SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT Dated as of December 19, 2007 among ASTRATA GROUP INCORPORATED and THE PURCHASERS LISTED ON EXHIBIT A
EXHIBIT
4.1
SERIES
B CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
Dated
as of December 19, 2007
among
ASTRATA
GROUP INCORPORATED
and
THE
PURCHASERS LISTED ON EXHIBIT A
This
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the “Agreement”) is dated
as of December 19, 2007 by and among Astrata Group Incorporated, a Nevada
corporation (the “Company”), and
each
of the Purchasers of shares of Series B Convertible Preferred Stock of the
Company whose names are set forth on Exhibit A hereto
(individually, a “Purchaser”
and
collectively, the “Purchasers”).
The
parties hereto agree as follows:
ARTICLE
I
Purchase
and Sale of Preferred Stock
Section
1.1 Purchase
and Sale of
Stock. Upon the following terms and conditions, the Company
shall issue and sell to the Purchasers and each of the Purchasers shall purchase
from the Company, the number of shares of the Company’s Series B Convertible
Preferred Stock, par value $0.0001 per share and at a purchase price of $1.40
per share (the “Preferred Shares”),
convertible into shares of the Company’s common stock, par value $0.0001 per
share (the “Common
Stock”), in the amounts set forth opposite such Purchaser’s name on Exhibit
A
hereto. The designation, rights, preferences and other terms and
provisions of the Series B Convertible Preferred Stock are set forth in the
Certificate of Designation of the Relative Rights and Preferences of the
Series
B Convertible Preferred Stock attached hereto as Exhibit B (the “Certificate
of
Designation”). The Company and the Purchasers are executing
and delivering this Agreement in accordance with and in reliance upon the
exemption from securities registration afforded by Rule 506 of Regulation
D
(“Regulation
D”) as promulgated by the United States Securities and Exchange
Commission (the “Commission”) under
the Securities Act of 1933, as amended (the “Securities Act”) or
Section 4(2) of the Securities Act.
Section
1.2 Warrants. Upon
the following terms and conditions and for no additional consideration, each
of
the Purchasers shall be issued (i) Series A Warrants, in substantially the
form
attached hereto as Exhibit C-1 (the
“Series
A
Warrants”), to purchase the number of shares of Common Stock equal to
fifty percent (50%) of the number of Conversion Shares (as defined in Section
1.3 hereof) issuable upon conversion of the Preferred Shares purchased by
each
Purchaser pursuant to the terms of this Agreement, as set forth opposite
such
Purchaser’s name on Exhibit A hereto,
(ii) Series B Warrants, in substantially the form attached hereto as Exhibit C-2 (the
“Series
B
Warrants”), to purchase the number of shares of Common Stock equal to
fifty percent (50%) of the number of Conversion Shares issuable upon conversion
of the Preferred Shares purchased by each Purchaser pursuant to the terms
of
this Agreement, as set forth opposite such Purchaser’s name on Exhibit A hereto,
(iii) Series J Warrants, in substantially the form attached hereto as Exhibit C-3 (the
“Series
J
Warrants”), to purchase the number of shares of Series B-2 Convertible
Preferred Stock equal to one hundred percent (100%) of the number of Preferred
Shares purchased by each Purchaser, as set forth opposite such Purchaser’s name
on Exhibit A
hereto, (iv) Series C Warrants, in substantially the form attached hereto
as
Exhibit C-4
(the “Series C
Warrants”), to purchase the number of shares of Common Stock equal to
fifty percent (50%) of the number of Conversion Shares issuable upon conversion
of the Preferred Shares purchased by each Purchaser pursuant to the terms
of
this Agreement, as set forth opposite such Purchaser’s name on Exhibit A hereto,
and
(v) Series D Warrants, in substantially the form attached hereto as Exhibit C-5 (the
“Series
D
Warrants” and, together with the Series A Warrants, the Series B
Warrants, the Series J Warrants and the Series C Warrants, the “Warrants”), to
purchase the number of shares of Common Stock equal to fifty percent (50%)
of
the number of Conversion Shares issuable upon conversion of the Preferred
Shares
purchased by each Purchaser pursuant to the terms of this Agreement, as set
forth opposite such Purchaser’s name on Exhibit A
hereto. The Warrants shall expire five (5) years following the
Closing Date, except for the Series C Warrants and the Series D Warrants,
which
shall expire six (6) years following the Closing Date, and the Series J
Warrants, which shall expire one (1) year following the Closing
Date. Each of the Warrants shall have an exercise price per share
equal to the Warrant Price (as defined in the applicable Warrant).
Section
1.3 Conversion
Shares. The Company has authorized and has reserved and
covenants to continue to reserve, free of preemptive rights and other similar
contractual rights of stockholders, a number of shares of Common Stock equal
to
one hundred fifty percent (150%) of the number of shares of Common Stock
as
shall from time to time be sufficient to effect the conversion of all of
the
Preferred Shares and exercise of the Warrants then outstanding. Any
shares of Common Stock issuable upon conversion of the Preferred Shares and
exercise of the Warrants (and such shares when issued) are herein referred
to as
the “Conversion
Shares” and the "Warrant
Shares",
respectively. The Preferred Shares, the Conversion Shares and the
Warrant Shares are sometimes collectively referred to as the “Shares”.
Section
1.4 Purchase
Price and
Closing. Subject to the terms and conditions hereof, the
Company agrees to issue and sell to the Purchasers and, in consideration
of and
in express reliance upon the representations, warranties, covenants, terms
and
conditions of this Agreement, the Purchasers, severally but not jointly,
agree
to purchase the Preferred Shares and the Warrants for an aggregate purchase
price of up to $3,000,000 (the “Purchase
Price”). The closing of the purchase and sale of the Preferred
Shares and the Warrants to be acquired by the Purchasers from the Company
under
this Agreement shall take place at the offices of Xxxxxx Xxxxx Xxxxxxxx &
Xxxxxxx LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (the “Closing”) at 10:00
a.m., New York time on such date as the Purchasers and the Company may agree
upon; provided,
that all of the conditions set forth in Article IV hereof and applicable
to the
Closing shall have been fulfilled or waived in accordance herewith (the "Closing
Date"). Subject to the terms and conditions of this Agreement,
at the Closing the Company shall deliver or cause to be delivered to each
Purchaser (x) a certificate for the number of Preferred Shares set forth
opposite the name of such Purchaser on Exhibit A hereto,
(y)
its Warrants to purchase such number of shares of Common Stock as is set
forth
opposite the name of such Purchaser on Exhibit A attached
hereto and (z) any other documents required to be delivered pursuant to Article
IV hereof. At the Closing, each Purchaser shall deliver its Purchase
Price by wire transfer to the escrow account pursuant to the Escrow Agreement
(as hereafter defined).
ARTICLE
II
Representations
and Warranties
Section
2.1 Representations
and
Warranties of the Company. The Company hereby represents and
warrants to the Purchasers, as of the date hereof and the Closing Date (except
as set forth on the Schedule of Exceptions attached hereto with each numbered
Schedule corresponding to the section number herein), as follows:
-2-
(a)
Organization,
Good
Standing and Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State
of Nevada and has the requisite corporate power to own, lease and operate
its
properties and assets and to conduct its business as it is now being
conducted. The Company does not have any subsidiaries except as set
forth in the Company’s Form 10-KSB for the year ended February 28, 2007,
including the accompanying financial statements (the “Form 10-KSB”), or in
the Company’s Form 10-QSB for the fiscal quarters ended August 31, 2007, May 31,
2007 and November 30, 2006 (collectively, the “Form 10-QSB”), or on
Schedule 2.1(g)
hereto. The Company and each such subsidiary is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes
such
qualification necessary except for any jurisdiction(s) (alone or in the
aggregate) in which the failure to be so qualified will not have a Material
Adverse Effect (as defined in Section 2.1(c) hereof) on the Company’s financial
condition.
(b)
Authorization;
Enforcement. The Company has the requisite corporate power and
authority to enter into and perform this Agreement, the Registration Rights
Agreement in the form attached hereto as Exhibit D (the “Registration
Rights
Agreement”), the Escrow Agreement by and among the Company, the
Purchasers and the escrow agent, dated as of the date hereof, substantially
in
the form of Exhibit
E attached hereto (the “Escrow
Agreement”),
the Irrevocable Transfer Agent Instructions (as defined in Section 3.13),
the
Certificate of Designation, and the Warrants (collectively, the “Transaction
Documents”) and to issue and sell the Shares and the Warrants in
accordance with the terms hereof. The execution, delivery and
performance of the Transaction Documents by the Company and the consummation
by
it of the transactions contemplated hereby and thereby have been duly and
validly authorized by all necessary corporate action, and no further consent
or
authorization of the Company or its Board of Directors or stockholders is
required. This Agreement has been duly executed and delivered by the
Company. The other Transaction Documents will have been duly executed
and delivered by the Company at the Closing. Each of the Transaction
Documents constitutes, or shall constitute when executed and delivered, a
valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor’s rights and remedies or by other
equitable principles of general application.
(c)
Capitalization. The
authorized capital stock of the Company and the shares thereof currently
issued
and outstanding as of the date hereof are set forth on Schedule 2.1(c)
hereto. All of the outstanding shares of the Common Stock and the
Preferred Shares have been duly and validly authorized. Except as set
forth on Schedule
2.1(c) hereto, no shares of Common Stock are entitled to preemptive
rights or registration rights and there are no outstanding options, warrants,
scrip, rights to subscribe to, call or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company. There are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound
to
issue additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the
Company. Except as set forth on Schedule 2.1(c)
hereto, the Company is not a party to any agreement granting registration
or
anti-dilution rights to any person with respect to any of its equity or debt
securities. The Company is not a party to, and it has no knowledge
of, any agreement restricting the voting or transfer of any shares of the
capital stock of the Company. The offer and sale of all capital
stock, convertible securities, rights, warrants, or options of the Company
issued prior to the Closing complied with all applicable federal and state
securities laws, and no stockholder has a right of rescission or claim for
damages with respect thereto which would have a Material Adverse Effect (as
defined below). The Company has furnished or made available to the
Purchasers true and correct copies of the Company’s Articles of Incorporation as
in effect on the date hereof (the “Articles”), and
the
Company’s Bylaws as in effect on the date hereof (the “Bylaws”). For
the purposes of this Agreement, “Material Adverse
Effect” means any material adverse effect on the business, operations,
properties, prospects, or financial condition of the Company and its
subsidiaries and/or any condition, circumstance, or situation that would
prohibit or otherwise materially interfere with the ability of the Company
to
perform any of its obligations under this Agreement in any material
respect.
-3-
(d)
Issuance of
Shares. The Preferred Shares and the Warrants to be issued at
the Closing have been duly authorized by all necessary corporate action and
the
Preferred Shares, when paid for or issued in accordance with the terms hereof,
shall be validly issued and outstanding, fully paid and nonassessable and
entitled to the rights and preferences set forth in the Certificate of
Designation. When the Conversion Shares and the Warrant Shares are
issued in accordance with the terms of the Certificate of Designation and
the
applicable Warrants, respectively, such shares will be duly authorized by
all
necessary corporate action and validly issued and outstanding, fully paid
and
nonassessable, and the holders shall be entitled to all rights accorded to
a
holder of Common Stock.
