SECURITIES PURCHASE AGREEMENT
THIS SECURITIES
PURCHASE AGREEMENT
(this
“Agreement”),
dated
as of October 10, 2005, by and among CENUCO,
INC.,
a
Delaware corporation (the “Company”),
and
the Buyer(s) listed on Schedule I attached hereto (individually, a
“Buyer”
or
collectively “Buyers”).
WITNESSETH:
WHEREAS,
the
Company and the Buyer(s) are executing and delivering this Agreement in reliance
upon an exemption from securities registration pursuant to Section 4(2) and/or
Rule 506 of Regulation D (“Regulation
D”)
as
promulgated by the U.S. Securities and Exchange Commission (the “SEC”)
under
the Securities Act of 1933, as amended (the “Securities
Act”);
WHEREAS,
the
parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Buyer(s), as provided herein,
and the Buyer(s) shall purchase (i) Forty Million Dollars ($40,000,000)
principal amount of secured convertible debentures (the “Convertible
Debentures”),
which
shall be convertible into shares of the Company’s common stock, par value $0.001
(the “Common
Stock”)
(as
converted, the “Conversion
Shares”).
Of
such total principal amount, subject to the deduction of any and all fees,
Forty
Million Dollars ($40,000,000) shall be funded on the Closing Date, as defined
below, and (ii) warrants (the “Warrants”)
to
purchase an aggregate of 1,052,631 shares of Common Stock (the “Warrant
Shares”).
The
total purchase price for the Convertible Debentures and the Warrants shall
be up
to Forty Million Dollars ($40,000,000), (the “Purchase
Price”)
which
Purchase Price shall be allocated among the Buyer(s) in the respective amounts
set forth opposite each Buyer(s) name on Schedule I (the “Subscription
Amount”);
WHEREAS,
on the
Closing Date, the parties hereto shall execute and deliver a Registration Rights
Agreement substantially in the form attached hereto as Exhibit
A
(the
“Investor
Registration Rights Agreement”)
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated there under,
and applicable state securities laws;
WHEREAS,
on the
Closing Date, the parties hereto shall execute and deliver a Security Agreement
substantially in the form attached hereto as Exhibit
B
(the
“Security
Agreement”)
pursuant to which the Company has agreed to provide the Buyer(s) a security
interest in Pledged Collateral (as this term is defined in the Security
Agreement) to secure the Company’s obligations under this Agreement, the
Convertible Debenture, the Investor Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions, as defined below, and the Security
Agreement, ; and
WHEREAS,
on the
Closing Date, the parties hereto shall execute and deliver an Irrevocable
Transfer Agent Instructions substantially in the form attached hereto as
Exhibit
D
(the
“Irrevocable
Transfer Agent Instructions”).
NOW,
THEREFORE,
in
consideration of the mutual covenants and other agreements contained in this
Agreement the Company and the Buyer(s) hereby agree as follows:
1. PURCHASE
AND SALE OF CONVERTIBLE DEBENTURES.
(a) Purchase
of Convertible Debentures.
Subject
to the satisfaction (or waiver) of the terms and conditions of this Agreement,
each Buyer agrees, severally and not jointly, to purchase at Closing (as defined
herein below) and the Company agrees to sell and issue to each Buyer, severally
and not jointly, at Closing, Convertible Debentures in amounts corresponding
with the Subscription Amount set forth opposite each Buyer’s name on Schedule I
hereto and the Warrants set forth opposite each Buyer’s name on Schedule I
hereto.
(b) Closing
Date.
The
closing of the purchase and sale of the Convertible Debentures and Warrants
(the
“Closing”)
shall
take place at 10:00 a.m. Eastern Standard Time on the fifth (5th)
business day following the date that the conditions to the Closing set forth
herein and in Sections 7 and 8 below (or such later date as is mutually agreed
to by the Company and the Buyer(s)) are satisfied (the “Closing
Date”).
The
Closing shall occur on the Closing Date at the offices of Gottbetter &
Partners, LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (or such other
place
as is mutually agreed to by the Company and the Buyer(s)).
2. BUYERS’
REPRESENTATIONS AND WARRANTIES.
Each
Buyer represents and warrants, severally and not jointly, that:
(a) Investment
Purpose.
