EXHIBIT 99.1
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SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
June 30, 2005 among XXXXXX.XXX, Inc., a Delaware corporation (the "Company"),
and each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a "Purchaser" and collectively the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act") and Rule 506 promulgated thereunder, the Company desires
to issue and sell to each Purchaser, and each Purchaser, severally and not
jointly, desires to purchase from the Company, securities of the Company, as
more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in
Section 3.1(j).
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act. With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser
will be deemed to be an Affiliate of such Purchaser.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the
Transaction Documents have been executed and delivered by the
applicable parties thereto, and all conditions precedent to (i) the
Purchasers' obligations to pay the Subscription Amount and (ii) the
Company's obligations to deliver the Securities have been satisfied or
waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par
value $.0001 per share, and any other class of securities into which
such securities may hereafter have been reclassified or changed into.
"Common Stock Equivalents" means any securities of the Company
or the Subsidiaries which would entitle the holder thereof to acquire
at any time Common Stock, including, without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is
at any time convertible into or exercisable or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock.
"Company Counsel" means Xxxxxx & Xxxxxxxxx, LLP, with offices
at 000 Xxxxxxx Xxxxxx, Xxxxx 000, Xxxxxx Xxxx, Xxx Xxxx 00000.
"Conversion Price" shall have the meaning ascribed to such
term in the Debentures.
"Debentures" means, the 6% Secured Convertible Debentures due,
subject to the terms therein, December 28, 2008, issued by the Company
to the Purchasers hereunder, in the form of Exhibit A.
"Disclosure Schedules" shall have the meaning ascribed to such
term in Section 3.1.
"Effective Date" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"Evaluation Date" shall have the meaning ascribed to such term
in Section 3.1(r).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exempt Issuance" means the issuance of (a) shares of Common
Stock or options to employees, officers, directors or consultants
(provided that such issuances to consultants shall not exceed 100,000
shares in any 12 month period, subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other
similar transactions of the Common Stock that occur after the date of
this Agreement) of the Company (including shares of Common Stock issued
pursuant to the exercise of such options) pursuant to any stock or
option plan duly adopted by a majority of the non-employee members of
the Board of Directors of the Company or a majority of the members of a
committee of non-employee directors established for such purpose, (b)
securities upon the exercise or exchange of or conversion of any
Securities issued hereunder and/or securities exercisable or
exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of this Agreement, provided that such
securities have not been amended since the date of this Agreement to
increase the number of such securities or to decrease the exercise,
exchange or conversion price of any such securities, (c) securities
issued in lieu of cash payments for engineering or design services,
materials, production management or similar services, provided that
such securities are not and will not be registered on a registration
statement, (d) the issuance of warrants to Emerging Markets Consulting
LLC pursuant to a consulting agreement,
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provided that the exercise price of such warrants equals or exceeds
$0.85 per share and such issuance of warrants shall not exceed 180,000
in any 3 calendar month period", or (e) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of the
disinterested directors, provided any such issuance shall only be to a
Person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company and
in which the Company receives benefits in addition to the investment of
funds, but shall not include a transaction in which the Company is
issuing securities primarily for the purpose of raising capital or to
an entity whose primary business is investing in securities.
"Filing Date" shall have the meaning ascribed to such term in
the Registration Rights Agreement.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices located at 000
Xxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Indebtedness" shall have the meaning ascribed to such term in
Section 3.1(h).
"Intellectual Property Rights" shall have the meaning ascribed
to such term in Section 3.1(o).
"Knowledge" means, with respect to any person, the actual or
constructive knowledge of such person and, in the case of a
corporation, the actual or constructive knowledge of its executive
officers and directors.
"Legend Removal Date" shall have the meaning ascribed to such
term in Section 4.1(c).
"Liens" means a lien, charge, with respect to any asset, any
mortgage, lien, pledge, charge, security interest, or encumbrance of
any kind in respect of such asset, whether or not filed, recorded or
otherwise perfected under applicable law (including conditional sale or
other retention agreement, any lease in the nature thereof, any option
or other agreement to sell or give a security interest in and any
filing of or agreement to give any financing statement under the
Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Long Term Warrants" means collectively the Long Term Common
Stock purchase warrants, in the form of Exhibit C delivered to the
Purchasers at the Closing in accordance with Section 2.2(a) hereof,
which Warrants shall be exercisable immediately and expire December 28,
2010.
"Material Adverse Effect" shall have the meaning assigned to
such term in Section 3.1(b).
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"Material Permits" shall have the meaning ascribed to such
term in Section 3.1(m).
"Maximum Rate" shall have the meaning ascribed to such term in
Section 5.17.
"Outstanding Debentures" shall mean, on any date, the
Debentures and the Prior Debentures, collectively.
"Participation Maximum" shall have the meaning ascribed to
such term in Section 4.13.
"Person" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"Pre-Notice" shall have the meaning ascribed to such term in
Section 4.13.
"Prior Debentures" shall mean the $3,375,885 principal amount
of 6% Secured Convertible Debentures due, subject to the terms therein,
December 28, 2008, issued by the Company to the Prior Purchasers and
set forth on Schedule 3.1(ff) hereto.
"Prior Purchasers" shall mean the purchasers of the Prior
Debentures set forth on Schedule 3.1 (ff) hereto.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Purchaser Party" shall have the meaning ascribed to such term
in Section 4.11.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers,
in the form of Exhibit B attached hereto.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement
and covering the resale of the Underlying Shares by each Purchaser as
provided for in the Registration Rights Agreement.
"Required Approvals" shall have the meaning ascribed to such
term in Section 3.1(e).
"Required Minimum" means, as of any date, the maximum
aggregate number of shares of Common Stock then issued or potentially
issuable in the future pursuant to the Transaction Documents, including
any Underlying Shares issuable upon exercise or conversion in full of
all Warrants and Debentures (including Underlying Shares issuable as
payment of interest), ignoring any conversion or exercise limits set
forth therein, and assuming that the Conversion Price is at all times
on and after the date of determination
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75% of the then Conversion Price on the Trading Day immediately prior
to the date of determination.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Debentures, the Warrants and the
Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement, dated the
date hereof, among the Company, the Subsidiary Guarantors and the
Purchasers, in the form of Exhibit F attached hereto.
"Security Documents" means the Security Agreement, the
Subsidiary Guarantee and any other documents and filings contemplated
thereunder, including all UCC-1 financing statements.
"Short Sales" shall include all "short sales" as defined in
Rule 200 of Regulation SHO under the Exchange Act (but shall not be
deemed to include the location and/or reservation of borrowable shares
of Common Stock).
"Short Term Warrants" means collectively the Short Term Common
Stock purchase warrants, in the form of Exhibit C delivered to the
Purchasers at the Closing in accordance with Section 2.2(a) hereof,
which Warrants shall be exercisable immediately and have a term of
exercise that expires on the earlier of (i) the 12 month anniversary of
the Effective Date or (ii) December 28, 2010.
"Subscription Amount" means, as to each Purchaser, the
aggregate amount to be paid for Debentures and Warrants purchased
hereunder as specified below such Purchaser's name on the signature
page of this Agreement and next to the heading "Subscription Amount",
in United States Dollars and in immediately available funds.
Notwithstanding anything herein to the contrary, in lieu of immediately
available funds, a Purchaser may surrender and cancel any debt
obligations owed to it by the Company at the Closing, provided that
such cancelled debt shall not exceed, in the aggregate, $1,275,000.
"Subsequent Financing" shall have the meaning ascribed to such
term in Section 4.13.
"Subsequent Financing Notice" shall have the meaning ascribed
to such term in Section 4.13.
