EXHIBIT 10.2
COMMON STOCK AND WARRANT PURCHASE
AGREEMENT
DATED AS OF AUGUST 27, 2004
BY AND AMONG
NEWPORT INTERNATIONAL GROUP, INC.
AND
THE PURCHASER LISTED ON EXHIBIT A
TABLE OF CONTENTS
Page
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ARTICLE I Purchase and Sale of Common Stock and Warrants....................1
Section 1.1 Purchase and Sale of Common Stock and Warrants...............1
Section 1.2 Purchase Price and Closing...................................1
Section 1.3 Escrow.......................................................2
ARTICLE II Representations and Warranties....................................2
Section 2.1 Representations and Warranties of the Company................2
Section 2.2 Representations and Warranties of the Purchaser.............12
ARTICLE III Covenants........................................................14
Section 3.1 Securities Compliance.......................................14
Section 3.2 Registration and Listing....................................14
Section 3.3 Inspection Rights...........................................14
Section 3.4 Compliance with Laws........................................15
Section 3.5 Keeping of Records and Books of Account.....................15
Section 3.6 Reporting Requirements......................................15
Section 3.7 Other Agreements............................................15
Section 3.8 Use of Proceeds.............................................15
Section 3.9 Reporting Status............................................15
Section 3.10 Disclosure of Transaction...................................15
Section 3.11 Disclosure of Material Information..........................16
Section 3.12 Pledge of Securities........................................16
Section 3.13 Subsequent Financings.......................................16
ARTICLE IV Conditions.......................................................16
Section 4.1 Conditions Precedent to the Obligation of the Company
to Close and to Sell the Securities.........................16
Section 4.2 Conditions Precedent to the Obligation of the Purchaser
to Close and to Purchase the Securities.....................17
ARTICLE V Certificate Legend...............................................19
Section 5.1 Legend......................................................19
ARTICLE VI Put Option.......................................................20
Section 6.1 Put Option..................................................20
TABLE OF CONTENTS
(continued)
Page
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ARTICLE VII Indemnification..................................................20
Section 7.1 General Indemnity...........................................20
Section 7.2 Indemnification Procedure...................................21
ARTICLE VIII Miscellaneous....................................................22
Section 8.1 Fees and Expenses...........................................22
Section 8.2 Specific Performance; Consent to Jurisdiction; Venue........22
Section 8.3 Entire Agreement; Amendment.................................23
Section 8.4 Notices.....................................................23
Section 8.5 Waivers.....................................................24
Section 8.6 Headings....................................................24
Section 8.7 Successors and Assigns......................................24
Section 8.8 No Third Party Beneficiaries................................24
Section 8.9 Governing Law...............................................24
Section 8.10 Survival....................................................24
Section 8.11 Counterparts................................................24
Section 8.12 Publicity...................................................25
Section 8.13 Severability................................................25
Section 8.14 Further Assurances..........................................25
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
This COMMON STOCK AND WARRANT PURCHASE AGREEMENT this ("Agreement"),
dated as of August 27, 2004 by and between Newport International Group, Inc., a
Delaware corporation (the "Company"), and the purchaser listed on Exhibit A
hereto (the "Purchaser"), for the purchase and sale of shares of the Company's
common stock, par value $.001 per share (the "Common Stock") by the Purchaser.
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF COMMON STOCK AND WARRANTS
Section 1.1 Purchase and Sale of Common Stock and Warrants.
(a) Upon the following terms and conditions, the Company shall issue
and sell to the Purchaser, and the Purchaser shall purchase from the Company, up
to 5,000,000 shares of Common Stock (the "Shares") at a price per share equal to
eighty-five percent (85%) of the average of the reported bid prices of the
Common Stock for the ten (10) trading days prior to each Closing (as hereafter
defined); provided, that, the per share purchase price shall not be greater than
$1.60 (the "Purchase Price"). The Company and the Purchaser are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded by Section 4(2) of the U.S. Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder (the
"Securities Act"), including Regulation D ("Regulation D"), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder.
(b) Upon the following terms and conditions, the Purchaser shall be
issued Warrants, in substantially the form attached hereto as Exhibit B (the
"Warrants"), to purchase the number of shares of Common Stock set forth opposite
the Purchaser's name on Exhibit A hereto. The Warrants shall expire five (5)
years from the Closing Date and shall have an exercise price per share equal to
the Warrant Price (as defined in the Warrant). Any shares of Common Stock
issuable upon exercise of the Warrants (and such shares when issued) are herein
referred to as the "Warrant Shares". The Shares, the Warrants and the Warrant
Shares are sometimes collectively referred to herein as the "Securities".
