SECURITIES PURCHASE AGREEMENT
SECURITIES
PURCHASE AGREEMENT (this “Agreement”),
dated
as of June 30, 2006, by and among Shearson Financial Network, Inc. a Nevada
corporation, with headquarters located at 0000 X. Xxxxxxxx Xx., Xxxxx 0, Xxx
Xxxxx, XX 00000 (the “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 the rules and
regulations 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) 6% convertible debentures of the
Company, in the form attached hereto as Exhibit
“A”,
in the
aggregate principal amount of One Million Five Hundred Thousand Dollars
($1,500,000) (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, par value $.001 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 30,000,000 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 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 written 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 12:00 noon, Eastern Standard Time on June 30, 2006, 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 such 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 (i) on account of interest on the Debentures, (ii) 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 or (iii) in payment of the Standard
Liquidated Damages Amount (as defined in Section 2(f) below) pursuant to this
Agreement, such shares of Common Stock being collectively 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.
2
d. Information.
The
Buyer and its advisors, if any, have been, and for so long as the Debentures
and
Warrants remain outstanding will continue to be, 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. The Buyer and its advisors, if any, have been, and
for so long as the Debentures and Warrants remain outstanding will continue
to
be, 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 that 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, which opinion shall be accepted
by the Company, (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, (d) the
Securities are sold pursuant to Rule 144, or (e) the Securities are sold
pursuant to Regulation S under the 1933 Act (or a successor rule) (“Regulation
S”),
and
the Buyer shall have delivered to the Company an opinion of counsel that shall
be in form, substance and scope customary for opinions of counsel in corporate
transactions, which opinion shall be accepted by the Company; (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. In the event that the Company does not
accept the opinion of counsel provided by the Buyer with respect to the transfer
of Securities pursuant to an exemption from registration, such as Rule 144
or
Regulation S, within three (3) business days of delivery of the opinion to
the
Company, the Company shall pay to the Buyer liquidated damages of three percent
(3%) of the outstanding amount of the Debentures per month plus accrued and
unpaid interest on the Debentures, prorated for partial months, in cash or
shares at the option of the Company (“Standard
Liquidated Damages Amount”).
If
the Company elects to pay the Standard Liquidated Damages Amount in shares
of
Common Stock, such shares shall be issued at the Conversion Price at the time
of
payment. Notwithstanding anything herein to the contrary, in the event the
Company has to pay the Standards Liquidated Damages Amount pursuant to any
provision of this Agreement, the Buyers shall first have to give the Company
advance written notice of such breach and in such event, the Company shall
have
30 days from the receipt of such notice to cure such breach before the Standard
Liquidated Damages Amount shall be due and payable to the Buyers.
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 or Regulation S 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
or Regulation S 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 or
Regulation S 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, which opinion shall be accepted by the Company so that the 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 or Regulation
S.
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.
4
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 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 by its authorized
representative, and such authorized representative is the true and official
representative with authority to sign this Agreement and the other documents
executed in connection herewith and bind the Company accordingly, 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.
5
c. Capitalization.
As of
the date hereof, the authorized capital stock of the Company consists of (i)
500,000,000 shares of Common Stock, of which 176,564,000 shares are issued
and
outstanding, no shares are reserved for issuance pursuant to the Company’s stock
option plans, 0shares are reserved for issuance pursuant to securities (other
than the Debentures and the Warrants) exercisable for, or convertible into
or
exchangeable for shares of Common Stock and, 281,250,000 shares are reserved
for
issuance upon conversion of the Debentures and the Additional Debentures (as
defined in Section 4(l)) and exercise of the Warrants and the Additional
Warrants (as defined in Section 4(l)); and (ii) 1,000,000 shares of Series
A preferred stock, of which 107,500 shares 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 shareholders 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 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
Articles of Incorporation as in effect on the date hereof (“Articles
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 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 shareholders 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 shareholders of the Company.
6
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 Articles 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) to the Company’s knowledge, 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 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 Articles 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.
7
g. SEC
Documents; Financial Statements.
Except
as disclosed in Schedule
3(g),
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 Securities 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”).
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
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, 2005 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.
Except
as set forth on Schedule
3(h),
since
December 31, 2005, 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.
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, to the knowledge
of
the Company, 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.
8
j. Patents,
Copyrights, etc.
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 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.
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, state 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.
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, 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.
9
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 shareholder approval provisions applicable to the Company or
its
securities.
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,
2005, 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.
