SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement dated as of November 10, 2008 (this
"Agreement") is made by and between Advanced ID Corporation, a Nevada
corporation, with principal executive offices located at 0000 - 0xx
Xxxxxx XX, #000, Xxx 0, Xxxxxxx, Xxxxxxx, Xxxxxx (the "Company"), and
La Jolla Cove Investors, Inc. ("Holder").
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:
PURCHASE AND SALE OF DEBENTURE
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.
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"). Simultaneously with the execution of this Agreement, Holder
shall pay the Purchase Price by wire transfer of $200,000 in
immediately available funds to the Company and delivery to the Company
of a Secured Promissory Note in the principal amount of $800,000, in
the form attached hereto as Exhibit A (the "Promissory Note").
Simultaneously with the execution of this Agreement, the Company shall
deliver the Debenture (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) to the Holder.
Notwithstanding the foregoing, only with respect to the Promissory Note
issued by the Holder on the date hereof, the Holder shall make the
following prepayment under the Promissory Note if the following
conditions are satisfied: $75,000 shall be prepaid from the outstanding
principal balance of the Promissory Note within five business days of
the date that the Company has received not less than $75,000 in the
aggregate of additional equity funding from one or more executive
officers of the Company after the date hereof (the "Executive
Funding"), if (a) no Event of Default (as defined in the Debenture) has
occurred under the Debenture through such date, and (b) the Executive
Funding occurs in full prior to the date that is thirty days from the
date hereof. Any amounts so prepaid by the Holder under the terms of
this section (i) may be applied, in the sole and absolute discretion of
Holder, to any other amounts that Holder may otherwise be obligated or
required to prepay under the terms of the Promissory Note; and (ii)
shall not impact the funding obligations or prepayment obligations of
2
the Holder under this Agreement, the Debenture or any Additional
Debenture, if any, or the Second Promissory Note, or the Third
Promissory Note, if any, as otherwise set forth in this Agreement.
Second Debenture. Provided that no Event of Default (as defined in the
Debenture) has occurred under the Debenture (provided that Holder may,
in its sole and absolute discretion waive the occurrence of such Event
of Default with respect to this Section), Holder shall, in Holder's
sole and absolute discretion, select a date during the Second Debenture
Period (as defined below) (with such date as selected by Holder
referred to herein as the "Second Debenture Date") at which the Company
shall sell and the Holder shall purchase a debenture in the principal
amount of $1,000,000 in exchange for a purchase price of $1,000,000
(the "Second Debenture"), with such purchase price paid via a cash
payment of $275,000 and the issuance of a promissory note in the
principal amount of $725,000 (the "Second Promissory Note"), with the
form of and terms of the Second Debenture and the Second Promissory
Note and payment of the purchase price subject to the same terms and
conditions of this Agreement, the Debenture and the Promissory Note, as
applicable, and when the Second Debenture is issued, the term
"Debenture" as used in this Agreement shall be deemed to include the
Second Debenture in all respects and when the Second Promissory Note is
issued, the term "Promissory Note" as used in this Agreement shall be
deemed to include the Second Promissory Note in all respects. The
closing of the purchase and sale of the Second Debenture and the
issuance of the Second Promissory Note shall occur within thirty days
of the Second Debenture Date. For the purposes of this Agreement, the
"Second Debenture Period" shall mean the period that commences on the
date hereof and terminates upon the date that the remaining Principal
Amount of the Debenture is equal to an amount not greater than
$250,000.
Third Debenture. Provided that no Event of Default (as defined in the
Debenture) has occurred under the Debenture (provided that Holder may,
in its sole and absolute discretion waive the occurrence of such Event
of Default with respect to this Section), Holder shall, in Holder's
sole and absolute discretion, select a date during the Third Debenture
Period (as defined below) (with such date as selected by Holder
referred to herein as the "Third Debenture Date") at which the Company
shall sell and the Holder shall purchase a debenture in the principal
amount of $1,000,000 in exchange for a purchase price of $1,000,000
(the "Third Debenture"), with such purchase price paid via a cash
payment of $275,000 and the issuance of a promissory note in the
principal amount of $725,000 (the "Third Promissory Note"), with the
form of and terms of the Third Debenture and the Third Promissory Note
and payment of the purchase price subject to the same terms and
conditions of this Agreement, the Debenture and the Promissory Note, as
applicable, and when the Third Debenture is issued, the term
"Debenture" as used in this Agreement shall be deemed to include the
Third Debenture in all respects and when the Third Promissory Note is
issued, the term "Promissory Note" as used in this Agreement shall be
deemed to include the Third Promissory Note in all respects. The
closing of the purchase and sale of the Third Debenture and the
issuance of the Third Promissory Note shall occur within thirty days of
3
the Third Debenture Date. For the purposes of this Agreement, the
"Third Debenture Period" shall mean the period that commences on the
date of the issuance of the Second Debenture to Holder and terminates
upon the date that the remaining Principal Amount of the Second
Debenture is equal to an amount not greater than $250,000.
Non-Funding Penalty. Notwithstanding the foregoing requirements of
Holder to purchase each of the Second Debenture and Third Debenture
(each, an "Additional Debenture" and collectively, the "Additional
Debentures"), in the event that Holder does not purchase any or all of
the Additional Debentures within 10 business days of the date that the
delivery of funds associated with such purchase would otherwise be due,
upon 20 days' prior written notice from the Company of such failure to
so purchase any or all of the Additional Debentures (during such time
Holder shall have the option to cure such failure to so purchase any
Additional Debenture with no penalty attached thereto), Holder shall
pay an amount equal to $25,000 (the "Non-Funding Penalty") to the
Company, provided however that in the event that the Common Stock shall
trade on the Trading Market (as defined in the Debenture) at a price
per share that is $0.04 per share or lower at any time during the six
month period commencing on the date hereof and ending on the six month
anniversary of the date hereof (as adjusted for any stock splits, stock
dividends, combinations, subdivisions, recapitalizations or the like),
then the Non-Funding Penalty shall be reduced to equal $5,000. The
amount payable by the Holder to the Company in connection with any
damages, losses, claims or other amounts in connection with the failure
of the Holder to purchase any or all of the Additional Debentures shall
not exceed $25,000 (or $5,000, subject to the terms of this Section) in
the aggregate. Upon the payment of the Non-Funding Penalty to the
Company, the Holder shall have no further obligations or duties under
this Agreement, the Debenture or any agreements or debentures entered
into in connection with any of the Additional Debentures, if any, with
respect to the purchase of any Additional Debenture or other duties to
deliver any additional funds to the Company, provided however, that
other than with respect to the removal of the requirement to purchase
and enter into any Additional Debenture, the Company and the Holder
shall remain obligated and bound by the remaining terms and conditions
of this Agreement, the Debenture, the Promissory Note and any
agreements or debentures previously entered into in connection with any
Additional Debenture. The Company's sole and exclusive remedy in the
event that the Holder fails to purchase any or all of the Additional
Debentures shall be the right of the Company to receive the Non-Funding
Penalty from the Holder.