Each
Buyer is acquiring the Convertible Debentures, the Warrants and, upon conversion
of Convertible Debentures and/or the exercise of the Warrants, the Buyer will
acquire the Conversion Shares and/or Warrant Shares, as defined below, then
issuable, for its own account for investment only and not with a view towards,
or for resale in connection with, the public sale or distribution thereof,
except pursuant to sales registered or exempted under the Securities Act;
provided, however, that by making the representations herein, such Buyer
reserves the right to dispose of the Conversion Shares and the Warrant Shares
at
any time in accordance with or pursuant to an effective registration statement
covering such Conversion Shares and the Warrant Shares or an available exemption
under the Securities Act.
(b) Accredited
Investor Status.
Each
Buyer is an “Accredited
Investor”
as
that
term is defined in Rule 501(a)(3) of Regulation D.
(c) Reliance
on Exemptions.
Each
Buyer understands that the Convertible Debentures and the Warrants are being
offered and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying in part upon the truth and accuracy of, and such Buyer’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of such Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of such Buyer to acquire
such securities.
(d) Information.
Each
Buyer and its advisors (and his or, its counsel), if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and information he deemed material to making an informed investment
decision regarding his purchase of the Convertible Debentures, the Warrants,
the
Warrant Shares and the Conversion Shares, which have been requested by such
Buyer. Each Buyer and its advisors, if any, have been afforded the opportunity
to ask questions of the Company and its management. Neither such inquiries
nor
any other due diligence investigations conducted by such Buyer or its advisors,
if any, or its representatives shall modify, amend or affect such Buyer’s right
to rely on the Company’s representations and warranties contained in Section 3
below. Each Buyer understands that its investment in the Convertible Debentures,
the Warrants, the Warrant Shares and the Conversion Shares involves a high
degree of risk. Each Buyer is in a position regarding the Company, which, based
upon employment, family relationship or economic bargaining power, enabled
and
enables such Buyer to obtain information from the Company in order to evaluate
the merits and risks of this investment. Each Buyer has sought such accounting,
legal and tax advice, as it has considered necessary to make an informed
investment decision with respect to its acquisition of the Convertible
Debentures, the Warrants, the Warrant Shares and the Conversion
Shares.
(e) No
Governmental Review.
Each
Buyer understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation
or
endorsement of the Convertible Debentures, the Warrants, the Warrant Shares
or
the Conversion Shares, or the fairness or suitability of the investment in
the
Convertible Debentures, the Warrants, the Warrant Shares or the Conversion
Shares, nor have such authorities passed upon or endorsed the merits of the
offering of the Convertible Debentures, the Warrants, the Warrant Shares or
the
Conversion Shares.
(f) Transfer
or Resale.
Each
Buyer understands that except as provided in the Investor Registration Rights
Agreement: (i) the Convertible Debentures, the Conversion Shares, the Warrant
Shares and the Warrants have not been and are not being registered under the
Securities Act or any state securities laws, and may not be offered for sale,
sold, assigned or transferred unless (A) subsequently registered thereunder,
or
(B) such Buyer shall have delivered to the Company an opinion of counsel, in
a
generally acceptable form, to the effect that such securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration requirements; (ii) any sale of such securities
made in reliance on Rule 144 under the Securities Act (or a successor rule
thereto) (“Rule 144”)
may be
made only in accordance with the terms of Rule 144 and further, if Rule 144
is
not applicable, any resale of such securities under circumstances in which
the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules
and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such securities under the Securities
Act or any state securities laws or to comply with the terms and conditions
of
any exemption thereunder.
(g) Legends.
Each
Buyer understands that the certificates or other instruments representing the
Convertible Debentures, the Warrants, the Warrant Shares and or the Conversion
Shares shall bear a restrictive legend in substantially the following form
(and
a stop -transfer order may be placed against transfer of such stock
certificates):
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW
TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR
AN
OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.
The
legend set forth above shall be removed and the Company within two (2) business
days shall issue a certificate without such legend to the holder of the
Warrants, Warrant Shares, Convertible Debenture and Conversion Shares upon
which
it is stamped, if, unless otherwise required by state securities laws, (i)
in
connection with a sale transaction, provided the Warrants, Warrant Shares and
Conversion Shares are registered under the Securities Act or (ii) in connection
with a sale transaction, after such holder provides the Company with an opinion
of counsel, which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public
sale, assignment or transfer of the Warrants, Warrant Shares and Conversion
Shares may be made without registration under the Securities Act.
(h) Authorization,
Enforcement.
