; provided, however, that by making the representations herein, such
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. Such Buyer is acquiring the Securities hereunder in the ordinary
course of its business. Such Buyer does not presently have any agreement
or
understanding, directly or indirectly, with any Person to distribute any
of the
Securities.
-2-
(c) Accredited
Investor Status.
Such
Buyer is an "accredited investor" as that term is defined in Rule 501(a)
of
Regulation D.
(d) Reliance
on Exemptions.
Such
Buyer understands that the Securities are being offered and sold to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying
in part
upon the truth and accuracy of, and such Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings
of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the
Securities.
(e) Information.
Such
Buyer and its advisors, if any, have been 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 such
Buyer.
Such Buyer and its advisors, if any, have been afforded the opportunity to
ask
questions of the Company. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely
on the
Company's representations and warranties contained herein. Such Buyer
understands that its investment in the Securities involves a high degree
of
risk. Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect
to its
acquisition of the Securities.
(f) No
Governmental Review.
Such
Buyer understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation
or
endorsement of the Securities or the fairness or suitability of the investment
in the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.
(g) Transfer
or Resale.
Such
Buyer understands that except as provided in the Registration Rights Agreement:
(i) the Securities have not been and are not being registered under the 1933
Act
or any state securities laws, and may not be offered for sale, sold, assigned
or
transferred unless (A) subsequently registered thereunder, (B) such Buyer
shall
have delivered to the Company an opinion of counsel, by counsel reasonably
acceptable to the Company and in form and substance reasonably satisfactory
to
the Company, to the effect that such Securities to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an exemption
from
such registration, or (C) such Buyer provides the Company with reasonable
assurance that such Securities can be sold, assigned or transferred pursuant
to
Rule 144 or Rule 144A promulgated under the 1933 Act, as amended, (or a
successor rule thereto) (collectively, "Rule
144");
(ii)
any sale of the Securities made in reliance on Rule 144 may be made only
in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the
seller
(or the Person (as defined in Section 3(s)) 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 the Securities under the 1933
Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder. The Securities may be pledged pursuant to an available
exemption from registration under the 1933 Act in connection with a bona
fide
margin account or other loan or financing arrangement secured by the Securities
and such pledge of Securities shall not be deemed to be a transfer, sale
or
assignment of the Securities hereunder, and no Buyer effecting a pledge of
Securities shall be required to provide the Company with any notice thereof
or
otherwise make any delivery to the Company pursuant to this Agreement or
any
other Transaction Document (as defined in Section 3(b)), including, without
limitation, this Section 2(g).
-3-
(h) Legends.
Such
Buyer understands that the certificates or other instruments representing
the
Notes and the Warrants and, until such time as the resale of the Conversion
Shares, the Warrant Shares and the Interest Shares, if any, have been registered
under the 1933 Act as contemplated by the Registration Rights Agreement,
the
stock certificates representing the Conversion Shares, the Warrant Shares
and
the Interest Shares, if any, except as set forth below, shall bear any legend
as
required by the "blue sky" laws of any state and a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE][EXERCISABLE]
HAVE
BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES
LAWS, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS
OR (II) UNLESS SOLD PURSUANT TO RULE 144(K) UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED PURSUANT TO AN AVAILABLE EXEMPTION FROM
REGISTRATION UNDER THE 1933 ACT IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.
The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which
it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection
with
a sale, assignment or other transfer, such holder provides the Company with
an
opinion of counsel, by counsel reasonably acceptable to the Company and in
form
and substance reasonably satisfactory to the Company, to the effect that
such
sale, assignment or transfer of the Securities may be made without registration
under the applicable requirements of the 1933 Act, or (iii) such holder provides
the Company with reasonable assurance that the Securities can be sold, assigned
or transferred pursuant to Rule 144(k).
-4-
(i) Validity;
Enforcement.
This
Agreement and the Registration Rights Agreement to which such Buyer is a
party
have been duly and validly authorized, executed and delivered on behalf of
such
Buyer and shall constitute the legal, valid and binding obligations of such
Buyer enforceable against such Buyer in accordance with their respective
terms,
except as such enforceability may be limited by general principles of equity
or
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement
of
applicable creditors' rights and remedies.
(j) No
Conflicts.
The
execution, delivery and performance by such Buyer of this Agreement and the
Registration Rights Agreement to which such Buyer is a party and the
consummation by such Buyer of the transactions contemplated hereby and thereby
will not (i) result in a violation of the organizational documents of such
Buyer
or (ii) conflict with, or constitute a default (or an event which with notice
or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which such Buyer is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including United States federal and state securities laws) applicable to
such
Buyer, except in the case of clauses (ii) and (iii) above, for such conflicts,
defaults, rights or violations which would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
ability of such Buyer to perform its obligations hereunder.
(k) Residency.
Such
Buyer is a resident of that jurisdiction specified below its address on the
Schedule of Buyers.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
The
Company represents and warrants to each of the Buyers that:
(a) Organization
and Qualification.
The
Company and its "Subsidiaries"
(which
for purposes of this Agreement means any entity in which the Company, directly
or indirectly, owns capital stock or holds an equity or similar interest)
are
entities duly organized and validly existing in good standing under the laws
of
the jurisdiction in which they are formed, and have the requisite power and
authorization to own their properties and to carry on their business as now
being conducted. Each of the Company and its Subsidiaries is duly qualified
as a
foreign entity to do business and is in good standing in every jurisdiction
in
which its ownership of property or the nature of the business conducted by
it
makes such qualification necessary, except to the extent that the failure
to be
so qualified or be in good standing would not have a Material Adverse Effect.
As
used in this Agreement, "Material
Adverse Effect"
means
any material adverse effect on the business, properties, assets, operations,
results of operations, condition (financial or otherwise) or prospects of
the
Company and its Subsidiaries, taken as a whole, or on the transactions
contemplated hereby and by the other Transaction Documents or by the agreements
and instruments to be entered into in connection herewith or therewith, or
on
the authority or ability of the Company to perform its obligations under
the
Transaction Documents (as defined below). The Company has no Subsidiaries,
except as set forth on Schedule
3(a).
-5-
(b)
Authorization; Enforcement; Validity.
The
Company has the requisite corporate power and authority to enter into and
perform its obligations under this Agreement, the Notes, the Warrants, the
Registration Rights Agreement, the Irrevocable Transfer Agent Instructions
(as
defined in Section 5(b)), and each of the other agreements entered into by
the
parties hereto in connection with the transactions contemplated by this
Agreement (collectively, the "Transaction
Documents")
and to
issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Notes, the reservation
for
issuance and the issuance of the Conversion Shares issuable
upon conversion of the Notes, the issuance of the Warrants and the reservation
for issuance and issuance of the Warrant Shares issuable upon exercise of
the
Warrants, have been duly authorized by the Company's Board of Directors and
(other than the filing with the SEC of one or more Registration Statements
in
accordance with the requirements of the Registration Rights Agreement and
any
other filings as may be required by any state securities agencies) no further
filing, consent, or authorization is required by the Company, its Board of
Directors or its stockholders. This Agreement and the other Transaction
Documents of even date herewith have been duly executed and delivered by
the
Company, and constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by general principles of equity
or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
or
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
(c) Issuance
of Securities.
The
issuance of the Notes and the Warrants are duly authorized and upon issuance
in
accordance with the terms of the Transaction Documents shall be free from
all
taxes, liens and charges with respect to the issue thereof. As of the Closing,
the Company shall have reserved from its duly authorized capital stock not
less
than the sum of (i) 125% of the maximum number of shares of Common Stock
issuable upon conversion of the Notes (assuming for purposes hereof, that
the
Notes are convertible at the Conversion Price and without taking into account
any limitations on the conversion of the Notes set forth in the Notes) and
(ii)
125% of the maximum number of shares of Common Stock issuable upon exercise
of
the Warrants (without taking into account any limitations on the exercise
of the
Warrants set forth in the Warrants). Upon issuance or conversion in accordance
with the Notes or exercise in accordance with the Warrants, as the case may
be,
the Interest Shares, the Conversion Shares and the Warrant Shares, respectively,
will be validly issued, fully paid and nonassessable and free from all
preemptive or similar rights, taxes, liens and charges with respect to the
issue
thereof, with the holders being entitled to all rights accorded to a holder
of
Common Stock. The offer and issuance by the Company of the Securities is
exempt
from registration under the 1933 Act and all Canadian securities laws are
inapplicable to such offer and issuance.
(d) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby
and
thereby (including, without limitation, the issuance of the Notes, the Warrants,
and reservation for issuance of the Conversion Shares and the Warrant Shares
and
Interest Shares, if any) will not (i) result in a violation of the Certificate
of Incorporation (as defined in Section 3(r)) of the Company or any of its
Subsidiaries, any capital stock of the Company or Bylaws (as defined in Section
3(r)) of the Company or any of its Subsidiaries or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or 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, except
to
the extent such conflict, default or termination right would not reasonably
be
expected to have a Material Adverse Effect, or (iii) result in a violation
of
any law, rule, regulation, order, judgment or decree (including United States
federal and state securities laws or Canadian securities laws and regulations
and the rules and regulations of the OTC Bulletin Board (the "Principal
Market")
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
to
the extent such violation would not reasonably be expected to have a Material
Adverse Effect.
-6-
(e) Consents.
