EXHIBIT 10.8
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of March 27,
2001, by and among NetStaff, Inc., an Indiana corporation, with headquarters
located at 000 Xxxxx Xxxx, Xxx Xxxxxxxxx, XX 00000(xxx "Company"), and each of
the purchasers set forth on the signature pages hereto (the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 under Regulation D ("REGULATION D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 ACT");
B. Buyers desire to purchase and the Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement (i) 12% secured
convertible debentures of the Company, in the form attached hereto as EXHIBIT
"A", in the aggregate principal amount of up to Six Hundred Thousand Dollars
($600,000) (together with any debenture(s) issued in replacement thereof or as a
dividend thereon or otherwise with respect thereto in accordance with the terms
thereof, the "DEBENTURES"), convertible into shares of common stock, $0.001 par
value per share, of the Company (the "COMMON STOCK"), upon the terms and subject
to the limitations and conditions set forth in such Debentures and (ii)
warrants, in the form attached hereto as EXHIBIT "B", to purchase up to One
Million Two Hundred Thousand (1,200,000) shares of Common Stock (the
"WARRANTS");
C. Each Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, such principal amount of Debentures and number of Warrants as
is set forth immediately below its name on the signature pages hereto; and
D. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as EXHIBIT "C" (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
a. PURCHASE OF DEBENTURES AND WARRANTS. On the
Closing Date (as defined below), the Company shall issue and sell to each Buyer
and each Buyer severally and not jointly agrees to purchase from the Company
such principal amount of Debentures and number of Warrants as is set forth
immediately below such Buyer's name on the signature pages hereto.
b. FORM OF PAYMENT. On the Closing Date (as defined
below), (i) each Buyer shall pay the purchase price for the Debentures and the
Warrants to be issued and sold to it at the Closing (as defined below) (the
"PURCHASE PRICE") by wire transfer of immediately available funds to the
Company, in accordance with the Company's written wiring instructions, against
delivery of the Debentures in the principal amount equal to the Purchase Price
and the number of Warrants as is set forth immediately below such Buyer's name
on the signature pages hereto, and (ii) the Company shall deliver such
Debentures and Warrants duly executed on behalf of the Company, to such Buyer,
against delivery of such Purchase Price.
c. CLOSING DATE. Subject to the satisfaction (or
waiver) of the conditions thereto set forth in Section 6 and Section 7 below,
the date and time of the issuance and sale of the Debentures and the Warrants
pursuant to this Agreement (the "CLOSING DATE") shall be 10:00 a.m. Eastern
Standard Time on March 27, 2001 or such other mutually agreed upon time. The
closing of the transactions contemplated by this Agreement (the "CLOSING") shall
occur on the Closing Date at the offices of Xxxxxxx Xxxxx Xxxxxxx & Xxxxxxxxx,
LLP, 0000 Xxxxxx Xxxxxx, 00xx Xxxxx, Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000-0000 or at
such other location as may be agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer
severally (and not jointly) represents and warrants to the Company solely as to
such Buyer that:
a. INVESTMENT PURPOSE. As of the date hereof, the
Buyer is purchasing the Debentures and the shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Debentures (including, without
limitation, such additional shares of Common Stock, if any, as are issuable as a
result of the events described in Sections 1.3 and 1.4(g) of the Debentures and
Section 2(c) of the Registration Rights Agreement, such shares of Common Stock
being referred to herein as the "CONVERSION SHARES") and the Warrants and the
shares of Common Stock issuable upon exercise thereof (the "WARRANT SHARES" and,
collectively with the Debentures, Warrants and Conversion Shares, the
"SECURITIES") for its own account and not with a present view towards the public
sale or distribution thereof, except pursuant to sales registered or exempted
from registration under the 1933 Act; PROVIDED, HOWEVER, that by making the
representations herein, the Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. ACCREDITED INVESTOR STATUS. The Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D (an
"ACCREDITED INVESTOR").
c. RELIANCE ON EXEMPTIONS. The Buyer understands that
the Securities are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities. Further, Buyer agrees and represents that it has not
taken and will not take any actions to prevent the transactions contemplated
hereby from qualifying for such exemption.
2
d. INFORMATION. The Buyer and its advisors, if any,
have been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by the Buyer or its advisors or that they
believe are necessary for their review and evaluation of the transactions
contemplated by this Agreement. The Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company. Notwithstanding the
foregoing, the Company has not disclosed to the Buyer any material nonpublic
information and will not disclose such information unless such information is
disclosed to the public prior to or promptly following such disclosure to the
Buyer. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify, amend
or affect Buyer's right to rely on the Company's representations and warranties
contained in Section 3 below. The Buyer understands that its investment in the
Securities involves a significant degree of risk.
e. GOVERNMENTAL REVIEW. The Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the
Securities.
f. TRANSFER OR RE-SALE. The Buyer understands that
(i) except as provided in the Registration Rights Agreement, the sale or re-sale
of the Securities has not been and is not being registered under the 1933 Act or
any applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect that
the Securities to be sold or transferred may be sold or transferred pursuant to
an exemption from such registration, (c) the Securities are sold or transferred
to an "affiliate" (as defined in Rule 144 promulgated under the 1933 Act (or a
successor rule) ("RULE 144")) of the Buyer who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(f) and who is an
Accredited Investor, or (d) the Securities are sold pursuant to Rule 144; (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any re-sale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 0000 Xxx) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else contained herein to
the contrary, the Securities may be pledged as collateral in connection with a
BONA FIDE margin account or other lending arrangement.
