SECURITIES PURCHASE AGREEMENT
SECURITIES
PURCHASE
AGREEMENT
THIS
SECURITIES PURCHASE AGREEMENT (this “Agreement”)
is
made as of April 30, 2008, by and among Infosmart Group, Inc., a California
corporation (the “Company”),
and
each of those persons and entities, severally and not jointly, whose names
are
set forth on the Schedule of Purchasers attached hereto as Exhibit
A
(which
persons and entities are hereinafter collectively referred to as “Purchasers”
and
each individually as a “Purchaser”).
RECITALS
WHEREAS,
the
Company has been authorized to enter into this Agreement and issue debentures
in
the aggregate principal amount of $5,000,000 (the “Debentures”)
with
Warrants and a potential subsequent conversion of the Loan, evidenced by
Debentures, to a secured convertible debenture issuable upon Company’s sole
discretion (the “Restructure,”
as
defined below) (collectively, this Loan, the secured debentures and warrants
shall be referred to as the “Securities”)
as
provided herein; and
WHEREAS,
at the
Closing (as defined herein), the Purchasers desire to loan to the Company the
amount of $5,000,000, severally and not jointly, at a 20% original issue
discount upon the terms and conditions stated in this Agreement,
NOW,
THEREFORE,
in
consideration of the foregoing recitals and the mutual promises,
representations, warranties and covenants hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE
1
THE
LOAN
1.1
The
Loan.
The
Purchasers have agreed to grant the Company a loan in the amount of $5,000,000
(the “Loan”),
evidenced by Debentures, a form of which is attached hereto as Exhibit
B,
and
execute and deliver the other documents identified in (a), (b) and (c)
below:
(a)
A
Security Agreement (the "Security
Agreement")
among
the Company and the Purchasers, a form of which is attached hereto as
Exhibit
C;
(b)
A
Registration Rights Agreement (the "Registration
Rights Agreement"),
a
form of which is attached hereto as Exhibit
D,
among
the Company and the Purchasers; and
(c)
An
Escrow
Agreement (the “Escrow Agreement”), a form of which is attached hereto as
Exhibit
E.
This
Agreement, the Securities, the Security Agreement, the Registration Rights
Agreement, and the Escrow Agreement are sometimes collectively referred to
herein as the "Transaction
Documents."
1.2
Original
Issue Discount.
The
Company agrees to accept the Loan at an original issue discount of 20% or an
amount equal to $4,000,000 (the “Issue
Amount”).
1.3
Terms
of Repayment.
Principal and interest shall be paid as follows:
(a)
Interest
at the rate of twelve percent (12%) per annum from the date hereof through
the
one year anniversary of the Closing Date shall be paid monthly by the Borrower
in cash or, at the sole option of the Company, in registered shares of the
Company’s common stock, no par value (“Common
Stock”).
If
the Company elects to pay the interest in cash, the payment shall be made by
the
fifth business day following the payment date. If the Company elects to pay
the
interest in registered shares of Common Stock, the number of shares issued
to
the Purchasers shall be determined by dividing the dollar amount of interest
owed by the average closing bid price for the five trading days preceding the
payment date.
(b)
Principal
shall be due and payable in full on the one year anniversary of the Closing
Date
and shall be paid in cash.
1.4
Issuance
of Warrants. The
Company shall issue to the Purchasers 19,083,970 Warrants, in the form of
Exhibit
F
attached
hereto, exercisable at $0.262 per share and expiring five (5) years from the
effective date of a registration statement filed pursuant to the Registration
Rights Agreement (the “Warrant
Shares”).
In
the event the Company does not exercise its option to Restructure as defined
in
Article 2 below, the exercise price of the Warrants shall adjust to $0.01 per
share automatically on the eleventh (11th)
day of
September 2008. The complete terms of the Warrant and the Warrant Shares shall
be contained in the Warrants, and any inconsistency or conflict of terms between
this Agreement and the Warrants shall be controlled by the express provisions
in
the Warrant.
1.5
Quotation
of Warrants on the OTCBB. Within
one hundred eighty (180) days of the Closing Date (the “Quotation
Deadline”),
the
Company shall obtain a ticker symbol for the Warrants and have the Warrants
quoted on the OTC Bulletin Board (“OTCBB”)
with
the assistance of a market-maker that files the Form 2-11 for such quotation
with the OTCBB. All fees associated with the quotation of the Warrants on the
OTCBB, including any offering of the Warrants in connection with such quotation,
shall be borne by Xxxxxxx Xxxxxx, not to exceed $10,000 in the aggregate, and
all amounts over $10,000 shall be paid by the Company.
