EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
February 28, 2006 between NEW CENTURY COMPANIES, INC., an Delaware corporation
whose principal place of business is located at 0000 Xxxxx Xx Xxxxxxx Xx., Xxxxx
Xx Xxxxxxx, XX 00000 (the "Company"), and each of the Purchaser(s) identified on
the signature pages hereto (including its successors and assigns, the
"Purchaser(s)").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") and Rule 506 promulgated thereunder, the Company desires to
issue and sell to the Purchasers, and each Purchaser desires to purchase from
the Company, securities of the Company as more fully described in this
Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Notes (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in Section
3.1(j).
"Additional Investment Right" shall have the meaning ascribed to
such term in Section 4.17.
"Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed
under Rule 144 under the Securities Act. With respect to a Purchaser, any
investment fund or managed account that is managed on a discretionary
basis by the same investment manager as the Purchaser will be deemed to be
an Affiliate of the Purchaser.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers' obligations
to pay the Subscription Amount and (ii) the Company's obligations to
deliver the Securities have been satisfied or waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value
$0.10, and any securities into which such common stock shall hereinafter
have been reclassified into.
"Common Stock Equivalents" means any securities of the Company
or the Subsidiaries which would entitle the holder thereof to acquire
at any time Common Stock, including without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is
at any time convertible into or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock.
"Company Counsel" means Xxxx & Xxxxx, PC.
"Deeds of Trust" means those Deeds of Trust dated the date
hereof and relating to the real property of the Company.
"Conversion Price" shall have the meaning ascribed to such term in
the Note.
"Disclosure Schedules" shall have the meaning ascribed to such term
in Section 3.1 hereof.
"Effective Date" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"Escrow Account" means the escrow account set up pursuant to the
Escrow Agreement.
"Escrow Agreement" means the Escrow Agreement dated the date hereof,
among the Company, the Purchaser and KMR, in the form of Exhibit F
attached hereto.
"Escrow Agreement Side Letter" means the Escrow Agreement Side
Letter dated the date hereof, between the Company and the Purchaser, in
the form of Exhibit G attached hereto.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exempt Issuance" means the issuance of (a) shares of Common Stock
or options to employees, officers or directors of the Company pursuant to
any stock or option plan duly adopted by a majority of the non-employee
members of the Board of Directors of the Company or a majority of the
members of a committee of non-employee directors established for such
purpose, or (b) securities upon the exercise of or conversion of any
securities issued hereunder, convertible securities, options or warrants
issued and outstanding on the date of this Agreement, provided that such
securities have not been amended since the date of this Agreement to
increase the number of such securities.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h) hereof.
"Headquarters" shall mean the Company's facilities at 0000 Xxxxx Xx
Xxxxxxx Xx., Xxxxx Xx Xxxxxxx, XX 00000.
"KMR" Xxxxxx Xxxxxx Rosenman LLP.
"Liens" means a lien, charge, security interest, encumbrance, right
of first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning assigned to such
term in Section 3.1(b) hereof.
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"Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).
"Notes" means the 12% Senior Secured Convertible Notes due February
28, 2009, subject to the terms therein, and issued by the Company to the
Purchasers hereunder, in the form of Exhibit A.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchaser, in
the form of Exhibit C attached hereto.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering
the resale of the Underlying Shares by the Purchaser as provided for in
the Registration Rights Agreement.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Required Minimum" means, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in
the future pursuant to the Transaction Documents, including any Underlying
Shares issuable upon exercise or conversion in full of all Warrants and
Notes (including Underlying Shares issuable as payment of interest),
ignoring any conversion or exercise limits set forth therein, and assuming
that the Conversion Price is at all times on and after the date of
determination 75% of the then Conversion Price on the Trading Day
immediately prior to the date of determination.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities" means the Notes, the Warrants and the Underlying
Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement, dated the date
hereof, between the Company, the Subidiaries and the Purchaser, in the
form of Exhibit D attached hereto.
"Security Documents" means the Security Agreement, the Subsidiary
Guarantee(s) and any other documents and filings required thereunder in
order to grant the Purchasers a perfected security interest in all of the
assets of the Company, including all UCC-1 filing receipts.
"Subscription Amount" means, as to the Purchasers, the aggregate
amount to be paid for Notes and Warrants purchased hereunder as specified
below the Purchasers' name on the signature page of this Agreement and
next to the heading "Subscription Amount", in United States Dollars and in
immediately available funds.
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"Subsidiary" means any subsidiary of the Company as set forth on
Schedule 3.1(a).
"Subsidiary Guarantee(s)" means the Subsidiary Guarantee(s), dated
the date hereof, among each of the Subsidiaries and the Purchaser, in the
form of Exhibit E attached hereto.
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the Nasdaq SmallCap Market, the American Stock Exchange, the New York
Stock Exchange, the Nasdaq National Market or the OTC Bulletin Board.