Non-Funding Election. In the event that the Common Stock shall trade
on the Trading Market (as defined in the Debenture) at a price per
share that is $0.029 per share or lower at any time during the six
month period commencing on the date hereof and ending on the six month
anniversary of the date hereof (as adjusted for any stock splits, stock
dividends, combinations, subdivisions, recapitalizations or the like),
the Holder shall have the right, in the Holder's sole and absolute
discretion, during the time period commencing on the date hereof and
ending on the six month anniversary of the date hereof, to terminate
the right and obligation of the Holder to purchase any or all of the
4
Additional Debentures through the delivery of written notice to the
Company of such termination in the manner provided in Section XVII
hereof. In the event that Holder so terminates Holder's right and
obligation to purchase any or all of the Additional Debentures under
the terms of this Section I.F., the Holder shall have no obligation to
pay any of the Non-Funding Penalty and shall have no further
obligations or duties under this Agreement, the Debenture or any
agreements or debentures entered into in connection with any of the
Additional Debentures, if any, with respect to the purchase of any
Additional Debenture or other duties to deliver any additional funds to
the Company, provided however, that other than with respect to the
removal of the requirement to purchase and enter into any Additional
Debenture and pay any of the Non-Funding Penalty, the Company and the
Holder shall remain obligated and bound by the remaining terms and
conditions of this Agreement, the Debenture, the Promissory Note and
any agreements or debentures previously entered into in connection with
any Additional Debenture.
HOLDER'S REPRESENTATIONS AND WARRANTIES
Holder represents and warrants to and covenants and agrees with the
Company as follows:
Holder is purchasing the Debenture and the Common Stock issuable upon
conversion or redemption of or payment of interest under 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.
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.
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;
Holder understands that the Securities have not been approved or
disapproved by the Securities and Exchange Commission (the
"Commission") or any state or provincial securities commission.
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,
5
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 COMPANY'S REPRESENTATIONS
The Company represents and warrants as of the date hereof to the Holder
that, except as set forth on 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 or employees of the
Company after reasonable investigation.
Capitalization.
The authorized capital stock of the Company consists of 100,000,000
shares of Common Stock and 500,000,000 shares of Series A Preferred
Stock of which 73,499,897 shares and 0 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.
The Securities have been duly and validly authorized and reserved for
issuance by the Company, and, when the Conversion Shares are issued by
the Company upon conversion of the Debenture, they 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.
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. The issuance of the Securities will not obligate the
Company to issue any other securities to any third party 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.
Organization; Reporting Company Status.
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").
6
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 ("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.
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 in full and issuable
upon payment of interest under 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. Section 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. Section 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 11U.S.C. Section362.
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 and no further filing, consent, or authorization is required by
the Company, its board of directors, or its stockholders. 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
7
creditors' rights and remedies generally. For purposes of this
Agreement, the term "Documents" means (i) this Agreement; (ii) the
Debenture; and (iii) the Promissory Note.
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.
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 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 statute, law, rule or
regulation 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).
Approvals. No authorization, approval or consent of any court or
public or governmental authority is required to be obtained by the
Company for the performance by the Company of its obligations hereunder
and the other Documents, including 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.
Commission Filings. The Company is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act. 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"), including without
limitation the timely filing of all required reports under Section 13
8
or 15(d) of the Exchange Act during the 12 months prior to the date
hereof (or for such shorter period that the Company was required to
file such reports). As of their respective dates, (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) 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 prepared in accordance with generally accepted accounting
principles in the United States ("GAAP") (except in the case of
unaudited statements permitted by Form 10-QSB 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).
Full Disclosure. There is no fact (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.
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.
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 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
9
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. As used in the Documents, "Affiliate" has the
meaning ascribed to such term in Rule 12b-2 under the Exchange Act.
Registration Rights. Except as set forth on Schedule III.L., 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.
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.
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.
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.
Subsidiaries. Other than the Subsidiaries (as hereinafter defined)
listed on Schedule III.P., the Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity. The Company is not a
participant in any joint venture, partnership, or similar arrangement.
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.
Litigation. Other than as disclosed in the Commission Filings, there
is no action, suit, proceeding or investigation pending or, to the
Company's knowledge, currently threatened against the Company or its
Subsidiaries that questions the validity of this Agreement, the
Documents, or the right of the Company to enter into such agreements,
or to consummate the transactions contemplated hereby or thereby, or
that might result, either individually or in the aggregate, in any
material adverse changes in the business, assets or condition of the
Company and its Subsidiaries, taken as a whole, financially or
otherwise, or any change in the current equity ownership of the Company
or its Subsidiaries. Neither the Company nor its Subsidiaries are
10
parties or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation
by the Company or its Subsidiaries currently pending or that the
Company or its Subsidiaries intends to initiate.
Agreements. Except for agreements explicitly contemplated hereby, or
disclosed in the Commission Filings, there are no agreements,
understandings or proposed transactions between the Company and any of
its officers, directors, Affiliates, or any affiliate thereof.
Tax Returns. The Company and each of its Subsidiaries has made and
filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject
and (unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) has paid all taxes
and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set
aside on its books provision reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns,
reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any
such claim.
Acknowledgment Regarding Holder's Purchase of Securities. The Company
acknowledges and agrees that the Holder is acting solely in the
capacity of an arm's length purchaser with respect to this Agreement
and the transactions contemplated hereby. The Company further
acknowledges that Holder is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to
this Agreement and the transactions contemplated hereby and any
statement made by Holder or any of its representatives or agents in
connection with this Agreement and the transactions contemplated hereby
is not advice or a recommendation and is merely incidental to the
Holder's purchase of the Securities. The Company further represents to
Holder that the Company's decision to enter into this Agreement has
been based solely on the independent evaluation of the Company and its
representatives.