(e)
No
Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the performance by the Company of its
obligations under the Certificate of Designation and the consummation by
the
Company of the transactions contemplated herein and therein do not and will
not
(i) violate any provision of the Company’s Articles or Bylaws, (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, mortgage, deed
of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party or by which it or its properties or assets
are
bound, (iii) create or impose a lien, mortgage, security interest, charge
or
encumbrance of any nature on any property of the Company under any agreement
or
any commitment to which the Company is a party or by which the Company is
bound
or by which any of its respective properties or assets are bound, or (iv)
result
in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries
or by
which any property or asset of the Company or any of its subsidiaries are
bound
or affected, except, in all cases other than violations pursuant to clauses
(i)
and (iv) above, for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or
in the
aggregate, have a Material Adverse Effect. The business of the
Company and its subsidiaries is not being conducted in violation of any laws,
ordinances or regulations of any governmental entity, except for possible
violations which singularly or in the aggregate do not and will not have
a
Material Adverse Effect. The Company is not required under federal,
state or local law, rule or regulation to obtain any consent, authorization
or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under the Transaction Documents, or issue and sell the Preferred Shares,
the
Warrants, the Conversion Shares and the Warrant Shares in accordance with
the
terms hereof or thereof (other than any filings which may be required to
be made
by the Company with the Commission or state securities administrators subsequent
to the Closing, any registration statement which may be filed pursuant hereto,
and the Certificate of Designation); provided that,
for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements
of
the Purchasers herein.
-4-
(f)
Commission Documents,
Financial Statements. The Common Stock is registered pursuant
to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended
the
“Exchange
Act”), and except as disclosed on Schedule
2.1(f), the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Commission pursuant to the
reporting requirements of the Exchange Act, 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
“Commission
Documents”). The Company has delivered or made available to
each of the Purchasers true and complete copies of the Commission
Documents. The Company has not provided to the Purchasers any
material non-public information or other information which, according to
applicable law, rule or regulation, was required to have been disclosed publicly
by the Company but which has not been so disclosed, other than with respect
to
the transactions contemplated by this Agreement. At the times of
their respective filings, the Form 10-KSB and the Form 10-QSB complied in
all
material respects with the requirements of the Exchange Act and the rules
and
regulations of the Commission promulgated thereunder and other federal, state
and local laws, rules and regulations applicable to such documents, and,
as of
their respective dates, none of the Form 10-KSB and the Form 10-QSB contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the
Commission Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission or other applicable rules and regulations with respect
thereto. Such financial statements have been prepared in accordance
with United States generally accepted accounting principles (“GAAP”) applied
on a
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the
case
of unaudited interim statements, to the extent they may not include footnotes
or
may be condensed or summary statements), and fairly present in all material
respects the financial position of the Company and its subsidiaries as of
the
dates thereof and the results of operations and cash flows for the periods
then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(g)
Subsidiaries. Schedule
2.1(g)
hereto sets forth each subsidiary of the Company, showing the jurisdiction
of
its incorporation or organization and showing the percentage of each person’s
ownership. For the purposes of this Agreement, “subsidiary”
shall
mean any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other subsidiaries. All of the outstanding shares
of capital stock of each subsidiary have been duly authorized and validly
issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any subsidiary for the purchase
or acquisition of any shares of capital stock of any subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company
nor any subsidiary is subject to any obligation (contingent or otherwise)
to
repurchase or otherwise acquire or retire any shares of the capital stock
of any
subsidiary or any convertible securities, rights, warrants or options of
the
type described in the preceding sentence. Neither the Company nor any
subsidiary is party to, nor has any knowledge of, any agreement restricting
the
voting or transfer of any shares of the capital stock of any
subsidiary.
-5-
(h)
No Material Adverse
Change. Since February 28, 2007, the Company has not
experienced or suffered any Material Adverse Effect.
(i)
No Undisclosed
Liabilities. Neither the Company nor any of its subsidiaries
has any liabilities, obligations, claims or losses (whether liquidated or
unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise)
other than those incurred in the ordinary course of the Company’s or its
subsidiaries respective businesses since February 28, 2007 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company or its subsidiaries.
(j)
No Undisclosed
Events
or Circumstances. No event or circumstance has occurred or
exists with respect to the Company or its subsidiaries or their respective
businesses, properties, prospects, operations or financial condition, 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.
(k)
Indebtedness. The
Form 10-KSB, Form 10-QSB or Schedule 2.1(k)
hereto sets forth as of a recent date all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or
any
subsidiary has commitments. For the purposes of this Agreement,
“Indebtedness”
shall mean (a) any liabilities for borrowed money or amounts owed in excess
of
$100,000 (other than trade accounts payable incurred in the ordinary course
of
business), (b) all guaranties, endorsements and other contingent obligations
in
respect of Indebtedness of others, whether or not the same are or should
be
reflected in the Company’s balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection
or
similar transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of $25,000 due under leases required
to be
capitalized in accordance with GAAP. Except as set forth on Schedule 2.1(k),
neither the Company nor any subsidiary is in default with respect to any
Indebtedness.
(l)
Title to
Assets. Each of the Company and the subsidiaries has good and
marketable title to all of its real and personal property reflected in the
Form
10-KSB, free and clear of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those disclosed in the Form 10-KSB
or such that, individually or in the aggregate, do not cause a Material Adverse
Effect. All leases of the Company and each of its subsidiaries are
valid and subsisting and in full force and effect.
-6-
(m)
Actions
Pending. Except as disclosed on Schedule
2.1(m),
there is no action, suit, claim, investigation, arbitration, alternate dispute
resolution proceeding or any other proceeding pending or, to the knowledge
of
the Company, threatened against the Company or any subsidiary which questions
the validity of this Agreement or any of the other Transaction Documents
or the
transactions contemplated hereby or thereby or any action taken or to be
taken
pursuant hereto or thereto. There is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding or any
other
proceeding pending or, to the knowledge of the Company, threatened, against
or
involving the Company, any subsidiary or any of their respective properties
or
assets. There are no outstanding orders, judgments, injunctions,
awards or decrees of any court, arbitrator or governmental or regulatory
body
against the Company or any subsidiary or any officers or directors of the
Company or subsidiary in their capacities as such.
(n)
Compliance with
Law. The business of the Company and the subsidiaries has been
and is presently being conducted in accordance with all applicable federal,
state and local governmental laws, rules, regulations and ordinances, except
for
such noncompliance that, individually or in the aggregate, would not cause
a
Material Adverse Effect. The Company and each of its subsidiaries
have all franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals necessary for the conduct of its
business as now being conducted by it unless the failure to possess such
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(o)
Taxes. Except
as disclosed on Schedule 2.1(o), the
Company and each of the subsidiaries has accurately prepared and filed all
federal, state and other tax returns required by law to be filed by it, has
paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected
in
the financial statements of the Company and the subsidiaries for all current
taxes and other charges to which the Company or any subsidiary is subject
and
which are not currently due and payable. None of the federal income
tax returns of the Company or any subsidiary have been audited by the Internal
Revenue Service (the “Service”). The
Company has no knowledge of any additional assessments, adjustments or
contingent tax liability (whether federal or state) of any nature whatsoever,
whether pending or threatened against the Company or any subsidiary for any
period, nor of any basis for any such assessment, adjustment or
contingency.
(p)
Certain
Fees. Except as set forth on Schedule
2.1(p)
hereto, no brokers, finders or financial advisory fees or commissions will
be
payable by the Company or any subsidiary or any Purchaser with respect to
the
transactions contemplated by this Agreement.
(q)
Disclosure. Neither
this Agreement or the Schedules hereto nor any other documents, certificates
or
instruments furnished to the Purchasers by or on behalf of the Company or
any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material
fact
necessary in order to make the statements made herein or therein, in the
light
of the circumstances under which they were made herein or therein, not
misleading.
-7-
(r)
Operation of
Business. The Company and each of the subsidiaries owns or
possesses all patents, trademarks, domain names (whether or not registered)
and
any patentable improvements or copyrightable derivative works thereof, websites
and intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations as set forth in the Form 10-KSB,
and all
rights with respect to the foregoing, which are necessary for the conduct
of its
business as now conducted without any conflict with the rights of
others.
(s)
Environmental
Compliance. The Company and each of its subsidiaries have
obtained all material approvals, authorization, certificates, consents,
licenses, orders and permits or other similar authorizations of all governmental
authorities, or from any other person, that are required under
any Environmental Laws. The Form 10-KSB or Form 10-QSB
describes all material permits, licenses and other authorizations issued
under
any Environmental Laws to the Company or its subsidiaries. “Environmental
Laws”
shall mean all applicable laws relating to the protection of the environment
including, without limitation, all requirements pertaining to reporting,
licensing, permitting, controlling, investigating or remediating emissions,
discharges, releases or threatened releases of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. The
Company has all necessary governmental approvals required under all
Environmental Laws and used in its business or in the business of any of
its
subsidiaries. The Company and each of its subsidiaries are also in
compliance with all other limitations, restrictions, conditions, standards,
requirements, schedules and timetables required or imposed under all
Environmental Laws. Except for such instances as would not
individually or in the aggregate have a Material Adverse Effect, there are
no
past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its subsidiaries
that violate or may violate any Environmental Law after the Closing Date
or that
may give rise to any environmental liability, or otherwise form the basis
of any
claim, action, demand, suit, proceeding, hearing, study or investigation
(i)
under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including without limitation
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous
substance.
(t)
Books and Records;
Internal Accounting Controls. The books and records of the
Company and its subsidiaries accurately reflect in all material respects
the
information relating to the business of the Company and the subsidiaries,
the
location and collection of their assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of the Company or any
subsidiary. The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company, 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
actions is taken with respect to any differences.
-8-
(u)
Material
Agreements. Neither the Company nor any subsidiary is a party
to any written or oral contract, instrument, agreement, commitment, obligation,
plan or arrangement, a copy of which would be required to be filed with the
Commission as an exhibit to a registration statement on Form S-3 or applicable
form (collectively, “Material Agreements”)
if the Company or any subsidiary were registering securities under the
Securities Act, except as may already be filed as an exhibit to or otherwise
included in the Commission Documents. The Company and each of its
subsidiaries has in all material respects performed all the obligations required
to be performed by them to date under the foregoing agreements, have received
no
notice of default and are not in default under any Material Agreement now
in
effect, the result of which could cause a Material Adverse Effect. No
written or oral contract, instrument, agreement, commitment, obligation,
plan or
arrangement of the Company or of any subsidiary limits or shall limit the
payment of dividends on the Preferred Shares, other preferred stock of the
Company, if any, or the Common Stock.
(v)
Transactions with
Affiliates. Except as set forth in the Commission Documents,
there are no loans, leases, agreements, contracts, royalty agreements,
management contracts or arrangements or other continuing transactions between
(a) the Company or any subsidiary on the one hand, and (b) on the other hand,
any officer, employee, consultant or director of the Company, or any of its
subsidiaries, or any person owning any capital stock of the Company or any
subsidiary or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder,
or a
member of the immediate family of such officer, employee, consultant, director
or stockholder.