This
Agreement has been duly and validly authorized, executed and delivered on behalf
of such Buyer and is a valid and binding agreement of such Buyer enforceable
in
accordance with its terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to,
or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.
(i) Receipt
of Documents.
Each
Buyer and his or its counsel has received and read in their entirety: (i) this
Agreement and each representation, warranty and covenant set forth herein,
the
Security Agreement, the Investor Registration Rights Agreement and the
Irrevocable Transfer Agent Agreement; (ii) all due diligence and other
information necessary to verify the accuracy and completeness of such
representations, warranties and covenants; (iii) the Company’s Annual Report on
Form 10-KSB for the fiscal year ended June 30, 2004; (iv) the Company’s
Quarterly Report on Form 10-QSB for the fiscal quarters ended September 30,
2004, December 31, 2004 and March 31, 2005; and (v) the Company’s Quarterly
Report on Form 10-Q for the fiscal quarter ended May 28, 2005. Each Buyer has
received answers to all questions such Buyer submitted to the Company regarding
an investment in the Company; and each Buyer has relied on the information
contained therein and has not been furnished any other documents, literature,
memorandum or prospectus.
(j) Due
Formation of Corporate and Other Buyers.
If a
Buyer is a corporation, trust, partnership, or other entity that is not an
individual person, it has been formed and validly exists.
(k) No
Legal Advice From the Company.
Each
Buyer acknowledges that it had the opportunity to review this Agreement and
the
transactions contemplated by this Agreement with his or its own legal counsel
and investment and tax advisors. Each Buyer is relying solely on such counsel
and advisors and not on any statements or representations of the Company or
any
of its representatives or agents for legal, tax or investment advice with
respect to this investment, the transactions contemplated by this Agreement
or
the securities laws of any jurisdiction.
(l) No
Group Participation. Each
Buyer and its affiliates is not a member of any group, nor is any Buyer acting
in concert with any other person, including any other Buyer, with respect to
its
acquisition of the Convertible Debentures, Warrants, the Warrant Shares or
Conversion Shares.
(m) Company
Registration Statement.
No
Buyer makes any representation or warranty regarding the Company’s ability to
have any registration statement filed by the Company pursuant to the Investor
Registration Rights Agreement or otherwise declared effective by the SEC. The
Company has the sole obligation to make any and all such filings as may be
necessary to have any registration statement declared effective by the
SEC.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
The
Company represents and warrants to each of the Buyers that, except as set forth
in the SEC Documents (as defined herein):
(a) Organization
and Qualification.
The
Company and its subsidiaries are corporations or limited liability companies
duly organized and validly existing in good standing under the laws of the
jurisdiction in which they are organized, and have the requisite corporate
or
limited liability company power to own their properties and to carry on their
business as now being conducted. Each of the Company and its subsidiaries is
duly qualified as a foreign corporation or limited liability company to do
business and is in good standing in every jurisdiction in which the nature
of
the business conducted by it makes such qualification necessary, except to
the
extent that the failure to be so qualified or be in good standing would not
have
a Material Adverse Effect, as defined below.
(b) Authorization,
Enforcement, Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to enter
into and perform this Agreement, the Security Agreement, the Investor
Registration Rights Agreement, the Irrevocable Transfer Agent Instructions,
and
any related agreements (collectively the “Transaction
Documents”)
and to
issue the Convertible Debentures, the Warrants, the Warrant Shares and the
Conversion Shares in accordance with the terms hereof and thereof, (ii) the
execution and delivery of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Convertible Debentures,
the
Warrants, the Warrant Shares and the Conversion Shares and the reservation
for
issuance and the 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, except for approval of the stockholders of the Company
as required by the rules of the American Stock Exchange, no further consent
or
authorization is required by the Company, its Board of Directors or its
stockholders, (iii) the Transaction Documents have been duly executed and
delivered by the Company, (iv) the Transaction Documents constitute the valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors’ rights and remedies. The
authorized officer of the Company executing the Transaction Documents knows
of
no reason why the Company cannot file the registration statement as required
under the Investor Registration Rights Agreement or perform any of the Company’s
other obligations under such documents.
(c) Capitalization.
As of
the date hereof, and prior to the issuance of any shares in connection with
this
Agreement or the Standby Equity Distribution Agreement of even date herewith
by
and between the Company and Cornell Capital Partners, LP (“SEDA”),
the
authorized capital stock of the Company consists of 25,000,000 shares of Common
Stock and 1,000,000 shares of preferred stock, $.001 par value per share (the
“Preferred
Stock”).
