EXHIBIT 10.01
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of June 29,
2006, by and among Kiwa Bio-Tech Products Group Corporation, a Delaware
corporation, with offices located at 000 Xxxx Xxxxxxxx Xxxx, Xxxxx 000,
Xxxxxxxxx, XX 00000 (the "COMPANY"), and each of the purchasers set forth on the
signature pages hereto (the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by the
rules and regulations as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 ACT");
B. Buyers desire to purchase and the Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement (i) 6% secured
convertible notes of the Company, in the form attached hereto as EXHIBIT "A", in
the aggregate principal amount of Two Million Four Hundred Fifty Thousand
Dollars ($2,450,000) (together with any note(s) issued in replacement thereof or
as a dividend thereon or otherwise with respect thereto in accordance with the
terms thereof, the "NOTES"), convertible into shares of common stock, par value
$.001 per share, of the Company (the "COMMON STOCK"), upon the terms and subject
to the limitations and conditions set forth in such Notes and (ii) warrants, in
the form attached hereto as EXHIBIT "B", to purchase 12,250,000 shares of Common
Stock (the "WARRANTS").
C. Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, such principal amount of Notes and number of Warrants as is set
forth immediately below its name on the signature pages hereto; and
D. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as EXHIBIT "C" (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
A. PURCHASE OF NOTES AND WARRANTS. On the Closing Date (as
defined below), the Company shall issue and sell to each Buyer and each Buyer
severally agrees to purchase from the Company such principal amount of Notes and
number of Warrants as is set forth immediately below such Buyer's name on the
signature pages hereto.
B. FORM OF PAYMENT. On the Closing Date (as defined below),
(i) each Buyer shall pay the purchase price for the Notes and the Warrants to be
issued and sold to it at the Closing (as defined below) (the "PURCHASE Price")
by wire transfer of immediately available funds to the Company, in accordance
with the Company's written wiring instructions, against delivery of the Notes in
the principal amount equal to the Purchase Price and the number of Warrants as
is set forth immediately below such Buyer's name on the signature pages hereto,
and (ii) the Company shall deliver such Notes and Warrants duly executed on
behalf of the Company, to such Buyer, against delivery of such Purchase Price.
C. CLOSING DATE. Subject to the satisfaction (or written
waiver) of the conditions thereto set forth in Section 6 and Section 7 below,
the date and time of the issuance and sale of Eight Hundred Fifty Seven Thousand
Five Hundred Dollars ($857,500) face amount of the Notes and all of the Warrants
pursuant to this Agreement (the "CLOSING DATE") shall be 12:00 noon, Eastern
Standard Time on June 29, 2006, or such other mutually agreed upon time. The
closing of the transactions contemplated by this Agreement (the "CLOSING") shall
occur on the Closing Date at such location as may be agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and
not jointly) represents and warrants to the Company solely as to such Buyer
that:
A. INVESTMENT PURPOSE. As of the date hereof, the Buyer is
purchasing the Notes and the shares of Common Stock issuable upon conversion of
or otherwise pursuant to the Notes (including, without limitation, such
additional shares of Common Stock, if any, as are issuable (i) on account of
interest on the Notes, (ii) as a result of the events described in Sections 1.3
and 1.4(g) of the Notes and Section 2(c) of the Registration Rights Agreement or
(iii) in payment of the Standard Liquidated Damages Amount (as defined in
Section 2(f) below) pursuant to this Agreement, such shares of Common Stock
being collectively referred to herein as the "CONVERSION SHARES") and the
Warrants and the shares of Common Stock issuable upon exercise thereof (the
"WARRANT SHARES" and, collectively with the Notes, Warrants and Conversion
Shares, the "SECURITIES") for its own account and not with a present view
towards the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the 1933 Act; provided, however,
that by making the representations herein, the Buyer does not agree to hold any
of the Securities for any minimum or other specific term and reserves the right
to dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
B. ACCREDITED INVESTOR STATUS. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D (an "ACCREDITED
INVESTOR").
C. RELIANCE ON EXEMPTIONS. The Buyer understands that the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
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D. INFORMATION. The Buyer and its advisors, if any, have been,
and for so long as the Notes and Warrants remain outstanding will continue to
be, furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by the Buyer or its advisors. The Buyer and
its advisors, if any, have been, and for so long as the Notes and Warrants
remain outstanding will continue to be, afforded the opportunity to ask
questions of the Company. Notwithstanding the foregoing, the Company has not
disclosed to the Buyer any material nonpublic information and will not disclose
such information unless such information is disclosed to the public prior to or
promptly following such disclosure to the Buyer. Neither such inquiries nor any
other due diligence investigation conducted by Buyer or any of its advisors or
representatives shall modify, amend or affect Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below. The Buyer
understands that its investment in the Securities involves a significant degree
of risk. The Buyers are not aware of any facts that may constitute a breach of
any of the Company's representations and warranties made herein.