Section 1.2 Purchase Price and Closing. In consideration of and in
express reliance upon the representations, warranties, covenants, terms and
conditions of this Agreement, the Company agrees to issue and sell to the
Purchaser and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchaser agrees to purchase the number of Shares and Warrants set forth
opposite its name on Exhibit A. The Shares and Warrants shall be sold and funded
in up to four separate closings (each, a "Closing"). The initial closing under
this Agreement (the "Initial Closing") shall take place on or about August 30,
2004 (the "Initial Closing Date") for the sale of at least 1,000,000
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Shares. The second closing under this Agreement (the "Second Closing") shall
take place on or about September 16, 2004 (the "Second Closing Date"). The third
closing under this Agreement (the "Third Closing") shall take place on or about
October 8, 2004 (the "Third Closing Date"). The final closing under this
Agreement (the "Final Closing") shall take place on or about October 29, 2004
(the "Final Closing Date"). At any time after the Second Closing Date, the
parties may agree to forego and cancel the remaining Closings and if the parties
so agree, the Second Closing shall be deemed to be the Final Closing under this
Agreement. Each Closing under this Agreement shall take place at the offices of
Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP, The Chrysler Building, 000 Xxxxxxxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 or at such other place as the Purchaser and the
Company may agree upon (each, a "Closing Date"); provided, that all of the
conditions set forth in Article IV hereof and applicable to such Closing shall
have been fulfilled or waived in accordance herewith. On or prior to each
Closing, the Company shall deliver to the Escrow Agent (as defined below) (i) a
certificate registered in the name of the Purchaser representing the number of
Shares as is set forth opposite the name of the Purchaser on Exhibit A and (ii)
a Warrant to purchase such number of shares of Common Stock as is set forth
opposite the name of the Purchaser on Exhibit A.
Section 1.3 Escrow. On or prior to the applicable Closing Date, the
Company shall deliver to Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP as escrow agent
(the "Escrow Agent") a number of Shares (in such denominations as the Purchaser
shall request) equal to the number of Shares to be issued to the Purchaser at
the applicable Closing and the Warrants to be delivered to the Purchaser at the
applicable Closing. On or prior to each Closing Date, the Purchaser shall fund
the Purchase Price into an escrow account maintained by the Escrow Agent. Upon
each Closing and delivery to the Escrow Agent of written instructions executed
by the Company and the Purchaser, the Escrow Agent shall promptly wire transfer
the funds according to such written instructions to an account designated by the
Company and the Escrow Agent shall deliver to the Purchaser the Shares and
Warrants being purchased by the Purchaser hereunder.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchaser as follows, 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:
(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 Delaware 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 (as defined in Section
2.1(g)) or own securities of any kind in any other entity except as set forth on
Schedule 2.1(g) hereto. The Company and each such Subsidiary (as defined in
Section 2.1(g)) is duly qualified to do business as a foreign corporation 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
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aggregate) in which the failure to be so qualified will not have a Material
Adverse Effect. For the purposes of this Agreement, "Material Adverse Effect"
means any effect on the business, results of operations, prospects, assets or
financial condition of the Company that is material and adverse to 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 from
entering into and performing any of its obligations under the Transaction
Documents (as defined below) in any material respect.
(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform this Agreement, the Warrants and
that certain Registration Rights Agreement by and among the Company and the
Purchaser, dated as of the date hereof, substantially in the form of Exhibit C
attached hereto (the "Registration Rights Agreement" and, together with this
Agreement and the Warrants, the "Transaction Documents") and to issue and sell
the Securities 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 thereby have been duly and validly
authorized by all necessary corporate action, and, except as set forth on
Schedule 2.1(b), no further consent or authorization of the Company, its Board
of Directors or stockholders is required. When executed and delivered by the
Company, each of the Transaction Documents shall constitute 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,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company as of
August 27, 2004 is set forth in the Commission Documents and on Schedule 2.1(c)
hereto. All of the outstanding shares of the Common Stock and any other
outstanding security of the Company have been duly and validly authorized.
Except as set forth in this Agreement, the Commission Documents and as set forth
on Schedule 2.1(c) hereto, no shares of Common Stock or any other security of
the Company 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. Furthermore,
except as set forth in this Agreement, the Commission Documents and as set forth
on Schedule 2.1(c) hereto, 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 for customary
transfer restrictions contained in agreements entered into by the Company in
order to sell restricted securities or as provided on Schedule 2.1(c) hereto,
the Company is not a party to or bound by any agreement or understanding
granting registration or anti-dilution rights to any person with respect to any
of its equity or debt securities. Except as set forth on Schedule 2.1(c), the
Company is not a party to, and it has no knowledge of, any agreement or
understanding restricting the voting or transfer of any shares of the capital
stock of the Company.