If
the
Warrants are not quoted on the OTC Bulletin Board or a similar exchange
acceptable to the Holder within 180 days from the date of the issuance of the
Warrants, the Company shall pay to the Holder the equivalent of 1.5% of the
total amount of the principal amount of the Loan per month not to exceed a
total
amount of 18%.
1.6
Security
Interest.
The Loan
shall be secured by the terms and conditions set forth in the Security Agreement
as included in the Transaction Documents.
1.7
Material
Terms.
All of
the terms, representations and warranties contained in the other Transaction
Documents shall be incorporated into the terms of this Loan.
1.8
Termination
of the Loan. In
the
event the Company elects to restructure the debt pursuant to Article 2 below,
the Loan shall terminate immediately on the notification of the Restructure.
If
the Company does not elect to Restructure, the Loan shall mature on the one
year
anniversary of the Closing Date.
ARTICLE
2
AUTHORIZATION
AND SALE OF SECURITIES
2.1
Election
to Restructure. Upon
the
earlier of: (i) September 1, 2008; or (ii) the date that 100% of the Company’s
outstanding and unconverted Series B Convertible Preferred Stock is mandatorily
converted into shares of Common Stock pursuant to the terms of the Company’s
Certificate of Determination of Rights, Preferences, Privileges and Restrictions
of Series B Convertible Preferred Stock, the Company shall have the option
to
replace the Loan
which
shall at that time be deemed fully paid and shall be terminated, cancelled
and
deemed
null
and
void and, in exchange for the cancellation of the Debentures, shall sell
and
issue up to $5,000,000 in principal amount of its 12% Secured Convertible
Debentures to be executed by the parties substantially in the form attached
hereto as Exhibit
G
(the
"Convertible
Debentures"),
convertible into shares of Common Stock (the “Restructure”).
Such
election shall be made by the Company by delivering a completed Notice of
Restructure (a form of which is attached hereto as Exhibit
I)
along
with the Convertible Debentures to the Purchasers. The Company’s option to
Restructure shall expire on the tenth business day of September 2008.
2.2
Sale
of Securities. Upon
the
Company’s election to Restructure, subject to the terms and conditions of this
Agreement and the Convertible Debentures, the Company agrees to issue and sell
to each Purchaser, severally and not jointly, and each Purchaser agrees to
purchase from the Company, severally and not jointly, securities consisting
of
the instruments identified in (a) below:
(a)
Convertible
Debentures in the principal amount set forth opposite such Purchaser’s name on
Exhibit
A under
the
heading “Principal Amount of Debentures.”
2.3
Independent
Nature of Investors’ Obligations and Rights.
The
obligations of each Purchaser under this Agreement are several and not joint
with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. The decision of each Purchaser to purchase the Securities
pursuant to this Agreement has been made by such Purchaser independently of
any
other Purchaser. Nothing contained herein or therein, and no action taken by
any
Purchaser pursuant hereto or thereto, shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Purchasers are in any way acting
in
concert or as a group with respect to such obligations or the transactions
contemplated hereby. Each Purchaser acknowledges that no other Purchaser has
acted as agent for such Purchaser in connection with making its investment
hereunder and that no Purchaser will be acting as agent of such Purchaser in
connection with monitoring its investment in the Securities or enforcing its
rights under this Agreement. Each Purchaser shall be entitled independently
to
protect and enforce its rights, including without limitation the rights arising
out of this Agreement, and it shall not be necessary for any other Purchaser
to
be joined as an additional party in any proceeding for such
purpose.
ARTICLE
3
CLOSING
DATE; DELIVERY
3.1
Closing
Date. The
closing of the transactions contemplated by this Agreement (the “Closing”)
shall
be held at the offices of Xxxxxxxxxx
& Xxxxx
at
1:30
p.m.
New
York time on or before April 30, 2008 or at such other time and place upon
which
the Company and the Purchasers purchasing, in the aggregate, the majority in
principal amount of the Debentures (the “Majority
in Interest”)
shall
agree.
3.2
Delivery.
At
the
Closing, the Company will deliver to each Purchaser this Agreement memorializing
the terms of the Loan to be effective until such time as the Company elects
to
Restructure. The Company will also deliver to each Purchaser a duly executed
Board Resolution authorizing the Company to enter into this transaction, a
Debenture in the principal amount set forth opposite such Purchaser's name
on
Exhibit
A,
and a
Warrant representing the right to purchase the number of Warrant Shares which
such Purchaser is entitled to purchase and a signed counterpart of each of
the
other Transaction Documents.