E. GOVERNMENTAL REVIEW. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
F. TRANSFER OR RE-SALE. The Buyer understands that (i) except
as provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel reasonably acceptable to the Company and its counsel that
shall be in form, substance and scope customary for opinions of counsel in
comparable transactions to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration, which opinion shall be reasonably acceptable to the Company, (c)
the Securities are sold or transferred to an "affiliate" (as defined in Rule 144
promulgated under the 1933 Act (or a successor rule) ("RULE 144")) of the Buyer
who agrees to sell or otherwise transfer the Securities only in accordance with
this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold
pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation S
under the 1933 Act (or a successor rule) ("REGULATION S"), and the Buyer shall
have delivered to the Company an opinion of counsel reasonably acceptable to the
Company and its counsel that shall be in form, substance and scope customary for
opinions of counsel in corporate transactions, which opinion shall be reasonably
acceptable to the Company; (ii) any sale of such Securities made in reliance on
Rule 144 may be made only in accordance with the terms of said Rule and further,
if said Rule is not applicable, any re-sale of such Securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the 0000 Xxx) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement). Notwithstanding the foregoing or anything else contained
herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement. In the
event that the Company does not accept without a reasonable basis the opinion of
counsel provided by the Buyer with respect to the transfer of Securities
pursuant to an exemption from registration, such as Rule 144 or Regulation S,
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within five (5) business days of delivery of the opinion to the Company, the
Company shall pay to the Buyer liquidated damages of two percent (2%) of the
outstanding amount of the Notes per month plus accrued and unpaid interest on
the Notes, prorated for partial months, in cash or shares at the option of the
Company ("STANDARD LIQUIDATED DAMAGES AMOUNT"). If the Company elects to pay the
Standard Liquidated Damages Amount in shares of Common Stock, such shares shall
be issued at the Conversion Price (as defined in the Notes) at the time of
payment. Notwithstanding anything herein to the contrary, in the event the
Company has to pay the Standard Liquidated Damages Amount pursuant to any
provision of this Agreement, the Buyers shall first have to give the Company
advance written notice of such breach and in such event, the Company shall have
30 days from the receipt of such notice to cure such breach before the Standard
Liquidated Damages Amount shall be due and payable to the Buyers.
G. LEGENDS. The Buyer understands that the Notes and the
Warrants and, until such time as the Conversion Shares and Warrant Shares have
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement or otherwise may be sold pursuant to Rule 144 or Regulation S without
any restriction as to the number of securities as of a particular date that can
then be immediately sold, the Conversion Shares and Warrant Shares may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the absence
of an effective registration statement for the securities under said
Act, or an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, that
registration is not required under said Act or unless sold pursuant
to Rule 144 or Regulation S under said Act."
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, which opinion shall be
reasonably acceptable to the Company's counsel, to the effect that a public sale
or transfer of such Security may be made without registration under the 1933
Act, which opinion shall be accepted by the Company so that the sale or transfer
is effected or (c) such holder provides the Company with reasonable assurances
that such Security can be sold pursuant to Rule 144 or Regulation S. The Buyer
agrees to sell all Securities, including those represented by a certificate(s)
from which the legend has been removed, in compliance with applicable prospectus
delivery requirements, if any.
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H. AUTHORIZATION; ENFORCEMENT. This Agreement and the
Registration Rights Agreement have been duly and validly authorized. This
Agreement has been duly executed and delivered on behalf of the Buyer, and this
Agreement constitutes, and upon execution and delivery by the Buyer of the
Registration Rights Agreement, such agreement will constitute, valid and binding
agreements of the Buyer enforceable in accordance with their terms.
I. RESIDENCY. The Buyer is a resident of the jurisdiction set
forth immediately below such Buyer's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:
A. ORGANIZATION AND QUALIFICATION. The Company and each of its
Subsidiaries (as defined below), if any, is duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is incorporated,
with full power and authority (corporate and other) to own, lease, use and
operate its properties and to carry on its business as and where now owned,
leased, used, operated and conducted. SCHEDULE 3(A) sets forth a list of all of
the Subsidiaries of the Company and the jurisdiction in which each is
incorporated. The Company and each of its Subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which its ownership or use of property or the nature of the business
conducted by it makes such qualification necessary except where the failure to
be so qualified or in good standing would not have a Material Adverse Effect.
"MATERIAL ADVERSE EFFECT" means any of (i) a material and adverse effect on the
legality, validity or enforceability of any document executed in connection with
this financing, (ii) a material and adverse effect on the results of operations,
assets, prospects, business or condition (financial or otherwise) of the Company
and the Subsidiaries, taken as a whole, or (iii) an adverse impairment to the
Company's ability to perform under any of the documents executed in connection
with this financing. "SUBSIDIARIES" means any corporation or other organization,
whether incorporated or unincorporated, in which the Company owns, directly or
indirectly, a controlling equity or other ownership interest.
B. AUTHORIZATION; ENFORCEMENT. (i) Subject to Stockholder
Approval (as such term is defined in Section 4(n)), the Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Notes and the Warrants and to
consummate the transactions contemplated hereby and thereby and to issue the
Securities, in accordance with the terms hereof and thereof, (ii) the execution
and delivery of this Agreement, the Registration Rights Agreement, the Notes and
the Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation, the issuance of
the Notes and the Warrants and the issuance and reservation for issuance of the
Conversion Shares and Warrant Shares issuable upon conversion or exercise
thereof) have been duly authorized by the Company's Board of Directors and no
further consent or authorization of the Company, its Board of Directors, or its
shareholders is required, (iii) this Agreement has been duly executed and
delivered by the Company by its authorized representative, and such authorized
representative is the true and official representative with authority to sign
this Agreement and the other documents executed in connection herewith and bind
the Company accordingly, and (iv) this Agreement constitutes, and upon execution
and delivery by the Company of the Registration Rights Agreement, the Notes and
the Warrants, each of such instruments will constitute, a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms.