"Transaction Documents" means this Agreement, the Notes, the
Warrants, the Security Agreement, the Subsidiary Guarantee(s), the
Registration Rights Agreement, the Deeds of Trust, the Escrow Agreement,
the Escrow Agreement Side Letter and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of the Notes and the Warrant Shares,
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the primary
Trading Market on which the Common Stock is then listed or quoted as
reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30
a.m. EST to 4:02 p.m. Eastern Time) using the VAP function; (b) if the
Common Stock is not then listed or quoted on the Trading Market and if
prices for the Common Stock are then reported in the "Pink Sheets"
published by the Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (c) in all other
cases, the fair market value of a share of Common Stock as determined by a
nationally recognized-independent appraiser selected in good faith by
Purchaser holding a majority of the principal amount of Notes then
outstanding.
"Warrants" means collectively the Common Stock purchase warrants, in
the form of Exhibit B delivered to the Purchasers at the Closing in
accordance with Section 2.2(a) hereof, which Warrants shall be exercisable
immediately and have a term of exercise equal to seven years.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and the Purchasers
agree to purchase, up to $5,000,000 aggregate principal amount of the Notes (up
to $3,500,000 to be purchased at the Closing and up to an additional $1,500,000
to be purchased pursuant to the Additional Investment Right pursuant to Section
4.17_herein), secured by a first priority lien, more fully described in the
Security Agreement, on all assets of the Company and its current and future
Subsidiaries (including a pledge of the shares of the Company's current and
future Subsidiaries).
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The Purchaser shall deliver to the Company via wire transfer immediately
available funds equal to its Subscription Amount (it being understood that
$1,500,000 of the proceeds of the Notes shall be placed in the Escrow Account)
and the Company shall deliver to each Purchaser its Note and Warrants as
determined pursuant to Section 2.2(a), and the other items set forth in Section
2.2 issuable at the Closing. Upon satisfaction of the conditions set forth in
Section 2.2, the Closing shall occur at the offices of the Company, or such
other location as the parties shall mutually agree.
2.2 Deliveries.
a) On the Closing Date, the Company shall deliver to the counsel for
the Purchaser with respect to the Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a Note with a principal amount equal to the Purchaser's
Subscription Amount, registered in the name of such Purchaser;
(iii) Warrants registered in the name of the Purchaser to purchase
3,476,190 shares of Common Stock of the Company with an
exercise price of $0.63 per share;
(iv) the Registration Rights Agreement duly executed by the
Company;
(v) the Security Agreement, duly executed by the Company and the
Subsidiaries, along with all the Security Documents;
(vi) the Subsidiary Guarantee(s), duly executed by the
Subsidiaries;
(vii) the Escrow Agreement duly executed by the Company and KMR;
(viii) the Escrow Agreement Side Letter duly executed by the
Company; and
(ix) a legal opinion of Company Counsel.
b) On the Closing Date, each Purchaser shall deliver or cause to be
delivered to Company Counsel the following:
(i) this Agreement duly executed by such Purchaser;
(ii) the Purchaser's Subscription Amount by wire transfer to the
account of the Company (less $1,500,000 which shall be placed
in the Escrow Account);
(iii) the Registration Rights Agreement duly executed by such
Purchaser;
(iv) the Security Agreement, duly executed by such Purchaser;
(v) the Escrow Agreement, duly executed by the Purchaser; and
(vi) the Escrow Agreement Side Letter, duly executed by the
Purchaser.
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2.3 Closing Conditions.
a) The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on the
Closing Date of the representations and warranties of the
Purchasers contained herein;
(ii) all obligations, covenants and agreements of each Purchaser
required to be performed at or prior to the Closing Date shall
have been performed; and
(iii) the delivery by each Purchaser of the items set forth in
Section 2.2(b) of this Agreement.
b) The respective obligations of the Purchaser hereunder in
connection with the Closing are subject to the following conditions being
met:
(i) the accuracy in all material respects on the Closing Date of
the representations and warranties of the Company contained
herein;
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date shall
have been performed;
(iii) the Purchaser shall be satisfied with the results of its due
diligence investigation of the Company;
(iv) the Purchaser shall be satisfied with the Company's current
and projected uses of cash;
(v) the aggregate principal amount of existing debt shall have
been converted into equity, such that there shall be no debt
outstanding pro forma for the issuance of the Securities and
the application of the proceeds therefrom;
(vi) the delivery by the Company of the items set forth in Section
2.2(a) of this Agreement;
(vii) there shall have been no Material Adverse Effect with respect
to the Company and its Subsidiaries since the date hereof; and
(viii) No banking moratorium have been declared either by the United
States or New York State authorities nor shall there have
occurred any material outbreak or escalation of hostilities or
other national or international calamity of such magnitude in
its effect on, or any material adverse change in, any
financial markets which, in each case, in the reasonable
judgment of such Purchaser, makes it impracticable or
inadvisable to purchase the Notes at the Closing.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth in
the Disclosure Schedule which Disclosure Schedule shall be deemed a part hereof,
each of the Company and its Subsidiaries hereby makes the representations and
warranties set forth below to the Purchaser.