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"Subsidiary" means any subsidiary of the Company as set forth
on Schedule 3.1(a).
"Subsidiary Guarantee" means the Subsidiary Guarantee, dated
the date hereof, executed by each of the Subsidiaries in favor of the
Purchasers, in the form of Exhibit G attached hereto.
"Trading Day" means a day on which the Common Stock is traded
on a Trading Market.
"Trading Market" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the Nasdaq Capital Market, the American Stock Exchange, the
New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin
Board.
"Transaction Documents" means this Agreement, the Debentures,
the Warrants, the Registration Rights Agreement, the Security Agreement
and any other documents or agreements executed in connection with the
transactions contemplated hereunder.
"Underlying Shares" means the shares of Common Stock issued
and issuable upon conversion of the Debentures and upon exercise of the
Warrants and issued and issuable in lieu of the cash payment of
interest on the Debentures in accordance with the terms of the
Debentures.
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or
quoted as reported by Bloomberg Financial L.P. (based on a Trading Day
from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the
Common Stock is not then listed or quoted on a Trading Market and if
prices for the Common Stock are then reported in the "Pink Sheets"
published by the Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (c) in all other
cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Purchasers
and reasonably acceptable to the Company.
"Warrants" means collectively the Long Term and Short Term
Warrants.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 CLOSING. On the Closing Date, upon the terms and subject to the
conditions set
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forth herein, the Company agrees to sell, and each Purchaser agrees to purchase,
a Debenture in the principal amount equal to such Purchaser's Subscription
Amount, and a Long Term Warrant and Short Term Warrant as described in Section
2.2(a). In no event will the aggregate principal amount of the Debentures sold
hereunder in combination with any other agreements for debentures and warrants
on the same terms and conditions as the Debentures and Warrants prior to the
Filing Date as permitted pursuant to Section 4.14 exceed $3,275,000, without the
consent of the Company and the holders of not less than 51% of the principal
amount of the Outstanding Debentures. At the Closing, each Purchaser shall
deliver to the Company via wire transfer or a certified check to the trust
account of the Company's Counsel set forth on Annex A hereto, immediately
available funds (or via surrender and cancellation of debt in form and substance
acceptable to the Company, the Purchasers and the holders of not less than 50%
of the principal amount of the Outstanding Debentures) equal to their
Subscription Amount, and the Company shall deliver to each Purchaser their
respective Debenture and Warrants as determined pursuant to Section 2.2(a) and
the other items set forth in Section 2.2 issuable at the Closing. Upon
satisfaction of the conditions set forth in Sections 2.2 and 2.3, the Closing
shall occur at the offices of FW, or such other location as the parties shall
mutually agree.
2.2 DELIVERIES.
(a) On the Closing Date, the Company shall deliver or cause to
be delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a legal opinion of Company Counsel, in the form of
Exhibit D attached hereto;
(iii) a Debenture with a principal amount equal to such
Purchaser's Subscription Amount, registered in the name of such
Purchaser;
(iv) a Long Term Warrant registered in the name of such
Purchaser to purchase up to a number of shares of Common Stock equal to
40% of such Purchaser's Subscription Amount divided by $0.85, with an
exercise price equal to $1.00 subject to adjustment therein;
(v) a Short Term Warrant registered in the name of such
Purchaser to purchase up to a number of shares of Common Stock equal to
40% of such Purchaser's Subscription Amount divided by $0.85, with an
exercise price equal to $0.85 subject to adjustment therein;
(vi) a lock-up agreement, in the form of Exhibit E attached
hereto, duly executed by all (a) officers and directors and (b)
stockholders of the Company that beneficially own 10% or more of the
outstanding Common Stock as of the date hereof for the benefit of the
Purchasers and the Prior Purchasers; and
(vii) the Registration Rights Agreement duly executed by the
Company.
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(b) On the Closing Date, each Purchaser shall deliver or cause
to be delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer to
the account as set forth in Annex A; and
(iii) the Registration Rights Agreement duly executed by such
Purchaser.
2.3 CLOSING CONDITIONS.
(a) The obligations of the Company hereunder in connection
with the Closing are subject to the following conditions being met, any
or all of which may be waived by the Company:
(i) the accuracy in all material respects when made and on the
Closing Date of the representations and warranties of the Purchasers
contained herein;
(ii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior to the Closing Date
shall have been performed;
(iii) the delivery by the Purchasers of the items set forth in
Section 2.2(b) of this Agreement; or
(iv) the Prior Purchasers have agreed: (A) to consent to the
issuance of the Debentures and Warrants pursuant to this Agreement and
(B) to amend the documents relating the their purchase of the Prior
Debentures so that the Prior Debentures and warrants issued to the
Prior Purchasers in connection with the purchase of the Prior
Debentures are consistent with the Debenture and Warrants.
(b) The obligations of each Purchaser hereunder in connection
with the Closing are subject to the following conditions being met, any
or all of which may be waived by such Purchaser in writing:
(i) the accuracy in all material respects on the Closing Date
of the representations and warranties of the Company contained herein;
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date shall have
been performed;
(iii) the delivery by the Company to such Purchaser of the
items set forth in Section 2.2(a) of this Agreement;
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(iv) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof;
(v) the Purchasers and the Prior Purchasers shall have entered
into a inter-creditor agreement whereby the rights and preferences of
the Purchasers and the Prior Purchasers as secured creditors are PARI
PASSU under the respective debentures and collateral documents; and
(vi) from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission or the
Company's principal Trading Market (except for any suspension of
trading of limited duration agreed to by the Company, which suspension
shall be terminated prior to the Closing), and, at any time prior to
the Closing Date, trading in securities generally as reported by
Bloomberg Financial Markets shall not have been suspended or limited,
or minimum prices shall not have been established on securities whose
trades are reported by such service, or on any Trading Market, nor
shall a banking moratorium have been declared either by the United
States or New York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case,
in the reasonable judgment of such Purchaser, makes it impracticable or
inadvisable to purchase the Debentures and the Warrants at the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the "Disclosure Schedules"), which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser.
(a) Subsidiaries. All of the direct and indirect subsidiaries
of the Company are set forth on Schedule 3.1(a). The Company owns,
directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all the
issued and outstanding shares of capital stock of each Subsidiary are
validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase securities.
(b) Organization and Qualification. The Company and each of
the Subsidiaries, is an entity duly incorporated or otherwise
organized, validly existing and in good standing (unless such
Subsidiary is indicated to be "inactive" on Schedule 3.1(a) attached
hereto and which Subsidiaries have no material assets) under the laws
of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation or
default
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of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents.
Each of the Company and the Subsidiaries is duly qualified to conduct
business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the
case may be, could not have or reasonably be expected to result in (i)
a material adverse effect on the legality, validity or enforceability
of any Transaction Document, (ii) a material adverse effect on the
results of operations, assets, business or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or
(iii) a material adverse effect on the Company's ability to perform in
any material respect on a timely basis its obligations under any
Transaction Document (any of (i), (ii) or (iii), a "Material Adverse
Effect") and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail
such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate
action on the part of the Company and no further action is required by
the Company, its board of directors or its stockholders in connection
therewith other than in connection with the Required Approvals. Each
Transaction Document has been (or upon delivery will have been) duly
executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance
with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii)
insofar as indemnification and contribution provisions may be limited
by applicable law.