10
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 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.
11
u. Insurance.
Except
as set forth in Schedule
3(u),
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. The Company
has provided to Buyer true and correct copies of all policies relating to
directors’ and officers’ liability coverage, errors and omissions coverage, and
commercial general liability coverage.
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.
x. Solvency.
Except
as provided on Schedule
3(x),
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, after giving effect to the transaction
contemplated by this Agreement, 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. Except as provided on
Schedule 3(x), the Company did not receive a qualified opinion from its auditors
with respect to its most recent fiscal year end and, after giving effect to
the
transactions contemplated by this Agreement, 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.
12
z. Breach
of Representations and Warranties by the Company.
If the
Company breaches any of the representations or warranties set forth in this
Section 3, and in addition to any other remedies available to the Buyers
pursuant to this Agreement, the Company shall pay to the Buyer the Standard
Liquidated Damages Amount in cash or in shares of Common Stock at the option
of
the Company, until such breach is cured. If the Company elects to pay the
Standard Liquidated Damages Amounts in shares of Common Stock, such shares
shall
be issued at the Conversion Price at the time of payment.
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 S-3, 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 S-3 (or if the Company is not eligible for the use of Form S-3 as of the
Filing Date (as defined in the Registration Rights Agreement), the Company
may
use the form of registration for which it is eligible at that time) 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 material 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, which press release shall be
subject to prior review by the Buyers. The Company agrees that such press
release shall not disclose the name of the Buyers unless expressly consented
to
in writing by the Buyers or unless required by applicable law or regulation,
and
then only to the extent of such requirement.
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)
13
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, not to be unreasonably
withheld, (A) negotiate or contract with any party to obtain additional equity
financing (including debt financing with an equity component) that involves
the
issuance of convertible securities that are convertible into an indeterminate
number of shares of Common Stock or (B) grant any registration rights in
connection with any issuance of Common Stock or warrants during the period
(the
“Lock-up
Period”)
beginning on the Closing Date and ending on the later of (i) two hundred seventy
(270) days from the Closing Date and (ii) 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). Notwithstanding the foregoing, the Company shall be permitted
to
obtain additional equity financing (including debt financing with an equity
component) that does not involve the issuance of convertible securities that
are
convertible into an indeterminate number of shares of Common Stock and which
involves the grant of registration rights, so long as such registration rights
do not become effective or may not be invoked by the holder thereof for a period
of at least 320 days from the Closing Date. 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 twenty (20) 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 fifteen
(15)
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 fifteen (15) 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 any transaction involving (i)
issuances of securities in a firm commitment underwritten public offering
(excluding a continuous offering pursuant to Rule 415 under the 0000 Xxx) or
(ii) issuances of securities as consideration for a merger, consolidation or
purchase of assets, or in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital), or in
connection with the disposition or acquisition of a business, product or license
by the Company. The Capital Raising Limitations also 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 shareholders of the Company.
14
f. Expenses.
At the
Closing, the Company shall reimburse Buyers for expenses incurred by them in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and the other agreements to be executed in
connection herewith (“Documents”), including, without limitation, attorneys’ and
consultants’ fees and expenses, transfer agent fees, fees for stock quotation
services, fees relating to any amendments or modifications of the Documents
or
any consents or waivers of provisions in the Documents, fees for the preparation
of opinions of counsel, escrow fees, and costs of restructuring the transactions
contemplated by the Documents. When possible, the Company must pay these fees
directly, otherwise the Company must make immediate payment for reimbursement
to
the Buyers for all fees and expenses immediately upon written notice by the
Buyer or the submission of an invoice by the Buyer If the Company fails to
reimburse the Buyer in full within three (3) business days of the written notice
or submission of invoice by the Buyer, the Company shall pay interest on the
total amount of fees to be reimbursed at a rate of 15% per annum.
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 shareholders of the Company, copies of any notices
or
other information the Company makes available or gives to such
shareholders.
h. Authorization
and Reservation of Shares.
Subject
to obtaining Stockholder Approval (as defined in Section 4(k)), 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 Warrants and issuance of the
Conversion Shares and Warrant Shares in connection therewith (based on the
Conversion Price of the Debentures or Exercise Price of the Warrants 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 exercise of the Warrants without the consent of
each Buyer. The Company shall at all times maintain the number of shares of
Common Stock so reserved for issuance at an amount (“Reserved
Amount”)
equal
to 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 the Additional Warrants (based on the Conversion Price of
the
Debentures or the Exercise Price of the Warrants in effect from time to time).