(w)
Securities Act
of
1933. Based in material part upon the representations herein
of the Purchasers, the Company has complied and will comply with all applicable
federal and state securities laws in connection with the offer, issuance
and
sale of the Shares and the Warrants hereunder. Neither the Company
nor anyone acting on its behalf, directly or indirectly, has or will sell,
offer
to sell or solicit offers to buy any of the Shares, the Warrants or similar
securities to, or solicit offers with respect thereto from, or enter into
any
preliminary conversations or negotiations relating thereto with, any person,
or
has taken or will take any action so as to bring the issuance and sale of
any of
the Shares and the Warrants under the registration provisions of the Securities
Act and applicable state securities laws, and 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 under the Securities Act) in connection with the offer or sale
of
any of the Shares and the Warrants.
(x)
Governmental
Approvals. Except for the filing of any notice prior or
subsequent to the Closing Date that may be required under applicable state
and/or federal securities laws (which, if required, shall be filed on a timely
basis), including the filing of a Form D and a registration statement or
statements pursuant to the Registration Rights Agreement, and the filing
of the
Certificate of Designation with the Secretary of State for the State of Nevada,
no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Preferred Shares
and the Warrants, or for the performance by the Company of its obligations
under
the Transaction Documents.
-9-
(y)
Employees. Neither
the Company nor any subsidiary has any collective bargaining arrangements
or
agreements covering any of its employees. Neither the Company nor any
subsidiary has any employment contract, agreement regarding proprietary
information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to
be
employed or engaged by the Company or such subsidiary. No officer,
consultant or key employee of the Company or any subsidiary whose termination,
either individually or in the aggregate, could have a Material Adverse Effect,
has terminated or, to the knowledge of the Company, has any present intention
of
terminating his or her employment or engagement with the Company or any
subsidiary.
(z)
Absence of Certain
Developments. Except as disclosed on Schedule
2.1(z),
since February 28, 2007, neither the Company nor any subsidiary
has:
(i)
issued any stock, bonds or other corporate securities or any rights, options
or
warrants with respect thereto;
(ii) borrowed
any amount or incurred or become subject to any liabilities (absolute or
contingent) except current liabilities incurred in the ordinary course of
business which are comparable in nature and amount to the current liabilities
incurred in the ordinary course of business during the comparable portion
of its
prior fiscal year, as adjusted to reflect the current nature and volume of
the
Company’s or such subsidiary’s business;
(iii) discharged
or satisfied any lien or encumbrance or paid any obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business;
(iv) declared
or made any payment or distribution of cash or other property to stockholders
with respect to its stock, or purchased or redeemed, or made any agreements
so
to purchase or redeem, any shares of its capital stock;
(v) sold,
assigned or transferred any other tangible assets, or canceled any debts
or
claims, except in the ordinary course of business;
(vi) sold,
assigned or transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property rights,
or
disclosed any proprietary confidential information to any person except to
customers in the ordinary course of business or to the Purchasers or their
representatives;
-10-
(vii) suffered
any substantial losses or waived any rights of material value, whether or
not in
the ordinary course of business, or suffered the loss of any material amount
of
prospective business;
(viii) made
any changes in employee compensation, except in the ordinary course of business
and consistent with past practices;
(ix) made
capital expenditures or commitments therefor that aggregate in excess of
$100,000;
(x)
entered into any other transaction other than in the ordinary course of
business, or entered into any other material transaction, whether or not
in the
ordinary course of business;
(xi) made
charitable contributions or pledges in excess of $25,000;
(xii) suffered
any material damage, destruction or casualty loss, whether or not covered
by
insurance;
(xiii) experienced
any material problems with labor or management in connection with the terms
and
conditions of their employment;
(xiv) effected
any two or more events of the foregoing kind which in the aggregate would
be
material to the Company or its subsidiaries; or
(xv) entered
into an agreement, written or otherwise, to take any of the foregoing
actions.
(aa)
Public Utility
Holding
Company Act and Investment Company Act Status. The Company is
not a “holding company” or a “public utility company” as such terms are defined
in the Public Utility Holding Company Act of 1935, as amended. The
Company is not, and as a result of and immediately upon the Closing will
not be,
an “investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as
amended.
(bb)
ERISA. No
liability to the Pension Benefit Guaranty Corporation has been incurred with
respect to any Plan (as defined below) by the Company or any of its subsidiaries
which is or would be materially adverse to the Company and its
subsidiaries. The execution and delivery of this Agreement and the
issuance and sale of the Preferred Shares will not involve any transaction
which
is subject to the prohibitions of Section 406 of ERISA or in connection with
which a tax could be imposed pursuant to Section 4975 of the Internal Revenue
Code of 1986, as amended, provided that,
if any
of the Purchasers, or any person or entity that owns a beneficial interest
in
any of the Purchasers, is an “employee pension benefit plan” (within the meaning
of Section 3(2) of ERISA) with respect to which the Company is a “party in
interest” (within the meaning of Section 3(14) of ERISA), the requirements of
Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met. As
used in this Section 2.1(bb), the term “Plan”
shall mean
an
“employee pension benefit plan” (as defined in Section 3 of ERISA) which is or
has been established or maintained, or to which contributions are or have
been
made, by the Company or any subsidiary or by any trade or business, whether
or
not incorporated, which, together with the Company or any subsidiary, is
under
common control, as described in Section 414(b) or (c) of the Code.
-11-
(cc)
Dilutive
Effect. The Company understands and acknowledges that its
obligation to issue Conversion Shares upon conversion of the Preferred Shares
in
accordance with this Agreement and the Certificate of Designation and its
obligations to issue the Warrant Shares upon the 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 interest of other stockholders of the Company.
(dd)
No Integrated
Offering. Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf, has directly or indirectly made
any
offers or sales of any security or solicited any offers to buy any security
under circumstances that would cause the offering of the Shares pursuant
to this
Agreement to be integrated with prior offerings by the Company for purposes
of
the Securities Act which would prevent the Company from selling the Shares
pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will the Company or
any of
its affiliates or subsidiaries take any action or steps that would cause
the
offering of the Shares to be integrated with other offerings. The
Company does not have any registration statement pending before the Commission
or currently under the Commission’s review and except as set forth in the
Commission Documents, since June 1, 2007, the
Company has not offered or sold any of its equity securities or debt securities
convertible into shares of Common Stock.
(ee)
Xxxxxxxx-Xxxxx
Act. The Company is in compliance with the applicable
provisions of the Xxxxxxxx-Xxxxx Act of 2002 (the “Xxxxxxxx-Xxxxx
Act”),
and the rules and regulations promulgated thereunder, that are effective,
and
intends to comply with other applicable provisions of the Xxxxxxxx-Xxxxx
Act,
and the rules and regulations promulgated thereunder, upon the effectiveness
of
such provisions.
(ff)
Independent Nature
of
Purchasers. The Company acknowledges that the obligations of
each Purchaser under the Transaction Documents 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 under
the
Transaction Documents. The Company acknowledges that the decision of
each Purchaser to purchase securities pursuant to this Agreement has been
made
by such Purchaser independently of any other purchase and independently of
any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company or of its subsidiaries
which may have been made or given by any other Purchaser or by any agent
or
employee of any other Purchaser, and no Purchaser or any of its agents or
employees shall have any liability to any Purchaser (or any other person)
relating to or arising from any such information, materials, statements or
opinions. The Company acknowledges that nothing contained herein, or
in any Transaction Document, 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
by the
Transaction Documents. The Company acknowledges that each Purchaser
shall be entitled to independently protect and enforce its rights, including
without limitation, the rights arising out of this Agreement or out of the
other
Transaction Documents, and it shall not be necessary for any other Purchaser
to
be joined as an additional party in any proceeding for such
purpose. The Company acknowledges that for reasons of administrative
convenience only, the Transaction Documents have been prepared by counsel
for
one of the Purchasers and such counsel does not represent all of the Purchasers
but only such Purchaser and the other Purchasers have retained their own
individual counsel with respect to the transactions contemplated hereby.
The Company acknowledges that it has elected to provide all Purchasers with
the
same terms and Transaction Documents for the convenience of the Company and
not
because it was required or requested to do so by the Purchasers.
-12-
(gg)
DTC
Status. The Company’s transfer agent is a participant in, and
the Common Stock is eligible for transfer pursuant to, the Depository Trust
Company (“DTC”)
Automated Securities Transfer Program. The name, address, telephone
number, fax number, contact person and email address of the Company’s transfer
agent is set forth on Schedule 2.1(gg)
hereto.
Section
2.2 Representations
and
Warranties of the Purchasers. Each Purchaser hereby makes the
following representations and warranties to the Company with respect solely
to
itself and not with respect to any other Purchaser:
(a)
Organization and
Standing of the Purchasers. If the Purchaser is an entity,
such Purchaser is a corporation or partnership duly incorporated or organized,
validly existing and in good standing under the laws of the jurisdiction
of its
incorporation or organization.
(b)
Authorization
and
Power. Each Purchaser has the requisite power and authority to
enter into and perform this Agreement and to purchase the Preferred Shares
and
Warrants being sold to it hereunder. The execution, delivery and
performance of this Agreement and the Registration Rights Agreement by such
Purchaser and the consummation by it of the transactions contemplated hereby
and
thereby have been duly authorized by all necessary corporate or partnership
action, and no further consent or authorization of such Purchaser or its
Board
of Directors, stockholders, or partners, as the case may be, is
required. Each of this Agreement and the Registration Rights
Agreement has been duly authorized, executed and delivered by such Purchaser
and
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Purchaser enforceable against the Purchaser in
accordance with the terms thereof.
(c)
No
Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the consummation by such
Purchaser of the transactions contemplated hereby and thereby or relating
hereto
do not and will not (i) result in a violation of such Purchaser’s charter
documents or bylaws or other organizational documents 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 or obligation to which such Purchaser is a party or by which its
properties or assets are bound, or result in a violation of any law, rule,
or
regulation, or any order, judgment or decree of any court or governmental
agency
applicable to such Purchaser or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have
a
material adverse effect on such Purchaser). Such Purchaser is not
required to obtain any consent, authorization or order of, or make any filing
or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or the
Registration Rights Agreement or to purchase the Preferred Shares or acquire
the
Warrants in accordance with the terms hereof, provided that for purposes
of the
representation made in this sentence, such Purchaser is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.
-13-
(d)
Acquisition for
Investment. Each Purchaser is acquiring the Preferred Shares
and the Warrants solely for its own account for the purpose of investment
and
not with a view to or for sale in connection with distribution. Each
Purchaser does not have a present intention to sell the Preferred Shares
or the
Warrants, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of the Preferred Shares or the Warrants
to
or through any person or entity; provided, however,
that by
making the representations herein and subject to Section 2.2(h) below, such
Purchaser does not agree to hold the Shares or the Warrants for any minimum
or
other specific term and reserves the right to dispose of the Shares or the
Warrants at any time in accordance with federal and state securities laws
applicable to such disposition. Each Purchaser acknowledges that it
is able to bear the financial risks associated with an investment in the
Preferred Shares and the Warrants and that it has been given full access
to such
records of the Company and the subsidiaries and to the officers of the Company
and the subsidiaries and received such information as it has deemed necessary
or
appropriate to conduct its due diligence investigation and has sufficient
knowledge and experience in investing in companies similar to the Company
in
terms of the Company’s stage of development so as to be able to evaluate the
risks and merits of its investment in the Company.