(d) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the
Company of the other transactions contemplated hereby and thereby do
not and will not: (i) conflict with or violate any provision of the
Company's or any Subsidiary's certificate or articles of incorporation,
bylaws or other organizational or charter documents, or (ii) conflict
with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, result in the creation of
any Lien upon any of the properties or assets of the Company or any
Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or
both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound
or affected, or (iii) subject to the Required Approvals and assuming
the accuracy of the representations and warranties in Section 3.2,
conflict with or result in a violation of any
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law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company
or a Subsidiary is subject (including federal and state securities laws
and regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected; except in the case of each of clauses
(ii) and (iii), such as could not have or reasonably be expected to
result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not
required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by
the Company of the Transaction Documents, other than (i) filings
required pursuant to Section 4.6, (ii) the filing with the Commission
of the Registration Statement and any other filings required pursuant
to the Registration Rights Agreement, (iii) the notice and/or
application(s) to each applicable Trading Market for the issuance and
sale of the Debentures and Warrants and the listing of the Underlying
Shares for trading thereon in the time and manner required thereby,
(iv) the filing of Form D with the Commission and such filings as are
required to be made under applicable state securities laws and (v) the
consent of the Prior Purchasers set forth in Section 2.3(iv)(A).
(collectively, the "Required Approvals").
(f) Issuance of the Securities. The Securities are duly
authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by
the Company other than as a result of or as provided for in the
Transaction Documents. The Underlying Shares, when issued in accordance
with the terms of the applicable Transaction Documents, will be validly
issued, fully paid and nonassessable, free and clear of all Liens
imposed by the Company. The Company has reserved from its duly
authorized capital stock a number of shares of Common Stock for
issuance of the Underlying Shares at least equal to the Required
Minimum on the date hereof.
(g) Capitalization. Schedule 3.1(g) sets forth the number of
authorized and outstanding shares of the Company's capital stock and
outstanding Common Stock Equivalents. The Company has not issued any
capital stock since its most recently filed periodic report under the
Exchange Act, other than pursuant to the exercise of employee stock
options under the Company's stock option plans, the issuance of shares
of Common Stock to employees pursuant to the Company's employee stock
purchase plan and pursuant to the conversion or exercise of outstanding
Common Stock Equivalents. No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction
Documents. Except as a result of the purchase and sale of the
Securities, there are no outstanding options, warrants, script rights
to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exercisable or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue
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additional shares of Common Stock or Common Stock Equivalents. The
issuance and sale of the Securities will not obligate the Company to
issue shares of Common Stock or other securities to any Person (other
than the Purchasers) and will not result in a right of any holder of
Company securities to adjust the exercise, conversion, exchange or
reset price under such securities. All of the outstanding shares of
capital stock of the Company are validly issued, fully paid and
nonassessable, have been issued in material compliance with all federal
and state securities laws, and none of such outstanding shares was
issued in violation of any preemptive rights or similar rights to
subscribe for or purchase securities. No further approval or
authorization of any stockholder, the Board of Directors of the Company
or others is required for the issuance and sale of the Securities.
There are no stockholders agreements, voting agreements or other
similar agreements with respect to the Company's capital stock to which
the Company is a party or, to the knowledge of the Company, between or
among any of the Company's stockholders.
(h) SEC Reports; Financial Statements. The Company has filed
all reports, schedules, forms, statements and other documents required
to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was
required by law to file such material) (the foregoing materials,
including the exhibits thereto and documents incorporated by reference
therein, being collectively referred to herein as the "SEC Reports").
Except as set forth on Schedule 3.1(h), each quarterly and annual
report has been filed on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports
prior to the expiration of any such extension. As of their respective
dates (or if amended or superseded, as of the date of such amendment or
superseded filing), the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act and
the rules and regulations of the Commission promulgated thereunder, and
none of the SEC Reports, when filed (or if amended or superseded, as of
the date of such amendment or superseded filing), contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. The financial statements of the Company
included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing.
Such financial statements have been prepared in accordance with United
States generally accepted accounting principles applied on a consistent
basis during the periods involved ("GAAP"), except as may be otherwise
specified in such financial statements or the notes thereto and except
that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as
of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.
(i) Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports, (i) there has been no event,
occurrence or development that has had or that could reasonably
12
be expected to result in a Material Adverse Effect, (ii) the Company
has not incurred any liabilities (contingent or otherwise) other than
(A) trade payables and accrued expenses incurred in the ordinary course
of business consistent with past practice and (B) liabilities not
required to be reflected in the Company's financial statements pursuant
to GAAP or required to be disclosed in filings made with the
Commission, (iii) the Company has not materially altered its method of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any
shares of its capital stock and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans. The Company does not
have pending before the Commission any request for confidential
treatment of information. Except for the issuance of the Securities
contemplated by this Agreement or as set forth on Schedule 3.1(i), no
event, liability or development has occurred or exists with respect to
the Company or its Subsidiaries or their respective business,
properties, operations or financial condition, that would be required
to be disclosed by the Company under applicable federal securities laws
at the time this representation is made that has not been publicly
disclosed.
(j) Litigation. Except as disclosed in the SEC Reports, there
is no action, suit, inquiry, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened
against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental
or administrative agency or regulatory authority (federal, state,
county, local or foreign) (collectively, an "Action") which (i)
adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or
(ii) could, if there were an unfavorable decision, have or reasonably
be expected to result in a Material Adverse Effect. Neither the Company
nor any Subsidiary, nor, to the Company's knowledge, any director or
executive officer thereof, is or has been the subject of any Action
involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has not
been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company
or, to the Company's knowledge, any current or former director or
executive officer of the Company. The Commission has not issued any
stop order or other order suspending the effectiveness of any
outstanding registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act. None of the
Company's or its Subsidiaries' employees is a member of a union that
relates to such employee's relationship with the Company, and neither
the Company or any of its Subsidiaries is a party to a collective
bargaining agreement, and the Company and its Subsidiaries believe that
their relationships with their employees are good. To the knowledge of
the Company (i) no executive officer of the Company or any Subsidiary
is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary
information agreement or non-competition agreement, or any other
contract or agreement or any restrictive covenant, and (ii) the
continued employment of each such executive officer does not subject
the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters. The Company and its Subsidiaries are in
compliance with all U.S. federal, state, local and
13
foreign laws and regulations relating to employment and employment
practices, terms and conditions of employment and wages and hours,
except where the failure to be in compliance could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse
Effect.
(k) Labor Relations. No material labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the
employees of the Company which could reasonably be expected to result
in a Material Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has
the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not
such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has
been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign,
federal, state and local laws applicable to its business and all such
laws that affect the environment, except in each case as could not have
a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in the
SEC Reports, except where the failure to possess such permits could not
have or reasonably be expected to result in a Material Adverse Effect
("Material Permits"), and neither the Company nor any Subsidiary has
received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have
good and marketable title in fee simple to all real property owned by
them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property
owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for
Liens disclosed on Schedule 3.1(n) hereto or Liens as do not materially
affect the value of such property and do not materially interfere with
the use made and proposed to be made of such property by the Company
and the Subsidiaries and Liens for the payment of federal, state or
other taxes, the payment of which is neither delinquent nor subject to
penalties. Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting
and enforceable leases of which the Company and the Subsidiaries are in
compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, trade
secrets, inventions, copyrights, licenses and other intellectual
14
property rights similar rights necessary or material for use in
connection with their respective businesses as described in the SEC
Reports 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 notice (written or otherwise)
that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of
any of the Intellectual Property Rights. Except as set forth on
Schedule 3.1(o) hereto, the Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties, except where failure
to do so could not, individually or in the aggregate, reasonably be
expect to have a Material Adverse Effect.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which the Company and the Subsidiaries are engaged,
including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription Amount. To the
best knowledge of the Company, such insurance contracts and policies
are accurate and complete. Neither the Company nor any Subsidiary has
any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue
its business without a significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as set
forth in the SEC Reports and the Company's Chairman and his affiliates
participating as Purchasers pursuant to this Agreement in an amount of
up to $775,000, none of the executive officers or directors of the
Company and, to the knowledge of the Company, none of the employees of
the Company is presently a party to any transaction with the Company or
any Subsidiary (other than for services as employees, executive
officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any executive officer, director
or such employee or, to the knowledge of the Company, any entity in
which any executive officer, director, or any such employee has a
substantial interest or is an executive officer, director, trustee or
partner, in each case in excess of $60,000 other than (i) for payment
of salary or consulting fees for services rendered, (ii) reimbursement
for expenses incurred on behalf of the Company and (iii) for other
employee benefits, including stock option agreements under any stock
option plan of the Company.