(a) Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth in the Disclosure Schedule. The Company owns,
directly or indirectly, all of the capital stock or other equity interests
of each Subsidiary free and clear of any Liens, and all the issued and
outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar
rights to subscribe for or purchase securities.
(b) Organization and Qualification. Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization (as applicable), with the requisite
power and authority to own and use its properties and assets and to carry
on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing
as a foreign corporation or other entity in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in
good standing, as the case may be, could not have or reasonably be
expected to result in (i) a material adverse effect on the legality,
validity or enforceability of any Transaction Document, (ii) a material
adverse effect on the results of operations, assets, business, prospects
or financial condition of the Company and the Subsidiaries, taken as a
whole, or (iii) a material adverse effect on the Company's ability to
perform in any material respect on a timely basis its obligations under
any Transaction Document (any of (i), (ii) or (iii), a "Material Adverse
Effect") and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail
such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no
further action is required by the Company in connection therewith other
than in connection with the Required Approvals. Each Transaction Document
has been (or upon delivery will have been) duly executed by the Company
and, when delivered in accordance with the terms hereof, will constitute
the valid and binding obligation of the Company enforceable against the
Company in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally
and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.
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(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company
of the other transactions contemplated thereby do not and will not: (i)
conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute
a default (or an event that with notice or lapse of time or both would
become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, or give to
others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any
Subsidiary is a party or by which any property or asset of the Company or
any Subsidiary is bound or affected, or (iii) subject to the Required
Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company or a Subsidiary
is subject (including federal and state securities laws and regulations),
or by which any property or asset of the Company or a Subsidiary is bound
or affected; except in the case of each of clauses (ii) and (iii), such as
could not have or reasonably be expected to result in a Material Adverse
Effect.
(e) Filings, Consents and Approvals. Except as set forth in the
Disclosure Schedule, the Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing
or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents.
(f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the applicable
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents.
The Underlying Shares, when issued in accordance with the terms of the
Transaction Documents, will be validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company. The
Company has reserved from its duly authorized capital stock a number of
shares of Common Stock for issuance of the Underlying Shares at least
equal to the Required Minimum on the date hereof. The Company has not, and
to the knowledge of the Company, no Affiliate of the Company has sold,
offered for sale or solicited offers to buy or otherwise negotiated in
respect of any security (as defined in Section 2 of the Securities Act)
that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the
sale of the Securities to the Purchaser, or that would be integrated with
the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market.
(g) Capitalization. The capitalization of the Company is as set
forth in the Description of Securities section of the Disclosure Schedule.
Other than as set forth on the Disclosure Schedule, the Company and the
Subsidiaries have no indebtedness. The Company has not issued any capital
stock since December 2005. No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
Except as set forth in the Disclosure Schedule, as a result of the
purchase and sale of the Securities, there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. The issuance and sale of the Securities will not obligate
the Company to issue shares of Common Stock or other securities to any
Person (other than the Purchaser) and will not result in a right of any
holder of Company securities to adjust the exercise, conversion, exchange
or reset price under such securities. All of the outstanding shares of
capital stock of the Company are validly issued, fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is required
for the issuance and sale of the Securities. There are no stockholders
agreements, voting agreements or other similar agreements with respect to
the Company's capital stock to which the Company is a party or, to the
knowledge of the Company, between or among any of the Company's
stockholders.
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(h) SEC Reports; Financial Statements. Other than as previously
disclosed to the Purchaser, the Company has filed all reports required to
be filed by it under the Securities Act and the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the two years preceding
the date hereof (or such shorter period as the Company was required by law
to file such material) (the foregoing materials, including the exhibits
thereto, being collectively referred to herein as the "SEC Reports") on a
timely basis or has received a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The financial statements of the Company comply in all material respects
with applicable accounting requirements and the rules and regulations of
the Commission with respect thereto as in effect at the time of filing.
Such financial statements have been prepared in accordance with United
States generally accepted accounting principles applied on a consistent
basis during the periods involved ("GAAP"), except as may be otherwise
specified in such financial statements or the notes thereto and except
that unaudited financial statements may not contain all footnotes required
by GAAP, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for
the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to
normal, immaterial, year-end audit adjustments.
(i) Material Changes. Since the date of the latest audited financial
statements, (i) there has been no event, occurrence or development that
has had or that could reasonably be expected to result in a Material
Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent with past
practice and (B) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or required to be disclosed in
filings made with the Commission, (iii) the Company has not altered its
method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any
shares of its capital stock and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans. The Company does not have pending
before the Commission any request for confidential treatment of
information.