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C. CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) 100,000,000 shares of Common Stock,
and (ii) 20,000,000 shares of preferred stock. No shares of preferred stock are
outstanding. There are 59,235,930 shares of Common Stock issued and outstanding,
1,047,907 shares are reserved for issuance pursuant to the Company's stock
option plan, 6,671,270 shares are reserved for issuance pursuant to securities
(other than the Notes and the Warrants) exercisable for, or convertible into or
exchangeable for shares of Common Stock with fixed conversion rates. The Company
has reserved sufficient shares of Common Stock to cover the conversion of
$320,000 principal amount of convertible notes that are convertible into Common
Stock based on the closing quote of the Company's share price on the OTC
Bulletin Board on the date of conversion, less a 25% discount. The Company has
reserved 5,000,000 shares of Common Stock which will be issued pursuant to a
stock purchase agreement dated March 10, 2006 when the purchaser has paid the
total purchase price under such agreement. The Board has reserved 996,646 shares
of Common Stock for issuance to its Chief Financial Officer pursuant to an
employment agreement with him. Pending Stockholder Approval, the Board has
reserved 25,000,000 shares of Common Stock to cover the conversion of the Notes
and exercise of the Warrants at any point in time that such instruments are
outstanding based on the terms of such instruments. All of the issued and
outstanding shares of capital stock are duly authorized, validly issued, fully
paid and nonassessable. Subject to obtaining and maintaining Stockholder
Approval, all of the unissued but reserved shares of capital stock have been
duly authorized and will be validly issued, fully paid and nonassessable when
full payment has been received by the Company according to the terms of the
instruments providing for the issuance of such capital stock. No shares of
capital stock of the Company are subject to preemptive rights or any other
similar rights of the shareholders of the Company or any liens or encumbrances
imposed through the actions or failure to act of the Company. Except as
disclosed in SCHEDULE 3(C), as of the effective date of this Agreement, (i)
there are no outstanding options, warrants, scrip, rights to subscribe for,
puts, calls, rights of first refusal, agreements, understandings, claims or
other commitments or rights of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for any shares of capital
stock of the Company or any of its Subsidiaries, or arrangements by which the
Company or any of its Subsidiaries is or may become bound to issue additional
shares of capital stock of the Company or any of its Subsidiaries, (ii) there
are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of its or their securities
under the 1933 Act (except the Registration Rights Agreement) and (iii) there
are no anti-dilution or price adjustment provisions contained in any security
issued by the Company (or in any agreement providing rights to security holders)
that will be triggered by the issuance of the Notes, the Warrants, the
Conversion Shares or Warrant Shares. The Company has furnished to the Buyer true
and correct copies of the Company's Certificate of Incorporation as in effect on
the date hereof ("CERTIFICATE OF INCORPORATION"), the Company's By-laws, as in
effect on the date hereof (the "BY-LAWS"), and the terms of all securities
convertible into or exercisable for Common Stock of the Company and the material
rights of the holders thereof in respect thereto. The Company shall provide the
Buyer with a written update of this representation signed by the Company's Chief
Executive or Chief Financial Officer on behalf of the Company as of the Closing
Date.
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D. ISSUANCE OF SHARES. Subject to Stockholder Approval, the
Conversion Shares and Warrant Shares are duly authorized and reserved for
issuance and, upon conversion of the Notes and exercise of the Warrants in
accordance with their respective terms, will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and encumbrances with
respect to the issue thereof and shall not be subject to preemptive rights or
other similar rights of shareholders of the Company and will not impose personal
liability upon the holder thereof.
E. ACKNOWLEDGMENT OF DILUTION. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares and Warrant Shares upon conversion of the Note
or exercise of the Warrants. The Company further acknowledges that its
obligation to issue Conversion Shares and Warrant Shares upon conversion of the
Notes or exercise of the Warrants in accordance with this Agreement, the Notes
and the Warrants is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other shareholders of
the Company.
F. NO CONFLICTS. Subject to Stockholder Approval, the
execution, delivery and performance of this Agreement, the Registration Rights
Agreement, the Notes and the Warrants by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance and reservation for issuance of the Conversion Shares
and Warrant Shares) will not (i) conflict with or result in a violation of any
provision of the Certificate of Incorporation or By-laws or (ii) violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both could become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture, patent, patent
license or instrument to which the Company or any of its Subsidiaries is a
party, or (iii) to the Company's knowledge, result in a violation of any law,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Neither the Company nor any of its Subsidiaries is in violation
of its Certificate of Incorporation, By-laws or other organizational documents
and neither the Company nor any of its Subsidiaries is in default (and no event
has occurred which with notice or lapse of time or both could put the Company or
any of its Subsidiaries in default) under, and neither the Company nor any of
its Subsidiaries has taken any action or failed to take any action that would
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party or by which any property or assets of the
Company or any of its Subsidiaries is bound or affected, except for possible
defaults as would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its Subsidiaries, if any, are not
being conducted, and shall not be conducted so long as a Buyer owns any of the
Securities, in violation of any law, ordinance or regulation of any governmental
entity. Except as specifically contemplated by this Agreement and as required
under the 1933 Act and any applicable state securities laws, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
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registration with, any court, governmental agency, regulatory agency, self
regulatory organization or stock market or any third party in order for it to
execute, deliver or perform any of its obligations under this Agreement, the
Registration Rights Agreement, the Notes or the Warrants in accordance with the
terms hereof or thereof or to issue and sell the Notes and Warrants in
accordance with the terms hereof and to issue the Conversion Shares upon
conversion of the Notes and the Warrant Shares upon exercise of the Warrants.
Except as disclosed in SCHEDULE 3(F), all consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the date
hereof. The Company is not in violation of the quotation requirements of the
Over-the-Counter Bulletin Board (the "OTCBB") and does not reasonably anticipate
that the Common Stock will be removed by the OTCBB in the foreseeable future.
The Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
G. SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as disclosed in
SCHEDULE 3(G), since December 31, 2005 the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "1934 ACT") (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents (other than exhibits to such documents) incorporated by
reference therein, being hereinafter referred to herein as the "SEC DOCUMENTS").
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents, and none of the
SEC Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have been
amended or updated in subsequent filings prior the date hereof). As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth in the
financial statements of the Company included in the SEC Documents, the Company
has no liabilities, contingent or otherwise, other than (i) liabilities incurred
in the ordinary course of business subsequent to December 31, 2005 and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.
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H. ABSENCE OF CERTAIN CHANGES. Except as set forth in SCHEDULE
3(H), since December 31, 2005, there has been no material adverse change and no
material adverse development in the assets, liabilities, business, properties,
operations, financial condition, results of operations or prospects of the
Company or any of its Subsidiaries.