(d) Issuance of Securities. The Shares and the Warrants to be issued at
the Closing have been duly authorized by all necessary corporate action and,
when paid for and
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issued in accordance with the terms hereof and the Warrants, respectively, the
Shares and the Warrant Shares will be validly issued, fully paid and
nonassessable and free and clear of all liens, encumbrances and rights of
refusal of any kind 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 and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) violate any
provision of the Company's Certificate of Incorporation (the "Certificate") or
Bylaws (the "Bylaws"), each as amended to date, or any Subsidiary's comparable
charter documents, (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 or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries' respective properties or assets are bound, or (iii) 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 is bound or
affected, except, in all cases, other than violations pursuant to clauses (i) or
(iii) (with respect to federal and state securities laws) above, except, for
such conflicts, defaults, terminations, amendments, acceleration, cancellations
and violations as would not, individually or in the aggregate, have a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries is required
under federal, state, foreign 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
Securities in accordance with the terms hereof (other than any filings, consents
and approvals which may be required to be made by the Company under applicable
state and federal securities laws, rules or as may be required for the Company
to carry out its obligations under the Registration Rights Agreement).
(f) Commission Documents, Financial Statements. The Common Stock of the
Company 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) hereto, the Company has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it with the
Securities and Exchange Commission (the "Commission") pursuant to the reporting
requirements of the Exchange Act (all of the foregoing including filings
incorporated by reference therein being referred to herein as the "Commission
Documents"). At the times of their respective filings, the Form 10-QSB for the
fiscal quarters ended June 30, 2004, March 31, 2004 and September 30, 2003
(collectively, the "Form 10-QSB") and the Form 10-KSB for the fiscal year ended
December 31, 2003 (the "Form 10-KSB") complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and the Form 10-QSB and Form 10-KSB at the time of their
respective filings did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. As of their respective dates, the financial
statements of the Company included in the Commission Documents complied as to
form in all material respects with applicable
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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 accounting principles
generally accepted in the United States ("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 of the outstanding stock or
other interests of such Subsidiary. 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 except as set forth on Schedule 2.1(g) hereto. 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.
(h) No Material Adverse Change. Since December 31, 2003, the Company
has not experienced or suffered any Material Adverse Effect, except as disclosed
in the Commission Documents or on Schedule 2.1(h) hereto.
(i) No Undisclosed Liabilities. Except as disclosed in the Commission
Documents or on Schedule 2.1(i) hereto, since December 31, 2003, neither the
Company nor any of its Subsidiaries has incurred 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 or
which, individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect.
(j) No Undisclosed Events or Circumstances. Since December 31, 2003,
except as disclosed in the Commission Documents or on Schedule 2.1(j) hereto, no
event or circumstance has occurred or exists with respect to the Company or its
Subsidiaries or their respective businesses, properties, operations or financial
condition, which, under applicable
5
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 Commission Documents or Schedule 2.1(k) hereto
sets forth as of the date hereof 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
$300,000 (other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent obligations in
respect of liabilities for borrowed money of others in excess of $100,000,
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.
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 valid title to all of its real and personal property reflected in the
Commission Documents, free and clear of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those indicated in the
Commission Documents or on Schedule 2.1(l) hereto or such that, individually or
in the aggregate, do not cause a Material Adverse Effect. All said leases of the
Company and each of its Subsidiaries are valid and subsisting and in full force
and effect.
(m) Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or 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 any of the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth in the Commission Documents or on Schedule 2.1(m) hereto, there is no
action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or 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, which individually or in the aggregate, could
reasonably be expected to have 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
Subsidiary or any officers or directors of the Company or any Subsidiary in
their capacities as such, which individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
(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 as set forth in the Commission Documents or on Schedule
2.1(n) hereto or such that, individually or in the aggregate, the noncompliance
therewith could not reasonably be expected to have 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
6
approvals, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
(o) Taxes. Except as set forth in the Commission Documents or on
Schedule 2.1(o) hereto, 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. Except as disclosed in
the Commission Documents or on Schedule 2.1(o) hereto, none of the federal
income tax returns of the Company or any Subsidiary has been audited by the
Internal Revenue 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) Intentionally Omitted.
(q) Disclosure. To the best of the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchaser by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by this Agreement
contains any untrue statement of a material fact or omits 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.
(r) Operation of Business. Except as set forth in the Commission
Documents or on Schedule 2.1(r) hereto, the Company and each of the Subsidiaries
owns or possesses the rights to use 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
which are necessary for the conduct of its business as now conducted without any
conflict or infringement with the rights of others.
(s) Environmental Compliance. Except as disclosed in the Commission
Documents or on Schedule 2.1(s) hereto, 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. "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
7
substances, material or wastes, whether solid, liquid or gaseous in nature.
Except as set forth in the Commission Documents or on Schedule 2.1(s) hereto,
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, except for such instances as would not individually or in the
aggregate have a Material Adverse Effect. 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 would be reasonably likely to violate any Environmental Law
after the Closing or that would be reasonably likely to 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 records and
documents of the Company and its Subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and its
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 are taken with respect to any differences.