No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly
or indirectly made any offers or sales in any security or solicited any
offers to buy any security under circumstances that would require
registration under the Securities Act of the issuance of the Securities
to the Holder. The issuance of the Securities to the Holder will not
be integrated with any other issuance of the Company's securities
(past, current or future) for purposes of any shareholder approval
provisions applicable to the Company or its securities.
11
Solvency. The Company (after giving effect to the transactions
contemplated by this Agreement) is solvent (i.e., its assets have a
fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured)
and currently the Company has no information that would lead it to
reasonably conclude that the Company would not, after giving effect to
the transaction contemplated by this Agreement, have the ability to,
nor does it intend to take any action that would impair its ability to,
pay its debts from time to time incurred in connection therewith as
such debts mature. The Company did not receive a qualified opinion
from its auditors with respect to its most recent fiscal year end and,
after giving effect to the transactions contemplated by this Agreement,
does not anticipate or know of any basis upon which its auditors might
issue a qualified opinion in respect of its current fiscal year.
No Shell Company. The Company is not, nor at any time since October
17, 2002 has the Company been a "shell company," as such term is
defined in paragraph (i)(1)(i) of Rule 144 or Rule 12b-2 of the
Exchange Act, the effect of which would prevent the Holder from selling
the Conversion Shares without restriction pursuant to Rule 144 (as
hereinafter defined).
No Investment Company. The Company is not, and upon the issuance and
sale of the Securities as contemplated by this Agreement will not be an
"investment company" required to be registered under the Investment
Company Act of 1940 (an "Investment Company"). The Company is not
controlled by an Investment Company.
Material Changes. Since the date of the Company's 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 Commission filings, (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.
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
12
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.
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.
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 (i) 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 (ii) 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.
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 or entity. To the knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another person or entity of any of the Intellectual
Property Rights of others.
Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company is in
material compliance with all provisions of the Xxxxxxxx-Xxxxx Act of
2002. 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
13
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 Securities
Exchange Act of 1934, 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.
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 Holder as
a result of Holder and the Company fulfilling their obligations or
exercising their rights under the Documents, including without
limitation as a result of the Company's issuance of the Securities and
Holder's ownership of the Securities.
Disclosure. The Company confirms that neither it nor any other Person
acting on its behalf has provided any of Holder or their agents or
counsel with any information that constitutes or might constitute
material, nonpublic information. The Company understands and confirms
that Holder will rely on the foregoing representations and covenants in
effecting transactions in securities of the Company.
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.
Seniority. As of the Closing Date, no indebtedness or other equity of
the Company is senior to, or pari passu with, the Debenture in right of
payment, whether with respect to interest or upon liquidation or
dissolution, or otherwise.
14
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.
CERTAIN COVENANTS AND ACKNOWLEDGMENTS
Filings. The Company shall take all actions and 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, including without limitation such
action as the Company shall reasonably determine is necessary to
qualify the Securities, or obtain an exemption for the Securities for
sale to the Holder at the Closing pursuant to this Agreement under all
applicable laws, and shall provide a copy thereof to Holder promptly
after such filing.
Reporting Status. With a view to making available to the Holder the
benefits of Rule 144 promulgated under the Securities Act or any
similar rule or regulation of the Commission that may at any time
permit Holder to sell securities of the Company to the public without
registration ("Rule 144"), and as a material inducement to the Holder's
purchase of the Securities, the Company represents, warrants, and
covenants to the following:
The Company's Common Stock is and for the last 12 months prior to the
date hereof has been registered under Section 12(g) of the Exchange
Act;
The Company is not and since October 17, 2002 has not been at any time
a "shell company," as defined in paragraph (i)(1)(i) of Rule 144 or
Rule 12b-2 of the Exchange Act;
The Company is and for the last 12 months prior to the date hereof has
been subject to the reporting requirements of section 13 or 15(d) of
the Exchange Act and has filed all required reports under section 13 or
15(d) of the Exchange Act during the 12 months prior to the date
hereof, other than Form 8-K reports;
From the date hereof until all the Securities either have been sold by
the Holder, or may permanently be sold by the Holder without any
restrictions pursuant to Rule 144, (the "Registration Period") (i) the
Company shall file with the SEC in a timely manner all required reports
under section 13 or 15(d) of the Exchange Act and such reports shall
conform to the requirements of the Exchange Act and the SEC for filing
thereunder, and (ii) the Company shall not terminate its status as an
issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would permit such
termination;
15
During the Registration Period the Company shall not become a "shell
company," as defined in paragraph (i)(1)(i) of Rule 144 or Rule 12b-2
of the Exchange Act; and
The Company shall furnish to the Holder so long as the Holder owns
Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule
144, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company,
and (iii) such other information as may be reasonably requested to
permit the Holders to sell such securities pursuant to Rule 144 without
registration.
8-K Filing. On or before the fourth Business Day following the date
hereof, the Company shall file a Current Report on Form 8-K describing
the terms of the transactions contemplated by the Documents in the form
required by the Exchange Act and attaching the material Documents
(including, without limitation, this Agreement and the Debenture) as
exhibits to such filing (the "8-K Filing"). In the event that the
Company does not file the 8-K Filing within four Business Days
following the date hereof, the Discount Multiplier (as defined in the
Debenture) under the Debenture shall decrease by one percentage point
(1%) for each period of five Business Days that the 8-K Filing is not
filed by the Company following the date hereof for all conversions of
the Debenture thereafter.
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 have its Common Stock traded on OTCBB.
If the Common Stock is delisted from OTCBB, the Company will arrange to
have the Common Stock traded on the most liquid national securities
exchange or quotation system that the Common Stock is qualified to be
listed on, it being understood, however, that compliance with the
foregoing shall not be deemed a waiver of any Event of Default under
the Debenture.
Reserved Conversion Shares. 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 issuance in full of the Conversion Shares. The Company shall take
all action reasonably necessary to at all times have authorized, and
reserved for the purpose of issuance, such number of shares of Common
Stock as shall be necessary to effect the full conversion of the
Debenture and the Additional Debentures outstanding, if any. If at any
time the number of authorized shares of Common Stock of the Company is
insufficient to effect the full conversion of the Debenture and the
Additional Debentures outstanding, if any, the Company shall call and
hold a special meeting of the shareholders of the Company within thirty
(30) days of such occurrence, for the sole purpose of increasing the
number of authorized shares of the Common Stock. The Company's
management shall recommend to the shareholders to vote in favor of
increasing the number of shares of authorized Common Stock. Management
shall also vote all of its shares in favor of increasing the number of
authorized shares of Common Stock.