(e)
Status of
Purchasers. Each Purchaser 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.
(f)
Opportunities
for
Additional Information. Each Purchaser acknowledges that such
Purchaser has had the opportunity to ask questions of and receive answers
from,
or obtain additional information from, the executive officers of the Company
concerning the financial and other affairs of the Company, and to the extent
deemed necessary in light of such Purchaser’s personal knowledge of the
Company’s affairs, such Purchaser has asked such questions and received answers
to the full satisfaction of such Purchaser, and such Purchaser desires to
invest
in the Company.
(g)
No General
Solicitation. Each Purchaser acknowledges that the Preferred
Shares and the Warrants were not offered to such Purchaser by means of any
form
of general or public solicitation or general advertising, or publicly
disseminated advertisements or sales literature, including (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media, or broadcast over television or radio,
or
(ii) any seminar or meeting to which such Purchaser was invited by any of
the
foregoing means of communications.
-14-
(h)
Rule
144. Such Purchaser understands that the Shares must be held
indefinitely unless such Shares are registered under the Securities Act or
an
exemption from registration is available. Such Purchaser acknowledges
that such 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
such person 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 Shares
without either registration under the Securities Act or the existence of
another
exemption from such registration requirement.
(i)
General. Such
Purchaser understands that the Shares are being offered and sold in reliance
on
a transactional 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
such Purchaser set forth herein in order to determine the applicability of
such
exemptions and the suitability of such Purchaser to acquire the
Shares.
(j)
Independent
Investment. Except as may be disclosed in any filings with the
Commission by the Purchasers under Section 13 and/or Section 16 of the Exchange
Act, no Purchaser has agreed to act with any other Purchaser for the purpose
of
acquiring, holding, voting or disposing of the Shares purchased hereunder
for
purposes of Section 13(d) under the Exchange Act, and each Purchaser is acting
independently with respect to its investment in the Shares.
(k)
Trading
Activities. Each
Purchaser’s trading activities with respect to
the Shares shall
be in
compliance with all applicable federal and state securities laws. No
Purchaser nor any of
its affiliates has an open short position in the Common Stock; each Purchaser
agrees that it shall not, and that it will cause its affiliates not to, engage
in any short sales with respect to the Common Stock until the date that is
one
year following the date the Conversion Shares and Warrant Shares are freely
tradable.
ARTICLE
III
Covenants
The
Company covenants with each of the Purchasers as follows, which covenants
are
for the benefit of the Purchasers and their permitted assignees (as defined
herein).
Section
3.1 Securities
Compliance. The Company shall notify the Commission and all
applicable state authorities in accordance with their respective rules and
regulations, of the transactions contemplated by any of the Transaction
Documents, including filing a Form D with respect to the Preferred Shares,
Warrants, Conversion Shares and Warrant Shares as required under Regulation
D
and applicable “blue sky” laws, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Preferred Shares, the
Warrants, the Conversion Shares and the Warrant Shares to the Purchasers
or
subsequent holders.
-15-
Section
3.2 Registration
and
Listing. The Company shall cause its Common Stock to continue
to be registered under Sections 12(b) or 12(g) of the Exchange Act, to comply
in
all respects with its reporting and filing obligations under the Exchange
Act,
to comply with all requirements related to any registration statement filed
pursuant to this Agreement, and to not take any action or file any document
(whether or not permitted by the Securities Act or the rules promulgated
thereunder) to terminate or suspend such registration or to terminate or
suspend
its reporting and filing obligations under the Exchange Act or Securities
Act,
except as permitted herein. The Company will take all action
necessary to continue the listing or trading of its Common Stock on the OTC
Bulletin Board or other exchange or market on which the Common Stock is trading
or may be traded in the future. Subject to the terms of the
Transaction Documents, the Company further covenants that it will take such
further action as the Purchasers may reasonably request, all to the extent
required from time to time to enable the Purchasers to sell the Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act. Upon the
request of the Purchasers, the Company shall deliver to the Purchasers a
written
certification of a duly authorized officer as to whether it has complied
with
such requirements.
Section
3.3 Inspection
Rights. The Company shall permit, during normal business hours
and upon reasonable request and reasonable notice, each Purchaser or any
employees, agents or representatives thereof, so long as such Purchaser shall
be
obligated hereunder to purchase the Preferred Shares or shall beneficially
own
any Preferred Shares, or shall own Conversion Shares which, in the aggregate,
represent more than 2% of the total combined voting power of all voting
securities then outstanding, for purposes reasonably related to such Purchaser’s
interests as a stockholder to examine and make reasonable copies of and extracts
from the records and books of account of, and visit and inspect the properties,
assets, operations and business of the Company and any subsidiary, and to
discuss the affairs, finances and accounts of the Company and any subsidiary
with any of its officers, consultants, directors, and key employees; provided, however,
that the
Company shall not provide to or discuss with such Purchaser any material
non-public information, unless prior thereto such Purchaser shall have executed
a written agreement regarding the confidentiality and use of such
information.
Section
3.4 Compliance
with
Laws. The Company shall comply, and cause each subsidiary to
comply, with all applicable laws, rules, regulations and orders, noncompliance
with which could have a Material Adverse Effect.
Section
3.5 Keeping
of Records and Books
of Account. The Company shall keep and cause each subsidiary
to keep adequate records and books of account, in which complete entries
will be
made in accordance with GAAP consistently applied, reflecting all financial
transactions of the Company and its subsidiaries, and in which, for each
fiscal
year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
Section
3.6 Reporting
Requirements. If the Commission ceases making periodic reports
filed under the Exchange Act available via the Internet, then at a Purchaser’s
request the Company shall furnish the following to such Purchaser so long
as
such Purchaser shall be obligated hereunder to purchase the Preferred Shares
or
shall beneficially own any Shares:
-16-
(a)
Quarterly Reports filed with the Commission on Form 10-QSB as soon as practical
after the document is filed with the Commission, and in any event within
five
(5) days after the document is filed with the Commission;
(b)
Annual Reports filed with the Commission on Form 10-KSB as soon as practical
after the document is filed with the Commission, and in any event within
five
(5) days after the document is filed with the Commission; and
(c)
Copies of all notices and information, including without limitation notices
and
proxy statements in connection with any meetings, that are provided to holders
of shares of Common Stock, contemporaneously with the delivery of such notices
or information to such holders of Common Stock.
Section
3.7 Amendments. The
Company shall not amend or waive any provision of the Articles or Bylaws
of the
Company in any way that would adversely affect the liquidation preferences,
dividend rights, conversion rights, voting rights or redemption rights of
the
Preferred Shares; provided, however,
that any
creation and issuance of another series of Junior Stock (as defined in the
Certificate of Designation) or any other class or series of equity securities
which by its terms shall rank on parity with the Preferred Shares shall not
be
deemed to materially and adversely affect such rights, preferences or
privileges.
Section
3.8 Other
Agreements. The Company shall not enter into any agreement in
which the terms of such agreement would restrict or impair the right or ability
to perform of the Company or any subsidiary under any Transaction
Document.
Section
3.9 Distributions. So
long as any Preferred Shares or Warrants remain outstanding, the Company
agrees
that it shall not (i) declare or pay any dividends or make any distributions
to
any holder(s) of Common Stock or (ii) purchase or otherwise acquire for value,
directly or indirectly, any Common Stock or other equity security of the
Company.
-17-
Section
3.10 Status
of
Dividends. The Company covenants and agrees that (i) no
federal income tax return or claim for refund of federal income tax or other
submission to the Service will adversely affect the Preferred Shares, any
other
series of its Preferred Stock, or the Common Stock, and no deduction shall
operate to jeopardize the availability to Purchasers of the dividends received
deduction provided by Section 243(a)(1) of the Code or any successor provision,
(ii) in no report to shareholders or to any governmental body having
jurisdiction over the Company or otherwise will it treat the Preferred Shares
other than as equity capital or the dividends paid thereon other than as
dividends paid on equity capital unless required to do so by a governmental
body
having jurisdiction over the accounts of the Company or by a change in GAAP
required as a result of action by an authoritative accounting standards setting
body, and (iii) it will take no action which would result in the dividends
paid
by the Company on the Preferred Shares out of the Company’s current or
accumulated earnings and profits being ineligible for the dividends received
deduction provided by Section 243(a)(1) of the Code. The preceding
sentence shall not be deemed to prevent the Company from designating the
Preferred Stock as “Convertible Preferred Stock” in its annual and quarterly
financial statements in accordance with its prior practice concerning other
series of preferred stock of the Company. In the event that the
Purchasers have reasonable cause to believe that dividends paid by the Company
on the Preferred Shares out of the Company’s current or accumulated earnings and
profits will not be treated as eligible for the dividends received deduction
provided by Section 243(a)(1) of the Code, or any successor provision, the
Company will, at the reasonable request of the Purchasers of 51% of the
outstanding Preferred Shares, join with the Purchasers in the submission
to the
Service of a request for a ruling that dividends paid on the Shares will
be so
eligible for federal income tax purposes, at the Purchasers’
expense. In addition, the Company will reasonably cooperate with the
Purchasers (at Purchasers’ expense) in any litigation, appeal or other
proceeding challenging or contesting any ruling, technical advice, finding
or
determination that earnings and profits are not eligible for the dividends
received deduction provided by Section 243(a)(1) of the Code, or any successor
provision to the extent that the position to be taken in any such litigation,
appeal, or other proceeding is not contrary to any provision of the
Code. Notwithstanding the foregoing, nothing herein contained shall
be deemed to preclude the Company from claiming a deduction with respect
to such
dividends if (i) the Code shall hereafter be amended, or final Treasury
regulations thereunder are issued or modified, to provide that dividends
on the
Preferred Shares or Conversion Shares should not be treated as dividends
for
federal income tax purposes or that a deduction with respect to all or a
portion
of the dividends on the Shares is allowable for federal income tax purposes,
or
(ii) in the absence of such an amendment, issuance or modification and after
a
submission of a request for ruling or technical advice, the Service shall
issue
a published ruling or advise that dividends on the Shares should not be treated
as dividends for federal income tax purposes. If the Service
specifically determines that the Preferred Shares or Conversion Shares
constitute debt, the Company may file protective claims for refund.
Section
3.11 Use of
Proceeds. The net proceeds from the sale of the Shares
hereunder shall be used by the Company for working capital and general corporate
purposes and not to redeem any Common Stock or securities convertible,
exercisable or exchangeable into Common Stock or to settle any outstanding
litigation.
Section
3.12 Reservation
of
Shares. So long as any of the Preferred Shares or Warrants
remain outstanding, the Company shall take all action necessary to at all
times
have authorized, and reserved for the purpose of issuance, free of preemptive
rights and other similar contractual rights of stockholders, a number of
shares
of Common Stock equal to one hundred fifty percent (150%) of the number of
shares of Common Stock as shall from time to time be sufficient to effect
the
conversion of all of the Preferred Shares and exercise of the Warrants then
outstanding.