I. ABSENCE OF LITIGATION. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material Adverse Effect. SCHEDULE
3(I) contains a complete list and summary description of any pending or, to the
knowledge of the Company, threatened proceeding against or affecting the Company
or any of its Subsidiaries, without regard to whether it would have a Material
Adverse Effect. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
J. PATENTS, COPYRIGHTS, ETC. The Company and each of its
Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names and copyrights ("INTELLECTUAL PROPERTY") necessary to enable it to conduct
its business as now operated (and, except as set forth in SCHEDULE 3(J) hereof,
to the best of the Company's knowledge, as presently contemplated to be operated
in the future); there is no claim or action by any person pertaining to, or
proceeding pending, or to the Company's knowledge threatened, which challenges
the right of the Company or of a Subsidiary with respect to any Intellectual
Property necessary to enable it to conduct its business as now operated (and,
except as set forth in SCHEDULE 3(j) hereof, to the best of the Company's
knowledge, as presently contemplated to be operated in the future); to the best
of the Company's knowledge, the Company's or its Subsidiaries' current and
intended products, services and processes do not infringe on any Intellectual
Property or other rights held by any person; and the Company is unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company and each of its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of their Intellectual Property.
K. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
L. TAX STATUS. Except as set forth on SCHEDULE 3(L), the
Company and each of its Subsidiaries has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. The Company has not executed a waiver with respect to
the statute of limitations relating to the assessment or collection of any
foreign, federal, state or local tax. Except as set forth on SCHEDULE 3(L), none
of the Company's tax returns is presently being audited by any taxing authority.
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M. CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 3(M)
and except for arm's length transactions pursuant to which the Company or any of
its Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on SCHEDULE
3(C), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
N. DISCLOSURE. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and provided to
the Buyers pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed (assuming for this purpose that the Company's reports filed under the
1934 Act are being incorporated into an effective registration statement filed
by the Company under the 1933 Act).
O. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF SECURITIES.
The Company acknowledges that no Buyer is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any statement made by any
Buyer or any of their respective representatives or agents in connection with
this Agreement and the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to the Buyers' purchase of the
Securities.
P. NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of any shareholder
approval provisions applicable to the Company or its securities.
-10-
Q. NO BROKERS. Except as set forth in SCHEDULE 3(Q), the
Company has taken no action which would give rise to any claim by any person for
brokerage commissions, transaction fees or similar payments relating to this
Agreement or the transactions contemplated hereby.
R. PERMITS; COMPLIANCE. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "COMPANY
PERMITS"), and there is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the Company Permits.
Neither the Company nor any of its Subsidiaries is in conflict with, or in
default or violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect. Since December 31,
2005, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
S. ENVIRONMENTAL MATTERS.
(I) Except as set forth in SCHEDULE 3(S), there are, to the
best of the Company's knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or present violations of
Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents,
or contractual obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local or
foreign laws and neither the Company nor any of its Subsidiaries has received
any notice with respect to any of the foregoing, nor is any action pending or,
to the Company's knowledge, threatened in connection with any of the foregoing.
The term "ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants
contaminants, or toxic or hazardous substances or wastes (collectively,
"HAZARDOUS Materials") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.
-11-
(II) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by the
Company or any of its Subsidiaries, and no Hazardous Materials were released on
or about any real property previously owned, leased or used by the Company or
any of its Subsidiaries during the period the property was owned, leased or used
by the Company or any of its Subsidiaries, except in the normal course of the
Company's or any of its Subsidiaries' business.
(III) Except as set forth in SCHEDULE 3(S), to the best of
the Company's knowledge there are no underground storage tanks on or under any
real property owned, leased or used by the Company or any of its Subsidiaries
that are not in compliance with applicable law.
T. TITLE TO PROPERTY. The Company and its Subsidiaries have
good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in SCHEDULE 3(T) or
such as would not have a Material Adverse Effect. Any real property and
facilities held under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect.
U. INSURANCE. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
V. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
W. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary has, in the course of his
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
-12-
X. SOLVENCY. The Company (after giving effect to the
transactions contemplated by this Agreement) is solvent (i.e., its assets have a
fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently the Company has no information that would lead it to reasonably
conclude that the Company would not, after giving effect to the transaction
contemplated by this Agreement, have the ability to, nor does it intend to take
any action that would impair its ability to, pay its debts from time to time
incurred in connection therewith as such debts mature.
Y. NO INVESTMENT COMPANY. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement will not
be an "investment company" required to be registered under the Investment
Company Act of 1940 (an "INVESTMENT COMPANY"). The Company is not controlled by
an Investment Company.
Z. CERTAIN REGISTRATION MATTERS. Assuming the accuracy of the
Buyers' representations and warranties set forth in Section 3, no registration
under the Securities Act is required for the offer and sale of the Conversion
Shares and Warrant Shares by the Company to the Buyers under the transaction
documents. Except as specified in SCHEDULE 3(Z), the Company has not granted or
agreed to grant to any Person any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the Commission or
any other governmental authority that have not been satisfied.
AA. BREACH OF REPRESENTATIONS AND WARRANTIES BY THE COMPANY.
If the Company materially breaches any of the representations or warranties set
forth in this Section 3, and in addition to any other remedies available to the
Buyers pursuant to this Agreement, the Company shall pay to the Buyer the
Standard Liquidated Damages Amount in cash or in shares of Common Stock at the
option of the Company, until such breach is cured. If the Company elects to pay
the Standard Liquidated Damages Amounts in shares of Common Stock, such shares
shall be issued at the Conversion Price at the time of payment.
4. COVENANTS.
A. BEST EFFORTS. The parties shall use their best efforts to
satisfy timely each of the conditions described in Section 6 and 7 of this
Agreement.