The
Company is not required to obtain any consent, authorization or order of,
or
make any filing or registration with, any court, governmental agency or any
regulatory or self-regulatory agency or any other Person in order for it
to
execute, deliver or perform any of its obligations under or contemplated
by the
Transaction Documents, in each case in accordance with the terms hereof or
thereof. 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 Closing Date, and the Company and
its
Subsidiaries are unaware of any facts or circumstances which might prevent
the
Company from obtaining or effecting any of the registration, application
or
filings pursuant to the preceding sentence. The Company is not in violation
of
the listing requirements of the Principal Market and has no knowledge of
any
facts which would reasonably lead to delisting or suspension of the Common
Stock
in the foreseeable future.
(f) Acknowledgment
Regarding Buyer's Purchase of Securities.
The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an
officer
or director of the Company, (ii) an "affiliate" of the Company (as defined
in
Rule 144) or (iii) to the knowledge of the Company, a "beneficial owner"
of more
than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3
of
the Securities Exchange Act of 1934, as amended (the "1934
Act")).
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 the
Transaction Documents and the transactions contemplated hereby and thereby,
and
any advice given by a Buyer or any of its representatives or agents in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to such Buyer's purchase of the
Securities. The Company further represents to each Buyer that the Company's
decision to enter into the Transaction Documents has been based solely on
the
independent evaluation by the Company and its representatives.
(g) No
General Solicitation; Placement Agent's Fees.
Neither
the Company, nor any of its affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale
of the
Securities. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or brokers' commissions (other than
for
persons engaged by any Buyer or its investment advisor) relating to or arising
out of the transactions contemplated hereby. The Company shall pay, and hold
each Buyer harmless against, any liability, loss or expense (including, without
limitation, attorney's fees and out-of-pocket expenses) arising in connection
with any such claim. The Company acknowledges that it has engaged Oberon
Securities as placement agent (the "Agent")
in
connection with the sale of the Securities. Other than the Agent, the Company
has not engaged any placement agent or other agent in connection with the
sale
of the Securities.
-7-
(h) No
Integrated Offering.
None of
the Company, its Subsidiaries, any of their affiliates, and any Person acting
on
their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances
that
would require registration of any of the Securities under the 1933 Act or
cause
this offering of the Securities to be integrated with prior offerings by
the
Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations
of
any exchange or automated quotation system on which any of the securities
of the
Company are listed or designated. None of the Company, its Subsidiaries,
their
affiliates and any Person acting on their behalf will take any action or
steps
referred to in the preceding sentence that would require registration of
any of
the Securities under the 1933 Act or cause the offering of the Securities
to be
integrated with other offerings.
(i) Dilutive
Effect.
The
Company understands and acknowledges that the number of Conversion Shares
issuable upon conversion of the Notes, and, the Warrant Shares issuable upon
exercise of the Warrants, will increase in certain circumstances. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Notes in accordance with this Agreement and the Notes and
its
obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrants is, in each case, absolute
and
unconditional regardless of the dilutive effect that such issuance may have
on
the ownership interests of other stockholders of the Company.
(j) Application
of Takeover Protections; Rights Agreement.
The
Company and its Board of Directors have taken all necessary action, if any,
in
order to render inapplicable any poison pill (including any distribution
under a
rights agreement) or other similar anti-takeover provision which is or could
become applicable to any Buyer as a result of the transactions contemplated
by
this Agreement, including, without limitation, the Company's issuance of
the
Securities and any Buyer's ownership of the Securities. The Company has not
adopted a stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control
of
the Company.
(k) SEC
Documents; Financial Statements.
During
the two (2) years prior to the date hereof, the Company has 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 1934 Act and Canadian
securities laws (all of the foregoing filed prior to the date hereof and
all
exhibits included therein and financial statements, notes and schedules thereto
and documents incorporated by reference therein being hereinafter referred
to as
the "SEC
Documents").
The
Company has delivered to the Buyers or their respective representatives true,
correct and complete copies of each of the SEC Documents not available on
the
XXXXX system that have been requested by each Buyer. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the 1934 Act and Canadian securities laws 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 the
light of the circumstances under which they were made, not misleading. 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 as in effect as of the time of filing. Such financial statements
have been prepared in accordance with 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 exclude
footnotes or may be condensed or summary statements) and fairly present in
all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
-8-
(l) Absence
of Certain Changes.
Except
as disclosed in Section 3(l), since the date of the Company's most recent
audited financial statements contained in a Form 10-KSB, there has been no
material adverse change and no material adverse development in the business,
assets, properties, operations, condition (financial or otherwise), results
of
operations or prospects of the Company. Except as disclosed in Schedule
3(l),
since
the date of the Company's most recent audited financials statements contained
in
a Form 10-KSB, the Company has not (i) declared or paid any dividends, (ii)
sold
any assets, individually or in the aggregate, in excess of $50,000 outside
of
the ordinary course of business or (iii) had capital expenditures, individually
or in the aggregate, in excess of $50,000. The Company has not taken any
steps
to seek protection pursuant to any bankruptcy law nor does the Company have
any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so.
(m) No
Undisclosed Events, Liabilities, Developments or Circumstances.
No
event, liability, development or circumstance has occurred or exists, or
is
contemplated to occur with respect to the Company, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced.
(n) Conduct
of Business; Regulatory Permits.
Neither
the Company nor its Subsidiaries is in violation of any term of or in default
under its Certificate of Incorporation or Bylaws or their organizational
charter
or certificate of incorporation or bylaws, respectively. Neither the Company
nor
any of its Subsidiaries is in violation of any judgment, decree or order
or any
statute, ordinance, rule or regulation applicable to the Company or its
Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except in all cases for
possible violations which would not, individually or in the aggregate, have
a
Material Adverse Effect. Without limiting the generality of the foregoing,
the
Company is not in violation of any of the rules, regulations or requirements
of
the Principal Market and has no knowledge of any facts or circumstances that
would reasonably lead to delisting or suspension of the Common Stock by the
Principal Market in the foreseeable future. During the two (2) years prior
to
the date hereof, (i) the Common Stock has been designated for quotation on
the
Principal Market, (ii) trading in the Common Stock has not been suspended
by the
SEC or the Principal Market and (iii) the Company has received no communication,
written or oral, from the SEC or the Principal Market regarding the suspension
or delisting of the Common Stock from the Principal Market. The Company and
its
Subsidiaries possess all certificates, authorizations and permits issued
by the
appropriate regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the aggregate,
a
Material Adverse Effect, and neither the Company nor any such Subsidiary
has
received any notice of proceedings relating to the revocation or modification
of
any such certificate, authorization or permit.
-9-
(o) 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 of its
Subsidiaries has, in the course of its actions for, or on behalf of, the
Company
(i) used any corporate funds for any unlawful contribution, gift, entertainment
or other unlawful expenses relating to political activity; (ii) made any
direct
or indirect unlawful payment to any foreign or domestic government official
or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended;
or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or
employee.
(p) Xxxxxxxx-Xxxxx
Act.
The
Company is in compliance with any and all applicable requirements of the
Xxxxxxxx-Xxxxx Act of 2002 that are effective as of the date hereof, and
any and
all applicable rules and regulations promulgated by the SEC thereunder that
are
effective as of the date hereof, except where such noncompliance would not
have,
individually or in the aggregate, a Material Adverse Effect.
(q) Transactions
With Affiliates.
Except
as set forth in the SEC Documents filed at least ten days prior to the date
hereof and other than the grant of stock options disclosed on Schedule
3(q),
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 ordinary
course services as employees, officers or 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 such officer, director or employee or,
to the
knowledge of the Company, any corporation, partnership, trust or other entity
in
which any such officer, director, or employee has a substantial interest
or is
an officer, director, trustee or partner.
(r) Equity
Capitalization.
As of
the date hereof, the authorized capital stock of the Company consists of
400,000,000 shares of Common Stock, of which as of the date hereof, 14,147,421
are issued and outstanding, 2,000,000 shares are reserved for issuance pursuant
to the Company's stock option and purchase plans and 1,481,538 shares are
reserved for issuance pursuant to securities (other than the Notes and the
Warrants) exercisable or exchangeable for, or convertible into, shares of
Common
Stock and (ii) 2,000 shares of preferred stock, par value $100 per share,
of
which as of the date hereof, none are issued or outstanding. All of such
outstanding shares have been, or upon issuance will be, validly issued and
are
fully paid and nonassessable. Except as disclosed in Schedule
3(r):
(i)
none of the Company's share capital is subject to preemptive rights or any
other
similar rights or any liens or encumbrances suffered or permitted by the
Company; (ii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or
securities or rights convertible into, or exercisable or exchangeable for,
any
share capital of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of
its
Subsidiaries is or may become bound to issue additional share capital of
the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or
securities or rights convertible into, or exercisable or exchangeable for,
any
share capital of the Company or any of its Subsidiaries; (iii) there are
no
outstanding debt securities, notes, credit agreements, credit facilities
or
other agreements, documents or instruments evidencing Indebtedness of the
Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements
securing obligations in any material amounts, either singly or in the aggregate,
filed in connection with the Company or any of its Subsidiaries; (v) there
are
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933
Act
(except the Registration Rights Agreement); (vi) there are no outstanding
securities or instruments of the Company or any of its Subsidiaries which
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of
its
Subsidiaries is or may become bound to redeem a security of the Company or
any
of its Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance
of
the Securities; (viii) the Company does not have any stock appreciation rights
or "phantom stock" plans or agreements or any similar plan or agreement;
and
(ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the
SEC
Documents, other than those incurred in the ordinary course of the Company's
or
its Subsidiaries' respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect. The Company
has
furnished to the Buyer true, correct and complete copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate
of Incorporation"),
and
the Company's Bylaws, as amended and as in effect on the date hereof (the
"Bylaws"),
and
the terms of all securities convertible into, or exercisable or exchangeable
for, shares of Common Stock and the material rights of the holders thereof
in
respect thereto.