-18-
Section
3.13 Transfer
Agent
Instructions. The Company shall issue irrevocable instructions
to its transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Purchaser or its respective nominee(s), for
the
Conversion Shares and the Warrant Shares in such amounts as specified from
time
to time by each Purchaser to the Company upon conversion of the Preferred
Shares
or exercise of the Warrants in the form of Exhibit F attached
hereto (the “Irrevocable Transfer
Agent
Instructions”). Prior to registration of the Conversion Shares
and the Warrant Shares under the Securities Act, all such certificates shall
bear the restrictive legend specified in Section 5.1 of this
Agreement. The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 3.13
will be
given by the Company to its transfer agent and that the Shares shall otherwise
be freely transferable on the books and records of the Company as and to
the
extent provided in this Agreement and the Registration Rights
Agreement. If a Purchaser provides the Company with an opinion of
counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of all or some of such Purchaser’s Shares may be made
without registration under the Securities Act or the Purchaser provides the
Company with reasonable assurances that such Shares can be sold pursuant
to Rule
144 within the limitations of Rule 144, the Company shall permit the transfer,
and, in the case of the Conversion Shares and the Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates in such name
and
in such denominations as specified by such Purchaser and without any restrictive
legend. The Company acknowledges that a breach by it of its
obligations under this Section 3.13 will cause irreparable harm to the
Purchasers by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law
for a breach of its obligations under this Section 3.13 will be inadequate
and agrees, in the event of a breach or threatened breach by the Company
of the
provisions of this Section 3.13, that the Purchasers 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.
Section
3.14 Disposition
of
Assets. So long as any Preferred Shares remain outstanding,
neither the Company nor any subsidiary shall sell, transfer or otherwise
dispose
of any of its properties, assets and rights including, without limitation,
its
software and intellectual property, to any person except for sales to customers
in the ordinary course of business or with the prior written consent of the
holders of a majority of the Preferred Shares then outstanding.
Section
3.15 Reporting
Status. So
long as a Purchaser beneficially owns any of the Shares, the Company shall
timely file all reports required to be filed with the Commission pursuant
to the
Exchange Act, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act
or the
rules and regulations thereunder would permit such termination.
Section
3.16 Disclosure
of
Transaction. The Company shall issue a press release
describing the material terms of the transactions contemplated hereby (the
“Press
Release”) as soon as practicable after the Closing but in no event later
than 9:00 A.M. Eastern Time on the first Trading Day following the
Closing. The Company shall also file with the Commission a Current
Report on Form 8-K (the “Form 8-K”) describing
the material terms of the transactions contemplated hereby (and attaching
as
exhibits thereto this Agreement, the Registration Rights Agreement, the
Certificate of Designation, the form of each series of Warrant and the Press
Release) as soon as practicable following the Closing Date but in no event
more
than three (3) Trading Days following the Closing Date, which Press Release
and
Form 8-K shall be subject to prior review and comment by the
Purchasers. "Trading Day" means
any day during which the OTC Bulletin Board (or other quotation venue or
principal exchange on which the Common Stock is traded) shall be open for
trading.
-19-
Section
3.17 Disclosure
of Material
Information. The Company covenants and agrees that neither it
nor any other person acting on its behalf has provided or will provide any
Purchaser or its agents or counsel with any information that the Company
believes constitutes material non-public information (other than with respect
to
the transactions contemplated by this Agreement), unless prior thereto such
Purchaser shall have executed a written agreement regarding the confidentiality
and use of such information. The Company understands and confirms that
each Purchaser shall be relying on the foregoing representations in effecting
transactions in securities of the Company.
Section
3.18 Pledge
of
Securities. The Company acknowledges and agrees that the
Shares may be pledged by a Purchaser in connection with a bonafide
margin agreement
or other loan or financing arrangement that is secured by the Common
Stock. The pledge of Common Stock shall not be deemed to be a
transfer, sale or assignment of the Common Stock hereunder, and no Purchaser
effecting a pledge of Common Stock 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; provided that,
a
Purchaser and its pledgee shall be required to comply with the provisions
of
Article V hereof in order to effect a sale, transfer or assignment of Common
Stock to such pledgee. At the Purchasers' expense, the Company hereby agrees
to
execute and deliver such documentation as a pledgee of the Common Stock may
reasonably request in connection with a pledge of the Common Stock to such
pledgee by a Purchaser.
Section
3.19 Form SB-2
Eligibility. The Company currently meets the "registrant
eligibility" and transaction requirements set forth in the general instructions
to Form SB-2 applicable to "resale" registrations on Form SB-2 and the
Company shall file all reports required to be filed by the Company with the
Commission in a timely manner.
Section
3.20 Subsequent
Financings.
(a)
For a period of one (1) year following the effective date of the Registration
Statement (as defined in the Registration Rights Agreement), the Company
covenants and agrees to promptly notify in writing (a "Rights Notice") the
Purchasers of the terms and conditions of any proposed offer or sale to,
or
exchange with (or other type of distribution to) any third party (a “Subsequent
Financing”), of Common Stock or any debt or equity securities
convertible, exercisable or exchangeable into Common Stock; provided, however,
prior to
delivering to each Purchaser a Rights Notice, the Company shall first deliver
to
each Purchaser a written notice of its intention to effect a Subsequent
Financing (“Pre-Notice”) within
three (3) Trading Days of receiving an applicable offer, which Pre-Notice
shall
ask such Purchaser if it wants to review the details of such
financing. Upon the request of a Purchaser, and only upon a request
by such Purchaser within three (3) Trading Days of receipt of a Pre-Notice,
the
Company shall promptly, but no later than two (2) Trading Days after such
request, deliver a Rights Notice to such Purchaser. The Rights Notice
shall describe, in reasonable detail, the proposed Subsequent Financing,
the
names and investment amounts of all investors participating in the Subsequent
Financing (if known), the proposed closing date of the Subsequent Financing,
which shall be no earlier than ten (10) Trading Days from the date of the
Rights
Notice, and all of the terms and conditions thereof and proposed definitive
documentation to be entered into in connection therewith. The Rights
Notice shall provide each Purchaser an option (the “Rights Option”)
during the ten (10) Trading Days following delivery of the Rights Notice
(the
“Option
Period”) to inform the Company whether such Purchaser will purchase up to
its pro rata portion of all or a portion of the securities being offered
in such
Subsequent Financing on the same, absolute terms and conditions as contemplated
by such Subsequent Financing, provided that,
the
amount of such purchase shall not exceed such Purchaser’s Purchase Price
hereunder except as allowed by the following sentence. If any
Purchaser elects not to participate in such Subsequent Financing, the other
Purchasers may participate on a pro-rata basis so long as such participation
in
the aggregate does not exceed the total Purchase Price hereunder. For
purposes of this Section, all references to “pro rata”
means,
for
any Purchaser electing to participate in such Subsequent Financing, the
percentage obtained by dividing (x) the number of Preferred Shares purchased
by
such Purchaser at the Closing by (y) the total number of all of the Preferred
Shares purchased by all of the participating Purchasers at the
Closing. Delivery of any Rights Notice constitutes a representation
and warranty by the Company that there are no other material terms and
conditions, arrangements, agreements or otherwise except for those disclosed
in
the Rights Notice, to provide additional compensation to any party participating
in any proposed Subsequent Financing, including, but not limited to, additional
compensation based on changes in the Purchase Price or any type of reset
or
adjustment of a purchase or conversion price or to issue additional securities
at any time after the closing date of a Subsequent Financing. If the
Company does not receive notice of exercise of the Rights Option from any
or all
of Purchasers within the Option Period, the Company shall have the right
to
close the Subsequent Financing on the scheduled closing date set forth in
the
Rights Notice (or within thirty (30) days thereafter) without the participation
of any or all of such Purchasers; provided that,
all of
the material terms and conditions of the closing are the same as those provided
to the Purchasers in the Rights Notice. If the closing of the
proposed Subsequent Financing does not occur on the scheduled closing date
set
forth in the Rights Notice (or within thirty (30) days thereafter), any closing
of the contemplated Subsequent Financing or any other Subsequent Financing
shall
be subject to all of the provisions of this Section 3.20(a), including, without
limitation, the delivery of a new Rights Notice. The provisions of
this Section 3.20(a) shall not apply to issuances of securities in a Permitted
Financing.
-20-
(b)
For purposes of this Agreement, a Permitted Financing (as defined hereinafter)
shall not be considered a Subsequent Financing. A "Permitted Financing"
shall mean (i) securities issued (other than for cash) in connection with
a
merger, acquisition, or consolidation, (ii) securities issued pursuant to
the
conversion or exercise of convertible or exercisable securities issued or
outstanding on or prior to the date of this Agreement or issued pursuant
to this
Agreement (so long as the conversion or exercise price in such securities
are
not amended to lower such price and/or adversely affect the Purchasers),
(iii)
securities issued in connection with bona fide strategic license agreements
or
other partnering arrangements so long as such issuances are not for the purpose
of raising capital, (iv) Common Stock issued or the issuance or grants of
options to purchase Common Stock pursuant to the Company’s stock option plans
and employee stock purchase plans outstanding as they exist on the date of
this
Agreement, and (v) any warrants issued to the placement agent and its designees
for the transactions contemplated by the Purchase Agreement.
(c)
For a period of two (2) years following the Closing Date, the Company shall
be
prohibited from effecting or entering into an agreement to effect any Subsequent
Financing involving a “Variable Rate
Transaction” without the prior written consent of the holders of 75% of
the Preferred Shares then outstanding. The term “Variable Rate
Transaction” shall mean a transaction in which the Company issues or
sells (i) any debt or equity securities that are convertible into, exchangeable
or exercisable for, or include the right to receive additional shares of
Common
Stock either (A) at a conversion, exercise or exchange rate or other price
that
is based upon and/or varies with the trading prices of or quotations for
the
shares of Common Stock at any time after the initial issuance of such debt
or
equity securities, or (B) with a conversion, exercise or exchange price that
is
subject to being reset at some future date after the initial issuance of
such
debt or equity security or upon the occurrence of specified or contingent
events
directly or indirectly related to the business of the Company or the market
for
the Common Stock (other than customary anti-dilution features) or (ii) enters
into any agreement, including, but not limited to, an equity line of credit,
whereby the Company may sell securities at a future determined
price.
(d)
For the period commencing on the Closing Date and ending on the date that
is one
hundred eighty (180) days following the effective date of the Registration
Statement, the Company shall not file any registration statement under the
Securities Act without the prior written consent of the Purchasers, other
than
the Registration Statement.
-21-
ARTICLE
IV
CONDITIONS
Section
4.1 Conditions
Precedent to the
Obligation of the Company to Sell the Shares. The obligation
hereunder of the Company to issue and sell the Preferred Shares and the Warrants
to the Purchasers is subject to the satisfaction or waiver, at or before
the
Closing, of each of the conditions set forth below. These conditions
are for the Company’s sole benefit and may be waived by the Company at any time
in its sole discretion.
(a)
Accuracy of Each
Purchaser’s Representations and Warranties. The
representations and warranties of each Purchaser 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
are
expressly made as of a particular date, which shall be true and correct in
all
material respects as of such date.