B. FORM D; BLUE SKY LAWS. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Buyers at the
applicable closing pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to each Buyer on or prior to the Closing Date; provided, however, that the
Company shall not be required in connection therewith or as a condition thereto
to (a) qualify to do business in any jurisdiction where it would not otherwise
be required to qualify but for this Section 4(b), (b) subject itself to general
taxation in any such jurisdiction, (c) file a general consent to service of
process in any such jurisdiction, (d) provide any undertakings that cause the
Company undue expense or burden, or (e) make any change in its charter or
bylaws, which in each case the Board of Directors of the Company determines to
be contrary to the best interests of the Company and its shareholders.
-13-
C. REPORTING STATUS; ELIGIBILITY TO USE FORM S-3, SB-2 OR FORM
S-1. The Company's Common Stock is registered under Section 12(g) of the 1934
Act. The Company represents and warrants that it meets the requirements for the
use of Form SB-2 (or if the Company is not eligible for the use of Form SB-2 as
of the Filing Date (as defined in the Registration Rights Agreement), the
Company may use the form of registration for which it is eligible at that time)
for registration of the sale by the Buyer of the Registrable Securities (as
defined in the Registration Rights Agreement). So long as the Buyer beneficially
owns any of the Securities, the Company shall timely file all reports required
to be filed with the SEC pursuant to the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would permit such
termination. The Company further agrees to file all reports required to be filed
by the Company with the SEC in a timely manner so as to become eligible, and
thereafter to maintain its eligibility, for the use of Form SB-2. The Company
shall issue a press release describing the material terms of the transaction
contemplated hereby as soon as practicable following the Closing Date but in no
event more than two (2) business days of the Closing Date, which press release
shall be subject to prior review by the Buyers. The Company agrees that such
press release shall not disclose the name of the Buyers unless expressly
consented to in writing by the Buyers or unless required by applicable law or
regulation, and then only to the extent of such requirement.
D. USE OF PROCEEDS. The Company shall use the net proceeds
from the sale of the Notes and the Warrants in the manner set forth in SCHEDULE
4(D) attached hereto and made a part hereof and shall not, directly or
indirectly, use such proceeds for (i) any loan to or investment in any other
corporation, partnership, enterprise or other person (except in connection with
its currently existing direct or indirect Subsidiaries); (ii) the satisfaction
of any portion of the Company's debt (other than payment of trade payables and
accrued expenses in the ordinary course of the Company's business and consistent
with prior past practices), or (iii) the redemption of any Common Stock.
E. FUTURE OFFERINGS. Subject to the exceptions described
below, the Company will not, without the prior written consent of a
majority-in-interest of the Buyers, which consent shall not be unreasonably
withheld, negotiate or contract with any party to obtain additional equity
financing (including debt financing with an equity component) that involves (A)
the issuance of Common Stock for cash at a discount to the market price of the
Common Stock on the date of issuance (taking into account the value of any
warrants or options to acquire Common Stock issued in connection therewith) or
(B) the issuance of convertible securities that are convertible into an
indeterminate number of shares of Common Stock or (C) the issuance of warrants
during the period (the "LOCK-UP PERIOD") beginning on the Closing Date and
ending on the later of (i) two hundred seventy (270) days from the Closing Date
and (ii) one hundred eighty (180) days from the date the Registration Statement
(as defined in the Registration Rights Agreement) is declared effective (plus
any days in which sales cannot be made thereunder). In addition, subject to the
exceptions described below, the Company will not conduct any equity financing
(including debt with an equity component) ("FUTURE OFFERINGS") during the period
beginning on the Closing Date and ending two (2) years after the end of the
Lock-up Period unless it shall have first delivered to each Buyer, at least
twenty (20) business days prior to the closing of such Future Offering, written
notice describing the proposed Future Offering, including the terms and
conditions thereof and proposed definitive documentation to be entered into in
connection therewith, and providing each Buyer an option during the fifteen (15)
-14-
day period following delivery of such notice to purchase its pro rata share
(based on the ratio that the aggregate principal amount of Notes purchased by it
hereunder bears to the aggregate principal amount of Notes purchased hereunder)
of the securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in this
sentence and the preceding sentence are collectively referred to as the "CAPITAL
RAISING LIMITATIONS"). In the event the terms and conditions of a proposed
Future Offering are amended in any respect after delivery of the notice to the
Buyers concerning the proposed Future Offering, the Company shall deliver a new
notice to each Buyer describing the amended terms and conditions of the proposed
Future Offering and each Buyer thereafter shall have an option during the
fifteen (15) day period following delivery of such new notice to purchase its
pro rata share of the securities being offered on the same terms as contemplated
by such proposed Future Offering, as amended. The foregoing sentence shall apply
to successive amendments to the terms and conditions of any proposed Future
Offering. The Capital Raising Limitations shall not apply to any transaction
involving (i) issuances of securities in a firm commitment underwritten public
offering (excluding a continuous offering pursuant to Rule 415 under the 1933
Act, an equity line of credit or similar financing arrangement) resulting in net
proceeds to the Company of in excess of $1,500,000, (ii) issuances of securities
as consideration for a merger, consolidation or purchase of assets, or in
connection with any strategic partnership or joint venture (the primary purpose
of which is not to raise equity capital), or in connection with the disposition
or acquisition of a business, product or license by the Company (iii)the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof or to
the grant of additional options or warrants, (iv)the issuance of additional
securities, under any Company stock option or restricted stock plan approved by
the shareholders of the Company, or (v) the issuance to financial institutions
or equipment lessors in connection with transactions approved by the Board of
Directors.