As of
the date of this Agreement, the Company has 13,826,556 shares of Common Stock
and 2,553.6746 shares of Preferred Stock, designated as Series A Junior
Participating Preferred Stock, issued and outstanding. All of such outstanding
shares have been validly issued and are fully paid and nonassessable. Except
as
disclosed in the SEC Documents (as defined in Section 3(f)), no shares of Common
Stock are subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company. Except as disclosed in
the
SEC Documents, as of the date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into,
any
shares of capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings 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 or options, warrants, scrip, rights
to
subscribe to, calls or commitments of any character whatsoever relating to,
or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities and (iii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any
of
their securities under the Securities Act (except pursuant to the Registration
Rights Agreement, agreements relating to the SEDA transaction and related
transactions) and (iv) there are no outstanding registration statements. There
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Convertible Debentures and
Warrants as described in this Agreement. The Convertible Debentures, Warrants,
Warrant Shares and Conversion Shares when issued, will be free and clear of
all
pledges, liens, encumbrances and other restrictions (other than those arising
under federal or state securities laws as a result of the private placement
of
the Convertible Debentures and Warrants). No co-sale right, right of first
refusal or other similar right exists with respect to the Convertible
Debentures, Warrants, Warrant Shares, and the Conversion Shares or the issuance
and sale thereof. The issue and sale of the Debentures, Warrants, Warrant Shares
and the Conversion Shares will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under
such securities. The Company has furnished to the Buyer(s) true and correct
copies of the Company’s Certificate of Incorporation, as amended and as in
effect on the date hereof (the “Certificate
of Incorporation”),
and
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
and
the material rights of the holders thereof in respect thereto other than stock
options issued to employees and consultants.
(d) Issuance
of Securities.
The
Convertible Debentures are duly authorized and, upon issuance in accordance
with
the terms hereof, shall be duly issued, fully paid and nonassessable, are free
from all taxes, liens and charges with respect to the issue thereof. The
Conversion Shares and the Warrant Shares have been duly authorized and reserved
for issuance. Upon conversion or exercise in accordance with the Transaction
Documents, the Conversion Shares and the Warrant Shares will be duly issued,
fully paid and nonassessable.
(e) No
Conflicts.
Except
as disclosed in the SEC Documents, the execution, delivery and performance
of
the Transaction Documents by the Company and the consummation by the Company
of
the transactions contemplated hereby will not (i) result in a violation of
the
Certificate of Incorporation, any certificate of designations of any outstanding
series of preferred stock of the Company or the By-laws or (ii) conflict with
or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or 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 result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules
and
regulations of the American Stock Exchange on which the Common Stock is quoted)
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
as
disclosed in the SEC Documents, neither the Company nor its subsidiaries is
in
violation of any term of or in default under its Certificate of Incorporation
or
By-laws or their organizational charter or by-laws, respectively, or any
material contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to
the
Company or its subsidiaries. The business of the Company and its subsidiaries
is
not being conducted, and shall not be conducted in violation of any material
law, ordinance, or regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the Securities 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 registration with,
any
court or governmental agency in order for it to execute, deliver or perform
any
of its obligations under or contemplated by this Agreement or the Registration
Rights Agreement in accordance with the terms hereof or thereof. Except as
disclosed in the SEC Documents and except for the approval of the stockholders
of the Company as required by the rules of the American Stock Exchange, 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 and its subsidiaries are
unaware of any facts or circumstance, which might give rise to any of the
foregoing.
(f) SEC
Documents: Financial Statements.
Except
as set forth in the SEC Documents and except for the filing of an interim Annual
Report on Form 10-K for the period ended February 28, 2005, if required, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC under of the Securities Exchange Act
of
1934, as amended (the “Exchange
Act”)
(all
of the foregoing filed prior to the date hereof or amended after the date hereof
and all exhibits included therein and financial statements and schedules thereto
and documents incorporated by reference therein, being hereinafter referred
to
as the “SEC
Documents”).