Such
delivery shall be against payment of the purchase price therefor by wire
transfer of immediately available funds to the Company in accordance with the
Company’s written wiring instructions, which instructions shall have been
delivered to Purchasers’ counsel. The Company shall also deliver to the
Purchasers an opinion of Xxxxxxxxxx & Xxxxx, LLP, counsel to the Company,
substantially in the form attached hereto as Exhibit
H
and (b)
a certificate from a duly authorized officer of the Company certifying that
the
representations made by the Company in Article 4 are true and correct as of
the
Closing.
ARTICLE
4
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company represents and warrants to the Purchasers, as of the date hereof, as
follows:
4.1
Organization
and Standing. The
Company is a corporation duly organized and validly existing under, and by
virtue of, the laws of the State of California and is in good standing under
the
laws of said state, with requisite corporate power and authority to own its
properties and assets and to carry on its business as currently conducted.
The
Company is not in violation of any of the provisions of its Articles of
Incorporation (the “Articles”)
or
Bylaws.
4.2
Corporate
Power; Authorization. The
Company has all requisite legal and corporate power and has taken all requisite
corporate action to execute and deliver this Agreement and the other Transaction
Documents, to sell and issue the Securities, to issue the Warrant Shares upon
exercise of the Warrants in accordance with the terms of such Warrants, and
to
carry out and perform all of its obligations under this Agreement and the
Warrants. Other than as set forth on Schedule 4.2 to the Disclosure Schedules,
this Agreement, the Security Agreement, and the Registration Rights Agreement
constitute, and upon execution and delivery by the Company of the Debentures
and
the Warrants, the Debentures and the Warrants will constitute, legal, valid
and
binding obligations of the Company, enforceable in accordance with their
respective terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization or similar laws relating to or affecting the enforcement of
creditors’ rights generally and (b) as limited by equitable principles
generally. The execution and delivery of the Transaction Documents do not,
and
the performance of the Transaction Documents and the compliance with the
provisions hereof and thereof, including the issuance, sale and delivery of
the
Securities by the Company will not, conflict with, or result in a breach or
violation of the terms, conditions or provisions of, or constitute a default
under, or result in the creation or imposition of any lien pursuant to the
terms
of, the Articles or Bylaws of the Company, each as amended to date, or any
statute, law, rule or regulation or any state or federal order, judgment or
decree or any indenture, mortgage, lease or other agreement or instrument to
which the Company or any of its properties is subject, except for any conflict,
breach, violation, default or imposition of a lien (other than pursuant to
the
terms of the Articles or Bylaws) that would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
assets, liabilities, financial condition, business or operations of the
Company.
4.3
Issuance
and Delivery of the Securities. The
Securities are duly authorized and, when issued,
will
be validly issued, and the Common Stock underlying the Debentures, when issued,
will be fully paid and nonassessable. The Warrant Shares are duly authorized
and, upon exercise of the Warrants in accordance with the terms thereof, will
be
validly issued, fully paid and nonassessable. The issuance and delivery of
the
Securities is not subject to any right of first refusal, preemptive right,
right
of participation, or any similar right existing in favor of any person or any
liens or encumbrances.
4.4
SEC
Documents; Financial Statements. The
Company has timely filed when due (or obtained extensions in respect thereof
and
filed within the applicable grace period) all reports, schedules, forms,
statements and other documents required to be filed by it with the Securities
and Exchange Commission (the “SEC”)
under
the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)
during
the twelve calendar months preceding the date hereof, including material filed
pursuant to Section 13(a) or 15(d) of the Exchange Act (all of the foregoing
including filings incorporated by reference therein being referred to herein
as
the “SEC
Documents”),
except as disclosed on Schedule 4.4 of the Disclosure Schedules. The Company
has
delivered or made available to the Purchasers via XXXXX or another Internet
web-site true and complete copies of the SEC Documents. As of their respective
filing dates, all SEC Documents complied in all material respects with the
requirements of the Exchange Act. None of the SEC Documents as of their
respective dates contained any untrue statement of material fact or omitted
to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
SEC Documents (the “Financial
Statements”)
comply
in all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto. The Financial
Statements have been prepared in accordance with generally accepted accounting
principles consistently applied and fairly present the consolidated financial
position of the Company and its subsidiaries, if any, at the dates thereof
and
the consolidated results of their operations and consolidated cash flows for
the
periods then ended (subject, in the case of unaudited statements, to normal,
recurring adjustments or to the extent that such unaudited statements do not
include footnotes).
4.5
Governmental
Consents. No
consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state, or local
governmental authority on the part of the Company is required in connection
with
the consummation of the transactions contemplated by this Agreement except
for
filing of a Form D with respect to the Securities as required under Regulation
D, and notice filings required pursuant to applicable “blue sky” laws in the
states in which the Securities are offered and/or sold. The Company shall take
all other necessary action and proceedings as may be required and permitted
by
applicable law, rule and regulation, for the legal and valid issuance of the
Securities in compliance with such laws.