(u) Material Agreements. Except for the Transaction Documents (with
respect to clause (i) only), as disclosed in the Commission Documents or as set
forth on Schedule 2.1(u) hereto, or as would not be reasonably likely to have a
Material Adverse Effect, (i) the Company and each of its Subsidiaries have
performed all obligations required to be performed by them to date under any
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, filed or required to be filed with the Commission (the "Material
Agreements"), (ii) neither the Company nor any of its Subsidiaries has received
any notice of default under any Material Agreement and, (iii) to the best of the
Company's knowledge, neither the Company nor any of its Subsidiaries is in
default under any Material Agreement now in effect.
(v) Transactions with Affiliates. Except as set forth in the Commission
Documents or on Schedule 2.1(v) hereto, there are no loans, leases, agreements,
contracts, royalty agreements, management contracts or arrangements or other
continuing transactions between (a) the Company, any Subsidiary or any of their
respective customers or suppliers on the one hand, and (b) on the other hand,
any officer, employee, consultant or director of the
8
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 which, in each case, is required to be
disclosed in the Commission Documents or in the Company's most recently filed
definitive proxy statement on Schedule 14A, that is not so disclosed in the
Commission Documents or in such proxy statement.
(w) Securities Act of 1933. Based in material part upon the
representations herein of the Purchaser, 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 Securities 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 Securities or similar securities to,
or solicit offers with respect thereto from, or enter into any 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 Securities 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 Securities.
(x) Governmental Approvals. Except as set forth in the Commission
Documents or on Schedule 2.1(x) hereto, and except for the filing of any notice
prior or subsequent to the Closing that may be required under applicable state
and/or federal securities laws (which if required, shall be filed on a timely
basis), 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 Shares, or for the
performance by the Company of its obligations under the Transaction Documents.
(y) Employees. Neither the Company nor any Subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth on Schedule 2.1(y) hereto or disclosed in the Commission
Documents. Except as set forth on Schedule 2.1(y) hereto or disclosed in the
Commission Documents, 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 required to be disclosed in the Commission Documents that is not so
disclosed. Since September 30, 2003, no officer, consultant or key employee of
the Company or any Subsidiary whose termination, either individually or in the
aggregate, would be reasonably likely to 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 provided on Schedule
2.1(z) hereto, since December 31, 2003, neither the Company nor any Subsidiary
has:
9
(i) issued any stock, bonds or other corporate securities or
any right, options or warrants with respect thereto;
(ii) borrowed any amount in excess of $300,000 or incurred or
become subject to any other liabilities in excess of $100,000 (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
business of the Company and its Subsidiaries;
(iii) discharged or satisfied any lien or encumbrance in
excess of $250,000 or paid any obligation or liability (absolute or contingent)
in excess of $250,000, 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, in each case in excess of $50,000 individually or $100,000 in the
aggregate;
(v) sold, assigned or transferred any other tangible assets,
or canceled any debts or claims, in each case in excess of $250,000, 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 in excess of $250,000, or disclosed any proprietary
confidential information to any person except to customers in the ordinary
course of business or to the Purchaser or its representatives;
(vii) suffered any material 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 $500,000;
(x) entered into any 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;
10
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment; or
(xiv) 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 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 Securities will not involve any transaction which is subject to the
prohibitions of Section 406 of the Employee Retirement Income Security Act of
1974, as amended ("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 the Purchaser, or any person or entity that owns a beneficial
interest in the Purchaser, 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(z), 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.
(cc) 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
Securities 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 Securities pursuant to Regulation D and Rule 506 thereof 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 Securities to be
integrated with other offerings if such other offering, if integrated, would
cause the offer and sale of the Securities not to be exempt from registration
pursuant to Regulation D and Rule 506 thereof under the Securities Act. The
Company does not have any registration statement pending before the Commission
or currently under the Commission's review.
(dd) Xxxxxxxx-Xxxxx Act. The Company is in substantial 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 for which compliance by the
11
Company is required as of the date hereof and intends to comply substantially
with other applicable provisions of the Xxxxxxxx-Xxxxx Act, and the rules and
regulations promulgated thereunder, upon the effectiveness of such provisions or
the date by which compliance therewith by the Company is required.
Section 2.2. Representations and Warranties of the Purchaser. The
Purchaser hereby represents and warrants to the Company as follows as of the
date hereof and as of the Closing Date:
(a) Organization and Standing of the Purchaser. If the Purchaser is an
entity, the Purchaser is a corporation, limited liability company 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. The Purchaser has the requisite power and
authority to enter into and perform the Transaction Documents and to purchase
the Securities being sold to it hereunder. The execution, delivery and
performance of the Transaction Documents by the Purchaser and the consummation
by it of the transactions contemplated hereby have been duly authorized by all
necessary corporate, partnership or other action, and no further consent or
authorization of the Purchaser or its Board of Directors, stockholders, partners
or members, as the case may be, is required. When executed and delivered by the
Purchaser, the other Transaction Documents shall constitute valid and binding
obligations of the Purchaser enforceable against the Purchaser in accordance
with their 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) No Conflict. The execution, delivery and performance of the
Transaction Documents by the Purchaser and the consummation by the Purchaser of
the transactions contemplated thereby and hereby do not and will not (i) violate
any provision of the Purchaser's charter or organizational documents, (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 Purchaser is a party or by which the
Purchaser's respective properties or assets are bound, or (iii) 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 Purchaser or by which any property or asset of
the Purchaser are bound or affected, except, in all cases, other than violations
pursuant to clauses (i) or (iii) (with respect to federal and state securities
laws) above, for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, materially and adversely affect the Purchaser's ability to perform
its obligations under the Transaction Documents.