The
Company has delivered to the Buyer(s) or its/their representatives, or made
available through the SEC’s website at xxxx://xxx.xxx.xxx., true and complete
copies of the SEC Documents. Except as set forth in the SEC Documents, as of
their respective dates, the financial statements of the Company disclosed in
the
SEC Documents (the “Financial
Statements”)
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
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 exclude footnotes or may be condensed or
summary statements) and, fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case
of
unaudited statements, to normal year-end audit adjustments). No other written
information, excluding any financial or business projections, provided by or
on
behalf of the Company to the Buyer(s) which is not included in the SEC
Documents, including, without limitation, information referred to in this
Agreement, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(g) 10(b)-5.
The SEC
Documents do not include any untrue statements of material fact, nor do they
omit to state any material fact required to be stated therein necessary to
make
the statements made, in light of the circumstances under which they were made,
not misleading.
(h) Absence
of Litigation.
Except
as disclosed in the SEC Documents, there is no action, suit, proceeding, inquiry
or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending against or affecting the Company,
the Common Stock or any of the Company’s subsidiaries, wherein an unfavorable
decision, ruling or finding would (i) have a material adverse effect on the
transactions contemplated hereby, (ii) adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of the documents contemplated herein,
or (iii) except as expressly disclosed in the SEC Documents, have a material
adverse effect on the business, operations, properties, financial condition
or
results of operations of the Company and its subsidiaries taken as a
whole.
(i) Acknowledgment
Regarding Each Buyer’s Purchase of the Convertible Debentures.
The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm’s length purchaser with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that each Buyer is not
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any advice given by such Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to such Buyer’s purchase of the
Convertible Debentures, the Warrants, the Warrant Shares or the Conversion
Shares. The Company further represents to the Buyer(s) that the Company’s
decision to enter into this Agreement has been based solely on the independent
evaluation by the Company and its representatives.
(j) No
General Solicitation.
Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) in connection
with
the offer or sale of the Convertible Debentures, the Warrants, the Warrant
Shares or the Conversion Shares.
(k) 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 of any security
or
solicited any offers to buy any security, under circumstances that would require
registration of the Convertible Debentures, the Warrants, the Warrant Shares
or
the Conversion Shares under the Securities Act or cause this offering of the
Convertible Debentures, the Warrants, the Warrant Shares or the Conversion
Shares to be integrated with prior offerings by the Company for purposes of
the
Securities Act.
(l) Employee
Relations.
Neither
the Company nor any of its subsidiaries is involved in any labor dispute nor,
to
the knowledge of the Company or any of its subsidiaries, is any such dispute
threatened. None of the Company’s or its subsidiaries’ employees is a member of
a union and the Company and its subsidiaries believe that their relations with
their employees are good.
(m)
Intellectual
Property Rights.
The
Company and its subsidiaries own or possess adequate rights or licenses to
use
all trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct
their
respective businesses as now conducted. The Company and its subsidiaries do
not
have any knowledge of any infringement by the Company or its subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service xxxx registrations, trade secret
or other similar rights of others, and, to the knowledge of the Company there
is
no claim, action or proceeding being made or brought against, or to the
Company’s knowledge, being threatened against, the Company or its subsidiaries
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service xxxx registrations, trade secret
or other infringement; and the Company and its subsidiaries are unaware of
any
facts or circumstances which might give rise to any of the
foregoing.
(n) Environmental
Laws.
(i) Each
of
the Company and its subsidiaries has complied with all applicable Environmental
Laws (as defined below), except for violations of Environmental Laws that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a material adverse effect on the assets, business, condition
(financial or otherwise), or results of operations of the Company (a
“Material
Adverse Effect”).
There
is no pending or, to the knowledge of the Company, threatened civil or criminal
litigation, written notice of violation, formal administrative proceeding,
or
investigation, inquiry or information request, relating to any Environmental
Law
involving the Company or any subsidiary, except for litigation, notices of
violations, formal administrative proceedings or investigations, inquiries
or
information requests that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Material Adverse Effect. For purposes
of this Agreement, “Environmental Law” means any federal, state or local law,
statute, rule or regulation or the common law relating to the environment or
occupational health and safety, including without limitation any statute,
regulation, administrative decision or order pertaining to (i) treatment,
storage, disposal, generation and transportation of industrial, toxic or
hazardous materials or substances or solid or hazardous waste; (ii) air, water
and noise pollution; (iii) groundwater and soil contamination; (iv) the release
or threatened release into the environment of industrial, toxic or hazardous
materials or substances, or solid or hazardous waste, including without
limitation emissions, discharges, injections, spills, escapes or dumping of
pollutants, contaminants or chemicals; (v) the protection of wild life, marine
life and wetlands, including without limitation all endangered and threatened
species; (vi) storage tanks, vessels, containers, abandoned or discarded
barrels, and other closed receptacles; and (vii) manufacturing, processing,
using, distributing, treating, storing, disposing, transporting or handling
of
materials regulated under any law as pollutants, contaminants, toxic or
hazardous materials or substances or oil or petroleum products or solid or
hazardous waste. As used above, the terms “release” and “environment” shall have
the meaning set forth in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended (“CERCLA”).