16
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.
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.
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
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board
of directors or other persons performing similar functions are owned
directly or indirectly by the Company. 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.
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 IV.I) 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. So long as the
Debenture remains outstanding, the Company shall not, without the prior
written consent of the Holder, (i) issue or sell shares of Common Stock
or Preferred Stock without consideration or for a consideration per
share less than the bid price as determined on the Trading Market (the
"Bid Price") of the Common Stock determined immediately prior to its
issuance, (ii) issue any preferred stock, warrant, option, right,
contract, call, or other security or instrument granting the holder
thereof the right to acquire Common Stock without consideration or for
a consideration less than such Common Stock's Bid Price determined
immediately prior to its issuance, or (iii) file any registration
statements on Form S-8 covering securities valued at more than $500,000
in the aggregate as reflected on the table in the registration
statement.
17
Short Selling. So long as the Debenture is outstanding, Holder agrees
and covenants on its behalf and on behalf of its affiliates that
neither Holder nor its affiliates 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.
Shareholder Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other person or entity
that Holder is an "Acquiring Person" under any shareholder rights plan
or similar plan or arrangement in effect or hereafter adopted by the
Company, or that Holder 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 Holder.
Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities hereunder for the payment of payroll and other
working capital purposes and not for the repayment or redemption of any
obligations or interests held by any officers, directors, or
shareholders of the Company.
Subsequent Equity Sales. In addition to the limitations set forth
herein, from the date hereof until such time as Holder does not hold
any of the Securities, the Company shall be prohibited from effecting
or entering into an agreement to effect any 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 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. Holder 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
18
Most Favored Nation Provision. Any time the Company effects a
subsequent financing, Holder may elect, in its sole discretion, to
exchange all or some portion of the Debenture(s) then held by it for
the securities issued in a subsequent financing based on the then
outstanding principal amount of the Debenture(s) plus any other fees
then owed by the Company to Holder, at the effective price at which
such securities are sold in such subsequent financing.
ISSUANCE OF COMMON STOCK
The Company undertakes and agrees that no instruction other than the
instructions referred to in this Article V shall be given to its
transfer agent for the Conversion Shares and that the Conversion Shares
shall otherwise be freely transferable on the books and records of the
Company as and to the extent provided in this 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.
Holder 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, as applicable (the "Delivery
Date").
Upon the conversion of the Debenture or respective 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 or exercise
representing the number of shares of common stock issuable upon such
conversion or exercise. The Company covenants 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 provided the Conversion Shares, as applicable,
are being sold pursuant to an effective registration statement covering
the Common Stock to be sold or is otherwise exempt from registration
when sold.
The Company understands that a delay in the delivery of the Common
Stock in the form required pursuant to this section, or the Mandatory
Redemption Amount described in Section E hereof, beyond the Delivery
Date or Mandatory 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
19
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 Mandatory Redemption Amount, in the amount of $100 per business day
after the Delivery Date or Mandatory 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 Mandatory 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 Mandatory 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.
Mandatory Redemption. In the event the Company is prohibited from
issuing Common Stock, or 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, 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 (as defined in the Debenture) of the Debenture designated by the
Holder by 150%, together with accrued but unpaid interest thereon
("Mandatory Redemption Payment"). The Mandatory 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 ("Mandatory Redemption Payment Date"). Upon receipt
of the Mandatory Redemption Payment, the corresponding Debenture
principal and interest will be deemed paid and no longer outstanding.
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
20
$10,000 of Debenture principal, 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.
The Securities shall be delivered by the Company to the Holder pursuant
to Section I.B. hereof on a "delivery-against-payment basis" at the
Closing.
Certificates evidencing the Conversion Shares shall not contain any
legend: (i) while a registration statement covering the resale of such
security is effective under the Securities Act, or (ii) following any
sale of such Conversion Shares pursuant to Rule 144, or (iii) if such
Conversion Shares are eligible for sale under Rule 144, 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 if
required by the Company's transfer agent to effect the removal of the
legend hereunder. If all or any portion of a Debenture is converted or
exercised (as applicable) at a time when there is an effective
registration statement to cover the resale of the Conversion Shares, or
if such Conversion Shares may be sold under Rule 144 or if such legend
is not otherwise required under applicable requirements of the
Securities Act (including judicial interpretations thereof) then such
Conversion Shares shall be issued free of all legends. The Company
agrees that at such time as such legend is no longer required under
this Section, it will, no later than three Trading Days following the
delivery by Holder to the Company or the Company's transfer agent of a
certificate representing the Conversion Shares, as applicable, issued
with a restrictive legend, deliver or cause to be delivered to Holder 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.
CLOSING DATE
The "Closing" shall occur by the delivery: (i) to the Holder of the
documents evidencing the Debenture and all other Documents, and (ii) to
the Company the Purchase Price, including the Promissory Note, and the
date on which the Closing occurs shall be referred to herein as the
"Closing Date".
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:
- Delivery by Holder to the Company of the Purchase Price,
including the Promissory Note evidencing such applicable portion of the
Purchase Price;
21
- 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
- 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.
CONDITIONS TO HOLDER'S OBLIGATIONS
The Company understands that Holder's obligation to purchase the
Securities on the Closing Date pursuant to this Agreement is
conditioned upon:
- Delivery by the Company of the Debenture (I/N/O Holder or I/N/O
Holder's nominee) to Holder;
- 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;
- The Company shall have delivered to the Holder a certificate of
the Company executed by an officer of the Company, dated as of the
Closing, certifying the resolutions adopted by the Company's board of
directors authorizing the execution of the Documents, the issuance of
the Securities, and the transactions contemplated hereby, and copies of
any required third party consents, approvals and filings required in
connection with the consummation of the transactions contemplated by
this Agreement;
- There not having occurred (i) any general suspension of trading
in, or limitation on prices listed for, the Common Stock on the Trading
Market, (ii) the declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States, (iii) the
commencement of a war, armed hostilities or other international or
national calamity directly or indirectly involving the United States or
any of its territories, protectorates or possessions or (iv) in the
case of the foregoing existing at the date of this Agreement, a
material acceleration or worsening thereof;
22
- 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;
- 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;
- 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;
- Holder 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;
- Delivery by the Company of a legal opinion with respect to the
Company and the Subsidiaries regarding the enforceability of this
Agreement and the transactions contemplated hereunder from its outside
counsel in form and substance satisfactory to Holder; and
- 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.