4.6
Capitalization.
(a)
The
authorized capital stock of the Company consists of 300,000,000 shares of Common
Stock of which, as of the date immediately prior to Closing, 147,774,923 shares
were issued and outstanding, and
(b)
Except
(i) as disclosed to the Purchasers in Schedule 4.6(b) of the Disclosure
Schedules, or (ii) as contemplated herein, there are no outstanding warrants,
options, convertible or exchangeable securities or other rights, agreements
or
arrangements of any character under which the Company is or may be obligated
to
issue any equity securities of any kind.
4.7
Litigation.
Except
as
disclosed to the Purchasers on Schedule 4.7 of the Disclosure Schedules and
except as disclosed in the SEC Documents, there are no actions, suits,
proceedings or investigations pending or, to the best of the Company’s
knowledge, threatened against the Company or any of its properties before or
by
any court or arbitrator or any governmental body, agency or official in which
there is a reasonable likelihood (in the reasonable judgment of the Company)
of
an adverse decision that (a) could have a material adverse effect on the assets,
liabilities, financial condition, business or operations of the Company, or
(b)
could impair the ability of the Company to perform in any material respect
its
obligations under this Agreement, the Debentures or the Warrants or any other
Transaction Document.
4.8
Company
not an “Investment Company”.
The
Company is not, and immediately after receipt of payment for the Securities
will
not be, an “investment company” or an entity “controlled” by an “investment
company” within the meaning of the Investment Company Act of 1940 and shall
conduct its business in a manner so that it will not become subject to such
Act.
4.9
Compliance.
The
Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
Act and is quoted on the OTCBB, and the Company has taken no action designed
for
the purpose of, or likely to have the effect of, terminating the registration
of
its Common Stock under the Exchange Act or de-listing the Common Stock from
the
OTCBB, nor has the Company received any notification that the SEC or the OTCBB
is contemplating terminating such registration or listing. The Company is in
material compliance with the listing and maintenance requirements for continued
listing of the Common Stock on the OTCBB.
4.10
Use
of Proceeds.
The
proceeds of this Agreement shall be used for other general corporate
purposes.
4.11
Brokers
and Finders.
Except
as otherwise disclosed on Schedule 4.11 of the Disclosure Schedules, no person
or entity will have, as a result of or in connection with the transactions
contemplated by this Agreement, any valid right, interest or claim against
or
upon the Company or any Purchaser for any commission, fee or other compensation
pursuant to any agreement, arrangement or understanding, written or oral,
entered into by or on behalf of the Company.
4.12
Intellectual
Property.
(a)
“Intellectual
Property”
shall
mean patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes.
(b)
Except
as
disclosed in the SEC Documents and to the best knowledge of the Company, the
Company owns or has the valid right to use all of the Intellectual Property
that
is necessary for the conduct of the Company’s business as currently conducted or
as currently proposed to be conducted free and clear of all material liens
and
encumbrances.
(c)
Except
as
disclosed to the Purchasers on Schedule 4.12(c) of the Disclosure Schedules
or
as disclosed in the SEC Documents and to the knowledge of the Company, (i)
the
conduct of the Company’s business as currently conducted does not infringe or
otherwise conflict with (collectively, “Infringe”)
any
Intellectual Property rights of any third party or any confidentiality
obligation owed by the Company to a third party and the Company has not received
any written notice of any such Infringement, and (ii) the Intellectual Property
and confidential information of the Company are not being Infringed by any
third
party.
(d)
Except
as
disclosued on Schedule 4.12(d) of the Disclosure Schedules, each employee,
consultant and contractor of the Company who has had access to confidential
information of the Company that is necessary for the conduct of Company’s
business as currently conducted or as currently proposed to be conducted has
executed an agreement to maintain the confidentiality of such confidential
information and has executed agreements that are substantially consistent with
the Company’s standard forms thereof.
4.13
Questionable
Payments.
Neither
the Company nor, to the best knowledge of the Company, any of its current or
former stockholders, directors, officers, employees, agents or other persons
acting on behalf of the Company, has on behalf of the Company or in connection
with its business: (a) used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity;
(b) made any direct or indirect unlawful payments to any governmental officials
or employees from corporate funds; (c) established or maintained any unlawful
or
unrecorded fund of corporate monies or other assets; (d) made any false or
fictitious entries on the books and records of the Company; or (e) made any
unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful
payment of any nature.
4.14
Transactions
with Affiliates.