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(j) Litigation. Other than as set forth in the Disclosure Schedule
under the caption "Legal Proceedings," there is no action, suit, inquiry,
notice of violation, proceeding or investigation pending or, to the
knowledge of the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an "Action")
which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or
(ii) could, if there were an unfavorable decision, have or reasonably be
expected to result in a Material Adverse Effect. Neither the Company nor
any Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty.
There has not been, and to the knowledge of the Company, there is not
pending or contemplated, any investigation by the Commission involving the
Company or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees
of the Company which could reasonably be expected to result in a Material
Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or
any Subsidiary received notice of a claim that it is in default under or
that it is in violation of, any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any
of its properties is bound (whether or not such default or violation has
been waived), (ii) is in violation of any order of any court, arbitrator
or governmental body, or (iii) is or has been in violation of any statute,
rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its
business except in each case as could not have a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses, except where the failure to possess
such permits could not have or reasonably be expected to result in a
Material Adverse Effect ("Material Permits"), and neither the Company nor
any Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material
to the business of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for Liens that do not materially affect the
value of such property and do not materially interfere with the use made
and proposed to be made of such property by the Company and the
Subsidiaries and Liens for the payment of federal, state or other taxes,
the payment of which is neither delinquent nor subject to penalties. Any
real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable
leases of which the Company and the Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses
and other similar rights necessary or material for use in connection with
their respective businesses and which the failure to so have could have a
Material Adverse Effect (collectively, the "Intellectual Property
Rights"). Neither the Company nor any Subsidiary has received a written
notice that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any
of the Intellectual Property Rights of others.
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(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which the Company and the Subsidiaries are engaged, at least equal to
the aggregate Subscription Amount. To the best of Company's knowledge,
such insurance contracts and policies are accurate and complete. Neither
the Company nor any 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 without a significant increase in cost.
(q) Transactions With Affiliates and Employees. None of the officers
or directors of the Company and, to the knowledge of the Company, none of
the employees of the Company is presently a party to any transaction with
the Company or any Subsidiary (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 entity in which any officer, director, or
any such employee has a substantial interest or is an officer, director,
trustee or partner, in each case in excess of $50,000 other than (i) for
payment of salary or consulting fees for services rendered on a basis no
less favorable to the Company than that which could be received from an
unaffiliated third party, (ii) reimbursement for expenses incurred on
behalf of the Company and (iii) for other employee benefits, including
stock option agreements under any stock option plan of the Company.
(r) Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company is in
material compliance with all provisions of the Xxxxxxxx-Xxxxx Act of 2002
which are applicable to it as of the Closing Date. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed
such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made
known to the certifying officers by others within those entities,
particularly during the period in which the Company's most recently filed
periodic report under the Exchange Act, as the case may be, is being
prepared. The Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures as of the date
prior to the filing date of the most recently filed periodic report under
the Exchange Act (such date, the "Evaluation Date"). The ----------------
Company presented in its most recently filed periodic report under the
Exchange Act the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no significant changes in the Company's internal controls (as
such term is defined in Item 307(b) of Regulation S-K under the Exchange
Act) or, to the Company's knowledge, in other factors that could
significantly affect the Company's internal controls.
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(s) Certain Fees. Except as set forth in the Disclosure Schedule
under the caption "Recent Sales of Unregistered Securities; Use of
Proceeds from Registered Securities," no brokerage or finder's fees or
commissions are or will be payable by the Company to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by this
Agreement. The Purchaser shall have no obligation with respect to any fees
or with respect to any claims made by or on behalf of other Persons for
fees of a type contemplated in this Section that may be due in connection
with the transactions contemplated by this Agreement.
(t) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchaser as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the
rules and regulations of the Trading Market.
(u) Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the Securities, will not
be or be an Affiliate of, an "investment company" within the meaning of
the Investment Company Act of 1940, as amended. The Company shall conduct
its business in a manner so that it will not become subject to the
Investment Company Act.
(v) Registration Rights. Except as contemplated by the transactions
hereunder, no Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the Company.
(w) Reserved.
(x) Application of Takeover Protections. The Company and its Board
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other
similar anti-takeover provision under the Company's Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a
result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including without
limitation as a result of the Company's issuance of the Securities and the
Purchasers' ownership of the Securities.
(y) Disclosure. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Purchasers or their
agents or counsel with any information that constitutes or might
constitute material, nonpublic information. The Company understands and
confirms that each Purchaser will rely on the foregoing representations
and covenants in effecting transactions in securities of the Company. All
disclosure provided to the Purchasers regarding the Company, its business
and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, furnished by or on behalf of the Company with
respect to the representations and warranties made herein are true and
correct with respect to such representations and warranties and do not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. The
Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3.2
hereof.