SURVIVAL; INDEMNIFICATION
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,
including without limitation the terms of this Article IX, 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.
The Company hereby agrees to indemnify and hold harmless Holder, its
affiliates and their respective officers, directors, employees,
consultants, partners, members and attorneys (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 reasonable
out-of-pocket expenses (including the reasonable 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:
23
- 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;
- 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;
- 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; and/or
- resales of the Common Stock by Holder in the manner and as
contemplated by this Agreement and the Documents.
Promptly after receipt by a party seeking indemnification pursuant to
this Article IX (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 Company against whom indemnification
pursuant to this Article IX 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
24
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.
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 Indemnifying 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.
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.
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.
25
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.
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.
HEADINGS
The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this
Agreement.
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.
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.
26
NOTICES
Any notices, consents, waivers, or other communications required or
permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt,
when delivered personally; (ii) upon confirmation of receipt, when sent
by facsimile; (iii) three (3) days after being sent by U.S. certified
mail, return receipt requested, or (iv) one (1) day after deposit with
a nationally recognized overnight delivery service, in each case
properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company, to:
Advanced ID Corporation
Attn: Xxx Xxxxx
0000 - 0xx Xxxxxx XX, #000, Xxx 0
Xxxxxxx, Xxxxxxx, Xxxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to Holder, to:
La Jolla Cove Investors, Inc.
0000 Xxxxxxxxx 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.
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; provided, 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).
MAXIMUM INTEREST RATE
Notwithstanding anything herein to the contrary, if at any time the
applicable interest rate as provided for herein shall exceed the
maximum lawful rate which may be contracted for, charged, taken or
received by the Holder in accordance with any applicable law (the
"Maximum Rate"), the rate of interest applicable to this Agreement
shall be limited to the Maximum Rate. To the greatest extent permitted
under applicable law, the Company hereby waives and agrees not to
27
allege or claim that any provisions of this Agreement could give rise
to or result in any actual or potential violation of any applicable
usury laws.
ASSIGNMENT
This Agreement shall not be assignable by the Company without the prior
written consent of the Holder. The Holder may assign this Agreement
upon 10 days prior written notice to the Company.
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement
to be executed and delivered on the date first above written.
Advanced ID Corporation La Jolla Cove Investors, Inc.
By: /s/Xxx Xxxxx By: /s/ Xxxxxx Xxxx
Name: Xxx Xxxxx Name: Xxxxxx Xxxx
Title: President/CEO Title: Portfolio Mgr.
SCHEDULE III.A.1
OPTION ISSUANCES - ADVANCED ID CORPORATION
31-Dec-07
Effective Term Time
Date of Amount to Expiry to Weighted
Description Issuance Issued Maturity Date Expiry Amount
----------- --------- ------ -------- ------ ------- -------
X. Xxxxxxx 2-Apr-03 250,000 10 years 17-Oct-12 4.80 -
X. Xxxxx 2-Apr-03 200,000 10 years 17-Oct-12 4.80 -
X. Xxxxxxx 22-Apr-04 250,000 10 years 22-Apr-14 6.32 1,578,767
X. Xxxxx 22-Apr-04 200,000 10 years 22-Apr-14 6.32 1,263,014
Xxxxxxx Xxxxxxxxxx 22-Apr-04 200,000 10 years 22-Apr-14 6.32 1,263,014
Xxxxxx Xxxxx 22-Apr-04 200,000 10 years 22-Apr-14 6.32 1,263,014
X.X. Xx 22-Apr-04 300,000 10 years 22-Apr-14 6.32 1,894,521
X. Xxxxxxxx 18-May-04 5,000 10 years 18-May-14 6.39 31,932
X. Xxxxxxxx 18-May-04 5,000 10 years 18-May-14 6.39 31,932
X. Xxxxx 18-May-04 5,000 10 years 18-May-14 6.39 31,932
X. Xxxxxxxxx 18-May-04 5,000 10 years 18-May-14 6.39 31,932
X. Xxxxxxx 18-May-04 5,000 10 years 18-May-14 6.39 31,932
X. Xxxxx 18-May-04 5,000 10 years 18-May-14 6.39 31,932
Xxxxxxx Xxxxxxxxxx 21-Jul-05 200,000 10 years 21-Jul-15 7.56 1,134,247
Xxxxxx Xxxxx 21-Jul-05 200,000 10 years 21-Jul-15 7.56 1,512,329
X.X. Xx 21-Jul-05 200,000 10 years 21-Jul-15 7.56 1,512,329