Except
as disclosed in the SEC Documents or on Schedule 4.14 of the Disclosure
Schedules, none of the officers, directors or shareholders of the Company and,
to the best knowledge of the Company, none of the employees of the Company
is
presently a party to any transaction with the Company or to a presently
contemplated transaction (other than for services as employees, officers and
directors) that would be required to be disclosed pursuant to Item 404 of
Regulation S-B promulgated under the Securities Act of 1933, as amended (the
“Securities
Act”).
4.15
Insurance.
The
Company maintains and will continue to maintain insurance with financially
sound
and reputable insurers in such amounts and covering such risks and in such
amounts as are reasonably adequate, prudent and consistent with industry
practice for the conduct of its business and the value of its property, all
of
which insurance is in full force and effect. The Company has not received notice
from, and has no knowledge of any threat by, any insurer that has issued any
insurance policy to the Company that such insurer intends to deny coverage
under
or cancel, discontinue or not renew any insurance policy in force as of the
date
hereof.
4.16
No
Additional Agreements.
The
Company does not have any agreement or understanding with any Purchaser with
respect to the transactions contemplated by this Agreement other than as
specified in this Agreement.
4.17
Absence
of Undisclosed Liabilities.
The
Company has no material liabilities of any nature (whether absolute, accrued,
contingent or otherwise), except (i) as and to the extent reflected in the
Financial Statements as of and for the fiscal year ended December 31, 2007
and
the most recent fiscal quarter ended March 31, 2008, and (ii) for liabilities
that have been incurred in the ordinary course of business consistent with
past
practice since December 31, 2007 and the most recent fiscal quarter ended March
31, 2008 and that would not, individually and in the aggregate, reasonably
be
expected to have a material adverse effect on the assets, financial condition,
business or operations of the Company.
4.18
Governmental
Authorizations. The
Company has all permits, licenses and other authorizations of governmental
authorities that are required for the conduct of its business and operations
as
currently conducted or as currently proposed to be conducted, the lack of which
could materially and adversely affect the assets, financial condition, business
or operations of the Company, except as described in the SEC Documents. The
Company is, and at all times has been, in compliance with the provisions of
its
material permits, licenses and other governmental authorizations.
4.19
No
Material Adverse Change. Except
as
otherwise disclosed herein or in the SEC Documents, since December 31, 2007,
there have not been any changes in the assets, liabilities, financial condition
or operations of the Company from that reflected in the Financial Statements
except changes in the ordinary course of business that have not been, either
individually or in the aggregate, materially adverse. The Company does not
have
pending before the SEC any request for confidential treatment of
information.
4.20
Reservation.
The
Company has duly reserved for issuance such number of shares of Common Stock
as
may be issuable from time to time upon exercise or conversion, as the case
may
be, of the Securities.
4.21
Internal
Accounting 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
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management’s general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets
at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures
(as
defined in Exchange Rules 13a-15 and 15d-15) for the Company and designed such
disclosure controls and procedures to ensure that material information relating
to the Company is made known to the certifying officers by others within those
entities, particularly during the period in which the Company’s Form 10-K or
10-Q, as the case may be, is being prepared.
4.22
Title
to Assets.
Except
as disclosed to Purchasers on Schedule 4.22 of the Disclosure Schedules, the
Company has good and marketable title in fee simple to all real property owned
by it that is material to the business of the Company and good and marketable
title in all tangible personal property owned by them that is material to the
business of the Company in each case free and clear of all liens, except for
liens identified on Schedule 4.22 or as do not materially affect the value
of
such property and do not materially interfere with the use made and proposed
to
be made of such property by the Company, and liens for the payment of federal,
state or other taxes, the payment of which is neither delinquent nor subject
to
penalties. Any real property and facilities held under lease by the Company
is
held by it under valid, subsisting and enforceable leases with which the Company
is in material compliance.
4.23
Registration
Rights.
Except
as disclosed to the Purchasers on Schedule 4.23 of the Disclosure Schedules,
the
Company has not granted or agreed to grant to any person any rights (including
“piggy back” registration rights) to have any securities of the Company
registered with the SEC or any other governmental authority.
4.24
Material
Non-Public Information.
The
Company confirms that it has not provided any of the Purchasers or their agents
or counsel with any information that constitutes or might constitute material
non-public information as of the Closing Date (other than with respect to the
transactions contemplated by this Agreement). The Company understands and
confirms that the Purchasers shall be relying on the foregoing representations
in effecting transactions in securities of the Company.
ARTICLE
5
REPRESENTATIONS,
WARRANTIES AND COVENANTS OF THE PURCHASERS
Each
Purchaser hereby severally represents and warrants to the Company:
5.1
Authorization.