(r) Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company
is in material compliance with all provisions of the Xxxxxxxx-Xxxxx Act
of 2002 which are applicable to it as of the Closing Date. The Company
and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of
15
financial statements in conformity with GAAP and to maintain asset
accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to
any differences. The Company has established disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for the Company and designed such disclosure controls and procedures to
ensure that material information relating to the Company, including its
Subsidiaries, is made known to the certifying officers by others within
those entities, particularly during the period in which the Company's
most recently filed periodic report under the Exchange Act, as the case
may be, is being prepared. The Company's certifying officers have
evaluated the effectiveness of the Company's controls and procedures as
of the date prior to the filing date of the most recently filed
periodic report under the Exchange Act (such date, the "Evaluation
Date"). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since
the Evaluation Date, there have been no significant changes in the
Company's internal controls (as such term is defined in Item 307(b) of
Regulation S-K under the Exchange Act) or, to the knowledge of the
Company, in other factors that could significantly affect the Company's
internal controls.
(s) Certain Fees. No brokerage or finder's fees or commissions
are or will be payable by the Company to any broker, financial advisor
or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by the
Transaction Documents. The Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf
of other Persons for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by the
Transaction Documents.
(t) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and
sale of the Securities by the Company to the Purchasers as contemplated
hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Trading Market.
(u) Investment Company. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the
Securities, will not be or be an Affiliate of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
The Company shall conduct its business in a manner so that it will not
become subject to the Investment Company Act.
(v) Registration Rights. Other than each of the Purchasers and
as set forth in Schedule 6(b) of the Registration Rights Agreement, no
Person has any right to cause the Company to effect the registration
under the Securities Act of any securities of the Company.
16
(w) Listing and Maintenance Requirements. The Common Stock is
registered pursuant to Section 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the
Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such
registration. The Company has not, in the 12 months preceding the date
hereof, received notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such
Trading Market. The Company is, and has no reason to believe that it
will not in the foreseeable future continue to be, in compliance with
all such listing and maintenance requirements.
(x) Application of Takeover Protections. The Company and its
Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company's
Certificate of Incorporation (or similar charter documents) or the laws
of its state of incorporation that is or could become applicable to the
Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction
Documents, including without limitation as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the
Securities.
(y) Disclosure. Other than the existence of the transactions
contemplated hereby, the Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Purchasers or their
agents or counsel with any information that constitutes or might
constitute material, nonpublic information unless such information will
be publicly disclosed by the Company within 90 calendar days from the
date hereof. The Company understands and confirms that the Purchasers
will rely on the foregoing representations and covenants in effecting
transactions in securities of the Company. All disclosure provided to
the Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Disclosure Schedules to this
Agreement, furnished by or on behalf of the Company with respect to the
representations and warranties made herein are true and correct with
respect to such representations and warranties and do not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section
3.2 hereof.
(z) No Integrated Offering. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2,
neither the Company, nor any of its affiliates, nor any Person acting
on its or their behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security,
under circumstances that would cause this offering of the Securities to
be integrated with prior offerings by the Company (except for the sale
of the Prior Debentures and related
17
warrants) for purposes of the Securities Act or any applicable
shareholder approval provisions, including, without limitation, under
the rules and regulations of any Trading Market on which any of the
securities of the Company are listed or designated.
(aa) Solvency. Based on the financial condition of the Company
as of the Closing Date after giving effect to the receipt by the
Company of the proceeds from the sale of $2,775,000 of the Securities
hereunder, (i) the Company's fair saleable value of its assets exceeds
the amount that will be required to be paid on or in respect of the
Company's existing debts and other liabilities (including known
contingent liabilities) as they mature; (ii) the Company's assets do
not constitute unreasonably small capital to carry on its business and
as proposed to be conducted until October 2006 including its capital
needs taking into account the particular capital requirements of the
business conducted by the Company; and (iii) the current cash flow of
the Company, together with the proceeds the Company would receive, were
it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on
or in respect of its debt due on or before October 2006. The Company
does not intend to incur debts beyond its ability to pay such debts as
they mature (taking into account the timing and amounts of cash to be
payable on or in respect of its debt). Assuming the ability to raise $5
million before October 2006, the Company has no knowledge of any facts
or circumstances which lead it to believe that it will file for
reorganization or liquidation under the bankruptcy or reorganization
laws of any jurisdiction within one year from the Closing Date. The SEC
Reports set forth as of the dates thereof all outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary, or for which
the Company or any Subsidiary has commitments. For the purposes of this
Agreement, "Indebtedness" shall mean (a) any liabilities for borrowed
money or amounts owed in excess of $50,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all
guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;
and (c) the present value of any lease payments in excess of $50,000
due under leases required to be capitalized in accordance with GAAP.
Neither the Company nor any Subsidiary is in default with respect to
any Indebtedness.
(bb) Tax Status. Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, the Company and each Subsidiary
has filed all necessary federal, state and foreign income and franchise
tax returns and has paid or accrued all taxes shown as due thereon, and
the Company has no knowledge of a tax deficiency which has been
asserted or threatened against the Company or any Subsidiary.
(cc) No General Solicitation. Neither the Company nor any
person acting on behalf of the Company has offered or sold any of the
Securities by any form of general solicitation or general advertising.
The Company has offered the Securities for sale only to the Purchasers
and certain other "accredited investors" within the meaning of Rule 501
under the Securities Act.
18
(dd) Foreign Corrupt Practices. Neither the Company, nor to
the knowledge of the Company, any agent or other person acting on
behalf of the Company, has (i) directly or indirectly, used any funds
for unlawful contributions, gifts, entertainment or other unlawful
expenses related to foreign or domestic political activity, (ii) made
any unlawful payment to foreign or domestic government officials or
employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose fully any contribution
made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt
Practices Act of 1977, as amended.
(ee) Accountants. The Company's accountants are set forth on
Schedule 3.1(ee) of the Disclosure Schedule. To the knowledge of the
Company, such accountants, who the Company expects will express their
opinion with respect to the financial statements to be included in the
Company's Annual Report on Form 10-KSB for the year ending May 31, 2006
are a registered public accounting firm as required by the Securities
Act.
(ff) Seniority. Except as set forth on Schedule 3.1(ff), as of
the Closing Date, no indebtedness or other equity of the Company is
senior to the Debentures in right of payment, whether with respect to
interest or upon liquidation or dissolution, or otherwise, other than
indebtedness secured by purchase money security interests (which is
senior only as to underlying assets covered thereby) and capital lease
obligations (which is senior only as to the property covered thereby).
(gg) No Disagreements with Accountants and Lawyers. There are
no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the accountants and
lawyers formerly or presently employed by the Company and the Company
is current with respect to any fees owed to its accountants and
lawyers.