-10-
(s) Indebtedness
and Other Contracts.
Neither
the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness
(as
defined below), (ii) is in violation of any term of or in default under any
contract, agreement or instrument relating to any Indebtedness, except where
such violations and defaults would not result, individually or in the aggregate,
in a Material Adverse Effect, or (iii) is a party to any contract, agreement
or
instrument relating to any Indebtedness, the performance of which, in the
judgment of the Company's officers, has or is expected to have a Material
Adverse Effect. Schedule
3(s)
provides
a detailed description of the material terms of any such outstanding
Indebtedness. For purposes of this Agreement: (x) "Indebtedness"
of any
Person means, without duplication (A) all indebtedness for borrowed money,
(B)
all obligations issued, undertaken or assumed as the deferred purchase price
of
property or services (including, without limitation, "capital leases" in
accordance with generally accepted accounting principals) (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and
other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect
to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement
in the
event of default are limited to repossession or sale of such property), (F)
all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or
for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person
which
owns such assets or property has not assumed or become liable for the payment
of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through
(G)
above; (y) "Contingent
Obligation"
means,
as to any Person, any direct or indirect liability, contingent or otherwise,
of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against
loss
with respect thereto; and (z) "Person"
means
an individual, a limited liability company, a partnership, a joint venture,
a
corporation, a trust, an unincorporated organization and a government or
any
department or agency thereof.
-11-
(t) Absence
of Litigation.
There
is no action, suit, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company, the Common Stock or any of the Company's
Subsidiaries or any of the Company's or its Subsidiaries' officers or directors,
that could, individually or in the aggregate, reasonably be expected to result
in 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 been refused any insurance coverage sought or applied
for and 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.
(v) Employee
Relations.
(i)
Neither
Company nor any of its Subsidiaries is a party to any collective bargaining
agreement or employs any member of a union. The Company and its Subsidiaries
believe that their relations with their employees are good. No executive
officer
of the Company or any of its Subsidiaries (as defined in Rule 501(f) of the
0000
Xxx) has notified the Company or any such Subsidiary that such officer intends
to leave the Company or any such Subsidiary or otherwise terminate such
officer's employment with the Company or any such Subsidiary. No executive
officer of the Company or any of its Subsidiaries, to the knowledge of the
Company or any such Subsidiary, is, or is now expected to be, in violation
of
any material term of any employment contract, confidentiality, disclosure
or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company or any such
Subsidiary to any liability with respect to any of the foregoing
matters.
-12-
(ii) The
Company and its Subsidiaries are in compliance with all Canadian, United
States
federal, state, provincial, local and foreign laws and regulations respecting
labor, employment and employment practices and benefits, terms and conditions
of
employment and wages and hours, except where failure to be in compliance
would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.
(w) Title.
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
do not materially affect the value of such property and do not interfere
with
the use made and proposed to be made of such property by the Company and
any of
its Subsidiaries. Any real property and facilities held under lease by the
Company and any of its Subsidiaries are held by them under valid, subsisting
and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings
by the
Company and its Subsidiaries.
(x) Intellectual
Property Rights.
The
Company and its Subsidiaries own or possess adequate rights or licenses to
use
all trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property
rights ("Intellectual
Property Rights")
necessary to conduct their respective businesses as now conducted except
where
the failure to so own or possess would not reasonably be expected to result
in a
Material Adverse Effect. None of the Company's Intellectual Property Rights
have
expired or terminated, or are expected to expire or terminate, within three
years from the date of this Agreement. The Company does not have any knowledge
of any infringement by the Company or its Subsidiaries of Intellectual Property
Rights of others. There is no claim, action or proceeding being made or brought,
or to the knowledge of the Company, being threatened, against the Company
or its
Subsidiaries regarding its Intellectual Property Rights. The Company is unaware
of any facts or circumstances which might give rise to any of the foregoing
infringements or claims, actions or proceedings. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.
(y) Environmental
Laws.
The
Company and its Subsidiaries (i) are in compliance with any and all
Environmental Laws (as hereinafter defined), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws
to conduct their respective businesses and (iii) are in compliance with all
terms and conditions of any such permit, license or approval where, in each
of
the foregoing clauses (i), (ii) and (iii), the failure to so comply could
be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. The term "Environmental
Laws"
means
all Canadian, United States federal, state, provincial, 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.
-13-
(z) Subsidiary
Rights.
The
Company or one of its Subsidiaries has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by
the
Company or such Subsidiary.
(aa) Investment
Company.
The
Company is not, and is not an affiliate of, an "investment company" within
the
meaning of the Investment Company Act of 1940, as amended.
(bb) Tax
Status.
The
Company and each of its Subsidiaries (i) has made or filed all foreign,
Canadian, United States federal, state and provincial income and all other
tax
returns, reports and declarations required by any jurisdiction to which it
is
subject, (ii) 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
(iii)
has set aside on its books provision 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.
(cc) Internal
Accounting and Disclosure Controls.
The
Company maintains a system of internal accounting controls sufficient to
provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity
with
generally accepted accounting principles and to maintain asset and liability
accountability, (iii) access to assets or incurrence of liabilities is permitted
only in accordance with management's general or specific authorization and
(iv)
the recorded accountability for assets and liabilities is compared with the
existing assets and liabilities at reasonable intervals and appropriate action
is taken with respect to any difference. The Company maintains disclosure
controls and procedures (as such term is defined in Rule 13a-14 under the
0000
Xxx) that are designed to ensure that information required to be disclosed
by
the Company in the reports that it files or submits under the 1934 Act is
recorded, processed, summarized and reported, within the time periods specified
in the rules and forms of the SEC, including, without limitation, controls
and
procedures designed in to ensure that information required to be disclosed
by
the Company in the reports that it files or submits under the 1934 Act is
accumulated and communicated to the Company's management, including its
principal executive officer or officers and its principal financial officer
or
officers, as appropriate, to allow timely decisions regarding required
disclosure. During the twelve months prior to the date hereof neither the
Company nor any of its Subsidiaries have received any notice or correspondence
from any accountant relating to any potential material weakness in any part
of
the system of internal accounting controls of the Company or any of its
Subsidiaries.
-14-
(dd) Off
Balance Sheet Arrangements.
There
is no transaction, arrangement, or other relationship between the Company
and an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its Exchange Act filings and is not so disclosed
or
that otherwise would be reasonably likely to have a Material Adverse
Effect.
(ee) Ranking
of Notes.
No
Indebtedness of the Company is senior to or ranks pari
passu
with the
Notes in right of payment, whether with respect of payment of redemptions,
interest, damages or upon liquidation or dissolution or otherwise.
(ff) Registration
Eligibility.
The
Company is eligible to register the Conversion Shares, the Warrant Shares
and
the Interest Shares for resale by the Buyers using Form SB-2 promulgated
under
the 1933 Act.
(gg) Manipulation
of Price.
The
Company has not, and to its knowledge no one acting on its behalf has, (i)
taken, directly or indirectly, any action designed to cause or to result
in the
stabilization or manipulation of the price of any security of the Company
to
facilitate the sale or resale of any of the Securities, (ii) other than the
Agent, sold, bid for, purchased, or paid any compensation for soliciting
purchases of, any of the Securities, or (iii) other than the Agent, paid
or
agreed to pay to any person any compensation for soliciting another to purchase
any other securities of the Company.
(hh) Disclosure.
The
Company confirms that neither it nor any other Person acting on its behalf
has
provided any of the Buyers or their agents or counsel with any information
that
constitutes or could reasonably be expected to constitute material, nonpublic
information other than as set forth in the following sentence. The Company
understands and confirms that each of the Buyers will rely on the foregoing
representations in effecting transactions in securities of the Company. All
disclosure provided to the Buyers regarding the Company, its business and
the
transactions contemplated hereby, including the Schedules to this Agreement,
furnished by or on behalf of the Company is true and correct and does not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light
of the
circumstances under which they were made, not misleading. Each press release
issued by the Company during the twelve (12) months preceding the date of
this
Agreement did not at the time of release contain any untrue statement of
a
material fact or omit to state a material fact required to be stated therein
or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. No event or
circumstance has occurred or information 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.
-15-
4. COVENANTS.
(a) Best
Efforts.
Each
party shall use its best efforts timely to satisfy each of the conditions
to be
satisfied by it as provided in Sections 6 and 7 of this Agreement.
(b) Form
D
and Blue Sky.
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 in order to obtain an
exemption for or to qualify the Securities for sale to the Buyers at the
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 the Buyers on or
prior
to the Closing Date. The Company shall make all filings and reports relating
to
the offer and sale of the Securities required under applicable securities
or
"Blue Sky" laws of the states of the United States following the Closing
Date.
(c) Reporting
Status.
Until
the date on which the Investors (as defined in the Registration Rights
Agreement) shall have sold all the Conversion Shares, Warrant Shares and
Interest Shares, if any, and none of the Notes or Warrants
is outstanding (the "Reporting
Period"),
the
Company shall file all reports required to be filed pursuant to Canadian
securities laws and 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 otherwise
permit such termination.
(d) Use
of
Proceeds.
The
Company will use the proceeds from the sale of the Securities for general
working capital, and not for (A) repayment of any outstanding Indebtedness
of
the Company or any of its Subsidiaries or (B) redemption or repurchase of
any of
its or its Subsidiaries equity securities.
(e) Financial
Information.