(a)
Purchaser has all requisite legal and corporate or other power and capacity
and
has taken all requisite corporate or other action to execute and deliver this
Agreement, the Security Agreement and the Registration Rights Agreement to
purchase the Debentures and the Warrants to be purchased by it and to carry
out
and perform all of its obligations under this Agreement and the other
Transaction Documents, and (b) this Agreement and the other Transaction
Documents to which a Purchaser is a party constitutes the legal, valid and
binding obligation of such Purchaser, enforceable in accordance with its terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
or
similar laws relating to or affecting the enforcement of creditors’ rights
generally and (ii) as limited by equitable principles generally.
5.2
No
Legal, Tax or Investment Advice. Purchaser
understands that nothing in this Agreement or any other materials presented
to
Purchaser in connection with the purchase and sale of the Debentures and the
Warrants constitutes legal, tax or investment advice. Purchaser has consulted
such legal, tax and investment advisors as it, in its sole discretion, has
deemed necessary or appropriate in connection with its purchase of the
Debentures.
5.3
Purchaser’s Status. Each
Purchaser represents that he is an “accredited investor” as defined in
Regulation D promulgated under the Securities Act. Such Purchaser is not
required to be registered as a broker-dealer under Section 15 of the Exchange
Act, and such Purchaser is not a broker-dealer. Purchaser understands that
the
Securities must be held indefinitely unless such Securities are registered
under
the Securities Act or an exemption from registration is available and confirms
that Purchaser is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act
(“Rule
144”),
and
that Purchaser has been advised that Rule 144 permits resales only under certain
circumstances. Such Purchaser understands that to the extent that Rule 144
is
not available, such Purchaser will be unable to sell any Securities without
either registration under the Securities Act or the existence of another
exemption from such registration requirement. Purchaser understands that the
Securities are being offered and sold in reliance on an exemption from the
registration requirement of federal and state securities laws, and the Company
is relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of Purchaser set forth herein
in
order to determine the applicability of such exemptions and the suitability
of
such Purchaser to acquire the Securities.
ARTICLE
6
ADDITIONAL
AGREEMENTS OF THE COMPANY
6.1
Securities
Laws Disclosure; Publicity. The
Company shall, by 8:30 a.m. Eastern Standard Time on the third business day
following the date of this Agreement, issue a press release and file a Current
Report on Form 8-K, in each case reasonably acceptable to the Majority in
Interest on behalf of the Purchasers, disclosing the transactions contemplated
hereby. The Company and the Majority in Interest shall consult with each other
in issuing any press releases with respect to the transactions contemplated
hereby, and none of the Company, the Majority in Interest, or any Purchaser
shall issue any such press release or otherwise make any such public statement
without the prior consent of the Company (in the case of any press release
or
public statement proposed to be issued by the Majority in Interest or any
Purchaser) or without the prior consent of the Majority in Interest on behalf
of
the Purchasers (in the case of any press release or public statement proposed
to
be issued by the Company), which consent shall not unreasonably be withheld,
except if such disclosure is required by law, in which case the disclosing
party
shall promptly provide the other party with notice of such public statement
or
communication and consult with each other with respect thereto prior to such
public disclosure. Notwithstanding the foregoing, other than as set forth above,
the Company shall not publicly disclose the name of any Purchaser, or include
the name of any Purchaser in any filing with the Commission or any regulatory
agency or stock exchange, except to the extent such disclosure is required
by
law or stock exchange regulation, in which case the Company shall provide the
Purchasers with prior notice of such disclosure. Notwithstanding anything to
the
contrary, herein, the Purchasers consent to their name being disclosed in the
exhibits in filings made by the Company with the SEC.
6.2
Listing
of Common Stock. The
Company hereby agrees to use commercially reasonable efforts to secure and
maintain the listing on the OTCBB of the Common Stock underlying the Securities
sold hereunder until the New Listing Event (as defined below).
The
Company further agrees that the Company will apply to have its Common Stock
listed on either the Nasdaq, AMEX or NYSE, and such listing will be obtained
within 270 calendar days of September 1, 2008 (the “New
Listing Event”).
To
the extent the Company is not successful in having its Common Stock listed
on
either the Nasdaq, AMEX or NYSE within 270 calendar days of September 1, 2008,
the
Company shall pay to the Purchasers the equivalent of 1% of the principal amount
of the Debentures not to exceed a total amount of 10%.
6.3
All
Assets Free and Clear.
As a
condition to Closing, the Company shall deliver to the Purchasers (each as
a
“Lender”
pursuant to the Debentures) UCC lien searches, judgment searches, federal and
local tax lien searches and all other documents reasonably requested by a Lender
to demonstrate that any and all assets with respect to which a Lender is
acquiring or being granted a security interest are free and clear of all liens,
claims and encumbrances, except as specifically noted on Schedule 4.22 of the
Disclosure Schedules or to the extent any liens, claims and encumbrances shall
be acquired as security for the benefit of a Lender or satisfied from the
proceeds of this transaction.