(d) Acquisition for Investment. The Purchaser is purchasing the Shares
and Warrants and will purchase any Warrant Shares solely for its own account for
the purpose of
12
investment and not with a view to or for sale in connection with distribution.
The Purchaser does not have a present intention to sell any of the Shares,
Warrants or Warrant Shares, nor a present arrangement (whether or not legally
binding) or intention to effect any distribution of any of the Shares, the
Warrants or the Warrant Shares to or through any person or entity; provided,
however, that by making the representations herein, the Purchaser does not agree
to hold the Shares, the Warrants or the Warrant Shares for any minimum or other
specific term and reserves the right to dispose of the Shares, the Warrants or
the Warrant Shares at any time in accordance with Federal and state securities
laws applicable to such disposition. The Purchaser acknowledges that it (i) has
such knowledge and experience in financial and business matters such that
Purchaser is capable of evaluating the merits and risks of Purchaser's
investment in the Company, (ii) is able to bear the financial risks associated
with an investment in the Securities and (iii) has been given full access to
such records of the Company and the Subsidiaries and to the officers of the
Company and the Subsidiaries as it has deemed necessary or appropriate to
conduct its due diligence investigation.
(e) Rule 144. The Purchaser understands that the Securities must be
held indefinitely unless such Securities are registered under the Securities Act
or an exemption from registration is available. The Purchaser acknowledges that
such person 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 the Purchaser has been advised that Rule 144 permits resales only under
certain circumstances. The Purchaser understands that to the extent that Rule
144 is not available, the Purchaser will be unable to sell any Securities
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(f) General. The Purchaser understands that the Securities are being
offered and sold in reliance on a transactional exemption from the registration
requirements 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 the Purchaser set forth herein in order to
determine the applicability of such exemptions and the suitability of the
Purchaser to acquire the Securities. The Purchaser understands that no United
States federal or state agency or any government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
(g) No General Solicitation. The Purchaser acknowledges that the
Securities were not offered to the 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 the Purchaser was invited by any of the foregoing means of communications.
The Purchaser, in making the decision to purchase the Securities, has relied
upon independent investigation made by it and has not relied on any information
or representations made by third parties.
(h) Accredited Investor. The Purchaser is an "accredited investor" (as
defined in Rule 501 of Regulation D), and the Purchaser has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Securities.
13
The Purchaser is not required to be registered as a broker-dealer under Section
15 of the Exchange Act and the Purchaser is not a broker-dealer. The Purchaser
acknowledges that an investment in the Securities is speculative and involves a
high degree of risk.
(i) Certain Fees. The Purchaser has not employed any broker or finder
or incurred any liability for any brokerage or investment banking fees,
commissions, finders' structuring fees, financial advisory fees or other similar
fees in connection with the Transaction Documents.
(j) Compliance with Securities Laws. The Purchaser and its affiliates
shall comply with all applicable federal securities laws, rules and regulations
in connection with the sale of the Securities purchased by the Purchaser
hereunder.
ARTICLE III
COVENANTS
The Company covenants with each Purchaser as follows, which covenants
are for the benefit of each Purchaser and their respective permitted assignees.
Section 3.1. Securities Compliance. The Company shall notify the
Commission in accordance with its rules and regulations, of the transactions
contemplated by any of the Transaction Documents 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 Securities to
the Purchaser, or its respective subsequent holders.
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 any successor market. If required, the Company will
promptly file the "Listing Application" for, or in connection with, the issuance
and delivery of the Shares and the Warrant Shares.
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 the Purchaser
shall be obligated hereunder to purchase the Shares or shall beneficially own
any Shares or Warrant Shares, for purposes reasonably related to the Purchaser's
interests as a stockholder to examine and make reasonable copies of 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.
14
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 would be reasonably likely to 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.
Section 3.6 Reporting Requirements. If the Company ceases to file its
periodic reports with the Commission, or if the Commission ceases making these
periodic reports available via the Internet without charge, then the Company
shall, promptly after filing with the Commission, furnish the following to each
Purchaser so long as the Purchaser shall be obligated hereunder to purchase the
Securities or shall beneficially own Shares or Warrant Shares:
(a) Quarterly Reports filed with the Commission on Form 10-QSB;
(b) Annual Reports filed with the Commission on Form 10-KSB; and
(c) Copies of all notices, information and proxy statements in
connection with any meetings, that are, in each case, 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 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 of the Company or any Subsidiary to perform its obligations
under any Transaction Document.