X. Xxxxxxxxxx 21-Jul-05 200,000 10 years 21-Jul-15 7.56 1,512,329
Xxxxx Xxxxxx 21-Jul-05 200,000 10 years 21-Jul-15 7.56 1,512,329
Xxxxx Xxxxxx 24-Apr-06 200,000 5 years 24-Apr-11 3.32 663,562
Xxxxxxx Xxxxxxxxxx 24-Apr-06 200,000 5 years 24-Apr-11 3.32 663,562
X. Xxxxxxxxxx 24-Apr-06 200,000 5 years 24-Apr-11 3.32 663,562
Xxxxxx Xxxxx 24-Apr-06 200,000 5 years 24-Apr-11 3.32 663,562
X.X. Xx 24-Apr-06 200,000 5 years 24-Apr-11 3.32 663,562
Xxx Xxxxx 24-Apr-06 200,000 5 years 24-Apr-11 3.32 663,562
Xxxxx Laipnieks 24-Apr-06 200,000 5 years 24-Apr-11 3.32 663,562
Xxxxxxxxx Xxxx 24-Apr-06 50,000 5 years 24-Apr-11 3.32 165,890
Xxxxx Xxxxxxx 24-Apr-06 50,000 5 years 24-Apr-11 3.32 165,890
Xxxxx Xxxxxxx 24-Apr-06 50,000 5 years 24-Apr-11 3.32 165,890
Xxx Xxxxx 7-May-07 1,000,000 5 years 7-May-12 4.36 4,356,164
Xxx Xxxxx 7-May-07 200,000 5 years 7-May-12 4.36 871,233
Xxxxxxx Xxxxxxxxxx 7-May-07 200,000 5 years 7-May-12 4.36 871,233
Xxxxxx Xxxxx 7-May-07 200,000 5 years 7-May-12 4.36 871,233
Xxxxx Xxxxxx 7-May-07 200,000 5 years 7-May-12 4.36 871,233
Xxxxxxxxx Xxxx 7-May-07 50,000 5 years 7-May-12 4.36 217,808
Xxxxxx Xxxxxxxx 7-May-07 50,000 5 years 7-May-12 4.36 217,808
Xxx Xxxxx 24-Jun-08 500,000 5 years 24-Jun-13 5.49 2,743,836
Xxxxxx Xxxxx 24-Jun-08 500,000 5 years 24-Jun-13 5.49 2,743,836
Xxxxxxx Xxxxxxxxxx 24-Jun-08 500,000 5 years 24-Jun-13 5.49 2,743,836
Xxxxx Xxxxxx 24-Jun-08 500,000 5 years 24-Jun-13 5.49 2,743,836
--------- ---- ----------
Total Options 8,080,000 5.15 39,032,137
SCHEDULE III.A.1
OPTION ISSUANCES - ADVANCED ID CORPORATION
31-Dec-07
(Continued)
Outstanding Total
Exercise Exercise as of Exercise Price
Description Price Exercised Remaining Date 12/31/07 as at 12/31/07
----------- --------- ------ --------- ------ ------- --------------
X. Xxxxxxx $0.10 250,000 - 10-Apr-06 - -
X. Xxxxx $0.10 200,000 - 10-Apr-06 - -
X. Xxxxxxx $0.50 - 250,000 250,000 125,000
X. Xxxxx $0.50 - 200,000 200,000 100,000
Xxxxxxx Xxxxxxxxxx $0.50 - 200,000 200,000 100,000
Xxxxxx Xxxxx $0.50 - 200,000 200,000 100,000
X.X. Xx $0.50 - 300,000 300,000 150,000
X. Xxxxxxxx $0.38 - 5,000 5,000 1,900
X. Xxxxxxxx $0.38 - 5,000 5,000 1,900
X. Xxxxx $0.38 - 5,000 5,000 1,900
X. Xxxxxxxxx $0.38 - 5,000 5,000 1,900
X. Xxxxxxx $0.38 - 5,000 5,000 1,900
X. Xxxxx $0.38 - 5,000 5,000 1,900
Xxxxxxx Xxxxxxxxxx $0.23 50,000 150,000 24-May-06 150,000 34,500
Xxxxxx Xxxxx $0.23 - 200,000 200,000 46,000
X.X. Xx $0.23 - 200,000 200,000 46,000
X. Xxxxxxxxxx $0.23 - 200,000 200,000 46,000
Xxxxx Xxxxxx $0.23 - 200,000 200,000 46,000
Xxxxx Xxxxxx $0.50 - 200,000 200,000 100,000
Xxxxxxx Xxxxxxxxxx $0.50 - 200,000 200,000 100,000
X. Xxxxxxxxxx $0.50 - 200,000 200,000 100,000
Xxxxxx Xxxxx $0.50 - 200,000 200,000 100,000
X.X. Xx $0.50 - 200,000 200,000 100,000
Xxx Xxxxx $0.50 - 200,000 200,000 100,000
Xxxxx Laipnieks $0.50 - 200,000 200,000 100,000
Xxxxxxxxx Xxxx $0.50 - 50,000 50,000 25,000
Xxxxx Xxxxxxx $0.50 - 50,000 50,000 25,000
Xxxxx Xxxxxxx $0.50 - 50,000 50,000 25,000
Xxx Xxxxx $0.20 - 1,000,000 1,000,000 200,000
Xxx Xxxxx $0.40 - 200,000 200,000 80,000
Xxxxxxx Xxxxxxxxxx $0.40 - 200,000 200,000 80,000
Xxxxxx Xxxxx $0.40 - 200,000 200,000 80,000
Xxxxx Xxxxxx $0.40 - 200,000 200,000 80,000
Xxxxxxxxx Xxxx $0.40 - 50,000 50,000 20,000
Xxxxxx Xxxxxxxx $0.40 - 50,000 50,000 20,000
Xxx Xxxxx $0.30 - 500,000 500,000 150,000
Xxxxxx Xxxxx $0.30 - 500,000 500,000 150,000
Xxxxxxx Xxxxxxxxxx $0.30 - 500,000 500,000 150,000
Xxxxx Xxxxxx $0.30 - 500,000 500,000 150,000
------- --------- --------- ---------
Total Options 500,000 7,580,000 7,580,000 2,739,900
Weighted Average 0.36146438
SCHEDULE III.A.3
PREEMPTIVE RIGHTS
None
SCHEDULE III.L.
REGISTRATION RIGHTS
None
SCHEDULE III.P.
SUBSIDIARIES
Wholly-Owned Subsidiaries -
AVID Canada Corporation
Pheu-Logic, Inc.
SCHEDULE IV.I.
SECURITY AGREEMENTS
None
EXHIBIT A
SECURED PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED,
OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE LENDER THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SUCH ACT.
SECURED PROMISSORY NOTE
Date of Issuance
$800,000 November 10, 2008
FOR VALUE RECEIVED, La Jolla Cove Investors, Inc., a California
corporation (the "Company"), hereby promises to pay Advanced ID
Corporation (the "Lender"), the principal sum of Eight Hundred Thousand
Dollars ($800,000) (the "Principal Amount"), plus interest calculated
pursuant to Section 1 below. Unless earlier paid under the terms
hereof, the principal and accrued interest shall be due and payable by
the Company on demand by the Lender at any time after November 30, 2011
(the "Maturity Date").
This Secured Promissory Note (the "Note") is issued in connection with
that certain Securities Purchase Agreement between the parties hereto,
dated as of the date hereof (the "Purchase Agreement"), and capitalized
terms not defined herein shall have the meaning set forth in the
Purchase Agreement.