(hh) Acknowledgment Regarding Purchasers' Purchase of
Securities. The Company acknowledges and agrees that each of the
Purchasers is acting solely in the capacity of an arm's length
purchaser with respect to the Transaction Documents and the
transactions contemplated hereby. The Company further acknowledges that
no Purchaser is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any
Purchaser or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated hereby
is merely incidental to the Purchasers' purchase of the Securities. The
Company further represents to each Purchaser that the Company's
decision to enter into this Agreement has been based solely on the
independent evaluation of the transactions contemplated hereby by the
Company and its representatives.
(ii) Acknowledgement Regarding Purchasers' Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding (except for Section 4.16 hereof), it is understood and
agreed by the Company (i) that none of the Purchasers
19
have been asked to agree, nor has any Purchaser agreed, to desist from
purchasing or selling, long and/or short, securities of the Company, or
"derivative" securities based on securities issued by the Company or to
hold the Securities for any specified term; (ii) that past or future
open market or other transactions by any Purchaser, including, without
limitation, Short Sales or "derivative" transactions, before or after
the closing of this or future private placement transactions, may
negatively impact the market price of the Company's publicly-traded
securities; (iii) that any Purchaser, and counter parties in
"derivative" transactions to which any such Purchaser is a party,
directly or indirectly, presently may have a "short" position in the
Common Stock, and (iv) that each Purchaser shall not be deemed to have
any affiliation with or control over any arm's length counter-party in
any "derivative" transaction. The Company further understands and
acknowledges that (a) one or more Purchasers may engage in hedging
activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the
value of the Underlying Shares deliverable with respect to Securities
are being determined and (b) such hedging activities (if any) could
reduce the value of the existing stockholders' equity interests in the
Company at and after the time that the hedging activities are being
conducted. The Company acknowledges that such aforementioned hedging
activities do not constitute a breach of any of the Transaction
Documents.
(jj) Manipulation of Price. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities, (ii)
sold, bid for, purchased, or, paid any compensation for soliciting
purchases of, any of the Securities (other than for the placement
agent's placement of the Securities), or (iii) paid or agreed to pay to
any person any compensation for soliciting another to purchase any
other securities of the Company.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder. The execution,
delivery and performance by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all
necessary corporate or similar action on the part of such Purchaser.
Each Transaction Document to which it is a party has been duly executed
by such Purchaser, and when delivered by such Purchaser in accordance
with the terms hereof and thereof, will constitute the valid and
legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms, except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement
of creditors'
20
rights generally, (ii) as limited by laws relating to the availability
of specific performance, injunctive relief or other equitable remedies
and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(b) Own Account. Such Purchaser understands that (i) the
Securities are "restricted securities" and that the offer and sale of
the Securities have not been registered under the Securities Act or any
applicable state securities law and (ii) the Securities must be held
indefinitely unless a subsequent disposition thereof is registered
under the Securities Act or is exempt from such registration. Such
Purchaser is acquiring the Securities as principal for its own account
and not with a view to or for distributing or reselling such Securities
or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of
distributing any of such Securities in violation of the Securities Act
or any applicable state securities law and has no arrangement or
understanding with any other persons regarding the distribution of such
Securities (this representation and warranty not limiting such
Purchaser's right to sell the Securities pursuant to the Registration
Statement or otherwise in compliance with applicable federal and state
securities laws) in violation of the Securities Act or any applicable
state securities law. Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business. Such Purchaser does
not have any agreement or understanding, directly or indirectly, with
any Person to distribute any of the Securities.
(c) Purchaser Status. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is, and on each date
on which it exercises any Warrants or converts any Debentures it will
be either: (i) an "accredited investor" as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a
"qualified institutional buyer" as defined in Rule 144A(a) under the
Securities Act. Such Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone
or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks
of such investment. Such Purchaser is able to bear the economic risk of
an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Short Sales and Confidentiality Prior To The Date Hereof.
Other than the transaction contemplated hereunder, such Purchaser has
not directly or indirectly, nor has any Person acting on behalf of or
pursuant to any understanding with such Purchaser, executed any
disposition, including Short Sales, in the securities of the Company
during the period commencing from the time that such Purchaser first
received a term sheet from
21
the Company or any other Person setting forth the material terms of the
transactions contemplated hereunder until the date hereof ("Discussion
Time"). Notwithstanding the foregoing, in the case of a Purchaser that
is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser's assets and the
portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of such
Purchaser's assets, the representation set forth above shall only apply
with respect to the portion of assets managed by the portfolio manager
that made the investment decision to purchase the Securities covered by
this Agreement. Other than to other Persons party to this Agreement,
such Purchaser has maintained the confidentiality of all disclosures
made to it in connection with this transaction (including the existence
and terms of this transaction).
(g) Independent Investigation. Such Purchaser, in acquiring
the Securities, has relied solely upon an independent investigation
made by such Purchaser and his or her representatives, if any. Prior to
the date hereof, such Purchaser has been given the opportunity to ask
questions of, and receive answers from, representatives of the Company
regarding the Company's management, finances, and business. Such
Purchaser also has received and carefully reviewed the SEC Reports and
is knowledgeable about the affairs of the Company.
(h) No Government Recommendation or Approval. Such Purchaser
understands that no United States federal or state agency, or similar
agency of any other country, has reviewed, approved, passed upon, or
made any recommendation or endorsement of the Company or the purchase
of the Securities.
(i) Consent to Amendment of Prior Debentures. Such Purchaser
consents to the amendments of the documents relating to the Prior
Debentures so that the Prior Debentures and warrants issued to the
Prior Purchasers in connection with the purchase of the Prior
Debentures are consistent with the Debenture and Warrants.
The Company acknowledges and agrees that each Purchaser does not make
or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in this
Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 TRANSFER RESTRICTIONS.
(a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement
or Rule 144, to the Company or to an affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company
may require the transferor thereof to provide to the Company an opinion
of counsel selected by the transferor and reasonably acceptable to the
Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect
22
that such transfer does not require registration of such transferred
Securities under the Securities Act. As a condition of transfer, any
such transferee shall agree in writing to be bound by the terms of this
Agreement and shall have the rights of a Purchaser under this Agreement
and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1(b), of a legend on any of the Securities
in the following form:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL
BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THESE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of
the Securities to a financial institution that is an "accredited
investor" as defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and the
Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities
to the pledgees or secured parties. Such a pledge or transfer would not
be subject to approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser's expense, the Company will
execute and deliver such reasonable documentation as a pledgee or
secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are
subject to registration pursuant to the Registration Rights Agreement,
the preparation and filing of any required prospectus supplement under
Rule 424(b)(3) under the Securities Act or other applicable provision
of the Securities Act to appropriately amend the list of selling
stockholders thereunder.
(c) Certificates evidencing the Underlying Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)
hereof): (i) while a registration statement
23
(including the Registration Statement) covering the resale of such
security is effective under the Securities Act, or (ii) following any
sale of such Underlying Shares pursuant to Rule 144, or (iii) if such
Underlying Shares are eligible for sale under Rule 144(k), or (iv) if
such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements
issued by the staff of the Commission). The Company shall cause its
counsel to issue a legal opinion to the Company's transfer agent
promptly after the Effective Date if required by the Company's transfer
agent to effect the removal of the legend hereunder. If all or any
portion of a Debenture or Warrant is converted or exercised (as
applicable) at a time when there is an effective registration statement
to cover the resale of the Underlying Shares, or if such Underlying
Shares may be sold under Rule 144(k) or if such legend is not otherwise
required under applicable requirements of the Securities Act (including
judicial interpretations thereof) then such Underlying Shares shall be
issued free of all legends. The Company agrees that following the
Effective Date or at such time as such legend is no longer required
under this Section 4.1(c), it will, no later than three Trading Days
following the delivery by a Purchaser to the Company or the Company's
transfer agent of a certificate representing Underlying Shares, as
applicable, issued with a restrictive legend (such third Trading Day,
the "Legend Removal Date"), deliver or cause to be delivered to such
Purchaser a certificate representing such shares that is free from all
restrictive and other legends. The Company may not make any notation on
its records or give instructions to any transfer agent of the Company
that enlarge the restrictions on transfer set forth in this Section.