If at any time the number of shares of Common Stock authorized and reserved
for
issuance (“Authorized
and Reserved Shares”)
is
below the Reserved Amount, 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 shareholders 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, obtain shareholder
approval of an increase in such authorized number of shares, and voting the
management shares of the Company in favor of an increase in the authorized
shares of the Company to ensure that the number of authorized shares is
sufficient to meet the Reserved Amount. If the Company fails to obtain such
shareholder approval within thirty (30) days following the date on which the
number of Reserved Amount exceeds the Authorized and Reserved Shares, the
Company shall pay to the Borrower the Standard Liquidated Damages Amount, in
cash or in shares of Common Stock at the option of the Buyer. If the Buyer
elects to be paid the Standard Liquidated Damages Amount in shares of Common
Stock, such shares shall be issued at the Conversion Price at the time of
payment. In order to ensure that the Company has authorized a sufficient amount
of shares to meet the Reserved Amount at all times, the Company must deliver
to
the Buyer at the end of every month a list detailing (1) the current amount
of
shares authorized by the Company and reserved for the Buyer; and (2) amount
of
shares issuable upon conversion of the Debentures and upon exercise of the
Warrants and as payment of interest accrued on the Debentures for one year.
If
the Company fails to provide such list within five (5) business days of the
end
of each month, the Company shall pay the Standard Liquidated Damages Amount,
in
cash or in shares of Common Stock at the option of the Buyer, until the list
is
delivered. If the Buyer elects to be paid the Standard Liquidated Damages Amount
in shares of Common Stock, such shares shall be issued at the Conversion Price
at the time of payment.
15
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 or any equivalent
replacement exchange, the Nasdaq National Market (“Nasdaq”),
the
Nasdaq 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.
16
l. Subsequent
Investment.
The
Company and the Buyers agree that, upon the filing by the Company of the
Registration Statement to be filed pursuant to the Registration Rights Agreement
(the “Filing
Date”),
the
Buyers shall purchase additional Notes (the “Filing
Notes”)
in the
aggregate principal amount of Five Hundred Thousand Dollars ($500,000) for
an
aggregate purchase price of Five Hundred Thousand Dollars ($500,000), with
the
closing of such purchase to occur within two (2) days of the Filing Date;
provided,
however,
that
the obligation of each Buyer to purchase the Filing Notes and the Filing
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 Company and
the
Buyers further 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 notes (the “Effectiveness
Notes”
and,
collectively with the Filing Notes, the “Additional
Notes”)
in the
aggregate principal amount of Five Hundred Thousand Dollars ($500,000) for
an
aggregate purchase price of Five Hundred Thousand Dollars ($500,000), with
the
closing of such purchase to occur within two (2) days of the Effective Date;
provided,
however,
that
the obligation of each Buyer to purchase the Additional Notes is subject to
the
satisfaction, at or before the closing of such purchase and sale, of the
conditions set forth in Section 7; and, provided,
further,
that
there shall not have been a Material Adverse Effect as of such effective date.
The terms of the Additional Notes shall be identical to the terms of the Notes
to be issued on the Closing Date. The Common Stock underlying the Additional
Notes 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.
m.
Restriction
on Short Sales.
The
Buyers agree that, so long as any of the Notes remain outstanding, but in no
event less than two (2) years from the date hereof, the Buyers will not enter
into or effect any “short sales” (as such term is defined in Rule 3b-3 of the
0000 Xxx) of the Common Stock or hedging transaction which establishes a net
short position with respect to the Common Stock.
n. Breach
of Covenants.
If the
Company breaches any of the covenants set forth in this Section 4, and in
addition to any other remedies available to the Buyers pursuant to this
Agreement, the Company shall pay to the Buyers the Standard Liquidated Damages
Amount, in cash or in shares of Common Stock at the option of the Company,
until
such breach is cured. If the Company elects to pay the Standard Liquidated
Damages Amount in shares, such shares shall be issued at the Conversion Price
at
the time of payment.
17
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 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 may 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 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.
18
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.
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 Articles 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.
f. No
event
shall have occurred which could reasonably be expected to have a Material
Adverse Effect on the Company.
g. 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.
19
h. 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.
i. 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 WITHIN 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.
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 unenforceable 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.
20
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:
|
Shearson
Financial Network, Inc.
|
0000
X.