Section 3.8 Use of Proceeds. The net proceeds from the sale of the
Shares will be used by the Company for working capital and general corporate
purposes.
Section 3.9 Reporting Status. So long as a Purchaser beneficially owns
any of the Securities, 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 3.10 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 Final Closing; provided,
however, that if Closing occurs after 4:00 P.M. Eastern Time on any Trading Day
but in no event later than one hour after the Final Closing, the Company shall
issue the Press Release no later than 9:00 A.M. Eastern Time on the first
Trading Day following the Final Closing Date. 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 and the form
of Warrant) as soon as practicable following the Final Closing Date but in no
event more than two (2) Trading Days following the Final Closing
15
Date, which Press Release and Form 8-K shall be subject to prior review and
comment by the Purchaser. "Trading Day" means any day during which the OTC
Bulletin Board (or other principal exchange on which the Common Stock is traded)
shall be open for trading.
Section 3.11 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, unless prior thereto the 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 3.12 Pledge of Securities. The Company acknowledges and agrees
that the Securities may be pledged by a Purchaser in connection with a bona fide
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
Purchaser's 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 3.13 Subsequent Financings. Commencing on the effective date
(the "Effective Date") of the registration statement providing for the resale of
the Shares and the Warrant Shares and expiring on the earlier of (i) sixty (60)
days following the Effective Date or (ii) December 31, 2005, the Company
covenants and agrees that it will not sell any of its debt or equity securities
or securities convertible or exchangeable into shares of Common Stock except
pursuant to a placement of such securities arranged by Continental Blue Limited.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company to
Close and to Sell the Securities. The obligation hereunder of the Company to
close and issue and sell the Securities to the Purchaser at each Closing Date is
subject to the satisfaction or waiver, at or before each Closing 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 the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct in all
material respects as of the date when made and as of each 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.
16
(b) Performance by the Purchaser. The Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Purchaser at or prior to each Closing Date.
(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 Shares shall
have been delivered to the Company on each Closing Date.
(e) Delivery of Transaction Documents. The Transaction Documents shall
have been duly executed and delivered by the Purchaser to the Company on the
Initial Closing Date.
Section 4.2 Conditions Precedent to the Obligation of the Purchaser to
Close and to Purchase the Securities. The obligation hereunder of the Purchaser
to purchase the Securities and consummate the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before each Closing
Date, of each of the conditions set forth below (other than under clause (k)
below, which condition may not be waived). These conditions are for the
Purchaser's sole benefit and may be waived by the 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 material respects
as of each Closing Date, except for representations and warranties that speak as
of a particular date, which shall be true and correct in all material respects
as of such date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material 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 each Closing Date.
(c) No Suspension, Etc. Trading in the 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 Closing), and, at any time prior to each 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.
(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
17
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) Opinion of Counsel. The Purchaser shall have received an opinion of
counsel to the Company, dated the date of such Closing, substantially in the
form of Exhibit D hereto, with such exceptions and limitations as shall be
reasonably acceptable to counsel to the Purchaser.
(g) Shares and Warrants. At or prior to the Closing, the Company shall
have delivered to the Escrow Agent certificates representing the Shares (in such
denominations as the Purchaser may request) and the Warrants, in each case,
being acquired by the Purchaser at the Closing.
(h) Secretary's Certificate. The Company shall have delivered to the
Purchaser a secretary's certificate, dated as of the Initial Closing Date, as to
(i) the resolutions adopted by the Board of Directors approving the transactions
contemplated hereby, (ii) the Certificate, (iii) the Bylaws, 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.
(i) Officer's Certificate. On each Closing Date, the Company shall have
delivered to the Purchaser a certificate signed by an executive officer on
behalf of the Company, dated as of such Closing Date, confirming the accuracy of
the Company's representations, warranties and its compliance with covenants as
of such Closing Date and confirming the compliance by the Company with the
conditions precedent set forth in paragraphs (b)-(e) of this Section 4.2 as of
such Closing Date (provided that, with respect to the matters in paragraphs (d)
and (e) of this Section 4.2, such confirmation shall be based on the knowledge
of the executive officer after due inquiry).
(j) Registration Rights Agreement. As of the Initial Closing Date, the
Company shall have duly executed and delivered the Registration Rights Agreement
in the form of Exhibit C attached hereto.
(k) Payment of Placement Agent Fees. The Company shall have paid any
and all fees owed to Continental Blue Limited.
(l) Material Adverse Effect. No Material Adverse Effect shall have
occurred at or before a Closing Date.