(ii) Set
forth
as Schedule II to this Agreement is a list of all documents (whether in hard
copy or electronic form) that contain any environmental reports, investigations
and audits relating to premises currently or previously owned or operated by
the
Company or a subsidiary (whether conducted by or on behalf of the Company or
a
subsidiary or a third party, and whether done at the initiative of the Company
or a subsidiary or directed by a third party) which were issued or conducted
during the past five years and which the Company has possession of or access
to.
A complete and accurate copy of each such document has been made available
to
the Buyer(s).
(iii) To
the
knowledge of the Company there is no material environmental liability with
respect to any solid or hazardous waste transporter or treatment, storage or
disposal facility that has been used by the Company or any
subsidiary.
(iv) The
Company and its subsidiaries (i) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval.
(o) Title.
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 are not material and do not interfere with the use
made
and proposed to be made of such property and buildings by the Company and its
subsidiaries.
(p) 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 been refused any insurance coverage sought or applied
for and 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 materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its subsidiaries, taken as a
whole.
(q) Regulatory
Permits.
The
Company and its subsidiaries possess all material certificates, authorizations
and permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, and neither the
Company nor any such subsidiary has received any written notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit.
(r) Internal
Accounting Controls.
The
Company and each of its subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to
maintain asset accountability, and (iii) the recorded amounts for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(s) No
Material Adverse Breaches, etc.
Except
as set forth in the SEC Documents, 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. Except as set forth in the SEC Documents, neither the Company nor any
of
its subsidiaries is in breach of any contract or agreement which breach, in
the
judgment of the Company’s officers, has or is expected to have a Material
Adverse Effect.
(t) Tax
Status.
Except
as set forth in the SEC Documents, the Company and each of its subsidiaries
has
made and filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject and (unless
and only to the extent that the Company and each of its subsidiaries has set
aside on its books provisions reasonably adequate for the payment of all unpaid
and unreported taxes) has paid all taxes and other governmental assessments
and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment
of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of
the
Company know of no basis for any such claim.
(u) Certain
Transactions.
Except
as set forth in the SEC Documents, and except for arm’s length transactions
pursuant to which the Company makes payments in the ordinary course of business
upon terms no less favorable than the Company could obtain from third parties
and other than the grant of stock options disclosed in the SEC Documents, none
of the officers, directors, or employees of the Company is presently a party
to
any transaction with the Company (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.
(v) Fees
and Rights of First Refusal.
The
Company is not obligated to offer the securities offered hereunder on a right
of
first refusal basis or otherwise to any third parties including, but not limited
to, current or former shareholders of the Company, underwriters, brokers, agents
or other third parties.
(w) Reliance.
The
Company acknowledges that the Buyer(s) are relying on the representations and
warranties made by the Company hereunder and that such representations and
warranties are a material inducement to the Buyer purchasing the Convertible
Debentures and Warrants. The Company further acknowledges that without such
representations and warranties of the Company made hereunder, the Buyer(s)
would
not enter into this Agreement.
(x) Xxxxxxxx-Xxxxx.
The
Company is in compliance with the applicable requirements of the Xxxxxxxx-Xxxxx
Act of 2002, as amended, and the rules and regulations thereunder, that are
currently in effect and is actively taking steps to ensure that it will be
in
compliance with other applicable provisions of such Act not currently in effect
at all times after the effectiveness of such provisions except where such
noncompliance would not have or reasonably be expected to result in a Material
Adverse Effect or which would be reasonably likely to have a material adverse
effect on the transactions contemplated hereby or by the Investor Registration
Rights Agreement.
(y) Anti-Takeover
Provision.
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 jurisdiction
of
incorporation that is or could become applicable to the Buyer(s) as a result
of
the Buyer(s) and the Company fulfilling their obligations or exercising their
rights under this Agreement, including without limitation the Company’s issuance
of the Convertible Debentures, Warrants, Warrant Shares and Conversion Shares
and each Buyer’s ownership thereof.