(b)
Performance by
the
Purchasers. Each Purchaser shall have performed, satisfied and
complied in all respects with all covenants, agreements and conditions required
by this Agreement to be performed, satisfied or complied with by such Purchaser
at or prior to the Closing.
(c)
No
Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or
endorsed by any court or governmental authority of competent jurisdiction
which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d)
Delivery of Purchase
Price. The Purchase Price for the Preferred Shares and
Warrants has been delivered to the escrow agent pursuant to the Escrow
Agreement.
(e)
Delivery of
Transaction Documents. The Transaction Documents shall have
been duly executed and delivered by the Purchasers and, with respect to the
Escrow Agreement, the escrow agent, to the Company.
-22-
Section
4.2 Conditions
Precedent to the
Obligation of the Purchasers to Purchase the Shares. The
obligation hereunder of each Purchaser to acquire and pay for the Preferred
Shares and the Warrants is subject to the satisfaction or waiver, at or before
the Closing, of each of the conditions set forth below. These
conditions are for each Purchaser’s sole benefit and may be waived by such
Purchaser at any time in its sole discretion.
(a)
Accuracy of the
Company’s Representations and Warranties. Each of the
representations and warranties of the Company in this Agreement and the
Registration Rights Agreement shall be true and correct in all 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 are expressly made as of a
particular date, which shall be true and correct in all respects as of such
date.
(b)
Performance by
the
Company. The Company shall have performed, satisfied and
complied in all respects with all covenants, agreements and conditions required
by this Agreement to be performed, satisfied or complied with by the Company
at
or prior to the Closing.
(c)
No Suspension,
Etc. Trading in the Company’s Common Stock shall not have been
suspended by the Commission or the OTC Bulletin Board (except for any suspension
of trading of limited duration agreed to by the Company, which suspension
shall
be terminated prior to the applicable Closing), and, at any time prior to
the
Closing Date, trading in securities generally as reported by Bloomberg Financial
Markets (“Bloomberg”) shall
not
have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by Bloomberg, or on the
New
York Stock Exchange, nor shall a banking moratorium have been declared either
by
the United States or New York State authorities, nor shall there have occurred
any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
material adverse change in any financial market which, in each case, in the
judgment of such Purchaser, makes it impracticable or inadvisable to purchase
the Preferred Shares.
(d)
No
Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or
endorsed by any court or governmental authority of competent jurisdiction
which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e)
No Proceedings
or
Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any subsidiary, or any of the officers, directors or affiliates
of the Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(f)
Certificate of
Designation of Rights and Preferences. Prior to the Closing,
the Certificate of Designation in the form of Exhibit B attached
hereto shall have been filed with the Secretary of State of Nevada.
-23-
(g)
Opinion of Counsel,
Etc. At the Closing, the Purchasers shall have received an opinion of
counsel to the Company, dated the date of the Closing, in the form of Exhibit G hereto,
and
such other certificates and documents as the Purchasers or its counsel shall
reasonably require incident to the Closing.
(h)
Registration Rights
Agreement. At the Closing, the Company shall have executed and
delivered the Registration Rights Agreement to each Purchaser.
(i)
Certificates. The
Company shall have executed and delivered to the Purchasers the certificates
(in
such denominations as such Purchaser shall request) for the Preferred Shares
and
the Warrants being acquired by such Purchaser at the Closing (in such
denominations as such Purchaser shall request).
(j)
Resolutions. The
Board of Directors of the Company shall have adopted resolutions consistent
with
Section 2.1(b) hereof in a form reasonably acceptable to such Purchaser (the
"Resolutions").
(k)
Reservation of
Shares. As of the Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the
purpose
of effecting the conversion of the Preferred Shares and the exercise of the
Warrants, a number of shares of Common Stock equal to one hundred fifty percent
(150%) of the aggregate number of Conversion Shares issuable upon conversion
of
the Preferred Shares issued or to be issued pursuant to this Agreement and
the
number of Warrant Shares issuable upon exercise of the number of Warrants
issued
or to be issued pursuant to this Agreement.
(l)
Transfer Agent
Instructions. As of the Closing Date, the Irrevocable Transfer
Agent Instructions, in the form of Exhibit F attached
hereto, shall have been delivered to and acknowledged in writing by the
Company’s transfer agent.
(m)
Secretary’s
Certificate. The Company shall have delivered to such
Purchaser a secretary’s certificate, dated as of the Closing Date, as to (i) the
Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the Certificate of
Designation, each as in effect at the Closing, and (iv) the authority and
incumbency of the officers of the Company executing the Transaction Documents
and any other documents required to be executed or delivered in connection
therewith.
(n)
Officer’s
Certificate. The Company shall have delivered to the
Purchasers a certificate of an executive officer of the Company, dated as
of the
Closing Date, confirming the accuracy of the Company’s representations,
warranties and covenants as of the Closing Date and confirming the compliance
by
the Company with the conditions precedent set forth in this Section 4.2 as
of
the Closing Date.
(o)
Escrow
Agreement. At the Closing, the Company and the escrow agent
shall have executed and delivered the Escrow Agreement in the form of Exhibit E attached
hereto to each Purchaser.
-24-
(p)
Material Adverse
Effect. No Material Adverse Effect shall have occurred at or
before the Closing Date.
ARTICLE
V
Stock
Certificate Legend
Section
5.1 Legend. Each
certificate representing the Preferred Shares and the Warrants, and, if
appropriate, securities issued upon conversion thereof, shall be stamped
or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or “blue sky”
laws):
THESE
SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)
OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR ASTRATA GROUP INCORPORATED SHALL HAVE RECEIVED AN
OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES
ACT
AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
The
Company agrees to reissue certificates representing any of the Conversion
Shares
and the Warrant Shares, without the legend set forth above if at such time,
prior to making any transfer of any such securities, such holder thereof
shall
give written notice to the Company describing the manner and terms of such
transfer and removal as the Company may reasonably request. Such
proposed transfer and removal will not be effected until: (a) either (i)
the
Company has received an opinion of counsel reasonably satisfactory to the
Company, to the effect that the registration of the Conversion Shares or
the
Warrant Shares under the Securities Act is not required in connection with
such
proposed transfer, (ii) a registration statement under the Securities Act
covering such proposed disposition has been filed by the Company with the
Commission and has become effective under the Securities Act, (iii) the Company
has received other evidence reasonably satisfactory to the Company that such
registration and qualification under the Securities Act and state securities
laws are not required, or (iv) the holder provides the Company with reasonable
assurances that such security can be sold pursuant to Rule 144 under the
Securities Act; and (b) either (i) the Company has received an opinion of
counsel reasonably satisfactory to the Company, to the effect that registration
or qualification under the securities or "blue sky" laws of any state is
not
required in connection with such proposed disposition, or (ii) compliance
with
applicable state securities or "blue sky" laws has been effected or a valid
exemption exists with respect thereto. The Company will respond to
any such notice from a holder within five (5) business days. In the
case of any proposed transfer under this Section 5.1, the Company will use
reasonable efforts to comply with any such applicable state securities or
"blue
sky" laws, but shall in no event be required, (x) to qualify to do business
in
any state where it is not then qualified, (y) to take any action that would
subject it to tax or to the general service of process in any state where
it is
not then subject, or (z) to comply with state securities or “blue sky” laws of
any state for which registration by coordination is unavailable to the
Company. The restrictions on transfer contained in this Section 5.1
shall be in addition to, and not by way of limitation of, any other restrictions
on transfer contained in any other section of this
Agreement. Whenever a certificate representing the Conversion Shares
or Warrant Shares is required to be issued to a Purchaser without a legend,
in
lieu of delivering physical certificates representing the Conversion Shares
or
Warrant Shares (provided that a registration statement under the Securities
Act
providing for the resale of the Warrant Shares and Conversion Shares is then
in
effect), the Company shall cause its transfer agent to electronically transmit
the Conversion Shares or Warrant Shares to a Purchaser by crediting the account
of such Purchaser or such Purchaser's Prime Broker with the DTC through its
Deposit Withdrawal Agent Commission system (to the extent not inconsistent
with
any provisions of this Agreement).
-25-
ARTICLE
VI
Indemnification
Section
6.1 General
Indemnity. The Company agrees to indemnify and hold harmless
the Purchasers (and their respective directors, officers, managers, partners,
members, shareholders, affiliates, agents, successors and assigns) from and
against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorneys’ fees, charges and
disbursements) incurred by the Purchasers as a result of any inaccuracy in
or
breach of the representations, warranties or covenants made by the Company
herein. Each Purchaser severally but not jointly agrees to indemnify
and hold harmless the Company and its directors, officers, affiliates, agents,
successors and assigns from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorneys’ fees, charges and disbursements) incurred by the Company
as result of any inaccuracy in or breach of the representations, warranties
or
covenants made by such Purchaser herein. The maximum aggregate
liability of each Purchaser pursuant to its indemnification obligations under
this Article VI shall not exceed the portion of the Purchase Price paid by
such
Purchaser hereunder.
Section
6.2 Indemnification
Procedure. Any party entitled to indemnification under this
Article VI (an “indemnified party”) will give written notice to the indemnifying
party of any matters giving rise to a claim for indemnification; provided that,
the
failure of any party entitled to indemnification hereunder to give notice
as
provided herein shall not relieve the indemnifying party of its obligations
under this Article VI except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any
action, proceeding or claim is brought against an indemnified party in respect
of which indemnification is sought hereunder, the indemnifying party shall
be
entitled to participate in and, unless in the reasonable judgment of the
indemnified party a conflict of interest between it and the indemnifying
party
may exist with respect of such action, proceeding or claim, to assume the
defense thereof with counsel reasonably satisfactory to the indemnified
party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle
or
compromise, at its sole cost and expense, any action, proceeding or claim
(or
discontinues its defense at any time after it commences such defense), then
the
indemnified party may, at its option, defend, settle or otherwise compromise
or
pay such action or claim. In any event, unless and until the
indemnifying party elects in writing to assume and does so assume the defense
of
any such claim, proceeding or action, the indemnified party’s costs and expenses
arising out of the defense, settlement or compromise of any such action,
claim
or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the indemnified party which
relates to such action or claim. The indemnifying party shall keep
the indemnified party fully apprised at all times as to the status of the
defense or any settlement negotiations with respect thereto. If the
indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party
shall not be liable for any settlement of any action, claim or proceeding
effected without its prior written consent. Notwithstanding anything
in this Article VI to the contrary, the indemnifying party shall not, without
the indemnified party’s prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the indemnified party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to
the
indemnified party of a release from all liability in respect of such
claim. The indemnification required by this Article VI shall be made
by periodic payments of the amount thereof during the course of investigation
or
defense, as and when bills are received or expense, loss, damage or liability
is
incurred, so long as the indemnified party irrevocably agrees to refund such
moneys if it is ultimately determined by a court of competent jurisdiction
that
such party was not entitled to indemnification. The indemnity
agreements contained herein shall be in addition to (a) any cause of action
or
similar rights of the indemnified party against the indemnifying party or
others, and (b) any liabilities the indemnifying party may be subject to
pursuant to the law.