3
g. LEGENDS. The Buyer understands that the Debentures
and the Warrants and, until such time as the Conversion Shares and Warrant
Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement or otherwise may be sold pursuant to Rule 144
without any restriction as to the number of securities as of a particular date
that can then be immediately sold, the Conversion Shares and Warrant Shares may
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the certificates for such
Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the
absence of an effective registration statement for the
securities under said Act, or an opinion of counsel, in form,
substance and scope customary for opinions of counsel in
comparable transactions, that registration is not required
under said Act or unless sold pursuant to Rule 144 under said
Act."
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 without
any restriction as to the number of securities as of a particular date that can
then be immediately sold, or (b) such holder provides the Company with an
opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Security may be made without registration under the 1933 Act and such
sale or transfer is effected or (c) such holder provides the Company with
reasonable assurances that such Security can be sold pursuant to Rule 144. The
Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
h. AUTHORIZATION; ENFORCEMENT. This Agreement and the
Registration Rights Agreement have been duly and validly authorized. This
Agreement has been duly executed and delivered on behalf of the Buyer, and this
Agreement constitutes, and upon execution and delivery by the Buyer of the
Registration Rights Agreement, such agreement will constitute, valid and binding
agreements of the Buyer enforceable in accordance with their terms.
i. RESIDENCY. The Buyer is a resident of the
jurisdiction set forth immediately below such Buyer's name on the signature
pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:
a. ORGANIZATION AND QUALIFICATION. The Company and
each of its Subsidiaries (as defined below), if any, is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, with full power and authority
(corporate and other) to own, lease, use and operate its properties and to carry
on its business as and where now owned, leased, used, operated and conducted.
SCHEDULE 3(a) sets forth a list of all of the Subsidiaries of the Company and
4
the jurisdiction in which each is incorporated. The Company and each of its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership or use of property or
the nature of the business conducted by it makes such qualification necessary
except where the failure to be so qualified or in good standing would not have a
Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse
effect on the business, operations, assets, financial condition or prospects of
the Company or its Subsidiaries, if any, taken as a whole, or on the
transactions contemplated hereby or by the agreements or instruments to be
entered into in connection herewith. "SUBSIDIARIES" means any corporation or
other organization, whether incorporated or unincorporated, in which the Company
owns, directly or indirectly, any equity or other ownership interest.
b. AUTHORIZATION; ENFORCEMENT. (i) The Company has
all requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Debentures and the Warrants
and to consummate the transactions contemplated hereby and thereby and to issue
the Securities, in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement, the Registration Rights Agreement, the
Debentures and the Warrants by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including without limitation, the
issuance of the Debentures and the Warrants and the issuance and reservation for
issuance of the Conversion Shares and Warrant Shares issuable upon conversion or
exercise thereof) have been duly authorized by the Company's Board of Directors
and no further consent or authorization of the Company, its Board of Directors,
or its shareholders is required, (iii) this Agreement has been duly executed and
delivered by the Company, and (iv) this Agreement constitutes, and upon
execution and delivery by the Company of the Registration Rights Agreement, the
Debentures and the Warrants, each of such instruments will constitute, a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms.
c. CAPITALIZATION. As of the date hereof, the
authorized capital stock of the Company consists of (i) 100,000,000 shares of
Common Stock, of which 13,550,000 shares are issued and outstanding, 1,350,000
shares are reserved for issuance pursuant to the Company's stock option plans,
600,000 shares are reserved for issuance pursuant to securities (other than the
Debentures, the Additional Debentures (as defined in Section 4(l)), the Warrants
and the Additional Warrants (as defined in Section 4(l))) exercisable for, or
convertible into or exchangeable for shares of Common Stock and 62,400,000
shares are reserved for issuance upon conversion of the Debentures and the
Additional Debentures and exercise of the Warrants and the Additional Warrants
(subject to adjustment pursuant to the Company's covenant set forth in Section
4(h) below); and (ii) 20,000,000 shares of preferred stock, none of which are
issued and outstanding. All of such outstanding shares of capital stock are, or
upon issuance will be, duly authorized, validly issued, fully paid and
nonassessable. No shares of capital stock of the Company are subject to
preemptive rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances imposed through the actions or failure to act of
the Company. Except as disclosed in SCHEDULE 3(c), as of the effective date of
5
this Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries,
(ii) there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of its or their
securities under the 1933 Act (except the Registration Rights Agreement) and
(iii) there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Debentures, the Warrants,
the Conversion Shares or Warrant Shares. The Company has furnished to the Buyer
true and correct copies of the Company's Certificate of Incorporation as in
effect on the date hereof ("CERTIFICATE OF INCORPORATION"), the Company's
By-laws, as in effect on the date hereof (the "BY-LAWS"), and the terms of all
securities convertible into or exercisable for Common Stock of the Company and
the material rights of the holders thereof in respect thereto. The Company shall
provide the Buyer with a written update of this representation signed by the
Company's Chief Executive Officer or Chief Financial Officer on behalf of the
Company as of the Closing Date.