The
Company agrees to send the following to each Investor (as defined in the
Registration Rights Agreement) during the Reporting Period (i) unless the
following are filed with the SEC through XXXXX and are available to the public
through the XXXXX system, within one (1) Business Day after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-K or 10-KSB, any interim
reports or any consolidated balance sheets, income statements, stockholders'
equity statements and/or cash flow statements for any period other than annual,
any Current Reports on Form 8-K and any registration statements (other than
on
Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same
day as
the release thereof, facsimile or e-mailed copies of all press releases issued
by the Company or any of its Subsidiaries, and (iii) copies of any notices
and
other information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof
to the
stockholders.
(f) Listing.
The
Company shall promptly secure the listing of all of the Registrable Securities
(as defined in the Registration Rights Agreement) upon each national securities
exchange and automated quotation system, if any, upon which the Common
Stock is
then listed (subject to official notice of issuance) and shall maintain
such
listing of all Registrable Securities from time to time issuable under
the terms
of the Transaction Documents. The Company shall maintain the Common Stocks'
authorization for quotation on the Principal Market. Neither the Company
nor any
of its Subsidiaries shall take any action which would be reasonably expected
to
result in the delisting or suspension of the Common Stock on the Principal
Market. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(f).
-16-
(g) Fees.
The
Company shall reimburse Magnetar Capital Master Fund, Ltd. (a Buyer) or its
designee(s) (in addition to any other expense amounts paid to any Buyer prior
to
the date of this Agreement) for all reasonable costs and expenses incurred
in
connection with the transactions contemplated by the Transaction Documents
(including all reasonable legal fees and disbursements in connection therewith,
documentation and implementation of the transactions contemplated by the
Transaction Documents and due diligence in connection therewith), which amount
shall be limited to $35,000 and shall be withheld by such Buyer from its
Purchase Price at the Closing. The Company shall be responsible for the payment
of any placement agent's fees, financial advisory fees, or broker's commissions
(other than for Persons engaged by any Buyer) relating to or arising out
of the
transactions contemplated hereby, including, without limitation, any fees
payable to the Agent. The Company shall pay, and hold each Buyer harmless
against, any liability, loss or expense (including, without limitation,
reasonable attorney's fees and out-of-pocket expenses) arising in connection
with any claim relating to any such payment.
(h) Pledge
of Securities.
The
Company acknowledges and agrees that the Securities may be pledged pursuant
to
an available exemption from registration under the 1933 Act by an Investor
(as
defined in the Registration Rights Agreement) in connection with a bona fide
margin agreement or other loan or financing arrangement that is secured by
the
Securities. The pledge of Securities shall not be deemed to be a transfer,
sale
or assignment of the Securities hereunder, and no Investor effecting a pledge
of
Securities shall be required to provide the Company with any notice thereof
or
otherwise make any delivery to the Company pursuant to this Agreement or
any
other Transaction Document, including, without limitation, Section 2(g) hereof;
provided that an Investor and its pledgee shall be required to comply with
the
provisions of Section 2(g) hereof in order to effect a sale, transfer or
assignment of Securities to such pledgee. The Company hereby agrees to execute
and deliver such documentation as a pledgee of the Securities may reasonably
request in connection with a pledge of the Securities to such pledgee by
an
Investor.
(i) Disclosure
of Transactions and Other Material Information.
On or
before 8:30 a.m., New York Time, on the
first
Business Day following the date of this Agreement, the Company shall file
a
Current Report on Form 8-K describing the terms of the transactions contemplated
by the Transaction Documents in the form required by the 1934 Act and attaching
the material Transaction Documents (including, without limitation, this
Agreement (and all schedules to this Agreement), the form of Notes, the form
of
Warrant and the Registration Rights Agreement) (including all attachments,
the
"8-K
Filing").
From
and after the filing of the 8-K Filing with the SEC, the Company shall have
disclosed any material nonpublic information delivered to the Buyers by the
Company or any of its Subsidiaries, or any of their respective officers,
directors, employees or agents. The Company shall not, and shall cause each
of
its Subsidiaries and its and each of their respective officers, directors,
employees and agents, not to, provide any Buyer with any material, nonpublic
information regarding the Company or any of its Subsidiaries from and after
the
filing of the 8-K Filing with the SEC without the express written consent
of
such Buyer. In the event of a breach of the foregoing covenant by the Company,
or any of its Subsidiaries, or any of its or their respective officers,
directors, employees and agents, in addition to any other remedy provided
herein
or in the Transaction Documents, a Buyer shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material, nonpublic information without the prior approval by the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees or agents. No Buyer shall have any liability to the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees, stockholders or agents, for any such disclosure. Subject
to the foregoing, neither the Company, its Subsidiaries nor any Buyer shall
issue any press releases 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 any Buyer, to
make
any press release or other public disclosure with respect to such transactions
(i) in substantial conformity with the 8-K Filings and contemporaneously
therewith and (ii) as is required by applicable law and regulations (provided
that in the case of clause (i) each Buyer shall be consulted by the Company
in
connection with any such press release or other public disclosure prior to
its
release). Without the prior written consent of any applicable Buyer, the
Company
shall not disclose the name of any Buyer in any filing, announcement, release
or
otherwise.
-17-
(j) Restriction
on Redemption and Cash Dividends.
So long
as any Notes are outstanding, the Company shall not, directly or indirectly,
redeem, or declare or pay any cash dividend or distribution on, the Common
Stock
without the prior express written consent of the holders of Notes representing
not less than a majority of the aggregate principal amount of the then
outstanding Notes.
(k) Additional
Notes; Variable Securities; Dilutive Issuances.
So long
as any Buyer beneficially owns any Securities, the Company will not, without
the
prior written consent of Buyers holding a majority of the principal amount
of
the Notes, issue any Notes (other than to the Buyers as contemplated hereby)
and
the Company shall not issue any other securities that would cause a breach
or
default under the Notes. For so long as any Notes or Warrants remain
outstanding, the Company shall not, in any manner, issue or sell any rights,
warrants or options to subscribe for or purchase Common Stock or directly
or
indirectly convertible into or exchangeable or exercisable for Common Stock
at a
conversion, exchange or exercise price which varies or may vary after issuance
with the market price of the Common Stock, including by way of one or more
reset(s) to any fixed price unless the conversion, exchange or exercise price
of
any such security cannot be less than the then applicable Conversion Price
(as
defined in the Notes) with respect to the Common Stock into which any Note
is
convertible or the then applicable Exercise Price (as defined in the Warrants)
with respect to the Common Stock into which any Warrant is exercisable. For
purposes of clarification, this does not prohibit the issuance of securities
with customary "weighted average" or "full ratchet" anti-dilution adjustments
which adjust a fixed conversion or exercise price of securities sold by the
Company in the future. For so long as any Notes or Warrants remain outstanding,
the Company shall not, in any manner, enter into or affect any Dilutive Issuance
(as defined in the Notes) if the effect of such Dilutive Issuance is to cause
the Company to be required to issue upon conversion of any Note or exercise
of
any Warrant any shares of Common Stock in excess of that number of shares
of
Common Stock which the Company may issue upon conversion of the Notes and
exercise of the Warrants without breaching the Company's obligations under
the
rules or regulations of the Principal Market.
-18-
(l) Corporate
Existence.
So long
as any Buyer beneficially owns any Securities, the Company shall not be party
to
any Fundamental Transaction (as defined in the Notes) unless the Company
is in
compliance with the applicable provisions governing Fundamental Transactions
set
forth in the Notes and the Warrants.
(m) Conduct
of Business.
The
business of the Company and its Subsidiaries shall not be conducted in violation
of any law, ordinance or regulation of any governmental entity, except where
such violations would not result, either individually or in the aggregate,
in a
Material Adverse Effect.
(n) Additional
Issuances of Securities.
(i) For
purposes of this Section 4(n), the following definitions shall
apply.
(1) "Convertible
Securities"
means
any stock or securities (other than Options) convertible into or exercisable
or
exchangeable for shares of Common
Stock.
(2) "Options"
means
any rights, warrants or options to subscribe for or purchase shares of
Common
Stock or
Convertible Securities.
(3) "Common
Stock Equivalents"
means,
collectively, Options and Convertible Securities.
(ii) From
the
date hereof until two hundred seventy (270) days after the Effective Date
(as
defined in the Registration Rights Agreement) the Company will not, directly
or
indirectly, file any registration statement with the SEC other than the
Registration Statement (as defined in the Registration Rights Agreement)
or a
registration statement on Form S-8 pursuant to the 1933 Act. From the date
hereof until the Effective Date, the Company will not, directly or indirectly,
offer, sell, grant any option to purchase, or otherwise dispose of (or announce
any offer, sale, grant or any option to purchase or other disposition of)
any of
its or its Subsidiaries' equity or equity equivalent securities, including
without limitation any debt, preferred stock or other instrument or security
that is, at any time during its life and under any circumstances, convertible
into or exchangeable or exercisable for shares of Common Stock or Common
Stock
Equivalents (any such offer, sale, grant, disposition or announcement being
referred to as a "Subsequent
Placement").
(iii) From
the
Closing Date until the date twelve months after the Effective Date, the Company
will not, directly or indirectly, effect any Subsequent Placement unless
the
Company shall have first complied with this Section 4(n)(iii).
