DEBENTURE PURCHASE AGREEMENT
This
Debenture Purchase Agreement dated as of February 28, 2007 (the “Agreement”)
is
made by and between MultiCell Technologies, Inc., a Delaware corporation, with
executive offices located at 000 Xxxxxx Xxxxxxxxxx Xxxxxxx, Xxxxxxx, Xxxxx
Xxxxxx 00000 (the “Company”),
and
La Jolla Cove Investors, Inc. (the “Holder”)
with
executive offices located at 0000 Xxxxxxxx Xxxxxx, Xxxxx 000 Xx Xxxxx,
Xxxxxxxxxx 00000.
WHEREAS,
Holder desires to purchase from the Company, and the Company desires to issue
and sell to Holder, upon the terms and subject to the conditions of this
Agreement, a Convertible Debenture of the Company in the aggregate principal
amount of $1,000,000 (the “Debenture”);
and
WHEREAS,
upon the terms and subject to the conditions set forth in the Debenture, the
Debenture is convertible into shares of the Company’s Common Stock (the
“Common
Stock”).
NOW,
THEREFORE, in consideration of the premises and the mutual covenants contained
herein, the parties hereto, intending to be legally bound, hereby agree as
follows:
I. PURCHASE
AND SALE OF DEBENTURE
A. Transaction.
Holder
hereby agrees to purchase from the Company, and the Company has offered and
hereby agrees to issue and sell to Holder in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act of
1933,
as amended (the “Securities
Act”),
the
Debenture.
B. Purchase
Price; Form of Payment.
The
purchase price for the Debenture to be purchased by Holder hereunder shall
be
$1,000,000 (the “Purchase
Price”),
payable in accordance with the schedule set forth below.
Simultaneously
with the execution of this Agreement, Holder shall pay $250,000 of the Purchase
Price (the “Initial
Purchase Price”)
by
wire transfer of immediately available funds to the Company, with the date
of
such payment referred to herein as the “Closing Date.” Simultaneously with the
execution of this Agreement, the Company shall deliver the Convertible Debenture
to the Holder (which shall have been duly authorized, issued and executed I/N/O
Holder or, if the Company otherwise has been notified, I/N/O Holder’s nominee),
and shall deliver to the Escrow Agent sufficient number of Conversion Shares
calculated as set forth below equal in value to the Initial Purchase Price.
Upon
notification and verification that the Registration Statement (as defined in
the
7¾% Convertible Debenture) for the Conversion Shares filed with the Securities
and Exchange Commission (the “Commission”)
has
been deemed effective by the Commission (such date, the “Effective
Date”):
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(i) the
Holder shall transfer the remainder of the Purchase Price to the Escrow Agent,
Thereafter, the Escrow Agent shall transfer to the Company the remainder of
the
Purchase Price according to the following schedule regardless of whether the
Holder issues a Conversion Notice (as defined in the Debenture) to Company:
$187,500 three (3) days after the Effective Date, $187,500 thirty (30) days
after the Effective Date, and $375,000 sixty (60) days after the Effective
Date.
Notwithstanding the foregoing, the following are conditions precedent, waivable
only with the prior written consent of the Holder, to any transfer by the Holder
to the Escrow Agent, or by the Escrow Agent to the Company of the remaining
Purchase Price funds according to the schedule set forth above: (a) the value
of
the Conversion Shares that are registered and free trading under the
Registration Statement filed with the Commission and that are held by the Escrow
Agent and not yet transferred to the Holder must at all times be equal to at
least two times (2x) the remaining Purchase Price (provided that the value
of
such registered Conversion Shares held by the Escrow Agent shall be calculated
by multiplying the number of Conversion Shares under the Registration Statement
that are held by the Escrow Agent by the Volume Weighted Average Price (as
defined in the Debenture) for the five Trading Days (as defined in the
Debenture) prior to the date that any portion of the remaining Purchase Price
funds are to be transferred to the Escrow Agent or the Company, as applicable),
and (b) the Company shall have honored any Conversion Notices submitted by
Holder up to and including the date of such scheduled transfer of funds to
the
Company.
(ii) the
Company shall transfer to the Escrow Agent that number of Conversion Shares
set
forth under the Registration Statement filed with the Commission.
(iii) the
Holder shall convert a minimum of at least 25% of the face value of the
Debenture per calendar month into Common Shares of the Company. In the event
Holder does not convert at least 25% of the Debenture in any particular calendar
month into Common Stock, the Company shall pay interest thereon to Holder
according to the terms and conditions set forth in the Debenture. If Holder
converts more than 25% of the face value of the Debenture in any calendar month,
the excess over 25% shall be credited against the next month’s minimum
conversion amount. Upon receipt of Conversion Notices by the Company and Escrow
Agent, the Escrow Agent shall release that number of shares of Common Stock
held
in escrow to the Holder equal to the dollar value of the outstanding amount
of
the Purchase Price to be converted into Common Stock, as set forth in the
Conversion Notice, divided by the Conversion Price (as defined in the
Debenture).
II. HOLDER’S
REPRESENTATIONS AND WARRANTIES
Holder
represents and warrants to and covenants and agrees with the Company as
follows:
1. Holder
is
purchasing the Debenture and the Common Stock issuable upon conversion or
redemption of the Debenture (the “Conversion
Shares”
and,
collectively with the Debenture, the “Securities”)
for
its own account, for investment purposes only and not with a view towards or
in
connection with the public sale or distribution thereof in violation of the
Securities Act.