Xxxxxxxx Xx., Xxxxx 0
Xxx
Xxxxx, XX 00000
Attention:
Chief Executive Officer
Telephone:
(000) 000-0000
Facsimile:
(702) 868- 7945
|
With
copies to:
|
Sichenzia
Xxxx Xxxxxxxx Xxxxxxx LLP
|
0000
Xxxxxx xx xxx Xxxxxxxx
Xxx
Xxxx,
XX 00000
Attention:
Xxxxxxx Xxxxxxxxx, Esq.
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
If
to a
Buyer: To the address set forth immediately below such Buyer’s name on the
signature pages hereto.
|
With
copy to:
|
Xxxxxxx
Xxxxx Xxxxxxx & Xxxxxxxxx, LLP
|
0000
Xxxxxx Xxxxxx
00xx
Xxxxx
Xxxxxxxxxxxx,
Xxxxxxxxxxxx 00000
Attention:
Xxxxxx X. Xxxxxxxx, Esq.
Telephone:
000-000-0000
Facsimile:
000-000-0000
Email:
xxxxxxxx@xxxxxxxxxxxx.xxx
Each
party shall provide notice to the other party of any change in
address.
g. Intentionally
Omitted.
21
h. Intentionally
Omitted.
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
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).
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.
SHEARSON
FINANCIAL NETWORK, INC.
|
/s/
Xxxxxxx X. Xxxxxx
|
|
|
Xxxxxxx
X. Xxxxxx
|
|
|
Chief
Executive Officer
|
|
|
AJW
PARTNERS, LLC
|
|
|
By:
SMS Group, LLC
|
|
|
/s/
Xxxxx X. Xxxxxxxx
|
|
|
Xxxxx
X. Xxxxxxxx
|
|
|
Manager
|
|
RESIDENCE:
|
Delaware
|
|
ADDRESS:
|
0000
Xxxxxxxx Xxxxxxxxx
|
Xxxxx
000
Xxxxxx,
Xxx Xxxx 00000
Facsimile:
(000) 000-0000
Telephone:
(000) 000-0000
AGGREGATE
SUBSCRIPTION AMOUNT:
|
Aggregate
Principal Amount of Debentures:
|
$
|
|
||
|
Number
of Warrants:
|
||||
|
Aggregate
Purchase Price:
|
$
|
|
23
AJW
OFFSHORE, LTD.
By:
First Street Manager II, LLC
|
/s/
Xxxxx X. Xxxxxxxx
|
|
|
Xxxxx
X. Xxxxxxxx
|
|
|
Manager
|
|
RESIDENCE:
|
Cayman
Islands
|
|
ADDRESS:
|
AJW
Offshore, Ltd.
|
X.X.
Xxx
00000 XXX
Xxxxx
Xxxxxx, Xxxxxx Xxxxxx, B.W.I.
AGGREGATE
SUBSCRIPTION AMOUNT:
|
Aggregate
Principal Amount of Debentures:
|
$
|
|
||
|
Number
of Warrants:
|
||||
|
Aggregate
Purchase Price:
|
$
|
|
24
AJW
QUALIFIED PARTNERS, LLC
By:
AJW
Manager, LLC
|
/s/
Xxxxx X. Xxxxxxxx
|
|
|
Xxxxx
X. Xxxxxxxx
|
|
|
Manager
|
|
RESIDENCE:
|
|
ADDRESS:
|
0000
Xxxxxxxx Xxxxxxxxx
|
Xxxxx
000
Xxxxxx,
Xxx Xxxx 00000
Facsimile:
(000)
000-0000
Telephone (000)
000-0000
AGGREGATE
SUBSCRIPTION AMOUNT:
|
Aggregate
Principal Amount of Debentures:
|
$
|
|
||
|
Number
of Warrants:
|
||||
|
Aggregate
Purchase Price:
|
$
|
|
25
NEW
MILLENNIUM CAPITAL PARTNERS II, LLC
By:
First
Street Manager II, LLP
|
/s/
Xxxxx X. Xxxxxxxx
|
|
|
Xxxxx
X. Xxxxxxxx
|
|
|
Manager
|
|
RESIDENCE:
|
|
ADDRESS:
|
0000
Xxxxxxxx Xxxxxxxxx
|
Xxxxx
000
Xxxxxx,
Xxx Xxxx 00000
Facsimile: (000)
000-0000
Telephone (000)
000-0000
AGGREGATE
SUBSCRIPTION AMOUNT:
|
Aggregate
Principal Amount of Notes:
|
$
|
|
||
|
Number
of Warrants:
|
||||
|
Aggregate
Purchase Price:
|
$
|
|
26
Schedule
3(a)
Subsidiaries
|
1.