d. ISSUANCE OF SHARES. The Conversion Shares and
Warrant Shares are duly authorized and reserved for issuance and, upon
conversion of the Debentures and exercise of the Warrants in accordance with
their respective terms, will be validly issued, fully paid and non-assessable,
and free from all taxes, liens, claims and encumbrances with respect to the
issue thereof and shall not be subject to preemptive rights or other similar
rights of stockholders of the Company and will not impose personal liability
upon the holder thereof.
e. ACKNOWLEDGMENT OF DILUTION. The Company
understands and acknowledges the potentially dilutive effect to the Common Stock
upon the issuance of the Conversion Shares and Warrant Shares upon conversion of
the Debenture, or exercise of the Warrants. The Company further acknowledges
that its obligation to issue Conversion Shares and Warrant Shares upon
conversion of the Debentures or exercise of the Warrants in accordance with this
Agreement, the Debentures and the Warrants is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company.
f. NO CONFLICTS. The execution, delivery and
performance of this Agreement, the Registration Rights Agreement, the Debentures
and the Warrants by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance and reservation for issuance of the Conversion Shares and Warrant
Shares) will not (i) conflict with or result in a violation of any provision of
the Certificate of Incorporation or By-laws or (ii) violate or conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which with notice or lapse of time or both could become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent license or instrument
to which the Company or any of its Subsidiaries is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and regulations of any
6
self-regulatory organizations to which the Company or its securities are
subject) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or affected
(except for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect). Neither the Company nor any of its Subsidiaries
is in violation of its Certificate of Incorporation, By-laws or other
organizational documents and neither the Company nor any of its Subsidiaries is
in default (and no event has occurred which with notice or lapse of time or both
could put the Company or any of its Subsidiaries in default) under, and neither
the Company nor any of its Subsidiaries has taken any action or failed to take
any action that would give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its Subsidiaries is a party or by which any property or
assets of the Company or any of its Subsidiaries is bound or affected, except
for possible defaults as would not, individually or in the aggregate, have a
Material Adverse Effect. The businesses of the Company and its Subsidiaries, if
any, are not being conducted, and shall not be conducted so long as a Buyer owns
any of the Securities, in violation of any law, ordinance or regulation of any
governmental entity. Except as specifically contemplated by this Agreement and
as required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency, regulatory
agency, self regulatory organization or stock market or any third party in order
for it to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement, the Debentures or the Warrants in
accordance with the terms hereof or thereof or to issue and sell the Debentures
and Warrants in accordance with the terms hereof and to issue the Conversion
Shares upon conversion of the Debentures and the Warrant Shares upon exercise of
the Warrants. Except as disclosed in SCHEDULE 3(f), all consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company is not in violation of the listing
requirements of the Over-the-Counter Bulletin Board (the "OTCBB") and does not
reasonably anticipate that the Common Stock will be delisted by the OTCBB in the
foreseeable future. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
g. SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as set
forth on SCHEDULE 3(g), since April 27, 1999, the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the Exchange Act of
1934, as amended (the "1934 ACT") (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents (other than exhibits to such documents) incorporated by
reference therein, being hereinafter referred to herein as the "SEC DOCUMENTS").
The Company has delivered to each Buyer true and complete copies of the SEC
Documents, except for such exhibits and incorporated documents. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
7
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have been
amended or updated in subsequent filings prior the date hereof). As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth in the
financial statements of the Company included in the SEC Documents, the Company
has no liabilities, contingent or otherwise, other than (i) liabilities incurred
in the ordinary course of business subsequent to December 31, 1999 and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.
h. ABSENCE OF CERTAIN CHANGES. Since December 31,
1999, there has been no material adverse change and no material adverse
development in the assets, liabilities, business, properties, operations,
financial condition, results of operations or prospects of the Company or any of
its Subsidiaries, other than as set forth in SCHEDULE 3(h).
i. ABSENCE OF LITIGATION. There is no action, suit,
claim, proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body pending or, to
the knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material Adverse Effect. SCHEDULE
3(I) contains a complete list and summary description of any pending or
threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would have a Material Adverse Effect.
The Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
j. PATENTS, COPYRIGHTS, ETC.