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(z) No Integrated Offering. Assuming the accuracy of the Purchaser's
representations and warranties set forth in Section 3.2, neither the
Company, nor any of its affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances
that would cause this offering of the Securities to be integrated with
prior offerings by the Company for purposes of the Securities Act or any
applicable shareholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation
system on which any of the securities of the Company are listed or
designated.
(aa) Solvency. Based on the financial condition of the Company as of
the Closing Date after giving effect to the receipt by the Company of the
proceeds from the sale of the Securities hereunder, (i) the Company's fair
saleable value of its assets exceeds the amount that will be required to
be paid on or in respect of the Company's existing debts and other
liabilities (including known contingent liabilities) as they mature; (ii)
the Company's assets do not constitute unreasonably small capital to carry
on its business for the current fiscal year as now conducted and as
proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the
Company, and projected capital requirements and capital availability
thereof; and (iii) the current cash flow of the Company, together with the
proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its debt when such
amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be payable on or in respect of
its debt). The Company has no knowledge of any facts or circumstances
which lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any
jurisdiction within one year from the Closing Date. The financial
statements of the Company set forth as of the dates thereof all
outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments.
For the purposes of this Agreement, "Indebtedness" shall mean (a) any
liabilities for borrowed money or amounts owed in excess of $50,000 (other
than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should
be reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP. Neither the
Company nor any Subsidiary is in default with respect to any Indebtedness.
(bb) Tax Status. Except for matters that would not, individually or
in the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, the Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid
or accrued all taxes shown as due thereon, and the Company has no
knowledge of a tax deficiency which has been asserted or threatened
against the Company or any Subsidiary.
(cc) No General Solicitation. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company
has offered the Securities for sale only to the Purchaser and certain
other "accredited investors" within the meaning of Rule 501 under the
Securities Act.
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(dd) Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of
the Company, has (i) directly or indirectly, used any corrupt funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds,
(iii) failed to disclose fully any contribution made by the Company (or
made by any person acting on its behalf of which the Company is aware)
which is in violation of law, or (iv) violated in any material respect any
provision of the Foreign Corrupt Practices Act of 1977, as amended
(ee) Accountants. The Company's accountants are Squar Xxxxxx Xxxxx &
Xxxxxxxxxx, XX. To the Company's knowledge, such accountants, who the
Company expects will express their opinion with respect to the financial
statements for the year ending December 31, 2005, are a registered public
accounting firm as required by the Securities Act.
(ff) Seniority. As of the Closing Date, no indebtedness or other
equity of the Company is senior to, or pari passu with, the Notes in right
of payment, whether with respect to interest or upon liquidation or
dissolution, or otherwise.
(gg) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the accountants and lawyers formerly or
presently employed by the Company and the Company is current with respect
to any fees owed to its accountants and lawyers. By making this
representation the Company does not, in any manner, waive the
attorney/client privilege or the confidentiality of the communications
between the Company and its lawyers.
(hh) Acknowledgment Regarding Purchaser's Purchase of Securities.
The Company acknowledges and agrees that each Purchaser is acting solely
in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby. The
Company further acknowledges that no Purchaser 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
advice given by any Purchaser or any of their respective representatives
or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Purchaser's purchase of
the Securities. The Company further represents to the Purchasers that the
Company's decision to enter into this Agreement has been based solely on
the independent evaluation of the transactions contemplated hereby by the
Company and its representatives. The Company further acknowledges that in
addition to purchasing Securities, the Purchasers or their affiliates may
directly or indirectly own Common Stock and Preferred Stock in the Company
and that such parties, exercising their rights hereunder may adversely
impact their other holdings as well as the other equity holders in the
Company.
(ii) Lock-Up Agreement. The Company shall obtain from each officer,
director, and 5% shareholder of the Company, a lock-up agreement
satisfactory to the Purchaser, which prohibits the sale of stock in the
Company for one year from the date of the effective of the Registration
Statement.
(jj) Marketing. The Company agrees to spend reasonable amounts to
market the Company, and it will use an investor relations firm and
investor service program satisfactory to the Purchaser. The Company will
issue a press release or file a form 8-K publicly announcing the material
terms of this deal within one Trading Day of the Closing Date.
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3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. The Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by the
Purchaser of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate or similar action on the part
of the Purchaser. Each Transaction Document to which it is a party has
been duly executed by the Purchaser, and when delivered by the Purchaser
in accordance with the terms hereof, will constitute the valid and legally
binding obligation of the Purchaser, enforceable against it in accordance
with its terms, except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(b) Purchaser Representation. The Purchaser understands that the
Securities are "restricted securities" and have not been registered under
the Securities Act or any applicable state securities law and is acquiring
the Securities as principal for its own account and not with a view to or
for distributing or reselling such Securities or any part thereof, has no
present intention of distributing any of such Securities and has no
arrangement or understanding with any other persons regarding the
distribution of such Securities (this representation and warranty not
limiting the Purchaser's right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal
and state securities laws). The Purchaser is acquiring the Securities
hereunder in the ordinary course of its business. The Purchaser does not
have any agreement or understanding, directly or indirectly, with any
Person to distribute any of the Securities.