2. Holder
is
(i) an “accredited investor” within the meaning of Rule 501 of Regulation D
under the Securities Act, (ii) experienced in making investments of the kind
contemplated by this Agreement, (iii) capable, by reason of its business and
financial experience, of evaluating the relative merits and risks of an
investment in the Securities, and (iv) able to afford the loss of its investment
in the Securities.
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3. Holder
understands that the Securities are being offered and sold by the Company in
reliance on an exemption from the registration requirements of the Securities
Act and equivalent state securities and “blue sky” laws, and that the Company is
relying upon the accuracy of, and Holder’s compliance with, Holder’s
representations, warranties and covenants set forth in this Agreement to
determine the availability of such exemption and the eligibility of Holder
to
purchase the Securities;
4. The
Holder understands that except as provided in the Registration Rights Agreement:
(i) the Debenture has not been and is not being registered under the Securities
Act or any state securities laws, and may not be offered for sale, sold,
assigned or transferred unless (A) subsequently registered thereunder, or (B)
such Holder shall have delivered to the Company an opinion of counsel, in a
generally acceptable form, to the effect that such securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration requirements; (ii) any sale of the Debenture
made in reliance on Rule 144 under the Securities Act (or a successor rule
thereto) (“Rule 144”) may be made only in accordance with the terms of Rule 144
and further, if Rule 144 is not applicable, any resale 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 Securities
Act) may require compliance with some other exemption under the Securities
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 the Debenture
under the Securities Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder.
5. The
Holder understands that the certificates or other instruments representing
the
Securities shall bear a restrictive legend in substantially the following form
(and a stop transfer order may be placed against transfer of such stock
certificates):
“The
securities represented by this certificate have not been registered under the
Securities Act of 1933, as amended (the “Securities Act”). The securities may
not be offered for sale, sold or otherwise transferred except (i) pursuant
to an
effective registration statement under the Securities Act or (ii) pursuant
to an
exemption from registration under the Securities Act in respect of which the
issuer of this certificate has received an opinion of counsel reasonably
satisfactory to the issuer of this certificate to such effect. Copies of the
agreement covering both the purchase of the securities and restrictions on
their
transfer may be obtained at no cost by written request made by the holder of
record of this certificate to the Secretary of the issuer of this certificate
at
the principal executive offices of the issuer of this certificate.”
The
legend set forth above shall be removed and the Company within two (2) business
days shall issue a certificate without such legend to the holder of the
Conversion Shares upon which it is stamped, if, unless otherwise required by
state securities laws, (i) in connection with a sale transaction, provided
the
Conversion Shares are registered under the Securities Act or (ii) in connection
with a sale transaction, after such holder provides the Company with 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 a public
sale, assignment or transfer of the Conversion Shares may be made without
registration under the Securities Act.
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The
Holder understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation
or
endorsement of the Debenture or the Conversion Shares, or the fairness or
suitability of the investment in the Debenture or the Conversion Shares, nor
have such authorities passed upon or endorsed the merits of the offering of
the
Debentures or the Conversion Shares.
6. This
Agreement has been duly and validly authorized, executed and delivered by Holder
and is a valid and binding agreement of Holder enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors’ rights and remedies generally and except as rights to indemnity and
contribution may be limited by federal or state securities laws or the public
policy underlying such laws.
III. THE
COMPANY’S REPRESENTATIONS
The
Company represents and warrants as of the date hereof to the Holder that, except
as set forth in the Commission Filings (as defined herein) or Schedule III
attached hereto, the statements contained in this Section 3 are complete and
accurate as of the date of this Agreement. As used in this Section 3, the term
“Knowledge” shall mean the knowledge of the members of the board of directors of
the Company and/or the officers of the Company after reasonable investigation.
A. Capitalization.
1. The
authorized capital stock of the Company consists of 200,000,000 shares of Common
Stock and 1,000,000 shares of Preferred Stock of which 40,283,896 shares and
20,077 shares, respectively, are issued and outstanding as of the date hereof
and are fully paid and nonassessable. The amount, exercise, conversion or
subscription price and expiration date for each outstanding option and other
security or agreement to purchase shares of Common Stock is accurately set
forth
on Schedule
III.A.1.
2. The
Conversion Shares have been duly and validly authorized and reserved for
issuance by the Company, and, when issued by the Company upon conversion of
the
Debenture, will be duly and validly issued, fully paid and nonassessable and
will not subject the holder thereof to personal liability by reason of being
such holder.
3. Except
as
disclosed on Schedule
III.A.3.,
there
are no preemptive, subscription, “call,” right of first refusal or other similar
rights to acquire any capital stock of the Company or other voting securities
of
the Company that have been issued or granted to any person and no other
obligations of the Company to issue, grant, extend or enter into any security,
option, warrant, “call,” right, commitment, agreement, arrangement or
undertaking with respect to any of their respective capital stock.
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B. Organization;
Reporting Company Status.
1. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the state or jurisdiction in which it is incorporated and
is
duly qualified as a foreign corporation in all jurisdictions in which the
failure so to qualify would reasonably be expected to have a material adverse
effect on the business, properties, prospects, condition (financial or
otherwise) or results of operations of the Company or on the consummation of
any
of the transactions contemplated by this Agreement (a “Material
Adverse Effect”).
2. The
Company is subject to the reporting requirements of the Securities Exchange
Act
of 1934, as amended (the “Exchange
Act”).
The
Common Stock is traded on the OTC Bulletin Board service of the National
Association of Securities Dealers, Inc. (“OTCBB”)
and
the Company has not received any notice regarding, and to its Knowledge there
is
no threat of, the termination or discontinuance of the eligibility of the Common
Stock for such trading.
C. Authorization.
The
Company (i) has duly and validly authorized and reserved for issuance shares
of
Common Stock, which is a number sufficient for the conversion of the Debenture
and (ii) at all times from and after the date hereof shall have a sufficient
number of shares of Common Stock duly and validly authorized and reserved for
issuance to satisfy the conversion of the Debenture in full. The Company
understands and acknowledges the potentially dilutive effect on the Common
Stock
of the issuance of the Conversion Shares. The Company further acknowledges
that
its obligation to issue Conversion Shares upon conversion of the Debenture
in
accordance with this Agreement is absolute and unconditional regardless of
the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company and notwithstanding the commencement of any case
under 11 U.S.C. §101 et
seq.
(the
“Bankruptcy
Code”).
In
the event the Company is a debtor under the Bankruptcy Code, the Company hereby
waives to the fullest extent permitted any rights to relief it may have under
11
U.S.C. §362 in respect of the conversion of the Debenture. The Company agrees,
without cost or expense to Holder, to take or consent to any and all action
necessary to effectuate relief under 11 U.S.C. §362.
D Authority;
Validity and Enforceability.
The
Company has the requisite corporate power and authority to enter into the
Documents (as such term is hereinafter defined) and to perform all of its
obligations hereunder and thereunder (including the issuance, sale and delivery
to Holder of the Securities). The execution, delivery and performance by the
Company of the Documents and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance
of
the Debenture and the issuance and reservation for issuance of the Conversion
Shares) have been duly and validly authorized by all necessary corporate action
on the part of the Company. Each of the Documents has been duly and validly
executed and delivered by the Company and each Document constitutes a valid
and
binding obligation of the Company enforceable against it in accordance with
its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors’ rights and
remedies generally and except as rights to indemnity and contribution may be
limited by federal or state securities laws or the public policy underlying
such
laws. The Securities have been duly and validly authorized for issuance by
the
Company and, when executed and delivered by the Company, will be valid and
binding obligations of the Company enforceable against it in accordance with
their respective terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors’
rights and remedies generally. For purposes of this Agreement, the term
“Documents”
means
(i) this Agreement; (ii) the Registration Rights Agreement dated as of even
date
herewith between the Company and Holder; and (iii) the
Debenture.
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E. Validity
of Issuance of the Securities.
The
Debenture and the Conversion Shares, upon their issuance in accordance with
the
Debenture, will be validly issued and outstanding, fully paid and nonassessable,
and not subject to any preemptive rights, rights of first refusal, tag-along
rights, drag-along rights or other similar rights.
F. Non-contravention.
The
execution and delivery by the Company of the Documents, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated hereby and thereby do not, and compliance with the provisions
of
this Agreement and other Documents will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration
of
any obligation or loss of a material benefit under, or result in the creation
of
any Lien (as such term is hereinafter defined) upon any of the properties or
assets of the Company or any of its Subsidiaries under, or result in the
termination of, or require that any consent be obtained or any notice be given
with respect to (i) the Articles or Certificate of Incorporation or By-Laws
of
the Company or the comparable charter or organizational documents of any of
its
Subsidiaries, in each case as amended to the date of this Agreement, (ii) any
loan or credit agreement, Debenture, bond, mortgage, indenture, lease, contract
or other agreement, instrument or permit applicable to the Company or any of
its
Subsidiaries or their respective properties or assets or (iii) any Law (as
such
term is hereinafter defined) applicable to, or any judgment, decree or order
of
any court or government body having jurisdiction over, the Company or any of
its
Subsidiaries or any of their respective properties or assets. A “Lien”
means
any assignment, transfer, pledge, mortgage, security interest or other
encumbrance of any nature, or an agreement to do so, or the ownership or
acquisition or agreement to acquire any asset or property of any character
subject to any of the foregoing encumbrances (including any conditional sale
contract or other title retention agreement).
G. Approvals.
No
authorization, approval or consent of any court or public or governmental
authority is required to be obtained by the Company for the issuance and sale
of
the Securities to Holder as contemplated by this Agreement, except such
authorizations, approvals and consents as have been obtained by the Company
prior to the date hereof.
H. Commission
Filings.
The
Company has properly and timely filed with the Commission all reports, proxy
statements, forms and other documents required to be filed with the Commission
under the Securities Act and the Exchange Act since becoming subject to such
Acts (the “Commission
Filings”).