(i) The Company and each of its Subsidiaries
owns or possesses the requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and copyrights
("INTELLECTUAL PROPERTY") necessary to enable it to conduct its business as now
operated (and, except as set forth in SCHEDULE 3(j) hereof, to the best of the
Company's knowledge, as presently contemplated to be operated in the future);
there is no claim or action by any person pertaining to, or proceeding pending,
or to the Company's knowledge threatened, which challenges the right of the
Company or of a Subsidiary with respect to any Intellectual Property necessary
to enable it to conduct its business as now operated (and, except as set forth
8
in SCHEDULE 3(j) hereof, to the best of the Company's knowledge, as presently
contemplated to be operated in the future); to the best of the Company's
knowledge, the Company's or its Subsidiaries' current and intended products,
services and processes do not infringe on any Intellectual Property or other
rights held by any person; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and
each of its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of their Intellectual Property.
(ii) All of the Company's computer software and
computer hardware, and other similar or related items of automated, computerized
or software systems that are used or relied on by the Company in the conduct of
its business or that were, or currently are being, sold or licensed by the
Company to customers (collectively, "INFORMATION TECHNOLOGY"), are Year 2000
Compliant. For purposes of this Agreement, the term "YEAR 2000 Compliant" means,
with respect to the Company's Information Technology, that the Information
Technology is designed to be used prior to, during and after the calendar Year
2000 A.D., and the Information Technology used during each such time period will
accurately receive, provide and process date and time data (including, but not
limited to, calculating, comparing and sequencing) from, into and between the
20th and 21st centuries, including the years 1999 and 2000, and leap-year
calculations, and will not malfunction, cease to function, or provide invalid or
incorrect results as a result of the date or time data, to the extent that other
information technology, used in combination with the Information Technology,
properly exchanges date and time data with it. The Company has delivered to the
Buyers true and correct copies of all analyses, reports, studies and similar
written information, whether prepared by the Company or another party, relating
to whether the Information Technology is Year 2000 Compliant.
k. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the
Company nor any of its Subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Company's officers has or is expected in the future
to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment of
the Company's officers has or is expected to have a Material Adverse Effect.
l. TAX STATUS. Except as set forth on SCHEDULE 3(l),
the Company and each of its Subsidiaries has made or filed all federal, state
and foreign income and all other tax returns, reports and declarations required
by any jurisdiction to which it is subject (unless and only to the extent that
the Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. The Company has not executed a waiver with respect to
the statute of limitations relating to the assessment or collection of any
foreign, federal, statue or local tax. Except as set forth on SCHEDULE 3(l),
none of the Company's tax returns is presently being audited by any taxing
authority.
9
m. CERTAIN TRANSACTIONS. Except as set forth on
SCHEDULE 3(m) and except for arm's length transactions pursuant to which the
Company or any of its Subsidiaries makes payments in the ordinary course of
business upon terms no less favorable than the Company or any of its
Subsidiaries could obtain from third parties and other than the grant of stock
options disclosed on SCHEDULE 3(c), none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
n. DISCLOSURE. All information relating to or
concerning the Company or any of its Subsidiaries set forth in this Agreement
and provided to the Buyers pursuant to Section 2(d) hereof and otherwise in
connection with the transactions contemplated hereby is true and correct in all
material respects and the Company has not omitted to state any material fact
necessary in order to make the statements made herein or therein, in light of
the circumstances under which they were made, not misleading. No event or
circumstance has occurred or exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects, operations or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed (assuming for this purpose that the Company's
reports filed under the 1934 Act are being incorporated into an effective
registration statement filed by the Company under the 1933 Act).
o. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF
SECURITIES. The Company acknowledges and agrees that the Buyers are acting
solely in the capacity of arm's length purchasers with respect to this Agreement
and the transactions contemplated hereby. The Company further acknowledges that
no Buyer is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by any Buyer or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is merely
incidental to the Buyers' purchase of the Securities. The Company further
represents to each Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of the Company and
its representatives.
p. NO INTEGRATED OFFERING. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales in any security or solicited any
offers to buy any security under circumstances that would require registration
under the 1933 Act of the issuance of the Securities to the Buyers. The issuance
of the Securities to the Buyers will not be integrated with any other issuance
of the Company's securities (past, current or future) for purposes of any
stockholder approval provisions applicable to the Company or its securities.
10
q. NO BROKERS. The Company has taken no action which
would give rise to any claim by any person for brokerage commissions,
transaction fees or similar payments relating to this Agreement or the
transactions contemplated hereby.
r. PERMITS; COMPLIANCE. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "COMPANY
PERMITS"), and there is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the Company Permits.
Neither the Company nor any of its Subsidiaries is in conflict with, or in
default or violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect. Since December 31,
1999, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
s. ENVIRONMENTAL MATTERS.
(i) Except as set forth in SCHEDULE 3(s), there
are, to the Company's knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or present violations of
Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents,
or contractual obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local or
foreign laws and neither the Company nor any of its Subsidiaries has received
any notice with respect to any of the foregoing, nor is any action pending or,
to the Company's knowledge, threatened in connection with any of the foregoing.