Certificates for Securities subject to legend removal hereunder shall
be transmitted by the transfer agent of the Company to the Purchasers
by crediting the account of the Purchaser's prime broker with the
Depository Trust Company System.
(d) In addition to such Purchaser's other available remedies,
the Company shall pay to a Purchaser, in cash, as partial liquidated
damages and not as a penalty, for each $1,000 of Underlying Shares
(based on the VWAP of the Common Stock on the date such Securities are
submitted to the Company's transfer agent) delivered for removal of the
restrictive legend and subject to Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day 5 Trading Days after such damages
have begun to accrue) for each Trading Day after the Legend Removal
Date until such certificate is delivered without a legend. Nothing
herein shall limit such Purchaser's right to pursue actual damages for
the Company's failure to deliver certificates representing any
Securities as required by the Transaction Documents, and such Purchaser
shall have the right to pursue all remedies available to it at law or
in equity including, without limitation, a decree of specific
performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1
is predicated upon the Company's reliance that the Purchaser will sell
any Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.
24
(f) Until the one year anniversary of the Effective Date, the
Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent
of the Purchasers holding a majority in principal amount outstanding of
the Debentures.
4.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.
4.3 FURNISHING OF INFORMATION. As long as the Purchasers beneficially
own 10% or more of the Securities, the Company covenants to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act. As long as the Purchasers beneficially own 10% or
more of the Securities, if the Company is not required to file reports pursuant
to the Exchange Act, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.
4.4 INTEGRATION. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
4.5 CONVERSION AND EXERCISE PROCEDURES. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Debentures set forth the totality of the procedures required of the Purchasers
in order to exercise the Warrants or convert the Debentures. No additional legal
opinion or other information or instructions shall be required of the Purchasers
to exercise their Warrants or convert their Debentures. The Company shall honor
exercises of the Warrants and conversions of the Debentures and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
4.6 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, by 5:30
p.m. Eastern time on the fourth Trading Day following the Closing Date, file a
Current Report on Form 8-K, reasonably acceptable to the Holders of 51% of the
principal amount of Outstanding Debentures
25
immediately after the Closing disclosing the material terms of the transactions
contemplated hereby, and shall attach the Transaction Documents thereto. The
Company and each Purchaser shall consult with each other in issuing any other
press releases with respect to the transactions contemplated hereby, and neither
the Company nor any Purchaser shall issue any such press release or otherwise
make any such public statement without the prior consent of the Company, with
respect to any press release of any Purchaser, or without the prior consent of
Purchasers holding at least 51% of the principal amount of Outstanding
Debenture, with respect to any press release of the Company, which consent shall
not unreasonably be withheld, except if such disclosure is required by law, in
which case the disclosing party shall promptly provide the other party with
prior notice of such public statement or communication. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, except (i) as required by federal securities law in connection with
the registration statement contemplated by the Registration Rights Agreement and
(ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure permitted under subclause (i) or (ii).
4.7 SHAREHOLDER RIGHTS PLAN. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholder rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.8 NON-PUBLIC INFORMATION. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.
4.9 USE OF PROCEEDS. Except as set forth on Schedule 4.9 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and not for the satisfaction of any
portion of the Company's debt (other than payment of trade payables in the
ordinary course of the Company's business and prior practices), to redeem any
Common Stock or Common Stock Equivalents or to settle any outstanding
litigation.
4.10 [INTENTIONALLY OMITTED]
4.11 INDEMNIFICATION OF PURCHASERS. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and
26
Section 20 of the Exchange Act), and the directors, officers, agents, members,
partners or employees (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any
other title) of such controlling person (each, a "Purchaser Party") harmless
from any and all losses, liabilities, obligations, claims, contingencies,
damages, costs and expenses, including all judgments, amounts paid in
settlements, court costs and reasonable attorneys' fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against a Purchaser, or any
of them or their respective Affiliates, by any stockholder of the Company who is
not an Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of such Purchaser's representations, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser may
have with any such stockholder or any violations by the Purchaser of state or
federal securities laws or any conduct by such Purchaser which constitutes
fraud, gross negligence, willful misconduct or malfeasance). If any action shall
be brought against any Purchaser Party in respect of which indemnity may be
sought pursuant to this Agreement, such Purchaser Party shall promptly notify
the Company in writing, and the Company shall have the right to assume the
defense thereof with counsel of its own choosing. Any Purchaser Party shall have
the right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense and
to employ counsel or (iii) in such action there is, in the reasonable opinion of
such separate counsel, a material conflict on any material issue between the
position of the Company and the position of such Purchaser Party. The Company
will not be liable to any Purchaser Party under this Agreement (i) for any
settlement by a Purchaser Party effected without the Company's prior written
consent, which shall not be unreasonably withheld or delayed; or (ii) to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Purchaser Party's breach of any of the representations,
warranties, covenants or agreements made by the Purchasers in this Agreement or
in the other Transaction Documents.
4.12 RESERVATION AND LISTING OF SECURITIES.
(a) The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents.
(b) If, on any date, the number of authorized but unissued
(and otherwise unreserved) shares of Common Stock is less than the
Required Minimum on such date, then the Board of Directors of the
Company shall use commercially reasonable efforts to amend the
Company's certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least
the Required Minimum at such time, as soon as possible and in any event
not later than the 75th day after such date.
27
(c) The Company shall, if applicable: (i) in the time and
manner required by the Trading Market, prepare and file with such
Trading Market an additional shares listing application covering a
number of shares of Common Stock at least equal to the Required Minimum
on the date of such application, (ii) take all steps necessary to cause
such shares of Common Stock to be approved for listing on the Trading
Market as soon as possible thereafter, (iii) provide to the Purchasers
evidence of such listing, and (iv) maintain the listing of such Common
Stock on any date at least equal to the Required Minimum on such date
on such Trading Market or another Trading Market.
4.13 PARTICIPATION IN FUTURE FINANCING.
(a) From the date hereof until June __, 2008, upon any
financing by the Company or any of its Subsidiaries of Common Stock or
Common Stock Equivalents (a "Subsequent Financing"), each holder of
Outstanding Debentures shall have the right, subject to the terms and
conditions of this Section 4.13, to participate in up to an amount of
the Subsequent Financing equal to 100% of the Subsequent Financing (the
"Participation Maximum").
(b) At least 5 Trading Days prior to the closing of the
Subsequent Financing, the Company shall deliver to each holder of
Outstanding Debentures a written notice of its intention to effect a
Subsequent Financing ("Pre-Notice"), which Pre-Notice shall ask such
holder of Outstanding Debentures if it wants to review the details of
such financing (such notice containing the details of such Subsequent
Financing, a "Subsequent Financing Notice"). Upon the request of a
holder of Outstanding Debentures, and only upon a request by such
holder of Outstanding Debentures, for a Subsequent Financing Notice,
the Company shall promptly, but no later than 1 Trading Day after such
request, deliver a Subsequent Financing Notice to such holder of
Outstanding Debentures. The Subsequent Financing Notice shall describe
in reasonable detail the proposed terms of such Subsequent Financing,
the amount of proceeds intended to be raised thereunder, the Person
with whom such Subsequent Financing is proposed to be effected, and
attached to which shall be a term sheet or similar document relating
thereto.