(c) Purchaser Status. At the time the Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on
which it exercises any Warrants or converts any Notes it will be either:
(i) an "accredited investor" as defined in Rule 501(a)(1), (a)(2), (a)(3),
(a)(7) or (a)(8) under the Securities Act or (ii) a "qualified
institutional buyer" as defined in Rule 144A(a) under the Securities Act.
The Purchaser is not required to be registered as a broker-dealer under
Section 15 of the Exchange Act.
(d) Experience of the Purchaser. The Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
The Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
(e) No Shorting. The Purchaser has not engaged (and will not engage)
in any short sales of the Common Stock prior to the public announcement of
the consummation of the transaction contemplated hereunder.
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(f) General Solicitation. The Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
The Company acknowledges and agrees that the Purchasers do not make or
have not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth
in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to
the Company or to an affiliate of a Purchaser or in connection with a
pledge as contemplated in Section 4.1(b), the Company may require the
transferor thereof to provide to the Company an opinion of counsel
selected by the transferor and reasonably acceptable to the Company, the
form and substance of which opinion shall be reasonably satisfactory to
the Company, to the effect that such transfer does not require
registration of such transferred Securities under the Securities Act. As a
condition of transfer, any such transferee shall agree in writing to be
bound by the terms of this Agreement and shall have the rights of a
Purchaser under this Agreement and the Registration Rights Agreement.
(b) The Purchaser agrees to the imprinting, so long as is required
by this Section 4.1(b), of a legend on any of the Securities in the
following form:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
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The Company acknowledges and agrees that a Purchaser may from time
to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the
Securities to a financial institution that is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and who agrees to be bound
by the provisions of this Agreement and the Registration Rights Agreement
and, if required under the terms of such arrangement, the Purchaser may
transfer pledged or secured Securities to the pledgees or secured parties.
Such a pledge or transfer would not be subject to approval of the Company
and no legal opinion of legal counsel of the pledgee, secured party or
pledgor shall be required in connection therewith. Further, no notice
shall be required of such pledge. At the appropriate Purchaser's expense,
the Company will execute and deliver such reasonable documentation as a
pledgee or secured party of Securities may reasonably request in
connection with a pledge or transfer of the Securities, including, if the
Securities are subject to registration pursuant to the Registration Rights
Agreement, the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list
of Selling Stockholders thereunder.
(c) Certificates evidencing the Underlying Shares shall not contain
any legend (including the legend set forth in Section 4.1(b) hereof): (i)
while a registration statement (including the Registration Statement)
covering the resale of such security is effective under the Securities
Act, or (ii) following any sale of such Underlying Shares pursuant to Rule
144, or (iii) if such Underlying Shares are eligible for sale under Rule
144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company shall
cause its counsel to issue a legal opinion to the Company's transfer agent
promptly after the Effective Date if required by the Company's transfer
agent to effect the removal of the legend hereunder. If all or any portion
of a Note or Warrant is converted or exercised (as applicable) at a time
when there is an effective registration statement to cover the resale of
the Underlying Shares, or if such Underlying Shares may be sold under Rule
144(k) or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations
thereof) then such Underlying Shares shall be issued free of all legends.
The Company agrees that following the Effective Date or at such time as
such legend is no longer required under this Section 4.1(c), it will, no
later than three Trading Days following the delivery by a Purchaser to the
Company or the Company's transfer agent of a certificate representing
Underlying Shares, as applicable, issued with a restrictive legend (such
third Trading Day, the "Legend Removal Date"), deliver or cause to be
delivered to the Purchaser a certificate representing such shares that is
free from all restrictive and other legends. The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this
Section.
(d) In addition to the Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages
and not as a penalty, for each $1,000 of Underlying Shares (based on the
VWAP of the Common Stock on the date such Securities are submitted to the
Company's transfer agent) delivered for removal of the restrictive legend
and subject to this Section 4.1(c), $10 per Trading Day (increasing to $20
per Trading Day 5 Trading Days after such damages have begun to accrue)
for each Trading Day after the Legend Removal Date until such certificate
is delivered without a legend. Nothing herein shall limit the Purchaser's
right to pursue actual damages for the Company's failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and the Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief.
(e) The Purchaser, severally and not jointly with the other
Purchaser, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company's reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery requirements,
or an exemption therefrom.
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4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance
of the Securities may result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.
4.3 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to such Purchaser and
make publicly available in accordance with Rule 144(c) such information as is
required for such Purchaser to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.
Additionally, the Company covenants to make reasonable efforts to market the
Company and hire an appropriate investor relations firm.