The term "ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants
contaminants, or toxic or hazardous substances or wastes (collectively,
"HAZARDOUS MATERIALS") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored,
used or disposed of in compliance with applicable law, no Hazardous Materials
are contained on or about any real property currently owned, leased or used by
the Company or any of its Subsidiaries, and no Hazardous Materials were released
on or about any real property previously owned, leased or used by the Company or
11
any of its Subsidiaries during the period the property was owned, leased or used
by the Company or any of its Subsidiaries, except in the normal course of the
Company's or any of its Subsidiaries' business.
(iii) Except as set forth in SCHEDULE 3(S),
there are no underground storage tanks on or under any real property owned,
leased or used by the Company or any of its Subsidiaries that are not in
compliance with applicable law.
t. TITLE TO PROPERTY. The Company and its
Subsidiaries have good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each case free
and clear of all liens, encumbrances and defects except such as are described in
SCHEDULE 3(t) or such as would not have a Material Adverse Effect. Any real
property and facilities held under lease by the Company and its Subsidiaries are
held by them under valid, subsisting and enforceable leases with such exceptions
as would not have a Material Adverse Effect.
u. INSURANCE. The Company and each of its
Subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the Company and
its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
v. INTERNAL ACCOUNTING CONTROLS. The Company and each
of its Subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the Company's board of directors, to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
w. FOREIGN CORRUPT PRACTICES. Neither the Company,
nor any of its Subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any Subsidiary has, in the course of
his actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
12
x. SOLVENCY. The Company (after giving effect to the
transactions contemplated by this Agreement) is solvent (I.E., its assets have a
fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently the Company has no information that would lead it to reasonably
conclude that the Company would not have the ability to, nor does it intend to
take any action that would impair its ability to, pay its debts from time to
time incurred in connection therewith as such debts mature. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end and does not anticipate or know of any basis upon which its
auditors might issue a qualified opinion in respect of its current fiscal year.
y. NO INVESTMENT COMPANY. The Company is not, and
upon the issuance and sale of the Securities as contemplated by this Agreement
will not be an "investment company" required to be registered under the
Investment Company Act of 1940 (an "INVESTMENT COMPANY"). The Company is not
controlled by an Investment Company.
4. COVENANTS.
a. BEST EFFORTS. The parties shall use their best
efforts to satisfy timely each of the conditions described in Section 6 and 7 of
this Agreement.
b. FORM D; BLUE SKY LAWS. The Company agrees to file
a Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof to each Buyer promptly after such filing. The Company
shall, on or before the Closing Date, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for sale to the
Buyers at the applicable closing pursuant to this Agreement under applicable
securities or "blue sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to each Buyer on or prior to the Closing Date.
c. REPORTING STATUS; ELIGIBILITY TO USE FORM SB-2 OR
FORM S-1. The Company's Common Stock is registered under Section 12(g) of the
1934 Act. The Company represents and warrants that it meets the requirements for
the use of Form SB-2 or Form S-1 for registration of the sale by the Buyer of
the Registrable Securities (as defined in the Registration Rights Agreement). So
long as the Buyer beneficially owns any of the Securities, the Company shall
timely file all reports required to be filed with the SEC pursuant to the 1934
Act, and the Company shall not terminate its status as an issuer required to
file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination. The Company further agrees
to file all reports required to be filed by the Company with the SEC in a timely
manner so as to become eligible, and thereafter to maintain its eligibility, for
the use of Form S-3. The Company shall issue a press release describing the
materials terms of the transaction contemplated hereby as soon as practicable
following the Closing Date but in no event more than two (2) business days of
the Closing Date, and shall file with the SEC a Current Report on Form 8-K
describing the material terms of the transaction contemplated hereby within five
(5) business days of the Closing Date, which press release and Form 8-K shall be
subject to prior review by the Buyers.
13
d. USE OF PROCEEDS. The Company shall use the
proceeds from the sale of the Debentures and the Warrants in the manner set
forth in SCHEDULE 4(d) attached hereto and made a part hereof and shall not,
directly or indirectly, use such proceeds for any loan to or investment in any
other corporation, partnership, enterprise or other person (except in connection
with its currently existing direct or indirect Subsidiaries).