As of
their date of filing, (i) the Commission Filings complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as
the
case may be, and the rules and regulations of the Commission promulgated
thereunder applicable to such Commission Filings and (ii) to the Knowledge
of
the Company, none of the Commission Filings contained at the time of its filing
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Commission
Filings, as of the dates of such documents, were true and complete in all
material respects and complied with applicable accounting requirements and
the
published rules and regulations of the Commission with respect thereto, were
to
the Knowledge of the Company prepared in accordance with generally accepted
accounting principles in the United States (“GAAP”)
(except in the case of unaudited statements permitted by Form 10-Q under the
Exchange Act) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly presented the consolidated
financial position of the Company and its 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 that in the aggregate are not material and to any other
adjustment described therein).
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I. Full
Disclosure.
There is
no fact known to the Company (other than general economic or industry conditions
known to the public generally) that has not been fully disclosed in the
Commission Filings that (i) reasonably could be expected to have a Material
Adverse Effect or (ii) reasonably could be expected to materially and adversely
affect the ability of the Company to perform its obligations pursuant to the
Documents.
J. Absence
of Events of Default.
No
“Event
of Default”
(as
defined in any agreement or instrument to which the Company is a party) and
no
event which, with notice, lapse of time or both, would constitute an Event
of
Default (as so defined), has occurred and is continuing.
K. Securities
Law Matters.
Assuming
the accuracy of the representations and warranties of Holder set forth in
Article II, the offer and sale by the Company of the Securities is exempt from
(i) the registration and prospectus delivery requirements of the Securities
Act
and the rules and regulations of the Commission thereunder and (ii) the
registration and/or qualification provisions of all applicable state and
provincial securities and “blue sky” laws. The Company shall not directly or
indirectly take, and shall not permit any of its directors, officers or
Affiliates (as such term is defined in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended) directly or indirectly to take, any action (including,
without limitation, any offering or sale to any person or entity of any security
similar to the Debenture) which will make unavailable the exemption from
Securities Act registration being relied upon by the Company for the offer
and
sale to Holder of the Debenture and the Conversion Shares as contemplated by
this Agreement. No form of general solicitation or advertising has been used
or
authorized by the Company or any of its officers, directors or Affiliates in
connection with the offer or sale of the Debenture (and the Conversion Shares)
as contemplated by this Agreement or any other agreement to which the Company
is
a party.
L. Registration
Rights.
No
Person has, and as of the Closing (as such term is hereinafter defined), no
Person shall have, any demand, “piggy-back” or other rights to cause the Company
to file any registration statement under the Securities Act relating to any
of
its securities or to participate in any such registration
statement.
M. Interest.
The
timely payment of interest on the Debenture is not prohibited by the Articles
or
Certificate of Incorporation or By-Laws of the Company, in each case as amended
to the date of this Agreement, or any agreement, contract, document or other
undertaking to which the Company is a party.
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N. No
Misrepresentation.
No
representation or warranty of the Company contained in this Agreement or any
of
the other Documents, any schedule, annex or exhibit hereto or thereto or any
agreement, instrument or certificate furnished by the Company to Holder pursuant
to this Agreement contains any untrue statement of a material fact or omits
to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
O. Finder’s
Fee.
There is
no finder’s fee, brokerage commission or like payment in connection with the
transactions contemplated by this Agreement for which Holder is liable or
responsible.
IV. CERTAIN
COVENANTS AND ACKNOWLEDGMENTS
A. Filings.
The
Company shall make all necessary Commission Filings and “blue sky” filings
required to be made by the Company in connection with the sale of the Securities
to Holder as required by all applicable laws, and shall provide a copy thereof
to Holder promptly after such filing.
B. Reporting
Status.
So long
as Holder beneficially owns any of the Securities, the Company shall timely
file
all reports required to be filed by it with the Commission pursuant to Section
13 or 15(d) of the Exchange Act.
C. Listing.
Except
to the extent the Company lists its Common Stock on The New York Stock Exchange,
The American Stock Exchange or The Nasdaq Stock Market, the Company shall use
its commercially reasonable best efforts to maintain its listing of the Common
Stock on OTCBB. If the Common Stock is delisted from OTCBB, the Company will
use
its commercially reasonable best efforts to list the Common Stock on the most
liquid national securities exchange or quotation system that the Common Stock
is
qualified to be listed on.
D. Reserved
Conversion Common Stock.
The
Company at all times from and after the date hereof shall have such number
of
shares of Common Stock duly and validly authorized and reserved for issuance
as
shall be sufficient for the conversion in full of the Debenture.
E. Information.
Each of
the parties hereto acknowledges and agrees that Holder shall not be provided
with, nor be given access to, any material non-public information relating
to
the Company.
F. Accounting
and Reserves.
The
Company shall maintain a standard and uniform system of accounting and shall
keep proper books and records and accounts in which full, true, and correct
entries shall be made of its transactions, all in accordance with GAAP applied
on consistent basis through all periods, and shall set aside on such books
for
each fiscal year all such reserves for depreciation, obsolescence, amortization,
bad debts and other purposes in connection with its operations as are required
by such principles so applied.
G. Transactions
with Affiliates.