6.4
Available
Shares.
The
Company shall always have available for issuance to the Purchasers at least
100%
of the shares then anticipated to be necessary for issuance upon conversion
of
any and all outstanding Convertible Debentures and/or the exercise of all
Warrants.
ARTICLE
7
MISCELLANEOUS
7.1
Waivers
and Amendments. The
terms
of this Agreement may be waived or amended only upon the written consent of
the
Company and the Majority in Interest.
7.2
Governing
Law. This
Agreement shall be governed in all respects by and construed in accordance
with
the laws of the State of New York without any regard to conflicts of laws
principles.
7.3
Survival.
The
representations, warranties, covenants and agreements made in this Agreement
shall survive any investigation made by the Company or the Purchasers and the
Closing.
7.4
Successors
and Assigns. No
Purchaser shall assign this Agreement without the prior written consent of
the
Company.
7.5
Entire
Agreement. This
Agreement and the other Transaction Documents constitute the full and entire
understanding and agreement between the parties with regard to the subjects
thereof.
7.6
Notices,
etc. All
notices and other communications required or permitted under this Agreement
shall be in writing and may be delivered in person, by telecopy, overnight
delivery service or registered or certified United States mail, as
follows:
If
to the
Company:
5th
Floor,
QPL Industrial Building
000-000
Xxxxxx Xxxx
Xxxxx
Xxx, Xxxx Xxxx
With
a
copy to:
Xxxxxxxxxx
& Xxxxx, LLP
Attn:
Xxxxx Xxxxx
Xxxxxxx
Plaza
00000
Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxx
Xxxxxxx, Xxxxxxxxxx 00000
Tel:
(000) 000-0000
Fax:
(000) 000-0000
If
to the
Purchasers:
Professional
Offshore Opportunity Fund, Ltd.
Attn:
Xxxxxx Xxxxxx
0000
Xxx
Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxxx,
Xxx Xxxx 00000
Tel:
(000) 000-0000
With
a
copy to:
Xxxxxx
& Xxxxxx, LLP
Attn:
Xxxx X. Xxxxx
000
Xxxxx
0 Xxxxx, Xxxxx 000
Xxxxxxxxx,
Xxx Xxxxxx 00000
All
notices and other communications shall be effective upon the earlier of actual
receipt thereof by the person to whom notice is directed or (a) in the case
of
notices and communications sent by personal delivery or telecopy, one business
day after such notice or communication arrives at the applicable address or
was
successfully sent to the applicable telecopy number, (b) in the case of notices
and communications sent by overnight delivery service, at noon (local time)
on
the second business day following the day such notice or communication was
sent,
and (c) in the case of notices and communications sent by United States mail,
seven days after such notice or communication shall have been deposited in
the
United States mail.
7.7
Severability
of this Agreement. If
any
provision of this Agreement shall be judicially determined to be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired
thereby.
7.8
Counterparts;
Signatures by Facsimile. This
Agreement may be executed in any number of counterparts, each of which shall
be
an original, but all of which together shall constitute one instrument. This
Agreement, once executed by a party, may be delivered to the other parties
hereto by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
7.9
Further
Assurances. Each
party to this Agreement shall do and perform or cause to be done and performed
all such further acts and things and shall execute and deliver all such other
agreements, certificates, instruments and documents as the other party hereto
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.
7.10
Expenses.
Each
party shall bear its own expenses, except that (i) the expenses related to
quotation of the Warrants on the OTCBB shall be governed by Section 1.5 above,
and (ii) the Company agrees to pay Professional Offshore Opportunity Fund,
Ltd.
and Professional Traders Fund, LLC for their legal expenses and counsel fees
with respect to this Agreement and the transactions contemplated in the
aggregate amount of $35,000 and agrees to pay Professional Traders Management,
LLC the sum of $25,000 as a non-accountable due diligence fee. Expenses under
this subsection (ii) of this provision shall be paid at Closing.
7.11
Replacement
of Securities.
If any
certificate or instrument evidencing any Securities is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefore, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested. The applicants for a new
certificate or instrument under such circumstances shall also pay any reasonable
third-party costs associated with the issuance of such replacement
Securities.
[REMAINDER
OF PAGE LEFT BLANK]
[SIGNATURE
PAGE TO SECURITIES PURCHASE AGREEMENT]
IN
WITNESS WHEREOF,
this
Securities Purchase Agreement is hereby executed as of the date first above
written.