4.4 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchaser or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
4.5 Conversion and Exercise Procedures. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Notes set forth the totality of the procedures required of the Purchaser in
order to exercise the Warrants or convert the Notes. No additional legal opinion
or other information or instructions shall be required of the Purchaser to
exercise their Warrants or convert their Notes. The Company shall honor
exercises of the Warrants and conversions of the Notes and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
4.6 Securities Laws Disclosure; Publicity. The Company and the Purchasers
shall consult with each other in issuing any other press releases with respect
to the transactions contemplated hereby, and neither the Company nor the
Purchasers shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any press
release of the Purchasers, or without the prior consent of the Purchasesr, with
respect to any press release of the Company, which consent shall not
unreasonably be withheld, except if such disclosure is required by law, in which
case the disclosing party shall promptly provide the other party with prior
notice of such public statement or communication. Notwithstanding the foregoing,
the Company shall not publicly disclose the name of any Purchaser, or include
the name of any Purchaser in any filing with the Commission or any regulatory
agency or Trading Market, without the prior written consent of such Purchaser,
except (i) as required by federal securities law in connection with a
registration statement and (ii) to the extent such disclosure is required by law
or Trading Market regulations, in which case the Company shall provide such
Purchaser with prior notice of such disclosure permitted under subclause (i) or
(ii).
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4.7 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholder rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchaser. The Company shall conduct
its business in a manner so that it will not become subject to the Investment
Company Act.
4.8 Non-Public Information. The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto the Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that the Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.
4.9 Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities hereunder for the retirement of $900,000 of existing debt, the
acquisition of certain identified companies and working capital purposes.
4.10 Reimbursement. If any Purchaser becomes involved in any capacity in
any Proceeding by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar transactions by
the Purchaser to or with any current stockholder), solely as a result of the
Purchaser's acquisition of the Securities under this Agreement, the Company will
reimburse the Purchaser for its reasonable legal and other expenses (including
the cost of any investigation preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchaser who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchaser and any such Affiliate, and shall be binding upon and inure
to the benefit of any successors, assigns, heirs and personal representatives of
the Company, the Purchaser and any such Affiliate and any such Person. The
Company also agrees that neither the Purchaser nor any such Affiliates,
partners, directors, agents, employees or controlling persons shall have any
liability to the Company or any Person asserting claims on behalf of or in right
of the Company solely as a result of acquiring the Securities under this
Agreement.
4.11 Indemnification of Purchasers. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any Purchaser Party may suffer or incur as a result
of or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against a Purchaser, or any
of them or their respective Affiliates, by any stockholder of the Company who is
not an Affiliate of the Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of the Purchaser's representation, warranties or covenants under the
Transaction Documents or any agreements or understandings the Purchaser may have
with any such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by the Purchaser which constitutes fraud, gross
19 of 26
negligence, willful misconduct or malfeasance). If any action shall be brought
against any Purchaser Party in respect of which indemnity may be sought pursuant
to this Agreement, the Purchaser Party shall promptly notify the Company in
writing, and the Company shall have the right to assume the defense thereof with
counsel of its own choosing. Any Purchaser Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the Purchaser
Party except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii)
in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material issue between the position of the Company and
the position of the Purchaser Party. The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party
effected without the Company's prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party's
breach of any of the representations, warranties, covenants or agreements made
by the Purchaser in this Agreement or in the other Transaction Documents.
4.12 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction Documents
in such amount as may be required to fulfill its obligations in full under
the Transaction Documents.
(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than the Required
Minimum on such date, then the Board of Directors of the Company shall use
commercially reasonable efforts to amend the Company's certificate or
articles of incorporation to increase the number of authorized but
unissued shares of Common Stock to at least the Required Minimum at such
time, as soon as possible and in any event not later than the 75th day
after such date.
(c) The Company shall, if applicable: (i) in the time and manner
required by the Trading Market, prepare and file with such Trading Market
an additional shares listing application covering a number of shares of
Common Stock at least equal to the Required Minimum on the date of such
application, (ii) take all steps necessary to cause such shares of Common
Stock to be approved for listing on the Trading Market as soon as possible
thereafter, (iii) provide to the Purchaser evidence of such listing, and
(iv) maintain the listing of such Common Stock on any date at least equal
to the Required Minimum on such date on such Trading Market or another
Trading Market.