So long
as the Debenture is outstanding, neither the Company nor any of its Subsidiaries
shall, directly or indirectly, enter into any material transaction or agreement
with any stockholder, officer, director or Affiliate of the Company or family
member of any officer, director or Affiliate of the Company, unless the
transaction or agreement is (i) reviewed and approved by a majority of
Disinterested Directors (as such term is hereinafter defined) and (ii) on terms
no less favorable to the Company or the applicable Subsidiary than those
obtainable from a nonaffiliated person. A “Disinterested
Director”
shall
mean a director of the Company who is not and has not been an officer or
employee of the Company and who is not a member of the family of, controlled
by
or under common control with, any such officer or employee.
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H. Certain
Restrictions.
So long
as the Debenture is outstanding, no dividends shall be declared or paid or
set
apart for payment nor shall any other distribution be declared or made upon
any
capital stock of the Company, nor shall any capital stock of the Company be
redeemed, purchased or otherwise acquired (other than a redemption, purchase
or
other acquisition of shares of Common Stock made for purposes of an employee
incentive or benefit plan (including a stock option plan) of the Company or
pursuant to any of the security agreements listed on Schedule
III)
for any
consideration by the Company, directly or indirectly, nor shall any moneys
be
paid to or made available for a sinking fund for the redemption of any Common
Stock.
I. Short
Selling. So
long
as the Debenture is outstanding or the shares of the Company’s common stock
pledged as collateral to Holder in connection with the Debenture by certain
shareholders of the Company are subject to such pledge, Holder agrees and
covenants on its behalf and on behalf of its affiliates and agents that neither
Holder nor its affiliates and agents shall at any time engage in any short
sales
with respect to the Company’s Common Stock, or sell put options or similar
instruments with respect to the Company’s Common Stock. The parties acknowledge
that Holder shall be entitled to sell the Common Stock from each Debenture
conversion immediately upon submission of the applicable Debenture Conversion
Notice, and payment of the purchase price, to the Company for such Common Stock.
V. ISSUANCE
OF COMMON STOCK
A. The
Company undertakes and agrees that no instruction other than the instructions
referred to in this Article V and customary stop transfer instructions prior
to
the registration and sale of the Common Stock pursuant to an effective
Securities Act registration statement shall be given to its transfer agent
for
the Conversion Shares and that such Conversion Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement and applicable
law. Nothing contained in this Section V.A. shall affect in any way Holder’s
obligations and agreement to comply with all applicable securities laws upon
resale of such Common Stock.
X. Xxxxxx
shall have the right to convert the Debenture by telecopying an executed and
completed Conversion Notice (as such term is defined in the Debenture) to the
Company. Each date on which a Conversion Notice is telecopied to and received
by
the Company in accordance with the provisions hereof shall be deemed a
Conversion Date (as such term is defined in the Debenture). The Company shall
cause the transfer agent to transmit the certificates evidencing the Common
Stock issuable upon conversion of the Debenture (together with a new debenture,
if any, representing the principal amount of the Debenture not being so
converted) to Holder via express courier, or if a Registration Statement
covering the Common Stock has been declared effective by the SEC, by electronic
transfer, within two (2) business days after receipt by the Company of the
Conversion Notice (the “Delivery
Date”).
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C. Upon
the
conversion of the Debenture or part thereof, the Company shall, at its own
cost
and expense, take all necessary action (including the issuance of an opinion
of
counsel) to assure that the Company's transfer agent shall issue stock
certificates in the name of Holder (or its nominee) or such other persons as
designated by Holder and in such denominations to be specified at conversion
representing the number of shares of common stock issuable upon such conversion
or exercise. Provided the Conversion Shares are being sold pursuant to an
effective registration statement, or are otherwise exempt from registration
under the Securities Act when sold, the Company warrants that the Conversion
Shares will be unlegended, free-trading, and freely transferable, and will
not
contain a legend restricting the resale or transferability of the Company Common
Stock.
D. The
Company understands that a delay in the delivery of the Common Stock in the
form
required pursuant to this section, or the Redemption Amount described in Section
E hereof, beyond the Delivery Date or Redemption Payment Date (as hereinafter
defined) could result in economic loss to the Holder. As compensation to the
Holder for such loss, the Company agrees to pay late payments to the Holder
for
late issuance of Common Stock in the form required pursuant to Section E hereof
upon Conversion of the Debenture or late payment of the Redemption Amount,
in
the amount of $100 per business day after the Delivery Date or Redemption
Payment Date, as the case may be, for each $10,000 of Debenture principal amount
being converted or redeemed. The Company shall pay any payments incurred under
this Section in immediately available funds upon demand. Furthermore, in
addition to any other remedies which may be available to the Holder, in the
event that the Company fails for any reason to effect delivery of the Common
Stock by the Delivery Date or make payment by the Redemption Payment Date,
the
Holder will be entitled to revoke all or part of the relevant Notice of
Conversion or rescind all or part of the notice of Redemption by delivery of
a
notice to such effect to the Company whereupon the Company and the Holder shall
each be restored to their respective positions immediately prior to the delivery
of such notice, except that late payment charges described above shall be
payable through the date notice of revocation or rescission is given to the
Company.