18
ARTICLE V
CERTIFICATE LEGEND
Section 5.1 Legend. Each certificate representing the Securities 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):
THE 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 NEWPORT
INTERNATIONAL GROUP, INC. 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
Shares and the Warrant Shares, without the legend set forth above if at such
time, prior to making any transfer of any such Shares or Warrant Shares, 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 Shares or 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 and remains 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, or (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. 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
Shares or Warrant Shares is required to be issued to a Purchaser
19
without a legend, in lieu of delivering physical certificates representing the
Shares or Warrant Shares, provided the Company's transfer agent is participating
in the Depository Trust Company ("DTC") Fast Automated Securities Transfer
program, the Company shall use its reasonable best efforts to cause its transfer
agent to electronically transmit the Shares or Warrant Shares to a Purchaser by
crediting the account of the Purchaser's Prime Broker with DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system (to the extent not
inconsistent with any provisions of this Agreement).
ARTICLE VI
PUT OPTION
Section 6.1 Put Option. Commencing on the date that is eight (8) months
following the Effective Date (as defined in Section 3.13 hereof) and for a
period of twelve (12) months thereafter (the "Option Period"), the Purchaser
shall have the option (the "Put Option") to cause the Company to purchase all or
a portion of the Shares at a price of $1.25 per share (the "Put Option Price")
in the event that the average price per share of the Common Stock is less than
$1.25 for a period of ten (10) consecutive trading days (an "Exercise Period")
during the Option Period. If the Purchaser elects to exercise its Put Option
with respect to all or a portion of the Shares during the Option Period, the
Purchaser shall provide written notice (the "Put Option Notice") to the Company
within five (5) trading days of the end of the applicable Exercise Period
specifying the number of Shares that are subject to such Put Option. Upon the
Company's receipt of the Put Option Notice, the Company shall pay the Put Option
Price to the Purchaser with respect to the Shares subject to the Put Option
Notice within ten (10) trading days of receipt of the Put Option Notice. In the
event that the Company fails to honor any Put Option Notice or does not deliver
the Put Option Price to the Purchaser within such ten (10) trading day period
upon the Purchaser's exercise of the Put Option, the Company shall issue to the
Purchaser a convertible promissory note in the principal amount equal to the
number of Shares subject to the Put Option Notice multiplied by the Put Option
Price. The convertible promissory note shall have a conversion price equal to
eighty-five percent (85%) of the average of the closing bid prices of the Common
Stock for the ten (10) trading days prior to conversion. The shares of Common
Stock issuable upon conversion of the convertible promissory note shall have
demand registration rights.
ARTICLE VII
INDEMNIFICATION
Section 7.1 General Indemnity. The Company agrees to indemnify and hold
harmless the Purchaser (and its respective 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 Purchaser and its directors, officers, affiliates, agents, successors and
assigns as a result of any inaccuracy in or breach of the representations,
warranties or covenants made by the Company herein. The Purchaser agrees to
indemnify and hold harmless the Company and its
20
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 and its directors, officers, affiliates,
agents, successors and assigns as result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Purchaser herein. The
maximum aggregate liability of the Purchaser pursuant to its indemnification
obligations under this Article VII shall not exceed the portion of the Purchase
Price paid by the Purchaser hereunder.
Section 7.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VII (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 indemnified party to give
notice as provided herein shall not relieve the indemnifying party of its
obligations under this Article VII except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
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
indemnifying party a conflict of interest between it and the indemnified party
exists with respect to such action, proceeding or claim (in which case the
indemnifying party shall be responsible for the reasonable fees and expenses of
one separate counsel for the indemnified parties), 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 not 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 VII 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 VII 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
21
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.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Fees and Expenses. 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) for one counsel to the Purchaser
incurred by the Purchaser in connection with (i) the preparation, negotiation,
execution and delivery of this Agreement, the Registration Rights Agreement and
the transactions contemplated thereunder, which payment shall be made at Closing
and shall not exceed $15,000 (exclusive of disbursements and out-of-pocket
expenses), (ii) the filing and declaration of effectiveness by the Commission of
the Registration Statement (as defined in the Registration Rights Agreement) and
(iii) any amendments, modifications or waivers of this Agreement or any of the
other Transaction Documents. In addition, the Company shall pay all reasonable
fees and expenses incurred by the Purchaser in connection with the enforcement
of this Agreement or any of the other Transaction Documents, including, without
limitation, all reasonable attorneys' fees and expenses.
Section 8.2 Specific Performance; Consent to Jurisdiction; Venue.
(a) The Company and the Purchaser acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the other Transaction Documents are not performed in accordance
with their specific terms or are 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 other Transaction
Documents 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) The parties agree that venue for any dispute arising under this
Agreement will lie exclusively in the state or federal courts located in New
York County, New York, and the parties irrevocably waive any right to raise
FORUM NON CONVENIENS or any other argument that New York is not the proper
venue. The parties irrevocably consent to personal jurisdiction in the state and
federal courts of the state of New York. The Company and each Purchaser consent
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 8.2 shall affect
or limit any right to serve process in any other manner permitted by law. The
Company and the Purchaser hereby agree that the prevailing party in any suit,
action
22
or proceeding arising out of or relating to the Securities, this Agreement or
the Registration Rights Agreement, shall be entitled to reimbursement for
reasonable legal fees from the non-prevailing party.