4.13 Subsequent Equity Sales. In addition to the limitations set forth
herein, from the date hereof until such time as no Purchaser holds any of the
Securities, the Company shall be prohibited from effecting or entering into an
agreement to effect any Subsequent Financing involving a "Variable Rate
Transaction" or an "MFN Transaction" (each as defined below). The term "Variable
Rate Transaction" shall mean a transaction in which the Company issues or sells
(i) any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common
Stock either (A) at a conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations for the
shares of Common Stock at any time after the initial issuance of such debt or
equity securities, or (B) with a conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such
debt or equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
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the Common Stock. The term "MFN Transaction" shall mean a transaction in which
the Company issues or sells any securities in a capital raising transaction or
series of related transactions which grants to an investor the right to receive
additional shares based upon future transactions of the Company on terms more
favorable than those granted to such investor in such offering. Any Purchaser
shall be entitled to obtain injunctive relief against the Company to preclude
any such issuance, which remedy shall be in addition to any right to collect
damages. Notwithstanding the foregoing, this Section 4.13 shall not apply in
respect of an Exempt Issuance, except that no Variable Rate Transaction or MFN
Transaction shall be an Exempt Issuance.
4.14 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. Further, the
Company shall not make any payment of principal on the Notes in amounts which
are disproportionate to the respective principal amounts outstanding on the
Notes at any applicable time. For clarification purposes, this provision
constitutes a separate right granted to the Purchasers by the Company and
negotiated separately by the Purchasers, and is intended to treat for the
Company the Note holders as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.
4.15 Most Favored Nation Provision. Any time the Company effects a
subsequent financing, each Purchaser may elect, in its sole discretion, to
exchange all or some of its Notes and Warrants (treated for this purpose only as
a unit) then held by it for the securities issued in a subsequent financing
based on the then outstanding principal amount of the Note plus any other fees
then owed by the Company to the Purchaser, and the effective price at which such
securities are sold in such subsequent financing.
4.16 Additional Participation Right. During the term of the Notes, each
Purchaser shall have the right to participate in up to 100% of any debt or
equity financing of the Company on the same terms as those offered to such third
party providing the financing.
4.17 Additional Investment Right. The Company agrees that the Purchasers
shall have the right (at their sole option), on or prior to the 360th day from
the Closing Date, to cause the Company to issue to the Purchasers additional
notes in an aggregate principal amount of up to $1,500,000 on the same terms and
conditions (including, without limitation, the same interest rate, Conversion
Price then in effect, proportionate warrant coverage (at the same exercise
prices), amortization schedule, fees, expenses, etc.) as set forth in the
Transaction Documents.
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, by
written notice to the other parties, if the Closing has not been consummated on
or before March 7, 2006; provided that no such termination will affect the right
of any party to xxx for any breach by the other party (or parties).
5.2 Fees. At the Closing, the Company has agreed to (i) pay to Centrecourt
Asset Management LLC ("CAM") $15,000, the balance of its legal fees and expenses
of counsel, (ii) reimburse CAM's reasonable out-of-pocket expenses (including
the cost of any third party field audit or any required appraisals), and (iii)
pay CAM $122,500 as a structuring fee. Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the issuance of any Securities.
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5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of amendments, by the
Company and Purchasers holding a majority of the principal amount of Notes then
outstanding, or, in the case of a waiver, by the party against whom enforcement
of any such waiver is sought. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.
5.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. 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.
5.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of Purchasers holding a majority of the
principal amount of Notes then outstanding. Any Purchaser may assign any or all
of its rights under this Agreement to any Person to whom such Purchaser assigns
or transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof that
apply to such "Purchaser".
5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.
5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
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jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The parties hereby waive all
rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
5.10 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable for the applicable statue of limitations.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then the
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of a conversion of a Note or exercise of a
Warrant, the Purchaser shall be required to return any shares of Common Stock
subject to any such rescinded conversion or exercise notice.
5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
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5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.17 Usury. To the extent it may lawfully do so, the Company hereby agrees
not to insist upon or plead or in any manner whatsoever claim, and will resist
any and all efforts to be compelled to take the benefit or advantage of, usury
laws wherever enacted, now or at any time hereafter in force, in connection with
any claim, action or proceeding that may be brought by any Purchaser in order to
enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly
agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the "Maximum Rate"),
and, without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents
from the effective date forward, unless such application is precluded by
applicable law. If under any circumstances whatsoever, interest in excess of the
Maximum Rate is paid by the Company to any Purchaser with respect to
indebtedness evidenced by the Transaction Documents, such excess shall be
applied by the Purchasers to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at the Purchasers' election.
5.18 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
(Signature Pages Follow)
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IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
NEW CENTURY COMPANIES, INC. Address for Notice:
-------------------
------------------------------------ Telephone:
Name: Facsimile:
Title:
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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[PURCHASER SIGNATURE PAGE TO NEW CENTURY SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Investing Entity: CAMOFI Master LDC
Signature of Authorized Signatory of Investing Entity: _________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Email Address of Authorized Entity:_____________________________________________
Address for Notice of Investing Entity:
c/o Centrecourt Asset Management LLC
000 Xxxxxxx Xxxxxx
0xx Xxxxx
Xxx Xxxx, XX 00000
Address for Delivery of Securities for Investing Entity (if not same as above):
Subscription Amount: $3,500,000
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
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