-19-
(1) The
Company shall deliver to each Buyer a written notice (the "Offer
Notice")
of any
proposed or intended issuance or sale or exchange (the "Offer")
of the
securities being offered (the "Offered
Securities")
in a
Subsequent Placement, which Offer Notice shall (w) identify and describe
the
Offered Securities, (x) describe the price and other terms upon which they
are to be issued, sold or exchanged, and the number or amount of the Offered
Securities to be issued, sold or exchanged, and (y) identify the persons
or
entities (if known) to which or with which the Offered Securities are to
be
offered, issued, sold or exchanged and (z) offer to issue and sell to or
exchange with such Buyers at least 80% of the Offered Securities, allocated
among such Buyers (a) based on such Buyer's pro rata portion of the aggregate
principal amount of Notes purchased hereunder (the "Basic
Amount"),
and
(b) with respect to each Buyer that elects to purchase its Basic Amount,
any
additional portion of the Offered Securities attributable to the Basic Amounts
of other Buyers as such Buyer shall indicate it will purchase or acquire
should
the other Buyers subscribe for less than their Basic Amounts (the "Undersubscription
Amount").
(2) To
accept
an Offer, in whole or in part, such Buyer must deliver a written notice to
the
Company prior to the end of the tenth (10th)
Business Day after such Buyer's receipt of the Offer Notice (the "Offer
Period"),
setting forth the portion of such Buyer's Basic Amount that such Buyer elects
to
purchase and, if such Buyer shall elect to purchase all of its Basic Amount,
the
Undersubscription Amount, if any, that such Buyer elects to purchase (in
either
case, the "Notice
of Acceptance").
If
the Basic Amounts subscribed for by all Buyers are less than the total of
all of
the Basic Amounts, then each Buyer who has set forth an Undersubscription
Amount
in its Notice of Acceptance shall be entitled to purchase, in addition to
the
Basic Amounts subscribed for, the Undersubscription Amount it has subscribed
for; provided,
however,
that if
the Undersubscription Amounts subscribed for exceed the difference between
the
total of all the Basic Amounts and the Basic Amounts subscribed for (the
"Available
Undersubscription Amount"),
each
Buyer who has subscribed for any Undersubscription Amount shall be entitled
to
purchase only that portion of the Available Undersubscription Amount as the
Basic Amount of such Buyer bears to the total Basic Amounts of all Buyers
that
have subscribed for Undersubscription Amounts, subject to rounding by the
Company to the extent its deems reasonably necessary.
(3) The
Company shall have five (5) Business Days from the expiration of the Offer
Period above to offer, issue, sell or exchange all or any part of such Offered
Securities as to which a Notice of Acceptance has not been given by the Buyers
(the "Refused
Securities"),
but
only to the offerees described in the Offer Notice (if so described therein)
and
only upon terms and conditions (including, without limitation, unit prices
and
interest rates) that are not more favorable to the acquiring person or persons
or less favorable to the Company than those set forth in the Offer
Notice.
(4) In
the
event the Company shall propose to sell less than all the Refused Securities
(any such sale to be in the manner and on the terms specified in Section
4(n)(iii)(3) above), then each Buyer may, at its sole option and in its sole
discretion, reduce the number or amount of the Offered Securities specified
in
its Notice of Acceptance to an amount that shall be not less than the number
or
amount of the Offered Securities that such Buyer elected to purchase pursuant
to
Section 4(n)(iii)(2) above multiplied by a fraction, (i) the numerator of
which
shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued
or sold to Buyers pursuant to Section 4(n)(iii)(3) above prior to such
reduction) and (ii) the denominator of which shall be the original amount
of the
Offered Securities. In the event that any Buyer so elects to reduce the number
or amount of Offered Securities specified in its Notice of Acceptance, the
Company may not issue, sell or exchange more than the reduced number or amount
of the Offered Securities unless and until such securities have again been
offered to the Buyers in accordance with Section 4(n)(iii)(1)
above.
-20-
(5) Upon
the
closing of the issuance, sale or exchange of all or less than all of the
Refused
Securities, the Buyers shall acquire from the Company, and the Company shall
issue to the Buyers, the number or amount of Offered Securities specified
in the
Notices of Acceptance, as reduced pursuant to Section 4(n)(iii)(3) above
if the
Buyers have so elected, upon the terms and conditions specified in the Offer.
The purchase by the Buyers of any Offered Securities is subject in all cases
to
the preparation, execution and delivery by the Company and the Buyers of
a
purchase agreement relating to such Offered Securities reasonably satisfactory
in form and substance to the Buyers and their respective counsel.
(6) Any
Offered Securities not acquired by the Buyers or other persons in accordance
with Section 4(n)(iii)(3) above may not be issued, sold or exchanged until
they
are again offered to the Buyers under the procedures specified in this
Agreement.
(iv) The
restrictions contained in subsections (ii) and (iii) of this Section 4(n)
shall
not apply in connection with the issuance of any Excluded Securities (as
defined
in the Notes) or any security issued in a bona fide underwritten public offering
by the Company or any of its Subsidiaries.
5. REGISTER;
TRANSFER AGENT INSTRUCTIONS.
(a) Register.
The
Company shall maintain at its principal executive offices (or such other
office
or agency of the Company as it may designate by notice to each holder of
Securities), a register for the Notes and the Warrants in which the Company
shall record the name and address of the Person in whose name the Notes
and the
Warrants have been issued (including the name and address of each transferee),
the principal amount of Notes held by such Person, the number of Conversion
Shares issuable upon conversion of the Notes and Warrant Shares issuable
upon
exercise of the Warrants held by such Person. The Company shall keep the
register open and available at all times during business hours for inspection
of
any Buyer or its legal representatives.
-21-
(b) Transfer
Agent Instructions.
The
Company shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates or credit shares to the
applicable balance accounts at The Depository Trust Company ("DTC"),
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares, the Interest Shares, if any, and the 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 the form of Exhibit
D
attached
hereto (the "Irrevocable
Transfer Agent Instructions").
The
Company warrants that no instruction other than the Irrevocable Transfer
Agent
Instructions referred to in this Section 5(b), and stop transfer instructions
to
give effect to Section 2(g) hereof, will be given by the Company to its transfer
agent with respect to the Securities, and that the Securities shall otherwise
be
freely transferable on the books and records of the Company, as applicable,
and
to the extent provided in this Agreement and the other Transaction Documents.
If
a Buyer effects a sale, assignment or transfer of the Securities in accordance
with Section 2(g), the Company shall permit the transfer and shall promptly
instruct its transfer agent to issue one or more certificates or credit shares
to the applicable balance accounts at DTC in such name and in such denominations
as specified by such Buyer to effect such sale, transfer or assignment. In
the
event that such sale, assignment or transfer involves Conversion Shares,
Interest Shares, Warrant Shares sold, assigned or transferred pursuant to
an
effective registration statement or pursuant to Rule 144, the transfer agent
shall issue such Securities to the Buyer, assignee or transferee, as the
case
may be, without any restrictive legend. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to a Buyer.
Accordingly, the Company acknowledges that the remedy at law for a breach
of its
obligations under this Section 5(b) will be inadequate and agrees, in the
event
of a breach or threatened breach by the Company of the provisions of this
Section 5(b), that a Buyer shall be entitled, in addition to all other available
remedies, to an order and/or injunction restraining any breach and requiring
immediate issuance and 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.
(a) The
obligation of the Company hereunder to issue and sell the Notes and
the
related Warrants to each Buyer 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 the Company's sole benefit and may be waived by
the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:
(i) Such
Buyer shall have executed each of the Transaction Documents to which it is
a
party and delivered the same to the Company.
(ii) Such
Buyer and each other Buyer shall have delivered to the Company the Purchase
Price for the Notes and the related Warrants being
purchased by such Buyer at the Closing by wire transfer of immediately available
funds pursuant to the wire instructions provided by the Company.
(iii) The
representations and warranties of such 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 such 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 such Buyer
at or
prior to the Closing Date.
-22-
7. CONDITIONS
TO EACH BUYER'S OBLIGATION TO PURCHASE.
(a) The
obligation of each Buyer hereunder to purchase the Notes and
the
related 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 each Buyer's sole benefit and may be waived by such Buyer
at
any time in its sole discretion by providing the Company with prior written
notice thereof:
(i) The
Company shall have executed and delivered to such Buyer (A) each of the
Transaction Documents and (B) the Notes (in such principal amounts as is
set
forth across from such Buyer's name in column (3) of the Schedule of
Buyers and
the
related Warrants (in such principal amounts as is set forth across from such
Buyer's name in column (4) of the Schedule of Buyers) being purchased by
such
Buyer at the Closing pursuant to this Agreement.
(ii) Such
Buyer shall have received the opinion of [Sichenzia Xxxx Xxxxxxxx Xxxxxxx
LLP],
the Company's outside counsel, dated as of the Closing Date, in substantially
the form of Exhibit
E
attached
hereto.
(iii) The
Company shall have delivered to such Buyer a copy of the Irrevocable Transfer
Agent Instructions, in the form of Exhibit
D
attached
hereto, which instructions shall have been delivered to and acknowledged
in
writing by the Company's transfer agent.
(iv) The
Company shall have delivered to such Buyer a certificate evidencing the
formation and good standing of the Company and each of its Subsidiaries in
such
entity's jurisdiction of formation issued by the Secretary of State (or
comparable office) of such jurisdiction, as of a date within 10 days of the
Closing Date.
(v) The
Company shall have delivered to such Buyer a certificate evidencing the
Company's qualification as a foreign corporation and good standing issued
by the
Secretary of State (or comparable office) of each jurisdiction in which the
Company conducts business and is required to so qualify, as of a date within
10
days of the Closing Date.
(vi) The
Company shall have delivered to such Buyer a certified copy of the Certificate
of Incorporation as certified by the Secretary of State of the State of Delaware
within ten (10) days of the Closing Date.