-26-
ARTICLE
VII
Miscellaneous
Section
7.1 Fees and
Expenses. Except as otherwise set forth in this Agreement and
the other Transaction Documents, each party shall pay the fees and expenses
of
its advisors, counsel, accountants and other experts, if any, and all other
expenses, incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement, provided that,
the
Company shall pay all actual attorneys’ fees and expenses (including
disbursements and out-of-pocket expenses) incurred by the Purchasers in
connection with (i) the preparation, negotiation, execution and delivery
of this
Agreement and the other Transaction Documents and the transactions contemplated
thereunder, which payment shall be made at the Closing and shall not exceed
$25,000 (plus disbursements and out-of-pocket expenses), (ii) the filing
and
declaration of effectiveness by the Commission of the Registration Statement
and
(iii) any amendments, modifications or waivers of this Agreement or any of
the
other Transaction Documents.
Section
7.2 Specific
Enforcement,
Consent to Jurisdiction.
(a)
The Company and the Purchasers acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Agreement or
the
other Transaction Documents were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent or cure breaches
of
the provisions of this Agreement or the Registration Rights Agreement and
to
enforce specifically the terms and provisions hereof or thereof, this being
in
addition to any other remedy to which any of them may be entitled by law
or
equity.
(b)
Each of the Company and the Purchasers (i) hereby irrevocably submits to
the
jurisdiction of the United States District Court sitting in the Southern
District of New York and the courts of the State of New York located in New
York
county for the purposes of any suit, action or proceeding arising out of
or
relating to this Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby and (ii) hereby waives, and agrees
not to assert in any such suit, action or proceeding, any claim that it is
not
personally subject to the jurisdiction of such court, that the suit, action
or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Each of the Company and the Purchasers
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices
to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this Section
7.2
shall affect or limit any right to serve process in any other manner permitted
by law.
-27-
Section
7.3 Entire
Agreement;
Amendment. This Agreement and the Transaction Documents
contain the entire understanding and agreement of the parties with respect
to
the matters covered hereby and, except as specifically set forth herein or
in
the Transaction Documents, neither the Company nor any of the Purchasers
makes
any representation, warranty, covenant or undertaking with respect to such
matters and they supersede all prior understandings and agreements with respect
to said subject matter, all of which are merged herein. No provision
of this Agreement may be waived or amended other than by a written instrument
signed by the Company and the holders of at least seventy-five percent (75%)
of
the Preferred Shares then outstanding, and no provision hereof may be waived
other than by an a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought. No such
amendment shall be effective to the extent that it applies to less than all
of
the holders of the Preferred Shares 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 is also offered to all of the parties to the
Transaction Documents or holders of Preferred Shares, as the case may
be.
Section
7.4 Notices. Any
notice, demand, request, waiver or other communication required or permitted
to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery by telex (with correct answer back received), telecopy or facsimile
at
the address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business
day
during normal business hours where such notice is to be received) or (b)
on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such
communications shall be:
|
If
to the Company:
|
Astrata
Group Incorporated
000
Xxxxx Xxxxx Xxxxx, Xxxxx 000
Xxxxx
Xxxx, Xxxxxxxxxx 00000-0000
Attention:
Chief Executive Officer
Tel.
No.: (000) 000-0000
Fax
No.: (000) 000-0000
|
-28-
|
with
copies to:
|
Xxxxxx
& Xxxxxx, LLP
000
Xxxxx 0 Xxxxx, Xxxxx 000
Xxxxxxxxx,
Xxx Xxxxxx 00000
Attention:
Xxxxxxx X. Xxxxxx, Esq.
Tel.
No.: (000) 000-0000
Fax
No.: (000) 000-0000
|
|
If
to any Purchaser:
|
At
the address of such Purchaser set forth on Exhibit A to this Agreement, with
copies to
Purchaser’s counsel as set forth on Exhibit
A or as
specified in writing by such Purchaser with copies to:
|
|
Xxxxxx
Xxxxx Xxxxxxxx & Xxxxxxx LLP
0000
Xxxxxx xx xxx Xxxxxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attention:
Xxxxxxxxxxx X. Xxxxxxx
Tel
No.: (000) 000-0000
Fax
No.: (000) 000-0000
|
Any
party
hereto may from time to time change its address for notices by giving at
least
ten (10) days written notice of such changed address to the other party
hereto.
Section
7.5 Waivers. No
waiver by either party of any default with respect to any provision, condition
or requirement of this Agreement shall be deemed to be a continuing waiver
in
the future or a waiver of any other provisions, condition or requirement
hereof,
nor shall any delay or omission of any party to exercise any right hereunder
in
any manner impair the exercise of any such right accruing to it
thereafter.
Section
7.6 Headings. The
article, section and subsection headings in this Agreement are for convenience
only and shall not constitute a part of this Agreement for any other purpose
and
shall not be deemed to limit or affect any of the provisions
hereof.
Section
7.7 Successors
and
Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and assigns.
Section
7.8 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.
-29-
Section
7.9 Governing
Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to any of the conflicts of law principles which would result in the
application of the substantive law of another jurisdiction. This
Agreement shall not be interpreted or construed with any presumption against
the
party causing this Agreement to be drafted.
Section
7.10 Survival. The
representations and warranties of the Company and the Purchasers shall survive
the execution and delivery hereof and the Closings hereunder.
Section
7.11 Counterparts. This
Agreement may be executed in any number of counterparts, each of which when
so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement and shall become effective when
counterparts have been signed by each party and delivered to the other parties
hereto, it being understood that all parties need not sign the same
counterpart. In the event that any signature is delivered by
facsimile transmission or scanned electronic mail (e-mail) attachment, such
signature shall create a valid binding obligation of the party executing
(or on
whose behalf such signature is executed) the same with the same force and
effect
as if such facsimile or scanned signature were the original
thereof.
Section
7.12 Publicity. The
Company agrees that it will not disclose, and will not include in any public
announcement, the name of the Purchasers without the consent of the Purchasers
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
Section
7.13 Severability. The
provisions of this Agreement and the Transaction Documents are severable
and, in
the event that any court of competent jurisdiction shall determine that any
one
or more of the provisions or part of the provisions contained in this Agreement
or the Transaction Documents shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision
of
this Agreement or the Transaction Documents and such provision shall be reformed
and construed as if such invalid or illegal or unenforceable provision, or
part
of such provision, had never been contained herein, so that such provisions
would be valid, legal and enforceable to the maximum extent
possible.
Section
7.14 Further
Assurances. From and after the date of this Agreement, upon
the request of any Purchaser or the Company, each of the Company and the
Purchasers shall execute and deliver such instrument, documents and other
writings as may be reasonably necessary or desirable to confirm and carry
out
and to effectuate fully the intent and purposes of this Agreement, the Preferred
Shares, the Conversion Shares, the Warrants, the Warrant Shares, the Certificate
of Designation, and the Registration Rights Agreement.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
-30-
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officer as of the date first above
written.
|
ASTRATA
GROUP INCORPORATED
|
|
|
By:
/s/
Xxxxxx Xxxxxx
Xxxxx
|
|
|
Name:
Xxxxxx Xxxxxx Euler
Title: Chief
Executive Officer
|
|
PURCHASER
|
|
|
VISION
OPPORTUNITY CHINA LIMITED PARTNERSHIP
|
|
|
By: /s/
Xxxx Xxxxxxxx
Authorised
Signatory
Vision
Opportunity China GP Limited
acting
in its capacity as general partner
of
Vision
Opportunity China Limited
Partnership
|
|
|
VISION
OPPORTUNITY MASTER FUND LTD
|
|
|
By: /s/
Xxxx Xxxxxxxx
Name:
Xxxx
Xxxxxxxx
Title:
Director
|
|
EXHIBIT
A to the
ASTRATA
GROUP INCORPORATED
|
Names
and Addresses
|
Number
of Preferred Shares
|
Dollar
Amount of
|
|
of
Purchasers
|
& Warrants
Purchased
|
Investment
|
|
Vision
Opportunity Master Fund, Ltd.
|
Preferred
Shares: 324,286
|
$440,000.40
|
|
00
X 00xx
Xxxxxx, 0xx
floor
|
Series
A Warrants: 324,286
|
|
|
Xxx
Xxxx, XX 00000
|
Series
B Warrants: 324,286
|
|
|
Series
J Warrants
|
||
|
(Series
B-2
|
||
|
Preferred
Shares): 324,286
|
||
|
Series
C Warrants: 324,286
|
||
|
Series
D Warrants: 324,286
|
||
|
Vision
Opportunity China LP
|
Preferred
Shares: 1,828,571
|
$2,559,999.40
|
|
00
X 00xx
Xxxxxx, 0xx
floor
|
Series
A Warrants: 1,828,571
|
|
|
Xxx
Xxxx, XX 00000
|
Series
B Warrants: 1,828,571
|
|
|
Series
J Warrants
|
||
|
(Series
B-2
|
||
|
Preferred
Shares): 1,828,571
|
||
|
Series
C Warrants: 1,828,571
|
||
|
Series
D Warrants: 1,828,571
|
EXHIBIT
B to the
ASTRATA
GROUP INCORPORATED
FORM
OF CERTIFICATE OF DESIGNATION
EXHIBIT
C-1 to the
ASTRATA
GROUP INCORPORATED
FORM
OF SERIES A WARRANT
EXHIBIT
C-2 to the
ASTRATA
GROUP INCORPORATED
FORM
OF SERIES B WARRANT
EXHIBIT
C-3 to the
ASTRATA
GROUP INCORPORATED
FORM
OF SERIES J WARRANT
EXHIBIT
C-4 to the
ASTRATA
GROUP INCORPORATED
FORM
OF SERIES C WARRANT
EXHIBIT
C-5 to the
ASTRATA
GROUP INCORPORATED
FORM
OF SERIES D WARRANT
EXHIBIT
D to the
ASTRATA
GROUP INCORPORATED
FORM
OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT
E to the
SERIES
B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ASTRATA
GROUP INCORPORATED
FORM
OF ESCROW AGREEMENT
EXHIBIT
F to the
SERIES
B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ASTRATA
GROUP INCORPORATED
FORM
OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
ASTRATA
GROUP INCORPORATED
as
of
December __, 2007
[Name
and
address of Transfer Agent]
Attn: _____________
Ladies
and Gentlemen:
Reference
is made to that certain Series B Convertible Preferred Stock Purchase Agreement
(the “Purchase
Agreement”), dated as of December 19, 2007, by and among Astrata Group
Incorporated, a Nevada corporation (the “Company”), and the purchasers
named therein (collectively, the “Purchasers”) pursuant to which
the Company is issuing to the Purchasers shares of its Series B Convertible
Preferred Stock, par value $0.0001 per share, (the “Preferred Shares”) and
warrants (the “Warrants”) to purchase shares
of the Company’s common stock, par value $0.0001 per share (the “Common
Stock”). This letter shall serve as our irrevocable
authorization and direction to you provided that you are the transfer agent
of
the Company at such time to issue shares of Common Stock upon conversion
of the
Preferred Shares (the “Conversion Shares”) and
exercise of the Warrants (the “Warrant Shares”) to or upon
the order of a Purchaser from time to time upon (i) surrender to you of a
properly completed and duly executed Conversion Notice or Exercise Notice,
as
the case may be, in the form attached hereto as Exhibit I and Exhibit II,
respectively, (ii) in the case of the conversion of Preferred Shares, a copy
of
the certificates representing Preferred Shares being converted or, in the
case
of Warrants being exercised, a copy of the Warrants being exercised, and
(iii)
delivery of an instruction letter duly executed by a duly authorized officer
of
the Company. So long as you have previously received (x) written
confirmation from counsel to the Company that a registration statement covering
resales of the Conversion Shares or Warrant Shares, as applicable, has been
declared effective by the Securities and Exchange Commission (the “SEC”) under the Securities
Act
of 1933, as amended (the “1933
Act”), and no subsequent notice by the Company or its counsel of the
suspension or termination of its effectiveness and (y) a copy of such
registration statement, and if the Purchaser represents in writing that the
Conversion Shares or the Warrant Shares, as the case may be, were sold pursuant
to the Registration Statement, then certificates representing the Conversion
Shares and the Warrant Shares, as the case may be, shall not bear any legend
restricting transfer of the Conversion Shares and the Warrant Shares, as
the
case may be, thereby and should not be subject to any stop-transfer
restriction. Provided, however, that if you have not previously
received those items and representations listed above, then the certificates
for
the Conversion Shares and the Warrant Shares shall bear the following
legend:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS
REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS,
OR
ASTRATA GROUP INCORPORATED SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL
THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.”
and,
provided further, that the Company may from time to time notify you to place
stop-transfer restrictions on the certificates for the Conversion Shares
and the
Warrant Shares in the event a registration statement covering the Conversion
Shares and the Warrant Shares is subject to amendment for events then
current.