F. EXPENSES. At the Closing, the Company shall reimburse
Buyers for expenses incurred by them in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and the other
agreements to be executed in connection herewith ("Documents"), including,
without limitation, attorneys' and consultants' fees and expenses, transfer
agent fees, fees for stock quotation services, fees relating to any amendments
or modifications of the Documents or any consents or waivers of provisions in
the Documents, fees for the preparation of opinions of counsel, escrow fees, and
costs of restructuring the transactions contemplated by the Documents. When
possible, the Company must pay these fees directly, otherwise the Company must
make immediate payment for reimbursement to the Buyers for all fees and expenses
immediately upon written notice by the Buyer or the submission of an invoice by
the Buyer. Notwithstanding anything herein to the contrary, the Company's
obligation to reimburse Buyers' expenses shall not exceed $50,000 in the
aggregate.
-15-
G. FINANCIAL INFORMATION. The Company agrees to send the
following reports to each Buyer until such Buyer transfers, assigns, or sells
all of the Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-KSB its Quarterly Reports on Form 10-QSB
and any Current Reports on Form 8-K; (ii) within one (1) day after release,
copies of all press releases issued by the Company or any of its Subsidiaries;
and (iii) contemporaneously with the making available or giving to the
shareholders of the Company, copies of any notices or other information the
Company makes available or gives to such shareholders.
H. AUTHORIZATION AND RESERVATION OF SHARES. Subject to
Stockholder Approval, the Company shall, at the end of each month that the
Notes, Additional Notes or Warrants are outstanding, have authorized and
reserved for the purpose of issuance, a number of shares of Common Stock that is
not less than one hundred ten percent (110%) of the number of shares of Common
Stock actually issuable upon full conversion of the Notes and Additional Notes
and exercise of the Warrants based on the average Conversion Price of the Notes
and the average Exercise Price of the Warrants during such calendar month
("RESERVED AMOUNT"). The Company shall not reduce the number of shares of Common
Stock reserved for issuance upon conversion of Notes and exercise of the
Warrants without the consent of each Buyer. At the end of each calendar month in
which the Company is required to reserve shares of Common Stock pursuant to this
Section 4(h), the Company shall determine the number of shares of Common Stock
that is then actually issuable upon full conversion of the Notes and Additional
Notes and upon exercise of the Warrants based on the average Conversion Price of
the Notes and the average Exercise Price of the Warrants during such month (a
"MONTH END CALCULATION "). If any Month End Calculation results in a number of
shares of Common Stock that should be reserved and when added to the number of
outstanding shares of Common Stock is more than the amount of shares then
authorized under the Certificate of Incorporation ("AUTHORIZED SHARES"), the
Company will promptly take all corporate action necessary to authorize and
reserve a sufficient number of shares, including, without limitation, calling a
special meeting of shareholders to authorize additional shares to meet the
Company's obligations under this Section 4(h) and, in the case of an
insufficient number of Authorized Shares, obtain shareholder approval of an
increase in such authorized number of shares, and voting the management shares
of the Company in favor of an increase in the Authorized Shares of the Company
to ensure that the number of Authorized Shares is sufficient to meet the
Reserved Amount. If the Company fails to obtain such shareholder approval within
sixty (60) days following the date of the Month End Calculation which results in
the Reserved Amount and the outstanding Common Stock exceeding the Authorized
Shares, the Company shall pay to the Buyers the Standard Liquidated Damages
Amount, in cash or in shares of Common Stock at the option of the Company. If
the Company elects to pay the Standard Liquidated Damages Amount in shares of
Common Stock, such shares shall be issued at the Conversion Price at the time of
payment. In order to ensure that the Company has authorized a sufficient amount
of shares to meet the Reserved Amount at all times, the Company must deliver to
the Buyer at the end of every month the Month End Calculation for the month then
ended which shall also detail (1) the current amount of shares authorized by the
Company and reserved for the Buyer; and (2) the amount of shares issuable upon
conversion of the Notes and upon exercise of the Warrants and as payment of
interest accrued on the Notes for one year. If the Company fails to provide such
Month End Calculation within ten (10) business days of the end of each month,
and if the duly prepared Month End Calculation would have required the Company
to increase its Authorized Shares, the Company shall pay the Standard Liquidated
Damages Amount each month, in cash or in shares of Common Stock at the option of
the Company, until the Month End Calculation is delivered. If the Company elects
to pay the Standard Liquidated Damages Amount in shares of Common Stock, such
shares shall be issued at the Conversion Price at the time of payment. Nothing
herein shall limit any Buyer's right to pursue actual damages for the Company's
failure to maintain a sufficient number of Authorized Shares of Common Stock,
and each Buyer shall have the right to pursue all remedies available at law or
in equity (including degree of specific performance and/or injunctive relief).
-16-
I. LISTING. The Company shall promptly secure the listing of
the Conversion Shares and Warrant Shares upon each national securities exchange
or automated quotation system, if any, upon which shares of Common Stock are
then listed or quoted (subject to official notice of issuance) and, so long as
any Buyer owns any of the Securities, shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all Conversion Shares
and Warrant Shares from time to time issuable upon conversion of the Notes or
exercise of the Warrants. The Company will obtain and, so long as any Buyer owns
any of the Securities, maintain the listing and trading of its Common Stock on
the OTCBB or any equivalent replacement quotation service, the Nasdaq National
Market ("NASDAQ"), the Nasdaq SmallCap Market ("NASDAQ SMALLCAP"), the New York
Stock Exchange ("NYSE"), or the American Stock Exchange ("AMEX") and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the National Association of Securities Dealers ("NASD")
and such exchanges, as applicable. The Company shall promptly provide to each
Buyer copies of any notices it receives from the OTCBB and any other exchanges
or quotation systems on which the Common Stock is then listed or quoted
regarding the continued eligibility of the Common Stock for listing on such
exchanges and quotation systems.