(c) Any holder of Outstanding Debentures desiring to
participate in such Subsequent Financing must provide written notice to
the Company by not later than 5:30 p.m. (New York City time) on the 5th
Trading Day after the Pre-Notice was delivered to all of the holders of
Outstanding Debentures that the holder of Outstanding Debentures is
willing to participate in the Subsequent Financing, the amount of the
holder of Outstanding Debentures's participation, and that the holder
of Outstanding Debentures has such funds ready, willing, and available
for investment on the terms set forth in the Subsequent Financing
Notice. If the Company receives no notice from a holder of Outstanding
Debentures as of such 5th Trading Day, such holder of Outstanding
Debentures shall be deemed to have notified the Company that it does
not elect to participate.
(d) If by 5:30 p.m. (New York City time) on the 5th Trading
Day after the Pre-Notice was delivered to all of the holders of
Outstanding Debentures, notifications by the
28
holders of Outstanding Debentures of their willingness to participate
in the Subsequent Financing (or to cause their designees to
participate) is, in the aggregate, less than the total amount of the
Subsequent Financing, then the Company may effect the remaining portion
of such Subsequent Financing on substantially the same terms and to the
Persons set forth in the Subsequent Financing Notice.
(e) If by 5:30 p.m. (New York City time) on the 5th Trading
Day after the Pre-Notice was delivered to all of the holders of
Outstanding Debentures, the Company receives responses to a Subsequent
Financing Notice from holders of Outstanding Debentures seeking to
purchase more than the aggregate amount of the Participation Maximum,
each such holder of Outstanding Debentures shall have the right to
purchase the greater of (a) their Pro Rata Portion (as defined below)
of the Participation Maximum and (b) the difference between the
Participation Maximum and the aggregate amount of participation by all
other holders of Outstanding Debentures. "Pro Rata Portion" is the
ratio of (x) the Subscription Amount of Securities purchased on the
Closing Date by a holder of Outstanding Debentures participating under
this Section 4.13 and (y) the sum of the aggregate Subscription Amounts
of Securities purchased on the Closing Date by all holders of
Outstanding Debentures participating under this Section 4.13.
(f) The Company must provide the holders of Outstanding
Debentures with a second Subsequent Financing Notice, and the holders
of Outstanding Debentures will again have the right of participation
set forth above in this Section 4.13, if the Subsequent Financing
subject to the initial Subsequent Financing Notice is not consummated
for any reason on substantially the terms set forth in such Subsequent
Financing Notice within 60 Trading Days after the date of the initial
Subsequent Financing Notice.
(g) Notwithstanding the foregoing, this Section 4.13 shall not
apply in respect of an Exempt Issuance.
4.14 SUBSEQUENT EQUITY SALES.
(a) From the date hereof until 90 days after the Effective
Date, neither the Company nor any Subsidiary shall issue shares of
Common Stock or Common Stock Equivalents; provided, however, the 90 day
period set forth in this Section 4.14 shall be extended for the number
of Trading Days during such period in which (i) trading in the Common
Stock is suspended by any Trading Market, or (ii) following the
Effective Date, the Registration Statement is not effective or the
prospectus included in the Registration Statement may not be used by
the Purchasers for the resale of the Underlying Shares.
(b) From the date hereof until such time as no Purchaser holds
any of the Securities, the Company shall be prohibited from effecting
or entering into an agreement to effect any Subsequent Financing
involving a "Variable Rate Transaction". The term "Variable Rate
Transaction" shall mean a transaction in which (i) the Company issues
or sells 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
29
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 or (ii) enters into any agreement,
including, but not limited to, an equity line of credit, whereby the
Company may sell securities at a future determined price.
(c) Notwithstanding the foregoing, this Section 4.14 shall not
apply in respect of (i) an Exempt Issuance, except that no Variable
Rate Transaction shall be an Exempt Issuance, (ii) an issuance of up to
$500,000 of Common Stock at a per share purchase price equal to or
exceeding the Conversion Price and up to 15% warrant coverage based on
the per share purchase price with an exercise price equal to or
exceeding the Exercise Price of the Short Term Warrants during the
period commencing on the date hereof and ending on the Filing Date and
(iii) an issuance of debentures and warrants on the same terms and
conditions as the issuance of Debentures and Warrants hereunder for
gross proceeds of up to, in the aggregate, the difference between the
gross proceeds raised hereunder and $3,275,000 during the period
commencing on the date hereof and ending on August 15, 2006.
4.15 EQUAL TREATMENT OF PURCHASERS. No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. Further, the
Company shall not make any payment of principal or interest on the Debentures in
amounts which are disproportionate to the respective principal amounts
outstanding on the Debentures at any applicable time. For clarification
purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended for
the Company to treat the Purchasers as a class and shall not in any way be
construed as the Purchasers acting in concert or as a group with respect to the
purchase, disposition or voting of Securities or otherwise.
4.16 SHORT SALES AND CONFIDENTIALITY AFTER THE DATE HEREOF. Each
Purchaser severally and not jointly with the other Purchasers covenants that
neither it nor any affiliates acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period after the
Discussion Time and ending at the time that the transactions contemplated by
this Agreement are first publicly announced as described in Section 4.6. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company as described in Section 4.6, such Purchaser will
maintain the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction). Each
Purchaser understands and acknowledges, severally and not jointly with any other
Purchaser, that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock "against the box" prior to the
Effective Date of the Registration Statement covering the Securities is a
violation of Section 5 of the Securities Act, as set forth in Item 65, Section 5
under Section A, of the Manual of Publicly Available Telephone Interpretations,
dated July 1997, compiled by the Office of Chief Counsel, Division of
Corporation Finance. Notwithstanding the
30
foregoing, no Purchaser makes any representation, warranty or covenant hereby
that it will not engage in Short Sales in the securities of the Company after
the time that the transactions contemplated by this Agreement are first publicly
announced as described in Section 4.6. Notwithstanding the foregoing, in the
case of a Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser's assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser's assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement.
4.17 FORM D; BLUE SKY FILINGS. The Company agrees to timely file a Form
D with respect to the Securities as required under Regulation D and to provide a
copy thereof, promptly upon request of any Purchaser. The Company shall, on or
before or after the Closing Date, take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for, or to
qualify the Securities for, sale to the Purchasers at the Closing under
applicable securities or "Blue Sky" laws of the states of the United States, and
shall provide evidence of such actions promptly upon request of any Purchaser.
4.18 MOST FAVORED NATION PROVISION. If the Company effects a Subsequent
Financing at any time prior to December 28, 2007, each Purchaser may elect, in
its sole discretion, to exchange all or some of the Debentures then held by such
Purchaser for additional securities of the same class issued in a Subsequent
Financing based on the effective price at which such securities were sold in
such Subsequent Financing. The Company shall provide each Purchaser notice of
any such Subsequent Financing in the manner provided in Section 4.13.
ARTICLE V.
MISCELLANEOUS
5.1 TERMINATION. This Agreement may be terminated by any Purchaser, as
to such Purchaser's obligations hereunder only and without any effect whatsoever
on the obligations between the Company and the other Purchasers, by written
notice to the other parties, if the Closing has not been consummated on or
before August 15, 2006; provided, however, that no such termination will affect
the right of any party to xxx for any breach by the other party (or parties).