A
form of
written confirmation from counsel to the Company that a registration statement
covering resales of the Conversion Shares and the Warrant Shares has been
declared effective by the SEC under the 1933 Act is attached hereto as Exhibit
III.
Please
be
advised that the Purchasers are relying upon this letter as an inducement
to
enter into the Purchase Agreement and, accordingly, each Purchaser is a third
party beneficiary to these instructions.
Please
execute this letter in the space indicated to acknowledge your agreement
to act
in accordance with these instructions. Should you have any questions
concerning this matter, please contact me at ___________.
Very
truly yours,
ASTRATA
GROUP INCORPORATED
By:_____________________________
Name:___________________________
Title:____________________________
ACKNOWLEDGED
AND AGREED:
[TRANSFER
AGENT]
By:_________________________________
Name:_______________________________
Title:________________________________
Date:________________________________
EXHIBIT
I
ASTRATA
GROUP INCORPORATED
CONVERSION
NOTICE
Reference
is made to the Certificate of Designation of the Relative Rights and Preferences
of the Series B Preferred Stock of Astrata Group Incorporated (the “Certificate
of Designation”). In accordance with and pursuant to the Certificate
of Designation, the undersigned hereby elects to convert the number of shares
of
Series B Preferred Stock, par value $0.0001 per share (the “Preferred Shares”),
of Astrata Group Incorporated, a Nevada corporation (the “Company”), indicated
below into shares of Common Stock, par value $0.0001 per share (the “Common
Stock”), of the Company, by tendering the stock certificate(s) representing the
share(s) of Preferred Shares specified below as of the date specified
below.
|
Date
of Conversion:
|
___________________________________ |
|
Number
of Preferred Shares to be converted:
|
_______________ |
|
Stock
certificate no(s). of Preferred Shares to be converted:
|
_______________ |
The
Common Stock have been sold pursuant to the Registration Statement (as defined
in the Registration Rights Agreement): YES ____NO____
Please
confirm the following information:
|
Conversion
Price:
|
___________________________________ |
|
Number
of shares of Common Stock to
be issued:
|
___________________________________ |
Number
of
shares of Common Stock beneficially owned or deemed beneficially owned by
the
Holder on the Date of Conversion: _________________________
Please
issue the Common Stock into which the Preferred Shares are being converted
and,
if applicable, any check drawn on an account of the Company in the following
name and to the following address:
|
Issue
to:
|
____________________________________ |
| ____________________________________ | |
|
Facsimile
Number:
|
____________________________________ |
|
Authorization:
|
____________________________________ |
|
By:
_____________________________
|
|
|
Title:________________________________
|
|
|
Dated:
|
EXHIBIT
II
FORM
OF EXERCISE NOTICE
EXERCISE
FORM
ASTRATA
GROUP INCORPORATED
The
undersigned _______________, pursuant to the provisions of the within Warrant,
hereby elects to purchase _____ shares of Common Stock of Astrata Group
Incorporated covered by the within Warrant.
|
Dated:
_________________
|
Signature ___________________________ |
| Address _____________________ | |
| _____________________ |
Number
of
shares of Common Stock beneficially owned or deemed beneficially owned by
the
Holder on the date of Exercise: _________________________
ASSIGNMENT
FOR
VALUE
RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and
does
irrevocably constitute and appoint _____________, attorney, to transfer the
said
Warrant on the books of the within named corporation.
|
Dated:
_________________
|
Signature ___________________________ |
| Address _____________________ | |
| _____________________ |
PARTIAL
ASSIGNMENT
FOR
VALUE
RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named
corporation.
|
Dated:
_________________
|
Signature ___________________________ |
| Address _____________________ | |
| _____________________ |
FOR
USE
BY THE ISSUER ONLY:
This
Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day
of
___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock
in
the name of _______________.
EXHIBIT
III
FORM
OF NOTICE OF EFFECTIVENESS
OF
REGISTRATION STATEMENT
[Name
and
address of Transfer Agent]
Attn: _____________
Re:
Astrata
Group Incorporated
Ladies
and Gentlemen:
We
are
counsel to Astrata Group Incorporated, a Nevada corporation (the “Company”), and have
represented the Company in connection with that certain Series B Convertible
Preferred Stock Purchase Agreement (the “Purchase Agreement”), dated as
of December 19, 2007, by and among the Company and the purchasers named therein
(collectively, the “Purchasers”) pursuant to which
the Company issued to the Purchasers shares of its Series B Convertible
Preferred Stock, par value $0.0001 per share, (the “Preferred Shares”) and
warrants (the “Warrants”) to purchase shares
of the Company’s common stock, par value $0.0001 per share (the “Common
Stock”). Pursuant to the Purchase Agreement, the Company has
also entered into a Registration Rights Agreement with the Purchasers (the
“Registration Rights
Agreement”), dated as of December 19, 2007, pursuant to which the Company
agreed, among other things, to register the Registrable Securities (as defined
in the Registration Rights Agreement), including the shares of Common Stock
issuable upon conversion of the Preferred Shares and exercise of the Warrants,
under the Securities Act of 1933, as amended (the “1933 Act”). In
connection with the Company’s obligations under the Registration Rights
Agreement, on ________________, 2008, the Company filed a Registration Statement
on Form SB-2 (File No. 333-________) (the “Registration Statement”) with
the Securities and Exchange Commission (the “SEC”) relating to the
resale
of the Registrable Securities which names each of the present Purchasers
as a
selling stockholder thereunder.
In
connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS]
on [ENTER DATE OF
EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a
member of the SEC’s staff, that any stop order suspending its effectiveness has
been issued or that any proceedings for that purpose are pending before,
or
threatened by, the SEC and accordingly, the Registrable Securities are available
for resale under the 1933 Act pursuant to the Registration
Statement.
Very
truly yours,
[COMPANY
COUNSEL]
By:_______________________________
cc:
[LIST NAMES OF
PURCHASERS]
EXHIBIT
G to the
SERIES
B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
ASTRATA
GROUP INCORPORATED
FORM
OF OPINION OF COUNSEL
1.
The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Nevada and has the requisite corporate
power to own, lease and operate its properties and assets, and to carry on
its
business as presently conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction
in
which the nature of the business conducted or property owned by it makes
such
qualification necessary.
2.
The Company has the requisite corporate power and authority to enter into
and
perform its obligations under the Transaction Documents and to issue the
Preferred Stock, the Warrants and the Common Stock issuable upon conversion
of
the Preferred Stock and exercise of the Warrants. The execution, delivery
and
performance of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
and
validly authorized by all necessary corporate action and no further consent
or
authorization of the Company or its Board of Directors or stockholders is
required. Each of the Transaction Documents have been duly executed and
delivered, and the Preferred Stock and the Warrants have been duly executed,
issued and delivered by the Company and each of the Transaction Documents
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms. The Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants
are
not subject to any preemptive rights under the Articles of Incorporation
or the
Bylaws.
3.
The Preferred Stock and the Warrants have been duly authorized and, when
delivered against payment in full as provided in the Purchase Agreement,
will be
validly issued, fully paid and nonassessable. The shares of Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants,
have been duly authorized and reserved for issuance, and, when delivered
upon
conversion or against payment in full as provided in the Certificate of
Designation and the Warrants, as applicable, will be validly issued, fully
paid
and nonassessable.
4.
The execution, delivery and performance of and compliance with the terms
of the
Transaction Documents and the issuance of the Preferred Stock, the Warrants
and
the Common Stock issuable upon conversion of the Preferred Stock and exercise
of
the Warrants do not (i) violate any provision of the Articles of Incorporation
or Bylaws, (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
material agreement, mortgage, deed of trust, indenture, note, bond, license,
lease agreement, instrument or obligation to which the Company is a party,
(iii)
create or impose a lien, charge or encumbrance on any property of the Company
under any agreement or any commitment to which the Company is a party or
by
which the Company is bound or by which any of its respective properties or
assets are bound, or (iv) result in a violation of any federal, state, local
or
foreign statute, rule, regulation, order, judgment, injunction or decree
(including federal and
state securities laws and regulations) applicable to the Company or by which
any
property or asset of the Company is bound or affected, except, in all cases
other than violations pursuant to clauses (i) and (iv) above, for such
conflicts, default, terminations, amendments, acceleration, cancellations
and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect.
5.
No consent, approval or authorization of or designation, declaration or filing
with any governmental authority on the part of the Company is required under
federal, state or local
law, rule or regulation in connection with the valid execution and delivery
of
the Transaction Documents, or the offer, sale or issuance of the Preferred
Stock, the Warrants or the Common Stock issuable upon conversion of the
Preferred Stock and exercise of the Warrants other than the Certificate of
Designation and the Registration Statement.
6.
There is no action, suit, claim, investigation or proceeding pending or
threatened against the Company which questions the validity of this Agreement
or
the transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. There is no action, suit, claim, investigation or proceeding
pending, or to our knowledge, threatened, against or involving the Company
or
any of its properties or assets and which, if adversely determined, is
reasonably likely to result in a Material Adverse Effect. There are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental or regulatory body against the Company or any
officers or directors of the Company in their capacities as such.
7.
The offer, issuance and sale of the Preferred Stock and the Warrants and
the
offer, issuance and sale of the shares of Common Stock issuable upon conversion
of the Preferred Stock and exercise of the Warrants pursuant to the Purchase
Agreement, the Certificate of Designation and the Warrants, as applicable,
are
exempt from the registration requirements of the Securities Act.
8.
The Company is not, and as a result of and immediately upon Closing will
not be,
an "investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as
amended.
Very
truly yours