Section 8.3 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 other Transaction Documents, neither the Company nor
any Purchaser make 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.
Following the Closing, no provision of this Agreement may be waived or amended
other than by a written instrument signed by the Company and the Purchaser. Any
amendment or waiver effected in accordance with this Section 8.3 shall be
binding upon the Purchaser (and its permitted assigns) and the Company.
Section 8.4 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 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: Newport International Group, Inc.
00000 Xx Xxxxx Xxxxx 000
Xxxx Xxxxxx, Xxxxxxxxxx 00000
Attention: President and CEO
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
with copies (which copies
shall not constitute notice
to the Company) to: Xxxxxxxxx Xxxxxxxxxx LLP
0000 Xxxxxxxxx Xxxx. X.X.
Xxxxx 000
Xxxx Xxxxx, Xxxxxxx
Attention: Xxxxx X. Xxxxxxxxx
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
If to any Purchaser: At the address of the Purchaser set forth on
Exhibit A to this Agreement.
23
with copies to: Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxx.
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 written notice of such changed address to the other parties hereto.
Section 8.5 Waivers. No waiver by any 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 provision,
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 8.6 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 8.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
After the Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
Subject to Section 5.1 hereof, the Purchaser may assign the Securities and its
rights under this Agreement and the other Transaction Documents and any other
rights hereto and thereto without the consent of the Company.
Section 8.8 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.
Section 8.9 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 8.10 Survival. The representations and warranties of the
Company and the Purchaser shall survive the execution and delivery hereof and
the Closing until the third anniversary of the Closing Date except the
agreements and covenants set forth in Articles I, III, V, VI, VII and VIII of
this Agreement shall survive the execution and delivery hereof and the Closing.
Section 8.11 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall
24
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.
Section 8.12 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchaser
without the consent of the Purchaser, which consent shall not be unreasonably
withheld or delayed, or unless and until such disclosure is required by law,
rule or applicable regulation, and then only to the extent of such requirement.
Section 8.13 Severability. The provisions of this Agreement 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 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 and this Agreement 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 8.14 Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, the Company and the
Purchaser shall execute and deliver such instruments, 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 Warrants
and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
25
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
NEWPORT INTERNATIONAL GROUP, INC.
By: /s/ Cery Perle
--------------
Name:
Title:
PURCHASER:
By: /s/ Xxxxxxxx Xxxx, Inc.
-----------------------
Name:
Title:
26
EXHIBIT A
PURCHASER
NAMES AND ADDRESS NUMBER OF SHARES
OF PURCHASER & WARRANTS PURCHASED
----------------- --------------------
Xxxxxxxx Xxxx Inc. Initial Closing:
European Administration: Shares: 1,000,000
0 Xxxxxx Xxxxxx Price Per Share: $1.39
X.X. Xxx 00000 Xxxxxxxx: 125,000
0000 Xxxxxxxx
Xxxxxx Second Closing:
+ 357 2533 9274 Shares: 1,000,000
Kontaktperson: Xxxxxxxx Magistrate Price Per Share: $1.44
Warrants: 125,000
i
EXHIBIT B
FORM OF WARRANT
ii
EXHIBIT C
FORM OF REGISTRATION RIGHTS AGREEMENT
iii
EXHIBIT D
FORM OF OPINION
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware 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 failure to so qualify would have a Material Adverse Effect.
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 Shares and 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, its Board of Directors or its stockholders is required. Each of the
Transaction Documents have been duly executed and delivered 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 Shares are not subject to any preemptive rights under the Certificate of
Incorporation or the Bylaws.
3. The Shares and the Warrants have been duly authorized and, the
Shares 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 exercise of the Warrants have been duly authorized
and reserved for issuance, and when delivered against payment in full as
provided in the Warrants, 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 Shares and the
Warrants do not (a) violate any provision of the Certificate of Incorporation or
Bylaws, (b) 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 and
which is known to us, (c) create or impose a lien, charge or encumbrance on any
property of the Company under any agreement or any commitment known to us 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 (d) 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 (a) and (d) 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, delivery and performance of the
iv
Transaction Documents, or the offer, sale or issuance of the Shares and the
Warrants other than filings as may be required by applicable Federal and state
securities laws.
6. To our knowledge, there is no action, suit, claim, investigation or
proceeding pending or threatened against the Company which questions the
validity of the Agreement or the transactions contemplated thereby or any action
taken or to be taken pursuant 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 Shares and the Warrants are
exempt from the registration requirements of the Securities Act of 1933, as
amended.
v