E. Redemption.
1. In
the
event the Registration Statement for the Conversion Shares has not been deemed
effective by the Commission within ninety (90) days from the date the last
of
the parties hereto signs this Agreement or the closing price for shares of
the
Company’s Common Stock is less than $0.16 prior to the Effective Date, the
Holder shall have the right to sell the shares listed in Exhibit A of the Stock
Pledge Agreement according to the terms and conditions set forth therein. In
the
event the Holder sells the shares listed in Exhibit A of the Stock Pledge
Agreement, the Company and the Holder agree:
(A) the
Initial Purchase Price and any accrued interest thereon shall be considered
by
the parties to have been fully repaid to the Holder by the Company;
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(B) all
Conversion Shares to be issued in connection with the conversion of the Initial
Purchase Price (the “Initial
Purchase Price Conversion Shares”)
deposited with the Escrow Agent shall be returned to the Company;
and,
(C) there
shall be no further liquidated damages or any other such penalties applied
by
the Holder with respect to Initial Purchase Price Conversion
Shares.
2. Following
the Effective Date, in the event the Company fails to timely deliver Common
Stock on a Delivery Date, or upon the occurrence of an Event of Default (as
defined in the Debenture) or for any reason other than pursuant to the
limitations set forth herein, or upon the occurrence of an Event of Default
as
defined in the Debenture, then at the Holder's election, the Company must pay
to
the Holder ten (10) business days after request by the Holder or on the Delivery
Date (if requested by the Holder) a sum of money determined by multiplying
up to
the outstanding principal amount of the Debenture designated by the Holder
by
130%, together with accrued but unpaid interest thereon ("Redemption Payment").
3. Any
Redemption Payment must be received by the Holder on the same date as the
Company Common Stock otherwise deliverable or within ten (10) business days
after request, whichever is sooner ("Redemption Payment Date"). Upon receipt
of
the Redemption Payment, the corresponding Debenture principal and interest
will
be deemed paid and no longer outstanding.
F. Buy-In.
In
addition to any other rights available to the Holder, if the Company fails
to
deliver to the Holder such Common Stock issuable upon conversion of a Debenture
by the Delivery Date and if ten (10) days after the Delivery Date the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock
to
deliver in satisfaction of a sale by the Holder of the Common Stock which the
Holder anticipated receiving upon such conversion (a "Buy-In"), then the Company
shall pay in cash to the Holder (in addition to any remedies available to or
elected by the Holder) the amount by which (A) the Holder's total purchase
price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the
Debenture for which such conversion was not timely honored, together with
interest thereon at a rate of 15% per annum, accruing until such amount and
any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if the Holder purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of $10,000 of Debenture principal
and/or interest, the Company shall be required to pay the Holder $1,000, plus
interest. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In.
G. The
Securities shall be delivered by the Company to the Holder pursuant to Section
I.B. hereof on a “delivery-against-payment basis” at each delivery date set
forth in Section I.B hereof.
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VI. CLOSING
DATE
The
closing (“Closing”)
shall
occur upon the Closing Date by the delivery: (i) to the Holder of the
certificate evidencing the Debenture and all other Agreements, and (ii) to
the
Company the Initial Purchase Price.
VII. CONDITIONS
TO THE COMPANY’S OBLIGATIONS
Holder
understands that the Company’s obligation to sell the Debenture on the Closing
Date to Holder pursuant to this Agreement is conditioned upon:
A. Delivery
by Holder to the Company of the Initial Purchase Price;
B. The
accuracy on the Closing Date of the representations and warranties of Holder
contained in this Agreement as if made on the Closing Date (except for
representations and warranties which, by their express terms, speak as of and
relate to a specified date, in which case such accuracy shall be measured as
of
such specified date) and the performance by Holder in all material respects
on
or before the Closing Date of all covenants and agreements of Holder required
to
be performed by it pursuant to this Agreement on or before the Closing Date;
and
C. There
shall not be in effect any law or order, ruling, judgment or writ of any court
or public or governmental authority restraining, enjoining or otherwise
prohibiting any of the transactions contemplated by this Agreement.
VIII. CONDITIONS
TO HOLDER’S OBLIGATIONS
The
Company understands that Holder’s obligation to purchase the Securities pursuant
to this Agreement is conditioned upon:
A. Delivery
by the Company of the Debenture and the other Agreements (I/N/O Holder or I/N/O
Holder’s nominee);
B. The
accuracy on the Closing Date of the representations and warranties of the
Company contained in this Agreement as if made on the Closing Date (except
for
representations and warranties which, by their express terms, speak as of and
relate to a specified date, in which case such accuracy shall be measured as
of
such specified date) and the performance by the Company in all respects on
or
before the Closing Date of all covenants and agreements of the Company required
to be performed by it pursuant to this Agreement on or before the Closing Date,
all of which shall be confirmed to Holder by delivery of the certificate of
the
chief executive officer of the Company to that effect;
C. There
not
having occurred (i) any general suspension of trading in, or limitation on
prices listed for, the Common Stock on the OTCBB/Pink Sheet, or (ii) the
declaration of a banking moratorium or any suspension of payments in respect
of
banks in the United States;
D. There
not
having occurred any event or development, and there being in existence no
condition, having or which reasonably and foreseeably could have a Material
Adverse Effect;
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E. There
shall not be in effect any Law, order, ruling, judgment or writ of any court
or
public or governmental authority restraining, enjoining or otherwise prohibiting
any of the transactions contemplated by this Agreement;
F. The
Company shall have obtained all consents, approvals or waivers from governmental
authorities and third persons necessary for the execution, delivery and
performance of the Documents and the transactions contemplated thereby, all
without material cost to the Company;
X. Xxxxxx
shall have received such additional documents, certificates, payment,
assignments, transfers and other deliveries as it or its legal counsel may
reasonably request and as are customary to effect a closing of the matters
herein contemplated;
H. Delivery
by the Company of an enforceability opinion with respect to this Agreement
and
the transactions contemplated hereunder and the status of the securities pledged
under the Stock Pledge Agreement from Company’s outside counsel in form and
substance satisfactory to Holder.