e. FUTURE OFFERINGS. Subject to the exceptions
described below, the Company will not, without the prior written consent of a
majority-in-interest of the Buyers, negotiate or contract with any party to
obtain additional equity financing (including debt financing with an equity
component) that involves (A) the issuance of Common Stock or (B) the issuance of
convertible securities that are convertible into an indeterminate number of
shares of Common Stock or (C) the issuance of warrants during the period (the
"LOCK-UP PERIOD") beginning on the Closing Date and ending one hundred eighty
(180) days from the date the Registration Statement (as defined in the
Registration Rights Agreement) is declared effective (plus any days in which
sales cannot be made thereunder). In addition, subject to the exceptions
described below, the Company will not conduct any equity financing (including
debt with an equity component) ("FUTURE OFFERINGS") during the period beginning
on the Closing Date and ending two (2) years after the end of the Lock-up Period
unless it shall have first delivered to each Buyer, at least fifteen (15)
business days prior to the closing of such Future Offering, written notice
describing the proposed Future Offering, including the terms and conditions
thereof and proposed definitive documentation to be entered into in connection
therewith, and providing each Buyer an option during the ten (10) day period
following delivery of such notice to purchase its pro rata share (based on the
ratio that the aggregate principal amount of Debentures purchased by it
hereunder bears to the aggregate principal amount of Debentures purchased
hereunder) of the securities being offered in the Future Offering on the same
terms as contemplated by such Future Offering (the limitations referred to in
this sentence and the preceding sentence are collectively referred to as the
"CAPITAL RAISING LIMITATIONS"). In the event the terms and conditions of a
proposed Future Offering are amended in any respect after delivery of the notice
to the Buyers concerning the proposed Future Offering, the Company shall deliver
a new notice to each Buyer describing the amended terms and conditions of the
proposed Future Offering and each Buyer thereafter shall have an option during
the ten (10) day period following delivery of such new notice to purchase its
pro rata share of the securities being offered on the same terms as contemplated
by such proposed Future Offering, as amended. The foregoing sentence shall apply
to successive amendments to the terms and conditions of any proposed Future
Offering. The Capital Raising Limitations shall not apply to the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof or to the grant
of additional options or warrants, or the issuance of additional securities,
under any Company stock option or restricted stock plan approved by the
Stockholders of the Company. In the event that the Company completes a Future
Offering on terms more favorable than the transaction contemplated hereby, the
terms of the Debentures, the Additional Debentures, the Warrants and the
Additional Warrants will be amended to reflect such more favorable terms.
14
f. EXPENSES. At the Closing, the Company shall
reimburse Buyers for expenses incurred by it in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and the other
agreements to be executed in connection herewith, including, without limitation,
attorneys' and consultants' fees and expenses.
g. FINANCIAL INFORMATION. The Company agrees to send
the following reports to each Buyer until such Buyer transfers, assigns, or
sells all of the Securities: (i) within ten (10) days after the filing with the
SEC, a copy of its Annual Report on Form 10-KSB, its Quarterly Reports on Form
10-QSB and any Current Reports on Form 8-K; (ii) within one (1) day after
release, copies of all press releases issued by the Company or any of its
Subsidiaries; and (iii) contemporaneously with the making available or giving to
the stockholders of the Company, copies of any notices or other information the
Company makes available or gives to such stockholders.
h. RESERVATION OF SHARES. As required by applicable
law or regulations, the Company shall at all times have authorized, and reserved
for the purpose of issuance, a sufficient number of shares of Common Stock to
provide for the full conversion or exercise of the outstanding Debentures and
Additional Debentures (including all accrued unpaid interest thereon) and the
Warrants and Additional Warrants and issuance of the Conversion Shares and
Warrant Shares in connection therewith (based on the Conversion Price or
Exercise Price in effect from time to time) and as otherwise required by the
Debentures. The Company shall not reduce the number of shares of Common Stock
reserved for issuance upon conversion of Debentures and Additional Debentures
and exercise of the Warrants and Additional Warrants without the consent of each
Buyer. The Company shall use its best efforts at all times to maintain the
number of shares of Common Stock so reserved for issuance at no less than two
(2) times the number that is then actually issuable upon full conversion of the
Debentures and Additional Debentures and upon exercise of the Warrants and
Additional Warrants (based on the Conversion Price or the Exercise Price in
effect from time to time and including all accrued and unpaid interest on the
Debentures). If at any time the number of shares of Common Stock authorized and
reserved for issuance is below the number of Conversion Shares and Warrant
Shares issued and issuable upon conversion of the Debentures and Additional
Debentures and exercise of the Warrants and Additional Warrants (based on the
Conversion Price or the Exercise Price then in effect and including all accrued
and unpaid interest on the Debentures), the Company will promptly take all
corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of stockholders
to authorize additional shares to meet the Company's obligations under this
Section 4(h), in the case of an insufficient number of authorized shares, and
using its best efforts to obtain stockholder approval of an increase in such
authorized number of shares.
i. LISTING. The Company shall promptly secure the
listing of the Conversion Shares and Warrant Shares upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance) and, so
long as any Buyer owns any of the Securities, shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Conversion
Shares and Warrant Shares from time to time issuable upon conversion of the
Debentures or exercise of the Warrants. The Company will obtain and, so long as
any Buyer owns any of the Securities, maintain the listing and trading of its
Common Stock on the OTCBB, the Nasdaq National Market ("NASDAQ"), the Nasdaq
15
SmallCap Market ("NASDAQ SMALLCAP"), the New York Stock Exchange ("NYSE"), or
the American Stock Exchange ("AMEX") and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company shall promptly provide to each Buyer copies of any
notices it receives from the OTCBB and any other exchanges or quotation systems
on which the Common Stock is then listed regarding the continued eligibility of
the Common Stock for listing on such exchanges and quotation systems.