|
Shearson
Home Loans
|
|
2.
|
Continental
Home Loans Inc.
|
|
3.
|
eHomeCredit
Corp.
|
|
4.
|
Real
Properties Technologies
|
27
Schedule
3(c)
Capitalization
Common
Stock
|
Authorized
|
500,000,000
|
|||
|
Issued
and Outstanding
|
176,564,000
|
|||
|
Preferred
Stock
|
||||
|
Series
A.1
|
||||
|
Authorized
|
1,000,000
|
|||
|
Issued
and Outstanding
|
107,500
|
The
Company has agreed to issue to Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP 250,000
shares of its common stock after a contemplated 100 for 1 stock split.
28
Schedule
3 (f)
No
Conflicts
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.
29
Schedule
3 (g)
SEC
Documents
The
Company has filed all required documents with all agencies.
30
Schedule
3 (h)
Certain
Changes
No
material adverse changes have been made by the Company.
31
Schedule
3 (i)
Litigation
As
filed with the SEC
Legal
Proceedings:
We
are
party to claims from time to time, not required to be disclosed in accordance
with Item 103 of Regulation S-B. While management currently believes that the
ultimate outcome of these proceedings, individually and in the aggregate, will
not have a material adverse effect on our financial position or results of
operations, litigation is subject to inherent uncertainties.
On
April
14, 2004, the Company commenced an action against Consulting Services LLC.
On
April 19, 2004, Consulting Services LLC instituted a counterclaim against the
Company. Both claims are contented by the parties to be of a breach of contract
nature from a certain Asset Acquisition Agreement in which the Company claims
never consummated therefore services are not liable under the agreement. The
counterclaims of a similar nature which CDA is claiming no liability and
Consulting Services LLC is asking for the amount of stock agreed to be given
for
services per the acquisition agreement of approximately 2.7 million shares
of
the Company’s stock valued at the time to be approximately $1.8 million and
$655,321 for certain liabilities the Company were to assume per the agreement
upon closing. The Company is asserting its position of no liability and asking
for approximately $712,879 of which was advanced to Consulting Services prior
to
the knowledge that the transaction was not to close. Were an unfavorable ruling
to occur, there exists the possibility of a material adverse impact on our
results of operations of the period in which the ruling occurs. The estimate
of
the potential impact on our financial position or overall results of operations
for the above legal proceedings could change in the future.
32
Schedule
3 (j)
Patents,
Copyrights, etc.
N/A
33
Schedule
3 (l)
Tax
Status
The
Company has filed all required tax documents with all taxing
authorities.
34
Schedule
3 (m)
Certain
Transactions
N/A
35
Schedule
3 (s)
Environmental
Matters
N/A
36
Schedule
3 (t)
Title
to Property
N/A
37
Schedule
3 (u)
Insurance
The
Company is
duly
insured.
38
Schedule
3 (x)
Solvency
N/A
39
Schedule
4 (d)
Use
of Proceeds
|
Gross
Proceeds
|
$
|
1,500,000
|
||
|
Legal
Fees: Sichenzia/Xxxx
|
65,000
|
|||
|
National
Investing Resources LLC
|
20,000
|
|||
|
Xxxxxxx
Xxxxx
|
5,000
|
|||
|
Escrow
for Key man Insurance
|
20,000
|
|||
|
Net
Available to Company
|
$
|
1,390,000
|
||
|
Allstate
Lending Acquisition
|
$
|
150,000
|
||
|
Magellan
Funding Acquisition
|
$
|
200,000
|
||
|
Future
Brokerage Acquisition 2006
|
$
|
200,000
|
||
|
Branch
Integration
|
300,000
|
|||
|
Warehouse
Bank Deposits/Haircut Funds
|
300,000
|
|||
|
Legal
|
100,000
|
|||
|
Accounting
for new filings
|
80,000
|
|||
|
Financial
I R
|
60,000
|
|||
|
Total
Company Uses
|
$
|
1,390,000
|
40
Schedule
3 (l)
Tax
Status
The
Company has filed all required tax documents with all taxing
authorities.
41
Schedule
3 (m)
Certain
Transactions
N/A
42
Schedule
3 (s)
Environmental
Matters
N/A
43
Schedule
3 (t)
Title
to Property
N/A
44