(vii) The
Company shall have delivered to such Buyer a certificate, executed by the
Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the Company's Board
of
Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate
of
Incorporation and (iii) the Bylaws, each as in effect at the Closing, in
the
form attached hereto as Exhibit
F.
(viii) The
representations and warranties of the Company shall be true and correct 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 Company shall have performed, satisfied and complied in all respects
with
the covenants, agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied with by the Company at or prior to
the
Closing Date. Such Buyer shall have received a certificate, 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 in the form attached hereto as Exhibit
G.
-23-
(ix) The
Company shall have delivered to such Buyer a letter from the Company's transfer
agent certifying the number of shares of Common Stock outstanding as of a
date
within five days of the Closing Date.
(x) The
Common Stock (I) shall be designated for quotation or listed on the Principal
Market and (II) shall not have been suspended, as of the Closing Date, by
the
SEC or the Principal Market from trading on the Principal Market nor shall
suspension by the SEC or the Principal Market have been threatened, as of
the
Closing Date, either (A) in writing by the SEC or the Principal Market or
(B) by
falling below the minimum listing maintenance requirements of the Principal
Market.
(xi) The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Securities.
(xii) The
Company shall have delivered to such Buyer such other documents relating
to the
transactions contemplated by this Agreement as such Buyer or its counsel
may
reasonably request.
8. TERMINATION.
In the event that the Closing shall not have occurred with respect to a Buyer
on
or before five (5) Business Days from the date hereof due to the Company's
or
such Buyer's failure to satisfy the conditions set forth in Sections 6 and
7
above (and the nonbreaching party's failure to waive such unsatisfied
condition(s)), the nonbreaching party shall have the option to terminate
this
Agreement with respect to such breaching party at the close of business on
such
date without liability of any party to any other party; provided, however,
if
this Agreement is terminated pursuant to this Section 8, the Company shall
remain obligated to reimburse the non-breaching Buyers for the expenses
described in Section 4(g) above.
9. MISCELLANEOUS.
(a) Governing
Law; Jurisdiction; Jury Trial.
All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of
New
York, without giving effect to any choice of law or conflict of law provision
or
rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State
of
New York. Each party hereby irrevocably submits to the exclusive jurisdiction
of
the state and United States federal courts sitting in The City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding
is
improper. Each party hereby irrevocably waives personal service of process
and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it
under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be
deemed
to limit in any way any right to serve process in any manner permitted by
law.
EACH
PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
-24-
(b) Counterparts.
This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective
when
counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and
shall
be binding upon the signatory thereto with the same force and effect as if
the
signature were an original, not a facsimile signature.
(c) Headings.
The
headings of this Agreement are for convenience of reference and shall not
form
part of, or affect the interpretation of, this Agreement.
(d) 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 in that jurisdiction
or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
(e) Entire
Agreement; Amendments.
This
Agreement and the other Transaction Documents supersede all other prior oral
or
written agreements between the Buyers, the Company, their Affiliates and
Persons
acting on their behalf with respect to the matters discussed herein, and
this
Agreement, the other Transaction Documents and the instruments referenced
herein
and therein 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 any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
of
this Agreement may be amended other than by an instrument in writing signed
by
the Company and the holders of at least a majority of the aggregate number
of
Registrable Securities issued and issuable hereunder, and any amendment to
this
Agreement made in conformity with the provisions of this Section 9(e) shall
be
binding on all Buyers and holders of Securities, as applicable. No provision
hereof may be waived other than by an instrument in writing signed by the
party
against whom enforcement is sought. No such amendment shall be effective
to the
extent that it applies to less than all of the holders of the applicable
Securities then outstanding. No consideration shall be offered or paid to
any
Person to amend or consent to a waiver or modification of any provision of
any
of the Transaction Documents unless the same consideration also is offered
to
all of the parties to the Transaction Documents, holders of Notes or holders
of
the Warrants, as the case may be. The Company has not, directly or indirectly,
made any agreements with any Buyers relating to the terms or conditions of
the
transactions contemplated by the Transaction Documents except as set forth
in
the Transaction Documents. Without limiting the foregoing, the Company confirms
that, except as set forth in this Agreement, no Buyer has made any commitment
or
promise or has any other obligation to provide any financing to the Company
or
otherwise.
-25-
(f) Notices.
Any
notices, consents, waivers or other communications required or permitted
to be
given under the terms of this Agreement must be in writing and will be deemed
to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending
party);
or (iii) one Business Day after deposit with an overnight courier service,
in
each case properly addressed to the party to receive the same. The addresses
and
facsimile numbers for such communications shall be:
If
to the
Company:
Phantom
Fiber Corporation
000
Xxxxx
Xxxxxx, Xxxxx 000,
Xxxxxxx,
Xxxxxxx, Xxxxxx X0X 0X0
Telephone:
(000)
000-0000
Facsimile:
(000)
000-0000
Attention:
Xxxxxxx
Xxxxxxxx
With
a
copy (for informational purposes only) to:
Sichenzia
Xxxx Xxxxxxxx Xxxxxxx LLP
1065
Avenue of the Xxxxxxxx, 00xx Xxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Telephone: (000)
000-0000
Facsimile:
(000)
000-0000
Attention: Xxxxxxx
Xxxxxxxxx, Esq.
If
to the
Transfer Agent:
PacWest
Transfer, LLC
000
Xxxx
Xxxxxx
X.X.
Xxx
000
Xxxxxxxxxx,
Xxxxxxxx 00000
Telephone:
(000)
000-0000
Facsimile:
(000)
000-0000
Attention: Xxxxxx
Xxxxxxxxxx
If
to a
Buyer, to its address and facsimile number set forth on the Schedule of Buyers,
with copies to such Buyer's representatives as set forth on the Schedule
of
Buyers,
with
a
copy (for informational purposes only) to:
Xxxxxxx
Xxxx & Xxxxx LLP
000
Xxxxx
Xxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Telephone: (000)
000-0000
Facsimile: (000)
000-0000
Attention: Xxxxxxx
X. Xxxxx, Esq.
-26-
or
to
such other address and/or facsimile number and/or to the attention of such
other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated
by
the sender's facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided
by an
overnight courier service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from an overnight courier service in accordance
with clause (i), (ii) or (iii) above, respectively.
(g) The
Company hereby irrevocably appoints The Corporation Trust Company at 0000
Xxxxxx
Xxxxxx, Xxxxxxxxxx, Xxxxxxxx 00000, Telephone: (000) 000-0000, Facsimile:
(000)
000-0000, as its agent for the receipt of service of process in connection
with
any action pursuant to any Transaction Document in the United States. The
Company agrees that any document may be effectively served on it in connection
with any action, suit or proceeding in the United States by service on its
agents.
Any
document shall be deemed to have been duly served if marked for the attention
of
the agent at its address (as set out above) or such other address in the
United
States as may be notified to the party wishing to serve the document and
delivered in accordance with the notice provisions set forth in this Section
9(g).
If
the
Company's agent at any time ceases for any reason to act as such, the Company
shall appoint a replacement agent having an address for service in the United
States and shall notify each Buyer in writing of the name and address of
the
replacement agent. Failing such appointment and notification, each Buyer
shall
be entitled by notice to the Company to appoint a replacement agent to act
on
the Company's behalf. The provisions of this Section 9(g) applying to service
on
an agent apply equally to service on a replacement agent.
(h) Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including any purchasers of the
Notes
or the Warrants. The Company shall not assign this Agreement or any rights
or
obligations hereunder without the prior written consent of the holders of
at
least a majority of the aggregate number of Registrable Securities issued
and
issuable hereunder, including by way of a Fundamental Transaction (unless
the
Company is in compliance with the applicable provisions governing Fundamental
Transactions set forth in the Notes and the Warrants). A Buyer may assign
some
or all of its rights hereunder in connection with transfer of any of its
Securities without the consent of the Company, in which event such assignee
shall be deemed to be a Buyer hereunder with respect to such assigned
rights.
(i) No
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.
(j) Survival.
Unless
this Agreement is terminated under Section 8, the representations and warranties
of the Company and the Buyers contained in Sections 2 and 3 and the agreements
and covenants set forth in Sections 4, 5 and 9 shall survive the Closing.
Each
Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.
-27-
(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 any 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) Indemnification.
In
consideration of each Buyer's execution and delivery of the Transaction
Documents and acquiring the Securities thereunder and in addition to all
of the
Company's other obligations under the Transaction Documents, the Company
shall
defend, protect, indemnify and hold harmless each Buyer and each other holder
of
the Securities and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
Persons' agents or other representatives (including, without limitation,
those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees")
from
and against any and all actions, causes of action, suits, claims, losses,
costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for
which
indemnification hereunder is sought), and including reasonable attorneys'
fees
and disbursements (the "Indemnified
Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating
to (a)
any misrepresentation or breach of any representation or warranty made by
the
Company in the Transaction Documents or any other certificate, instrument
or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents
or
any other certificate, instrument or document contemplated hereby or thereby
or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought
on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any
other
certificate, instrument or document contemplated hereby or thereby, (ii)
any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status
of
such Buyer or holder of the Securities as an investor in the Company pursuant
to
the transactions contemplated by the Transaction Documents. To the extent
that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. Except as otherwise set forth herein, the mechanics and procedures with
respect to the rights and obligations under this Section 9(l) shall be the
same
as those set forth in Section 6 of the Registration Rights
Agreement.
(m) 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.
(n) Remedies.