j. CORPORATE EXISTENCE. So long as a Buyer
beneficially owns any Debentures or Warrants, the Company shall maintain its
corporate existence and shall not sell all or substantially all of the Company's
assets, except in the event of a merger or consolidation or sale of all or
substantially all of the Company's assets, where the surviving or successor
entity in such transaction (i) assumes the Company's obligations hereunder and
under the agreements and instruments entered into in connection herewith and
(ii) is a publicly traded corporation whose Common Stock is listed for trading
on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
k. NO INTEGRATION. The Company shall not make any
offers or sales of any security (other than the Securities) under circumstances
that would require registration of the Securities being offered or sold
hereunder under the 1933 Act or cause the offering of the Securities to be
integrated with any other offering of securities by the Company for the purpose
of any stockholder approval provision applicable to the Company or its
securities.
l. SUBSEQUENT INVESTMENT. The Company and the Buyers
agree that, upon the declaration of effectiveness of the Registration Statement
to be filed pursuant to the Registration Rights Agreement (the "EFFECTIVE
DATE"), the Buyers shall purchase additional debentures ("ADDITIONAL
DEBENTURES") in the aggregate principal amount of One Hundred Thousand Dollars
($100,000) and additional warrants ("ADDITIONAL WARRANTS") to purchase an
aggregate of 200,000 shares of Common Stock, for an aggregate purchase price of
One Hundred Thousand Dollars ($100,000), with the closing of such purchase to
occur within thirty (30) days of the Effective Date; PROVIDED, HOWEVER, that the
obligation of each Buyer to purchase the Additional Debentures and the
Additional Warrants is subject to the satisfaction, at or before the closing of
such purchase and sale, of the conditions set forth in Section 7. The terms of
the Additional Debentures and the Additional Warrants shall be identical to the
terms of the Debentures and Warrants to be issued on the Closing Date. The
Common Stock underlying the Additional Debentures and the Additional Warrants
shall be Registrable Securities (as defined in the Registration Rights
Agreement) and shall be included in the Registration Statement to be filed
pursuant to the Registration Rights Agreement.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent to issue certificates, registered
in the name of each Buyer or its nominee, for the Conversion Shares and Warrant
Shares in such amounts as specified from time to time by each Buyer to the
Company upon conversion of the Debentures or exercise of the Warrants in
accordance with the terms thereof (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"). Prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
16
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately sold, all
such certificates shall bear the restrictive legend specified in Section 2(g) of
this Agreement. The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop
transfer instructions to give effect to Section 2(f) hereof (in the case of the
Conversion Shares and Warrant Shares, prior to registration of the Conversion
Shares and Warrant Shares under the 1933 Act or the date on which the Conversion
Shares and Warrant Shares may be sold pursuant to Rule 144 without any
restriction as to the number of Securities as of a particular date that can then
be immediately sold), will be given by the Company to its transfer agent and
that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement set forth in Section 2(g) hereof to comply
with all applicable prospectus delivery requirements, if any, upon re-sale of
the Securities. If a Buyer provides the Company with (i) an opinion of counsel
in form, substance and scope customary for opinions in comparable transactions,
to the effect that a public sale or transfer of such Securities may be made
without registration under the 1933 Act and such sale or transfer is effected or
(ii) the Buyer provides reasonable assurances that the Securities can be sold
pursuant to Rule 144, the Company shall permit the transfer, and, in the case of
the Conversion Shares and Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates, free from restrictive legend, in such name
and in such denominations as specified by such Buyer. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Buyers, by vitiating the intent and purpose of the transactions contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section, that the Buyers shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate transfer, without the necessity of showing economic loss and without
any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The
obligation of the Company hereunder to issue and sell the Debentures and
Warrants to a Buyer at the Closing is subject to the satisfaction, at or before
the Closing Date of each of the following conditions thereto, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
a. The applicable Buyer shall have executed this
Agreement and the Registration Rights Agreement, and delivered the same to the
Company.
b. The applicable Buyer shall have delivered the
Purchase Price in accordance with Section 1(b) above.
c. The representations and warranties of the
applicable Buyer shall be true and correct in all material respects as of the
date when made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date), and the
17
applicable Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the applicable Buyer at
or prior to the Closing Date.
d. No litigation, statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The
obligation of each Buyer hereunder to purchase the Debentures and Warrants at
the Closing is subject to the satisfaction, at or before the Closing Date of
each of the following conditions, provided that these conditions are for such
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion:
a. The Company shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer
duly executed Debentures (in such denominations as the Buyer shall request) and
Warrants in accordance with Section 1(b) above or duly executed Additional
Debentures (in such denominations as the Buyer shall request) and Additional
Warrants, as the case may be.