1. Interest. The Company promises to pay interest to Lender at the
rate of Six and One-Quarter Percent (6 1/4 %) per annum, simple interest
(subject to adjustment as provided below) (the "Interest Rate"), on the
outstanding principal amount of this Note, which interest shall be
calculated from the date of this Note, until the date on which all
amounts due and payable on this Note are paid in full or this Note is
otherwise cancelled, (the "Payoff Date"). Interest hereunder shall be
paid on a monthly basis, commencing on the 15th day of the month
following the month of issuance of this Note. All accrued and unpaid
interest shall be due and payable on the Payoff Date. All computations
of interest shall be made on the basis of a year of 365 or 366 days, as
the case may be, for the actual number of days (including the first day
but excluding the last day) occurring in the period for which such
interest is payable. Nothing contained in this Note shall require the
Company at any time to pay interest at a rate exceeding the maximum
rate allowable under applicable law and any payments in excess of such
maximum shall be refunded to the Company or credited to reduce the
principal amount hereunder. Notwithstanding the foregoing, in the
event that the Lender's Common Stock (the "Common Stock") shall trade
on the Trading Market (as defined in the Debenture) or the over the
counter market via the "pink sheets" at a price per share that is
$0.058 per share or lower at any time during the six month period
commencing on the date hereof and ending on the six month anniversary
of the date hereof (as adjusted for any stock splits, stock dividends,
combinations, subdivisions, recapitalizations or the like), then the
Interest Rate shall immediately be decreased to Four and Three-Quarters
Percent (4 3/4 %) and shall remain at such level for the duration of this
Note.
2. Payment. All payments shall be made in lawful money of the United
States of America at the principal office of the Company, or at such
other place as the holder hereof may from time to time designate in
writing to the Company. Payment shall be credited first to Costs (as
defined below), if any, then to accrued interest due and payable and
any remainder applied to principal. Prepayment of principal, in part
or in full, together with accrued interest, may be made from time to
time without penalty in the sole discretion of the Company without the
Lender's consent.
3. Prepayment Obligation. Notwithstanding the option of the Company
to prepay any portion of this Note, as set forth in Section 2 hereof,
the Company shall prepay commencing six months after the date hereof,
on a monthly basis, on any date(s) of such month during which this Note
remains outstanding (each date referred to herein as the "Periodic
Prepayment Date"), an amount equal to not less than $200,000 (or such
lesser amount that equals the remaining outstanding principal and
accrued and unpaid interest under this Note), with the amount, if any,
in excess of such sum to be determined by and in the sole and absolute
discretion of the Company, until all principal and accrued and unpaid
interest under this Note has been paid, subject to the satisfaction of
each of the following conditions on each Periodic Prepayment Date:
3.1 No Event of Default (as defined in the Debenture) has occurred
under the Debenture; and
3.2 The average Volume Weighted Average Price (as defined in the
Debenture) per share of the Lender's Common Stock for every period of
ten consecutive Trading Days (as defined in the Debenture) during the
term of this Note shall not be less than $0.038 per share (as adjusted
for any stock splits, stock dividends, combinations, subdivisions,
recapitalizations or the like).
The amount of any such prepayment made by the Company under the terms
of this Section 3 (each such prepayment referred to herein as a
"Periodic Prepayment") shall be credited first to Costs, if any, then
to accrued interest due and payable under this Note and the remainder
applied to principal. Any prepayment made by the Company under this
Note in excess of any otherwise required Periodic Prepayment may be
applied to any future required Periodic Prepayment at the option of the
Company, subject to the sole and absolute discretion of the Company.
In the event that the Company fails to deliver any Periodic Prepayment
that is otherwise required under the terms of this Section 3, the
Lender's sole and exclusive remedy shall be limited to the Interest
Rate being increased by 0.25 percentage points per Periodic Prepayment
required under this Section 3 that is not paid by the Company to the
Lender, provided however, that in no event shall the Interest Rate
exceed an amount equal to twelve and one-half percent (12.5%). In no
event shall any failure by the Company to pay any Periodic Prepayment
required hereunder give any right to the Lender to collect upon the
Collateral or otherwise collect any outstanding sums under this Note.
4. Recourse. Each party hereto accepts and agrees that this Note is
a full recourse promissory note and that subject to the terms of this
Note, Lender may exercise any and all remedies available to it under
law.
5. Security Interest.
5.1 To secure the payment and performance of the Company's
obligations under this Note, provided however that any obligations of
the Company to prepay any amounts under this Note pursuant to Section 3
are not so secured, the Company hereby grants to Lender a security
interest in the Company's entire right, title, and interest in and to
all of the following, wherever located and whether now existing or
owned or hereafter acquired or arising (collectively, the
"Collateral"):
(a) all accounts, accounts receivable, contract rights, rights to
payment, letters of credit, documents, securities, promissory notes,
debentures, money, and investment property, whether held directly or
through a securities intermediary, and other obligations of any kind
owed to the Company, however evidenced;
(b) all inventory, including, without limitation, all materials,
components, work in progress, finished goods, merchandise, and all
other goods which are held for sale, lease or other disposition or
furnished under contracts of service or consumed in the Company's
business;
(c) all equipment, including, without limitation, all machinery,
furniture, furnishings, fixtures, tools, parts, automobiles, trucks,
and other vehicles, appliances, computer and other electronic data
processing equipment and other office equipment, computer programs and
related data processing software, and all additions, substitutions,
replacements, parts, accessories, and accessions to and for the
foregoing;
(d) all books, records and other written, electronic or other
documentation in whatever form maintained by or for the Company in
connection with the ownership of its assets or the conduct of its
business; and
(e) all products and proceeds, including insurance proceeds, of any
and all of the foregoing.
Notwithstanding the foregoing, no security interest is granted in any
contract rights if such grant causes a default enforceable under
applicable law or if a third party has the right enforceable under
applicable law to terminate the Company's rights under or with respect
to any such contract and such third party has exercised such right of
termination.
5.2 The security interest on the Collateral granted by this Note
shall continue and remain in effect until terminated pursuant to
subsection 5.4 below.
5.3 The Company shall execute any further documents reasonably
requested by Lender, which are necessary or appropriate to perfect
Lender's security interest in the Collateral.
5.4 Upon the Payoff Date, the security interest granted pursuant to
this Section 5 shall terminate, and Lender shall promptly execute and
deliver to the Company such documents and instruments reasonably
requested by the Company as shall be necessary to evidence termination
of all security interests given by the Company to Lender hereunder.
5.5 So long as an Event of Default is not continuing, the Company
shall have the right to possess the Collateral, manage its property and
sell its inventory in the ordinary course of business.