Each
Buyer and each holder of the Securities shall have all rights and remedies
set
forth in the Transaction Documents and all rights and remedies which such
holders have been granted at any time under any other agreement or contract
and
all of the rights which such holders have under any law. Any Person having
any
rights under any provision of this Agreement shall be entitled to enforce
such
rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. Furthermore, the Company recognizes
that in the event that it fails to perform, observe, or discharge any or
all of
its obligations under the Transaction Documents, any remedy at law may prove
to
be inadequate relief to the Buyers. The Company therefore agrees that the
Buyers
shall be entitled to seek temporary and permanent injunctive relief in any
such
case without the necessity of proving actual damages and without posting
a bond
or other security.
-28-
(o) Payment
Set Aside.
To the
extent that the Company makes a payment or payments to the Buyers hereunder
or
pursuant to any of the other Transaction Documents or the Buyers enforce
or
exercise their rights hereunder or thereunder, and such payment or payments
or
the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set
aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other Person under any
law
(including, without limitation, any bankruptcy law, Canadian, foreign,
provincial, state or United States federal law, common law or equitable cause
of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued
in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
(p) Currency.
Unless
otherwise indicated, all dollar amounts referred to in this Agreement are
in
United States Dollars ("US
Dollars").
All
amounts owing under this Agreement or any Transaction Document shall be paid
in
US Dollars. All amounts denominated in other currencies shall be converted
in
the US Dollar equivalent amount in accordance with the Exchange Rate on the
date
of calculation. "Exchange
Rate"
means,
in relation to any amount of currency to be converted into US Dollars pursuant
to this Agreement, the US Dollar exchange rate as published in the Wall Street
Journal on the relevant date of calculation.
(q) Judgment
Currency.
(i) If
for
the purpose of obtaining or enforcing judgment against the Company or any
Subsidiary, in any court in any jurisdiction it becomes necessary to convert
into any other currency (such other currency being hereinafter in this Section
9(q) referred to as the "Judgment
Currency")
an
amount due in US Dollars under this Agreement, the conversion shall be made
at
the Exchange Rate prevailing on the Business Day immediately
preceding:
(1) the
date
of actual payment of the amount due, in the case of any proceeding in the
courts
of New York or in the courts of any other jurisdiction that will give effect
to
such conversion being made on such date: or
(2) the
date
on which the foreign court determines, in the case of any proceeding in the
courts of any other jurisdiction (the date as of which such conversion is
made
pursuant to this Section 9(q) being hereinafter referred to as the "Judgment
Conversion Date").
-29-
(ii) If
in the
case of any proceeding in the court of any jurisdiction referred to in Section
9(q)(i)(2) above, there is a change in the Exchange Rate prevailing between
the
Judgment Conversion Date and the date of actual payment of the amount due,
the
applicable party shall pay such adjusted amount as may be necessary to ensure
that the amount paid in the Judgment Currency, when converted at the Exchange
Rate prevailing on the date of payment, will produce the amount of US Dollars
which could have been purchased with the amount of Judgment Currency stipulated
in the judgment or judicial order at the Exchange Rate prevailing on the
Judgment Conversion Date.
(iii) Any
amount due from the Company or any Subsidiary, under this provision shall
be due
as a separate debt and shall not be affected by judgment being obtained for
any
other amounts due under or in respect of this Agreement.
(r) Independent
Nature of Buyers' Obligations and Rights.
The
obligations of each Buyer under any Transaction Document are several and
not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under
any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall
be
deemed to constitute the Buyers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Buyers
are
in any way acting in concert or as a group with respect to such obligations
or
the transactions contemplated by the Transaction Documents and the Company
acknowledges that the Buyers are not acting in concert or as a group with
respect to such obligations or the transactions contemplated by the Transaction
Documents. Each Buyer confirms that it has independently participated in
the
negotiation of the transaction contemplated hereby with the advice of its
own
counsel and advisors. Each Buyer shall be entitled to independently protect
and
enforce its rights, including, without limitation, the rights arising out
of
this Agreement or out of any other Transaction Documents, and it shall not
be
necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose.
[Signature
Page Follows]
-30-
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
COMPANY:
PHANTOM
FIBER CORPORATION
|
||
| |
|
|
| By: | /s/ Xxxxxxx Xxxxxxxx | |
|
Name:
Xxxxxxx Xxxxxxxx
Title:
Chief Executive Officer
|
||
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
BUYERS:
MAGNETAR
CAPITAL MASTER FUND, LTD.
|
||
| |
|
|
| By: |
Magnetar
Financial LLC
|
|
| Its: | Investment Manager | |
| By: | /s/ Xxxx Xxxxx | |
|
Name:
Xxxx Xxxxx
Title:
General Counsel
|
||
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
OTHER
BUYERS:
|
||
| |
|
|
| By: | /s/ Xxxx X. Nuovo | |
|
Name:
Xxxx X. Nuovo
Title:
Individual
|
||
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
OTHER
BUYERS:
|
||
| |
|
|
| By: | /s/ Konstantine (Xxx) Xxxx Xxxxx | |
|
Name:
Konstantine (Xxx) Xxxx Xxxxx
Title:
Investor
|
||
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
OTHER
BUYERS:
|
||
| |
|
|
| By: | /s/ Xxxxxx Xxxxxxx | |
|
Name:
Xxxxxx Xxxxxxx
Title:
Investor
|
||
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
OTHER
BUYERS:
The
Sunderland Family Trust
|
||
| |
|
|
| By: | /s/ Xxxxxx X. Xxxxxxxxxx | |
|
Name:
Xxxxxx X. Xxxxxxxxxx
Title:
Trustee/Trustor
|
||
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
OTHER
BUYERS:
|
||
| |
|
|
| By: | /s/ Xxxxx X. Xxxxxx | |
|
Name:
Xxxxx X. Xxxxxx
Title:
Investor
|
||
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
OTHER
BUYERS:
|
||
| |
|
|
| By: | /s/ Xxxxxxx Xxxxx | |
|
Name:
Xxxxxxx Xxxxx
Title:
Trustee, Xxxxx Living Trust 5/1/98
|
||
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
OTHER
BUYERS:
|
||
| |
|
|
| By: | /s/ Xxxx X. XxXxxxx | |
|
Name: Xxxx X. XxXxxxx
Title:
Investor
|
||
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
OTHER
BUYERS:
|
||
| |
|
|
| By: | /s/ Xxxxxx Xxxxxxx | |
|
Name:
Title:
|
||
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
OTHER
BUYERS:
Financial
Trading Consultants
|
||
| |
|
|
| By: | /s/ Xxxxxx Xxxxxxx | |
|
Name:
Title:
Trustee
|
||
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
OTHER
BUYERS:
Mequer Masters Int Pension Plan
|
||
| |
|
|
| By: | /s/ Xxxxxx Xxxxxxx | |
|
Name:
Title:
Trustee
|
||
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
OTHER
BUYERS:
|
||
| |
|
|
| By: | /s/ Xxxxxxx X. Xxxxx | |
|
Name:
Xxxxxxx X. Xxxxx
Title:
|
||
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
OTHER
BUYERS:
|
||
| |
|
|
| By: | /s/ Xxxx Xxxxxx | |
|
Name:
Xxxx Xxxxxx
Title:
|
||
|
/s/
Xxxxxx X. Xxxxxxx
Xxxxxx
X. Xxxxxxx
|
||
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
OTHER
BUYERS:
|
||
| |
|
|
| By: | /s/ Xxxxxx Xxxxxx | |
|
Name:
Xxxxxx Xxxxxx
Title:
Owner
|
||
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
OTHER
BUYERS:
|
||
| |
|
|
| By: | /s/ Xxxxx Xxxxxx | |
|
Name:
Xxxxx Xxxxxx
Title:
|
||
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
OTHER
BUYERS:
|
||
| |
|
|
| By: | /s/ Xxxxxx X. Xxxxxx | |
|
Name:
Title:
|
||
SCHEDULE
OF BUYERS
|
(1)
|
(2)
|
(3)
|
(4)
|
(5)
|
|
Buyer
|
Address
and Facsimile Number
|
Aggregate
Principal Amount of Notes
|
Aggregate
Number of Warrants
|
Legal
Representative's
Address
and Facsimile Number
|
|
Magnetar
Capital Master Fund, Ltd.
|
0000
Xxxxxxxxx Xxxxxx
Xxxxxxxx,
XX 00000
Attn:
Xxxxxxx Xxxx and Xxxxxxx Xxx
Facsimile:
(000)
000-0000
Telephone:
(000) 000-0000
|
$2,642,000
|
5,284,000
|
Xxxxxxx
Xxxx & Xxxxx LLP
000
Xxxxx Xxxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attention:
Xxxxxxx Xxxxx, Esq.
Facsimile:
(000) 000-0000
Telephone:
(000) 000-0000
|
|
Xxxx
X. Nuovo
|
0000
Xxxx Xxxxxx Xx.
Xxxxx
Xxxxx, XX 00000
|
$100,000
|
200,000
|
|
|
Konstantine
(Xxx) Xxxx Xxxxx
|
00000
Xxx Xxxxx Xxxxx
Xxxxxx,
XX 00000
Telephone:
(000) 000-0000
|
$275,000
|
550,000
|
|
|
Xxxxxx
Xxxxxxx
|
0000
Xxxxxxxxx Xx.
Xxxx
Xxxxx, XX 00000
(818)
716-6568
|
$16,500
|
33,000
|
|
|
The
Xxxxxxxxxx Family Trust
|
0000
Xxxxx Xxxxx Xxxxx
Xxxxxxx
Xxxx, XX 00000
Fax:
(000) 000-0000
H:
(000) 000-0000
O:
(000) 000-0000
C:
(000) 000-0000
|
$60,500
|
121,000
|
|
|
Xxxxx
Xxxx Xxxxxx
|
0000
Xxxxxxxx Xxxxx
Xxx
Xxxxxxx, XX 00000
Home:
(000) 000-0000
Cell:
(000) 000-0000
Wk:
(000) 000-0000
|
$50,000
|
100,000
|
|
|
Xxxxx
Living Trust 5/1/98
|
Xxxxxxx
Xxxxx, Trustee
0000
Xxxxxx Xxx.