5.2 FEES AND EXPENSES. At the Closing, the Company has agreed to
reimburse Bushido Capital Master Fund L.P. ("Bushido") the non-accountable sum
of $25,000, for its actual, reasonable, out-of-pocket legal fees and expenses
which shall be paid at the Closing directly out of the proceeds of the
financing. The Company shall deliver, prior to the Closing, a completed and
executed copy of the Closing Statement, attached hereto as Annex A. Except as
expressly set forth in the Transaction Documents to the contrary, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all transfer agent fees, stamp taxes and other taxes and
duties levied in connection with the delivery of any Securities.
31
5.3 ENTIRE AGREEMENT. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the 2nd Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and holders of at least 60% of the
Outstanding Debentures. No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right.
5.6 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".
5.8 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.
32
5.9 GOVERNING LAW. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The parties hereby waive all
rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
5.10 SURVIVAL. The representations, warranties, covenants and other
agreements contained herein shall survive the Closing and the delivery, exercise
and/or conversion of the Securities, as applicable for the applicable statue of
limitations.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.12 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.13 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents,
33
whenever any Purchaser exercises a right, election, demand or option under a
Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Purchaser may rescind
or withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights; provided, however, in the case of a
rescission of a conversion of a Debenture or exercise of a Warrant, the
Purchaser shall be required to return any shares of Common Stock subject to any
such rescinded conversion or exercise notice.
5.14 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.15 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.16 PAYMENT SET ASIDE. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.17 USURY. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "Maximum Rate"), and, without limiting the foregoing, in
34
no event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.
5.18 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not represent all of
the Purchasers but only Bushido. The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the convenience of
the Company and not because it was required or requested to do so by the
Purchasers.
5.19 LIQUIDATED DAMAGES. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.20 CONSTRUCTION. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
(SIGNATURE PAGES FOLLOW)
35
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase and Exchange Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
XXXXXX.XXX, INC. Address for Notice:
By: /s/ Xxxx Xxxxxxxx CDKNET / Arkados
Name: Xxxx Xxxxxxxx 000 Xxx Xxx Xxxxxxxxx Xxxx, 0xx Xxxxx
Title: CEO Xxxxxxxxxx, XX 00000
Attn: CEO
With a copy to (which shall not constitute notice):
Xxxxxx & Xxxxxxxxx LLP
000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx Xxxx, XX 00000
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
36
[PURCHASER SIGNATURE PAGES TO CDKN SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Purchaser: Xxxxxx Diversified Strategy master Fund, LLC - Series BUS
SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: /s/ Xxxxxxxxxxx Xxxxxxx
Name of Authorized Signatory: Xxxxxxxxxxx Xxxxxxx
Title of Authorized Signatory: Attorney-in-Fact
Email Address of Purchaser: xxxxxxx@xxxxxxxxxxxxxx.xxx
Address for Notice of Purchaser:
c/o Bushido Capital Partners, Ltd.
000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Address for Delivery of Securities for Purchaser (if not same as above):
Same
Subscription Amount: $500,000
Cash: $500,000
Surrender of Prior Debt:
Short Term Warrant Shares: 235,294
Long Term Warrant Shares: 235,294
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
37
[PURCHASER SIGNATURE PAGES TO CDKN SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Purchaser: Bushido Capital Master Fund, LP
SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: /s/ Xxxxx Xxxxxx
Name of Authorized Signatory: Xxxxx Xxxxxx
Title of Authorized Signatory: President, Bushido Capital
Partners, Ltd., as General
Partner
Email Address of Purchaser: xxxxxx@xxxxxxxxxxxxxx.xxx
Address for Notice of Purchaser:
c/o Bushido Capital Partners, Ltd.
000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Address for Delivery of Securities for Purchaser (if not same as above):
Same
Subscription Amount: $500,000
Cash: $500,000
Surrender of Prior Debt:
Short Term Warrant Shares 235,294
Long Term Warrant Shares: 235,294
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
38
[PURCHASER SIGNATURE PAGES TO CDKN SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Purchaser: Xxxxxxx Xxxxxxxx
SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: /s/ Xxxxxxx Xxxxxxxx
Name of Authorized Signatory: Xxxxxxx Xxxxxxxx
Title of Authorized Signatory: N/A
Email Address of Purchaser: xxxxx@xxxxxxx.xxx
Address for Notice of Purchaser:
00 Xxxx 00xx Xxxxxx, XXX
Xxx Xxxx, XX 00000
Address for Delivery of Securities for Purchaser (if not same as above):
Same
Subscription Amount: $360,000
Cash: -0-
Surrender of Prior Debt: $360,000(1)
Short Term Warrant Shares 169,412
Long Term Warrant Shares: 169,412
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
__________________
(1) The amount surrendered consists of accrued and unpaid consulting fees due to
Purchaser for the period from June 1, 2004 to June 30, 2006 pursuant to a
consulting agreement dated as of May 24, 2004. Purchaser hereby releases and
discharges the Company from any and all obligations to make such payments
effective June 30, 2006.
39
[PURCHASER SIGNATURE PAGES TO CDKN SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Purchaser: Xxxxxxx Xxxxxxxx Family Limited Partnership
SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: /s/ Xxxxx Xxxxxxxx
Name of Authorized Signatory: Xxxxx Xxxxxxxx
Title of Authorized Signatory: Managing Partner
Email Address of Purchaser: xxxxx@xxxxxxx.xxx
Address for Notice of Purchaser:
00 Xxxx 00xx Xxxxxx, XXX
Xxx Xxxx, XX 00000
Address for Delivery of Securities for Purchaser (if not same as above):
Same
Subscription Amount: $413,470.83
Cash: -0-
Surrender of Prior Debt: $413,470.83(2)
Short Term Warrant Shares 194,575
Long Term Warrant Shares: 194,575
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
(2) The amount surrendered consists of amounts owed to Purchaser from the
following notes issued by the Company:
O/I Title Principal Interest Total
--- ----- --------- -------- -----
10/1/04 6% Convertible Note due 10/15/05 $100,000 $10,616.67 $110,616.67
11/20/04 6% Convertible Note due 10/15/05 225,000 21,637.50 246,637.50
6/14/04 10% Grid Note 50,000 6,216.67 56,216.67
-----------
$413,470.83
===========
The Purchaser hereby releases and discharges the Company from any and all
obligations reflected by the foregoing notes and agrees to deliver the original
notes to the Company for cancellation. Further, the Purchaser represents and
warrants to the Company that such notes have not been assigned to anyone, in
whole or in part, and are owned by Purchaser free and clear of any and all
claims or encumbrances.
40
ANNEX A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase up to $2,000,000 of Debentures and
Warrants from XXXXxx.xxx, Inc. (the "Company"). All funds will be wired into a
trust account maintained by Xxxxxx & Xxxxxxxxx LLP, counsel to the Company as
follows:
Account Name: XXXXXX & XXXXXXXXX, LLP ATTORNEY ESCROW ACCOUNT - XXXX
Bank: Bank of New York
00 Xxxxxxx Xxxxxxxx
Xxxxxxx, XX 00000
(000) 000-0000
Account No.: 6902 089606
ABA No.: 000000000
All funds will be disbursed in accordance with this Closing Statement.
DISBURSEMENT DATE: May __, 2005
I. PURCHASE PRICE
GROSS PROCEEDS TO BE RECEIVED IN TRUST $
II. DISBURSEMENTS
Bushido Capital $25,000
$
$
$
$
TOTAL AMOUNT DISBURSED: $
WIRE INSTRUCTIONS:
To: _____________________________________
To: _____________________________________