J. CORPORATE EXISTENCE. So long as a Buyer beneficially owns
any Notes or Warrants, the Company shall maintain its corporate existence and
shall not sell all or substantially all of the Company's assets, except in the
event of a merger or consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor entity in such transaction
(i) assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed or quoted for trading on the OTCBB,
Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
K. NO INTEGRATION. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
1933 Act or cause the offering of the Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
L. SUBSEQUENT INVESTMENT. The Company and the Buyers agree
that, upon the filing by the Company of the Registration Statement to be filed
pursuant to the Registration Rights Agreement (the "FILING DATE"), the Buyers
shall purchase additional Notes (the "FILING NOTES") in the aggregate principal
amount of Seven Hundred Thirty Five Thousand Dollars ($735,000), for an
aggregate purchase price of Seven Hundred Thirty Five Thousand Dollars
($735,000), with the closing of such purchase to occur within two (2) days of
the Filing Date; provided, however, that the obligation of each Buyer to
purchase the Filing Notes is subject to the satisfaction, at or before the
closing of such purchase and sale, of the conditions set forth in Section 7. The
Company and the Buyers further agree that, upon the declaration of effectiveness
of the Registration Statement to be filed pursuant to the Registration Rights
Agreement (the "EFFECTIVE DATE"), the Buyers shall purchase additional notes
(the "EFFECTIVENESS NOTES" and, collectively with the Filing Notes, the
"ADDITIONAL NOTES") in the aggregate principal amount of Eight Hundred Fifty
Seven Thousand Five Hundred Dollars ($857,500) for an aggregate purchase price
of Eight Hundred Fifty Seven Thousand Five Hundred Dollars ($857,500), with the
closing of such purchase to occur within two (2) days of the Effective Date;
provided, however, that the obligation of each Buyer to purchase the Additional
Notes is subject to the satisfaction, at or before the closing of such purchase
and sale, of the conditions set forth in Section 7. The terms of the Additional
Notes shall be identical to the terms of the Notes to be issued on the Closing
Date. The Common Stock underlying the Additional Notes shall be Registrable
Securities (as defined in the Registration Rights Agreement) and shall be
included in the Registration Statement to be filed pursuant to the Registration
Rights Agreement.
-17-
M. RESTRICTION ON SHORT SALES. The Buyers agree that, so long
as any of the Notes remain outstanding, but in no event less than two (2) years
from the date hereof, the Buyers will not enter into or effect any "short sales"
(as such term is defined in Rule 3b-3 of the 0000 Xxx) of the Common Stock or
hedging transaction which establishes a net short position with respect to the
Common Stock.
N. STOCKHOLDER APPROVAL. The Company shall file a proxy or
information statement with the SEC no later than August 1, 2006 and use its best
efforts to obtain, on or before November 1, 2006, such approvals of the
Company's stockholders as may be required to issue all of the shares of Common
Stock issuable upon conversion or exercise of, or otherwise with respect to, the
Notes and the Warrants in accordance with Delaware law and any applicable rules
or regulations of the OTCBB and Nasdaq, either through a reverse stock split of
the Common Stock or an increase in authorized capital (the "STOCKHOLDER
APPROVAL"). The Company shall furnish to each Buyer and its legal counsel
promptly (but in no event less than five (5) business days) before the same is
filed with the SEC, one copy of the proxy or information statement and any
amendment thereto, and shall deliver to each Buyer promptly each letter written
by or on behalf of the Company to the SEC or the staff of the SEC, and each item
of correspondence from the SEC or the staff of the SEC, in each case relating to
such proxy or information statement (other than any portion thereof which
contains information for which the Company has sought confidential treatment).
The Company will promptly respond to any and all comments received from the SEC
(which comments shall promptly be made available to each Buyer). The Company
shall comply with the filing and disclosure requirements of Section 14 under the
1934 Act in connection with the Stockholder Approval. The Company represents and
warrants that its Board of Directors has approved the proposal contemplated by
this Section 4(n) and shall indicate such approval in the proxy or information
statement used in connection with the Stockholder Approval.
O. BREACH OF COVENANTS. If the Company breaches any of the
covenants set forth in this Section 4, and in addition to any other remedies
available to the Buyers pursuant to this Agreement, the Company shall pay to the
Buyers the Standard Liquidated Damages Amount, in cash or in shares of Common
Stock at the option of the Company, until such breach is cured. If the Company
elects to pay the Standard Liquidated Damages Amount in shares, such shares
shall be issued at the Conversion Price at the time of payment.
-18-
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Conversion Shares and Warrant Shares in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Notes or exercise of the Warrants in accordance with the terms
thereof (the "IRREVOCABLE TRANSFER AGENT Instructions"). Prior to registration
of the Conversion Shares and Warrant Shares under the 1933 Act or the date on
which the Conversion Shares and Warrant Shares may be sold pursuant to Rule 144
without any restriction as to the number of Securities as of a particular date
that can then be immediately sold, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Buyer's obligations and
agreement set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon re-sale of the Securities. If a
Buyer provides the Company with (i) an opinion of counsel reasonably acceptable
to the Company and its counsel in form, substance and scope customary for
opinions in comparable transactions, to the effect that a public sale or
transfer of such Securities may be made without registration under the 1933 Act
and such sale or transfer is effected or (ii) the Buyer provides reasonable
assurances that the Securities can be sold pursuant to Rule 144, the Company
shall permit the transfer, and, in the case of the Conversion Shares and Warrant
Shares, promptly instruct its transfer agent to issue one or more certificates,
free from restrictive legend, in such name and in such denominations as
specified by such Buyer. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers, by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5 may be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section, that the
Buyers shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate transfer, without the
necessity of showing economic loss and without any bond or other security being
required.
-19-
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
the Company hereunder to issue and sell the Notes and Warrants to a Buyer at the
Closing is subject to the satisfaction, at or before the Closing Date of each of
the following conditions thereto, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion:
A. The applicable Buyer shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Company.
B. The applicable Buyer shall have delivered the Purchase
Price in accordance with Section 1(b) above.