Xxxxxx,
XX 00000
Fax:
(000) 000-0000
Phone:
(000) 000-0000
|
$11,000
|
22,000
|
|
|
Xxxx
X. XxXxxxx
|
000
X. Xxxxxxx Xxx.
Xxx
Xxxxxxx, XX 00000
Hm:
(000) 000-0000
Work:
(000) 000-0000
|
$5,500
|
11,000
|
|
|
Xxxxxx
Xxxxxxx
|
000
Xxxxxxx Xxxx
Xxxx
Xxxxxx, XX 00000
(845)
856-0451
|
$55,000
|
110,000
|
|
|
Financial
Trading Consultants Pension Plan
|
000
Xxxxxxx Xxxx
Xxxx
Xxxxxx, XX 00000
(845)
856-0451
|
$55,000
|
110,000
|
|
|
Meuqer
Masters International Pension Plan
|
000
Xxxxxxx Xxxx
Xxxx
Xxxxxx, XX 00000
(845)
856-0451
|
$55,000
|
110,000
|
|
|
Xxxxxxx
X. Xxxxx
|
24945
Grissom Circle
Laguna
Hills, CA 00000
(000)
000-0000
Fax:
(000) 000-0000
|
$70,000
|
140,000
|
|
|
Xxxx
Xxxxxx and
Xxxxxx
Xxxxxxx
|
00000
Xxxxxx Xxxxxx
Xxxxxxxx,
XX 00000
Fax:
(000) 000-0000
Tel:
(000) 000-0000
|
$5,500
|
11,000
|
|
|
Xxxxxx
Xxxxxx
|
00
Xxxxxxxx Xxxxxx
Xxxxxxx,
XX 00000
Fax:
(000) 000-0000
Phone:
(000) 000-0000
|
$77,000
|
154,000
|
|
|
Xxxxx
Xxxxxx
|
0000
Xxxxx Xxx.
Xxxxxxx
Xxxx, XX 00000
(818)
787-4900
|
$11,000
|
22,000
|
|
|
Xxxxxx
X. Xxxxxx
|
3103
Executive Parkway, Suite 100
Toledo,
OH 00000
(000)
000-0000
cell:
(000) 000-0000
|
$11,000
|
22,000
|
|
|
TOTAL:
|
$3,500,000.00
|
7,000,000
|
Disclosure
Schedules
to
Securities
Purchase Agreement
(Prepared
in connection with Notes and Warrants sold by the Company to the Buyers pursuant
to the Securities Purchase Agreement dated as of January 5, 2006 (the “January
2006 Purchase Agreement”). Capitalized terms not defined herein shall have the
meaning given to such terms in the January 2006 Purchase Agreement.)
January
5, 2005
Schedule
3(a)
Subsidiaries
Phantom
Fiber Corp., a 100% owned subsidiary of the Company incorporated in Ontario,
Canada
Phantom
Fiber, Inc., a 100% owned subsidiary of Phantom Fiber Corp., incorporated
in
Ontario, Canada
Schedule
3(l)
Absence
of Certain Changes
None.
Schedule
3(q)
Transactions
With Affiliates
Schedule
3(q)
Transactions
With Affiliates (continued)
Schedule
3(q)
Transactions
With Affiliates (continued)
The
Company is contingently liable for the following:
| a) |
Issuance
of 500,000 restricted common shares (after adjustment for a 1 for
20 stock
consolidation) to Xxxx Xxxxxxxx in satisfaction of certain “earn-in’
criteria specified in an employment agreement dated February 4,
2004 with
Pivotal Self-Service Technologies
Inc.
|
| b) |
Issuance
of 250,000 share purchase warrants (after adjustment for a 1 for
20 stock
consolidation) to Xxxx Xxxxxxxx with a term of five years in satisfaction
of certain “earn-in’ criteria specified in an employment agreement dated
February 4, 2004 with Pivotal Self-Service Technologies Inc., with
each
warrant entitling the holder to purchase one share of common stock
at
$4.00 per share.
|
| c) |
Issuance
of compensatory restricted common shares to the pre-merger shareholders
of
Phantom Fiber Corporation in connection with Reverse Acquisition
Transaction with Pivotal Self-Service Technologies Inc. An initial
provision of 500,000 common shares (after adjustment for a 1 for
20 stock
consolidation) has been established to date in this
regard.
|
| d) |
Grant
of 37,500 stock options(after adjustment for a 1 for 20 stock
consolidation) to Xxxxxx Xxxxxx for services rendered as an Executive
Director for the period November 1, 2004 to January 31, 2005, such
options
granted at a volume weighted average exercise price for the period
of
$1.29.
|
| e) |
Grant
of 37,500 stock options(after adjustment for a 1 for 20 stock
consolidation) to Xxxxxx Xxxxxx for services rendered as an Executive
Director for the period February 1, 2005 to April 30, 2005, such
options
granted at a volume weighted average exercise price for the period
of
$1.06.
|
| f) |
Issuance
of 16,949 restricted common shares (after adjustment for a 1 for
20 stock
consolidation) to Xxxxxx Xxxxxx in consideration for services rendered
as
an Executive Director for the period November 1, 2004 to December
31,
2004, such shares computed on the basis of $10,000 per month multiplied
by
two months and divided by the volume weighted average share price
for the
period of $1.18.
|
Schedule
3(r)
Equity
Capitalization
Obligations
of the Company and its Subsidiaries to issue Equity Securities
See
Schedule 3(q).
In
addition to the securities described in Schedule 3(q), on December 8, 2005,
the
Company completed a private placement of 1,560,000 shares of common stock
and
warrants to purchase 1,560,000 shares of common stock to 14 accredited investors
resulting in aggregate gross proceeds of $858,000. The common stock and warrants
were sold as Units, with each Unit consisting of one share of common stock
and a
warrant to purchase one share of common stock, for a per Unit purchase price
of
$0.55. Each warrant entitles the holder to purchase one share of the Company’s
common stock at $1.10 per share, exercisable for a period of three years.
Each
of the investors in this private placement has the right to exchange their
Units
for other equity securities of the Company which may be sold by the Company
during the period ending 45 days after closing if the Company completes an
equity financing within such period. The Company also agreed to file a
registration statement with the SEC on Form SB-2 no later than 90 days following
closing covering the resale of common stock and common stock issuable upon
exercise of warrants sold to such investors.
Outstanding
Debt Securities and Other Documents Evidencing Indebtedness
In
2001,
the Company restructured a $416,821 payable with a creditor, whereby $76,821
was
forgiven, $180,000 was satisfied through the issuance of 1.8 million shares
of
the Company’s common stock and a note payable of $160,000 was issued and has
since been paid down to $57,500. This amount is due on demand and has therefore
not been discounted.
Financing
Statements
There
are
no financing statements filed in connection with the Company or any
Subsidiaries. However, there are existing security interests with respect
to the
Company’s capital lease obligations for equipment.
Registration
Obligations
On
December 8, 2005, the Company completed a private placement of 1,560,000
shares
of common stock and warrants to purchase 1,560,000 shares of common stock
to 14
accredited investors resulting in aggregate gross proceeds of $858,000. The
common stock and warrants were sold as Units, with each Unit consisting of
one
share of common stock and a warrant to purchase one share of common stock,
for a
per Unit purchase price of $0.55. Each warrant entitles the holder to purchase
one share of the Company’s common stock at $1.10 per share, exercisable for a
period of three years.
Schedule
3(r)
Equity
Capitalization (continued)
Each
of
the investors in the above private placement has the right to exchange their
Units for other equity securities of the Company which may be sold by the
Company during the period ending 45 days after closing if the Company completes
an equity financing within such period. The Company also agreed to file a
registration statement with the SEC on Form SB-2 no later than 90 days following
closing covering the resale of common stock and common stock issuable upon
exercise of warrants sold to such investors.
Schedule
3(s)
Indebtedness
and Other Contracts
As
of the
date of the Agreement and excluding contingent debt and liabilities disclosed
elsewhere, the Company has total debt on a consolidated and unaudited basis
of
approximately $1,000,000, which includes approximately $885,000 of accounts
payable and other accrued liabilities.
As
of the
date of the Agreement the Company has approximately$24,500 of outstanding
short
term borrowings, which represents an unsecured loan from a shareholder of
the
Company repayable on demand and bearing no interest. As of the date of the
Agreement the Company has approximately $57,500 of notes payable, resulting
from
a restructuring of a $416,821 payable in 2001,
whereby
$76,821 was forgiven, $180,000 was satisfied through the issuance of 1.8
million
shares of the Company’s common stock and a note payable of $160,000 was issued
and has since been paid down to $57,500. This amount is due on
demand.
As
of the
date of the Agreement the Company has approximately $33,000 of outstanding
capital lease obligations relating to computers and office
equipment.
EXHIBITS
| Exhibit |
A
Form of Notes
|
| Exhibit |
B
Form of Warrants
|
| Exhibit |
C
Registration Rights Agreement
|
| Exhibit |
D
Irrevocable Transfer Agent
Instructions
|
| Exhibit |
E
Form of Outside Company Counsel
Opinion
|
| Exhibit |
F
Form of Secretary's Certificate
|
| Exhibit |
G
Form of Officer's Certificate
|