By:
|
||
Name:
Xxxxxx Xxxx
|
||
Title:
Chief Executive Officer
|
||
PROFESSIONAL
OFFSHORE OPPORTUNITY FUND, LTD.
|
||
By:
|
||
Name:
|
||
Title:
|
||
PROFESSIONAL
TRADERS FUND, LLC
|
||
By:
|
||
Name:
|
||
Title:
|
EXHIBIT
A
SCHEDULE
OF PURCHASERS
PURCHASER
|
Principal
Amount
of
Debenture
|
Common
Shares Underlying
Warrant
|
|||||
Professional
Offshore Opportunity Fund, Ltd.
0000
Xxx Xxxxxxx
Xxxx
Xxxxx
000
Xxxxxxxx,
Xxx Xxxx 00000
|
$
|
4,400,000
|
16,793,893
|
||||
Professional
Traders Fund, LLC.
0000
Xxx Xxxxxxx
Xxxx
Xxxxx
000
Xxxxxxxx,
Xxx Xxxx 00000
|
$
|
600,000
|
2,290,077
|
||||
Total
|
$
|
5,000,000
|
19,083,970
|
EXHIBIT
B
FORM
OF DEBENTURE
EXHIBIT
C
FORM
OF SECURITY AGREEMENT
EXHIBIT
D
FORM
OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT
E
FORM
OF ESCROW AGREEMENT
EXHIBIT
F
FORM
OF WARRANT
EXHIBIT
G
FORM
OF SECURED CONVERTIBLE DEBENTURE
EXHIBIT
H
FORM
OF LEGAL OPINION
EXHIBIT
I
NOTICE
OF RESTRUCTURE
(To
be
executed by the Company in order to restructure the Loan)
The
Company hereby elects to replace the Loan, as described in that certain
Securities Purchase Agreement entered into by the Company on April 30, 2008,
which shall at the time of execution of this Notice of Restructure be deemed
fully paid and shall be terminated, cancelled and deemed null and void, and
the
Company shall sell and issue up to $5,000,000 in principal amount of its 12%
Secured Convertible Debenture to purchase shares of the Company’s Common Stock.
Date of Notice:
|
Amount of Principal Amount to be Restructured:
|
EXHIBIT
J
DISCLOSURE
SCHEDULES
Schedule
4.2 – Corporate Powers; Authorization
As
long
as any shares of the Company’s Series B Convertible Preferred Stock remain
outstanding, Section 16 of the Company’s Certificate of Determination of Rights,
Preferences, Privileges and Restrictions of Series B Convertible Preferred
Stock
prohibits the following action without the vote or written consent by the
holders of Series B Convertibles Preferred Stock of at least sixty-seven percent
of the outstanding shares of Series B Convertible Preferred Stock, voting
together as a single class, and unless approved by the Company’s Board of
Directors:
Authorize
or issue, or obligate itself to issue, any debt security, or otherwise incur
indebtedness for borrowed money, other than (A) to a strategic investor in
connection with a strategic commercial agreement or transaction approved by
the
Board of Directors, (B) pursuant to a commercial borrowing, commercial secured
lending or commercial lease financing transaction approved by the Board of
Directors, or (c) pursuant to the acquisition of another corporation or entity
by the Company by consolidation, merger, purchase of all or substantially all
of
the assets, or other reorganization;
Schedule
4.4 – SEC Documents
The
Company’s Current Report on Form 8-K, due to be filed with the SEC by June 8,
2007, was untimely filed on June 11, 2007.
Schedule
4.6(b) – Obligations to Issue Equity Securities
The
Company currently has approximately 514,006 shares of Series B Convertible
Preferred Stock outstanding that are convertible into approximately 13,785,601
shares of its Common Stock, and warrants outstanding that are convertible into
approximately 28,510,347 shares of its Common Stock.
Schedule
4.7 – Litigation
None.
Schedule
4.11 – Brokers & Finders
In
connection with services provided in the transactions contemplated by this
Agreement, Xxxxxxx Xxxxxx LLC is to receive (i) 7% of the Issue Amount, (ii)
cash payment of $3,000, (iii) 7% of any cash proceeds received by the Company
upon exercise of the Warrants, and (iv) four-year warrants to purchase up to
7%
of the number of shares of Common Stock issuable upon exercise of the Warrants
(the “Placement Agent Warrants”), which Placement Agent Warrants shall have an
exercise price of 125% of the exercise price of the Warrant Shares (as defined
in Section 1.4 of the Agreement).
Schedule
4.12(c) – Infringement of Intellectual Property
None.
Schedule
4.14 – Transactions with Affiliates
None.
Schedule
4.22 – Title to Assets
None.
Schedule
4.23 – Registration Rights
The
Company has granted registration rights to the holders of its Series B
Convertible Preferred Stock, pursuant to the terms of the Registration Rights
Agreement attached as an exhibit to the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on August 24,
2006.