C. The representations and warranties of the applicable Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and the applicable Buyer shall
have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
D. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation
of each Buyer hereunder to purchase the Notes and Warrants at the Closing is
subject to the satisfaction, at or before the Closing Date of each of the
following conditions, provided that these conditions are for such Buyer's sole
benefit and may be waived by such Buyer at any time in its sole discretion:
A. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
B. The Company shall have delivered to such Buyer duly
executed Notes (in such denominations as the Buyer shall request) and Warrants
in accordance with Section 1(b) above.
C. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
-20-
D. The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall
have received a certificate or certificates, executed by the chief executive
officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company's
Certificate of Incorporation, By-laws and Board of Directors' resolutions
relating to the transactions contemplated hereby.
E. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
F. No event shall have occurred which could reasonably be
expected to have a Material Adverse Effect on the Company.
G. The Conversion Shares and Warrant Shares shall have been
authorized for quotation on the OTCBB and trading in the Common Stock on the
OTCBB shall not have been suspended by the SEC or the OTCBB.
H. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as EXHIBIT "D"
attached hereto.
I. The Buyer shall have received an officer's certificate
described in Section 3(c) above, dated as of the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
A. GOVERNING LAW. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT
TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW
YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE
THAT SERVICE OF PROCESS UPON A PARTY MAILED BY REGISTERED FIRST CLASS MAIL SHALL
BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY
SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A
FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE
AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY
OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING
UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
REASONABLE ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH
SUCH DISPUTE.
-21-
B. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may
be executed in one or more counterparts, each of which shall be deemed an
original but all of which shall constitute one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
C. HEADINGS. The headings of this Agreement are for
convenience of reference only and shall not form part of, or affect the
interpretation of, this Agreement.
D. SEVERABILITY. In the event that any provision of this
Agreement is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof.
E. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
F. NOTICES. Any notices required or permitted to be given
under the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
Kiwa Bio-Tech Products Group Corporation
X000 Xxxxxx Xxxxx, X0# Xxx Xxxx Xxx Xxx,
Andingmen Wai
Xxxxxxxx Xxxxxxxx,
Xxxxxxx, Xxxxx 000000
Attention: Chief Executive Officer
Telephone: (8610) 0000-0000
Facsimile: (8610) 8528-6176
-22-
With a copy to:
Xxxxxxx Xxxxx & Xxxxx LLP
000 0xx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to a Buyer: To the address set forth immediately
below such Buyer's name on the signature pages
hereto.
With the exception of Double U Master Fund LP and
Nite Capital LP, a copy to:
Xxxxxxx Xxxxx Xxxxxxx & Xxxxxxxxx, LLP
0000 Xxxxxx Xxxxxx
00xx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each party shall provide notice to the other party of any change in
address.
G. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.
H. THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
-23-
I. SURVIVAL. The representations and warranties of the Company
and the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall
survive the closing hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Buyers. The Company agrees to indemnify and
hold harmless each of the Buyers and all their officers, directors, employees
and agents for loss or damage arising as a result of or related to any breach or
alleged breach by the Company of any of its representations, warranties and
covenants set forth in Sections 3 and 4 hereof or any of its covenants and
obligations under this Agreement or the Registration Rights Agreement, including
advancement of expenses as they are incurred.
J. PUBLICITY. The Company and each of the Buyers shall have
the right to review a reasonable period of time before issuance of any press
releases, SEC, OTCBB or NASD filings, or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of each of the Buyers, to
make any press release or SEC, OTCBB (or other applicable trading market) or
NASD filings with respect to such transactions as is required by applicable law
and regulations (although each of the Buyers shall be consulted by the Company
in connection with any such press release prior to its release and shall be
provided with a copy thereof and be given an opportunity to comment thereon).
K. FURTHER ASSURANCES. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
L. NO STRICT CONSTRUCTION. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
M. REMEDIES. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Buyers by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that the
Buyers shall be entitled, in addition to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Agreement
and to enforce specifically the terms and provisions hereof, without the
necessity of showing economic loss and without any bond or other security being
required.
-24-
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
KIWA BIO-TECH PRODUCTS GROUP CORPORATION
---------------------------------------------
Xxx Xx
Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
---------------------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: Delaware
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $68,600
Number of Warrants: 980,000
Aggregate Purchase Price: $196,000
-25-
AJW OFFSHORE, LTD.
By: First Street Manager II, LLC
----------------------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: Cayman Islands
ADDRESS: AJW Offshore, Ltd.
X.X. Xxx 00000 XXX
Xxxxx Xxxxxx, Xxxxxx Xxxxxx, B.W.I.
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $427,000
Number of Warrants: 6,100,000
Aggregate Purchase Price: $1,220,000
-26-
AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC
-----------------------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: New York
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $195,300
Number of Warrants: 2,790,000
Aggregate Purchase Price: $558,000
-27-
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: First Street Manager II, LLP
---------------------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: New York
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $9,100
Number of Warrants: 130,000
Aggregate Purchase Price: $26,000
-28-
DOUBLE U MASTER FUND LP
By: ________________________
Xxxxx Xxxxxx
Navigator Management Ltd Authorized Signator
RESIDENCE: British Virgin Islands
ADDRESS: Harbour House, Waterfront Drive, P.O. Box 972, Road Town, Tortola
British Virgin Islands
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $52,500
Number of Warrants: 750,000
Aggregate Purchase Price: $150,000
-29-
NITE CAPITAL LP
By: ________________________
Xxxxx Xxxxxxx
Manager of the General Partner
RESIDENCE: Chicago
ADDRESS: 000 Xxxx Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $105,000
Number of Warrants: 1,500,000
Aggregate Purchase Price: $300,000
-30-