I. Delivery
by the Company of a valid waiver of any preemptive rights held by the
individuals and/or parties listed on Schedule III.A.3. hereto in form and
substance satisfactory to Holder.
IX. SURVIVAL;
INDEMNIFICATION
A. The
representations, warranties and covenants made by each of the Company and Holder
in this Agreement, the annexes, schedules and exhibits hereto and in each
instrument, agreement and certificate entered into and delivered by them
pursuant to this Agreement shall survive the Closing and the consummation of
the
transactions contemplated hereby. In the event of a breach or violation of
any
of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of
any
investigation made by or on behalf of such party on or prior to the Closing
Date.
B. The
Company hereby agrees to indemnify and hold harmless Holder, its affiliates
and
their respective officers, directors, partners and members (collectively, the
“Holder
Indemnitees”)
from
and against any and all losses, claims, damages, judgments, penalties,
liabilities and deficiencies (collectively, “Losses”)
and
agrees to reimburse Holder Indemnitees for all out-of-pocket expenses (including
the fees and expenses of legal counsel), in each case promptly as incurred
by
Holder Indemnitees and to the extent arising out of or in connection
with:
1. any
misrepresentation, omission of fact or breach of any of the Company’s
representations or warranties contained in this Agreement or the other
Documents, or the annexes, schedules or exhibits hereto or thereto or any
instrument, agreement or certificate entered into or delivered by the Company
pursuant to this Agreement or the other Documents;
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2. any
failure by the Company to perform any of its covenants, agreements, undertakings
or obligations set forth in this Agreement or the other Documents or any
instrument, certificate or agreement entered into or delivered by the Company
pursuant to this Agreement or the other Documents; or
3. the
purchase of the Debenture, the conversion of the Debenture, the payment of
interest on the Debenture, the consummation of the transactions contemplated
by
this Agreement and the other Documents, the use of any of the proceeds of the
Purchase Price by the Company, the purchase or ownership of any or all of the
Securities, the performance by the parties hereto of their respective
obligations hereunder and under the Documents or any claim, litigation,
investigation, proceedings or governmental action relating to any of the
foregoing, whether or not Holder is a party thereto.
X. Xxxxxx
hereby agrees to indemnify and hold harmless the Company, its Affiliates and
their respective officers, directors, partners and members (collectively, the
“Company
Indemnitees”)
from
and against any and all Losses, and agrees to reimburse the Company Indemnitees
for all out-of-pocket expenses (including the fees and expenses of legal
counsel), in each case promptly as incurred by the Company Indemnitees and
to
the extent arising out of or in connection with:
1. any
misrepresentation, omission of fact or breach of any of Holder’s representations
or warranties contained in this Agreement or the other Documents, or the
annexes, schedules or exhibits hereto or thereto or any instrument, agreement
or
certificate entered into or delivered by Holder pursuant to this Agreement
or
the other Documents; or
2. any
failure by Holder to perform in any material respect any of its covenants,
agreements, undertakings or obligations set forth in this Agreement or the
other
Documents or any instrument, certificate or agreement entered into or delivered
by Holder pursuant to this Agreement or the other Documents.
D. Promptly
after receipt by either party hereto seeking indemnification pursuant to this
Article VIII (an “Indemnified
Party”)
of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a “Claim”),
the
Indemnified Party promptly shall notify the party against whom indemnification
pursuant to this Article VIII is being sought (the “Indemnifying
Party”)
of the
commencement thereof, but the omission so to notify the Indemnifying Party
shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights or defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of
any
Claim by the Indemnifying Party, the Indemnified Party shall have the right
to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party and the
Indemnifying Party reasonably shall have concluded that representation of the
Indemnified Party and the Indemnifying Party by the same legal counsel would
not
be appropriate due to actual or, as reasonably determined by legal counsel
to
the Indemnified Party, potentially differing interests between such parties
in
the conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party or (z) the Indemnifying Party
shall have failed to employ legal counsel reasonably satisfactory to the
Indemnified Party within a reasonable period of time after notice of the
commencement of such Claim. If the Indemnified Party employs separate legal
counsel in circumstances other than as described in clauses (x), (y) or (z)
above, the fees, costs and expenses of such legal counsel shall be borne
exclusively by the Indemnified Party. Except as provided above, the Indemnifying
Party shall not, in connection with any Claim in the same jurisdiction, be
liable for the fees and expenses of more than one firm of legal counsel for
the
Indemnified Party (together with appropriate local counsel). The Indemnifying
Party shall not, without the prior written consent of the Indemnified Party
(which consent shall not unreasonably be withheld), settle or compromise any
Claim or consent to the entry of any judgment that does not include an
unconditional release of the Indemnified Party from all liabilities with respect
to such Claim or judgment.