6. Event of Default. An "Event of Default" shall exist under this
Note upon the happening of a failure of the Company to pay the
outstanding Principal Amount and all other outstanding sums under this
Note, including accrued and unpaid interest thereon, on the Maturity
Date, which failure is not cured within 30 days after the Company's
receipt of written notice thereof sent by Lender to the Company. Any
failure by the Company to pay any Periodic Prepayment that may
otherwise be due under this Note shall not be an Event of Default under
this Note. Upon the occurrence and during the continuance of an Event
of Default, Lender shall have all of the rights and remedies afforded
by the Uniform Commercial Code as from time to time in effect in the
State of California or afforded by other applicable law.
7. Subordination. The indebtedness evidenced by this Note shall be
subordinated to any Senior Indebtedness of the Company. For the
purposes of this Note, "Senior Indebtedness" shall mean the principal
of (and premium, if any) and unpaid interest on, indebtedness of the
Company, or with respect to which the Company is a guarantor, to banks,
insurance companies, lease financing institutions or other lending or
financial institutions regularly engaged in the business of lending
money, which is for money borrowed (or purchase or lease of equipment
in the case of lease financing) by the Company, and which is approved
by the Board of Directors of the Company, whether or not secured, and
whether or not previously incurred or incurred in the future. Senior
Indebtedness shall include all obligations of the Company pursuant to
any modifications, renewals and extensions of such Senior Indebtedness.
Lender acknowledges that the Company may incur additional Senior
Indebtedness and that such Senior Indebtedness shall be senior in
repayment preference to the Note. Upon written request of the Company,
Lender agrees to execute a subordination agreement from any lender of
Senior Indebtedness in order to give effect to this Section 7.
8. Amendments and Waivers; Cure Period. This Note may not be amended
without the prior written consent of each of the Company and the
Lender. Any waiver by the Company or the Lender of a breach of any
provision of this Note shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any
other provision of this Note. The failure of the Company or the Lender
to insist upon strict adherence to any term of this Note on one or more
occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any
other term of this Note. Any waiver by the Company or the Lender must
be in writing. Any amendment or waiver effected in accordance with
this Section 8 shall be binding upon Lender and Lender's successors and
assigns. Any party to this Note shall have a cure period of not less
than thirty (30) days after receipt of written notice of any alleged
breach or default under the terms of this Note to cure such alleged
breach or default.
9. Transmittal of Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of
this Agreement must be in writing and will be deemed to have been
delivered (i) upon receipt, when delivered personally; (ii) upon
confirmation of receipt, when sent by facsimile; (iii) three (3) days
after being sent by U.S. certified mail, return receipt requested, or
(iv) one (1) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Lender, to:
Advanced ID Corporation
Attn: Xxx Xxxxx
0000 - 0xx Xxxxxx XX, #000, Xxx 0
Xxxxxxx, Xxxxxxx, Xxxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Company, to:
La Jolla Cove Investors, Inc.
0000 Xxxxxxxxx Xxxxxx, Xxxxx 000
Xx Xxxxx, Xxxxxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each of the Lender or the Company may change the foregoing address by
notice given pursuant to this Section 9.
10. Successors and Assigns. This Note applies to, inures to the
benefit of, and binds the successors and assigns of the parties hereto.
Neither the Lender nor the Company may assign its rights under this
Note without the written consent of the other party to this Note,
provided, however, that the Company may assign its obligations under
this Note to any Affiliate of the Company in the sole and absolute
discretion of the Company, without any prior consent by the Lender,
provided that such transferee or assignee agrees in writing to be bound
by and subject to the terms and conditions of this Note. Upon any such
transfer of this Note by the Company or the Lender, the Lender shall,
upon notice, surrender this Note to the Company for reissuance of a new
note to the transferee. Any transfer of this Note may be effected only
pursuant to the terms hereof and by surrender of this Note to the
Company and reissuance of a new note to the transferee. The Lender and
any subsequent holder of this Note receives this Note subject to the
foregoing terms and conditions, and agrees to comply with the foregoing
terms and conditions for the benefit of the Company and any other
Lenders.
11. Officers and Directors Not Liable. In no event shall any officer
or director of the Company be liable for any amounts due and payable
pursuant to this Note.
12. Expenses. Should any party hereto employ an attorney for the
purpose of enforcing or construing this Note, or any judgment based on
this Note, in any legal proceeding whatsoever, including insolvency,
bankruptcy, arbitration, declaratory relief or other litigation, the
prevailing party shall be entitled to receive from the other party or
parties thereto reimbursement for all reasonable attorneys' fees and
all reasonable costs, including but not limited to service of process,
filing fees, court and court reporter costs, investigative costs,
expert witness fees, and the cost of any bonds, whether taxable or not
(collectively, "Costs"), and that such reimbursement shall be included
in any judgment or final order issued in that proceeding. The
"prevailing party" means the party determined by the court to most
nearly prevail and not necessarily the one in whose favor a judgment is
rendered.
13. Remedies Not Waived. No course of dealing between the parties
hereto or any delay in exercising any rights hereunder shall operate as
a waiver by such party.
14. Governing Law. This Note shall be governed by and construed under
the laws of the State of California as applied to other instruments
made by California residents to be performed entirely within the State
of California. With respect to any suit, action or proceedings
relating to this Note, each of the Lender and the Company irrevocably
submits to the exclusive jurisdiction of the courts of the State of
California sitting in San Diego and the United States District Court
located in the City of San Diego and hereby waives, to the fullest
extent permitted by applicable law, any claim that any such suit,
action or proceeding has been brought in an inconvenient forum.
Subject to applicable law, each of the Company and the Lender agrees
that final judgment against it in any legal action or proceeding
arising out of or relating to this Note shall be conclusive and may be
enforced in any other jurisdiction within or outside the United States
by suit on the judgment, a certified copy of which judgment shall be
conclusive evidence thereof and the amount of the indebtedness, or by
such other means provided by law.
15. Counterparts. This Note may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Facsimile
executions of this Note shall be deemed original.
IN WITNESS WHEREOF, the parties hereto have duly caused this Note to be
executed and delivered on the date first above written.
LA JOLLA COVE INVESTORS, INC.
By: /s/ Xxxxxx X. Xxxx
------------------
Name: Xxxxxx X. Xxxx
Its: Portfolio Mgr.
ADVANCED ID CORPORATION
By: /s/ Xxx Xxxxx
-------------
Name: Xxx Xxxxx
Its: President/CEO
______________
Initials
1
____________
Initials