c. The Irrevocable Transfer Agent Instructions, in
form and substance satisfactory to a majority-in-interest of the Buyers, shall
have been delivered to and acknowledged in writing by the Company's Transfer
Agent.
d. The representations and warranties of the Company
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at such time (except for representations
and warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall
have received a certificate or certificates, executed by the chief executive
officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company's
Certificate of Incorporation, By-laws and Board of Directors' resolutions
relating to the transactions contemplated hereby.
e. No litigation, statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
18
f. The Conversion Shares and Warrant Shares shall
have been authorized for quotation on the OTCBB and trading in the Common Stock
on the OTCBB shall not have been suspended by the SEC or the OTCBB.
g. The Buyer shall have received an opinion of the
Company's counsel, dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer and in substantially the same form as
EXHIBIT "D" attached hereto.
h. The Buyer shall have received an officer's
certificate described in Section 3(c) above, dated as of the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. THIS AGREEMENT SHALL BE ENFORCED,
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITH SUCH STATE,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED
IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT,
THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES
FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL
SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN
ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A
FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE
AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY
OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING
UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.
b. COUNTERPARTS; SIGNATURES BY FACSIMILE. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original but all of which shall constitute one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
19
c. HEADINGS. The headings of this Agreement are for
convenience of reference only and shall not form part of, or affect the
interpretation of, this Agreement.
d. SEVERABILITY. In the event that any provision of
this Agreement is invalid or enforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and
the instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
f. NOTICES. Any notices required or permitted to be
given under the terms of this Agreement shall be sent by certified or registered
mail (return receipt requested) or delivered personally or by courier (including
a recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
NetStaff, Inc.
000 Xxxxx Xxxx
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxx, President
Facsimile: (000) 000-0000
With copy to:
Bogen and Associates
000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxxxxxxx Xxxxx, Esquire
Facsimile: (000) 000-0000
If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.
20
With copy to:
The N.I.R. Group, LLC
000 Xxxxx Xxxxxx, Xxxxx X
Xxxxxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each party shall provide notice to the other party of any change in
address.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns. Neither the Company nor any Buyer shall assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.
h. THIRD PARTY BENEFICIARIES. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. SURVIVAL. The representations and warranties of
the Company and the agreements and covenants set forth in Sections 3, 4, 5 and 8
shall survive the closing hereunder notwithstanding any due diligence
investigation conducted by or on behalf of the Buyers. The Company agrees to
indemnify and hold harmless each of the Buyers and all their officers,
directors, employees and agents for loss or damage arising as a result of or
related to any breach or alleged breach by the Company of any of its
representations, warranties and covenants set forth in Sections 3 and 4 hereof
or any of its covenants and obligations under this Agreement or the Registration
Rights Agreement, including advancement of expenses as they are incurred.
j. PUBLICITY. The Company and each of the Buyers
shall have the right to review a reasonable period of time before issuance of
any press releases, SEC, OTCBB or NASD filings, or any other public statements
with respect to the transactions contemplated hereby; PROVIDED, HOWEVER, that
(i) the Company shall be entitled, without the prior approval of each of the
Buyers, to make any press release or SEC, OTCBB (or other applicable trading
market) or NASD filings with respect to such transactions as is required by
applicable law and regulations (although each of the Buyers shall be consulted
by the Company in connection with any such press release prior to its release
and shall be provided with a copy thereof and be given an opportunity to comment
thereon) and (ii) the Company will not disclose any material nonpublic
information to any of Buyers unless such information is disclosed to the public
prior to or promptly following such disclosure to any of the Buyers.
21
k. FURTHER ASSURANCES. Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
l. NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
m. REMEDIES. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Buyers by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Agreement will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this
Agreement, that the Buyers shall be entitled, in addition to all other available
remedies at law or in equity, and in addition to the penalties assessable
herein, to an injunction or injunctions restraining, preventing or curing any
breach of this Agreement and to enforce specifically the terms and provisions
hereof, without the necessity of showing economic loss and without any bond or
other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
22
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
NETSTAFF, INC.
By: /S/ Xxxxxxx X. Xxxxx
-------------------------------------
Xxxxxxx X. Xxxxx
President and Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
/S/ Xxxxx X. Xxxxxxxx
--------------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: ___________________
ADDRESS:
000 Xxxxx Xxxxxx, Xxxxx X
Xxxxxxx, Xxx Xxxx 00000
Facsimile: 000-000-0000
Telephone: 000-000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $325,000
Number of Warrants: 650,000
Aggregate Purchase Price: $325,000
23
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: First Street Manager II, LLC
/S/ Xxxxx X. Xxxxxxxxx
--------------------------------------
Xxxxx X. Xxxxxxxxx
Manager
RESIDENCE: __________________
ADDRESS:
000 Xxxxx Xxxxxx, Xxxxx X
Xxxxxxx, Xxx Xxxx 00000
Facsimile: 000-000-0000
Telephone: 000-000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $175,000
Number of Warrants: 350,000
Aggregate Purchase Price: $175,000
24