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E. In
the
event one party hereunder should have a claim for indemnification that does
not
involve a claim or demand being asserted by a third party, the Indemnified
Party
promptly shall deliver notice of such claim to the Indemnifying Party. If the
Indemnified Party disputes the claim, such dispute shall be resolved by mutual
agreement of the Indemnified Party and the Indemnifying Party or by binding
arbitration conducted in accordance with the procedures and rules of the
American Arbitration Association. Judgment upon any award rendered by any
arbitrators may be entered in any court having competent jurisdiction
thereof.
X. GOVERNING
LAW
This
Agreement shall be governed by and interpreted in accordance with the laws
of
the State of California, without regard to the conflicts of law principles
of
such state.
XI. SUBMISSION
TO JURISDICTION
Each
of
the parties hereto consents to the exclusive jurisdiction of the federal courts
whose districts encompass any part of the City of San Diego or the state courts
of the State of California sitting in the City of San Diego in connection with
any dispute arising under this Agreement and the other Documents. Each party
hereto hereby irrevocably and unconditionally waives, to the fullest extent
it
may effectively do so, any defense of an inconvenient forum or improper venue
to
the maintenance of such action or proceeding in any such court and any right
of
jurisdiction on account of its place of residence or domicile. Each party hereto
irrevocably and unconditionally consents to the service of any and all process
in any such action or proceeding in such courts by the mailing of copies of
such
process by registered or certified mail (return receipt requested), postage
prepaid, at its address specified in Article XVII. Each party hereto agrees
that
a final judgment in any such action or proceeding shall be conclusive and may
be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
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XII. WAIVER
OF JURY TRIAL
TO
THE FULLEST EXTENT PERMITTED BY LAW, EACH OF THE PARTIES HERETO HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RESPECTIVE RIGHTS TO A
JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OTHER DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT AND OTHER DOCUMENTS. EACH PARTY HERETO (i)
CERTIFIES THAT NEITHER OF THEIR RESPECTIVE REPRESENTATIVES, AGENTS OR ATTORNEYS
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE
EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (ii) ACKNOWLEDGES
THAT
IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.
XIII. COUNTERPARTS;
EXECUTION
This
Agreement may be executed in counterparts, each of which when so executed and
delivered shall be an original, but both of which counterparts shall together
constitute one and the same instrument. A facsimile transmission of this signed
Agreement shall be legal and binding on both parties hereto.
XIV. HEADINGS
The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.
XV. SEVERABILITY
In
the
event any one or more of the provisions contained in this Agreement or in the
other Documents should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein or therein shall not in any way be affected or impaired thereby. The
parties shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions, the economic effect
of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
XVI. ENTIRE
AGREEMENT; REMEDIES, AMENDMENTS AND WAIVERS
This
Agreement and the Documents constitute the entire agreement between the parties
hereto pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of such parties. No supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by both parties. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute
a
waiver of any other provision hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly
provided.
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XVII. NOTICES
Except
as
may be otherwise provided herein, any notice or other communication or delivery
required or permitted hereunder shall be in writing and shall be delivered
personally, or sent by telecopier machine or by a nationally recognized
overnight courier service, and shall be deemed given when so delivered
personally, or by telecopier machine or overnight courier service as
follows:
If
to the
Company, to:
000
Xxxxxx Xxxxxxxxxx Xxxxxxx
Xxxxxxx,
Xxxxx Xxxxxx 00000
Telephone:
000-000-0000
Facsimile:
000-000-0000
If
to
Holder, to:
La
Jolla
Cove Investors, Inc.
0000
Xxxxxxxx Xxxxxx, Xxxxx 000
Xx
Xxxxx,
Xxxxxxxxxx 00000
Telephone:
000-000-0000
Facsimile:
000-000-0000
The
Company or Holder may change the foregoing address by notice given pursuant
to
this Article XVII.
XVIII.
CONFIDENTIALITY
Each
of
the Company and Holder agrees to keep confidential and not to disclose to or
use
for the benefit of any third party the terms of this Agreement or any other
information which at any time is communicated by the other party as being
confidential without the prior written approval of the other party; provide,
however, that this provision shall not apply to information which, at the time
of disclosure, is already part of the public domain (except by breach of this
Agreement) and information which is required to be disclosed by law (including,
without limitation, pursuant to Item 601(b)(10) of Regulation S-K under the
Securities Act and the Exchange Act).
XIX. ASSIGNMENT
This
Agreement shall not be assignable by either of the parties hereto.
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SIGNATURE
PAGE
IN
WITNESS WHEREOF, the parties hereto have duly caused this Agreement to be
executed and delivered on the date first above written.
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La
Jolla Cove Investors, Inc.
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By:
/s/Xxxxxxx XX Xxxxx
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By:
/s/X.X. Xxxx
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Title:
President & CEO
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Title:
Portfolio Manager
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SCHEDULE
III.A.1.
OPTIONS
AND AGREEMENTS TO PURCHASE COMMON STOCK
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SCHEDULE
III.A.3.
PREEMPTIVE
RIGHTS
RIGHT
OF
FIRST REFUSAL:
| 1. |
MAG
Capital
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| 2. |
Asset
Management International
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SCHEDULE
III
EXCEPTIONS
NONE.
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