4. COVENANTS.
(a) Reasonable
Best Efforts.
Each
party shall use its reasonable best efforts timely to satisfy each of the
conditions to be satisfied by it as provided in Sections 7 and 8 of this
Agreement.
(b) Form
D.
The
Company agrees to file a Form D with respect to the Convertible Debentures,
Warrants, Warrant Shares and Conversion Shares 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 Convertible Debentures,
Warrants, the Warrant Shares and Conversion Shares, or obtain an exemption
for
the Convertible Debentures, Warrants, the Warrant Shares and Conversion Shares
for sale to the Buyer(s) at the Closing pursuant to this Agreement under
applicable securities or “Blue Sky” laws of the states of the United States, and
shall provide evidence of any such action so taken to the Buyer(s) on or prior
to the Closing Date.
(c) Reporting
Status.
Until
the earlier of (i) the date as of which the Buyer(s) may sell all of the
Warrants, the Warrant Shares, and Conversion Shares without restriction pursuant
to Rule 144(k) promulgated under the Securities Act (or successor thereto),
or
(ii) the date on which (A) the Buyer(s) shall have sold all the Warrants, the
Warrant Shares and Conversion Shares and (B) none of the Convertible Debentures
are outstanding (the “Registration
Period”),
the
Company shall file in a timely manner all reports required to be filed with
the
SEC pursuant to the Exchange Act and the regulations of the SEC thereunder,
and
the Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would otherwise permit such termination.
(d) Use
of
Proceeds.
The
Company shall use the proceeds from the sale of the Convertible Debentures
for
general corporate and working capital purposes, but in no event shall the
Company use the proceeds to repay any indebtedness of any Company insiders.
(e) Reservation
of Shares.
The
Company shall take all action reasonably necessary to at all times after the
Closing to have authorized, and reserved for the purpose of issuance, that
number of shares of Common Stock equal to the number of shares of Common Stock
into which the Convertible Debentures are from time to time convertible at
the
Default Conversion Price (as defined in the Convertible Debentures) unless
a
change is agreed to in writing by the Buyer(s) and the Company. If at any time
the Company does not have available such number of authorized and unissued
shares of Common Stock as shall from time to time be sufficient to effect the
issuance of all of (i) the Conversion Shares, upon the conversion of the entire
principal amount of the Convertible Debentures and (ii) Warrant Shares upon
exercise of the Warrants, the Company shall call and hold a special meeting
of
the shareholders within one hundred twenty (120) days of such occurrence, for
the sole purpose of increasing the number of shares authorized. The Company’s
management shall recommend to the shareholders to vote in favor of increasing
the number of shares of Common Stock authorized. Management shall also vote
all
of its shares in favor of increasing the number of authorized shares of Common
Stock.
(f) Listings
or Quotation.
The
Company shall promptly after the Closing secure the listing or quotation of
the
Conversion Shares, and the Warrant Shares upon a national securities exchange,
automated quotation system or The National Association of Securities Dealers
Inc.’s Over-The-Counter Bulletin Board or other market, if any, upon which
shares of Common Stock are then listed or quoted (subject to official notice
of
issuance) and shall use its reasonable best efforts to maintain, so long as
any
other shares of Common Stock shall be so listed, such listing of all Conversion
Shares from time to time issuable under the terms of this Agreement. The Company
shall use its reasonable best efforts to maintain the Common Stock’s
authorization for quotation on The American Stock Exchange. It shall be an
event
of default hereunder if the Company fails to strictly comply with its obligation
under this Section 4(f).
(g) Fees
and Expenses.
(i) At
the Closing, the Company shall reimburse the Buyers for legal fees of up to
an
aggregate of Fifty Thousand Dollars ($50,000) incurred by the Buyers in
connection with this transaction to Gottbetter & Partners, LLP at the
Closing. The Company shall bear all of its own legal and professional fees
and
expenses, including but not limited to those associated with the filing of
the
registration statement as contemplated herein. Each of the Company and the
Buyer(s) shall pay all costs and expenses incurred by such party in connection
with the negotiation, investigation, preparation, execution and delivery of
the
Transaction Documents. At the Closing, the Company shall pay either Yorkville
Advisors Management, LLC or Prentice Capital Management, LP a fee equal to
six
percent (6%) of the Purchase Price.
(ii) The
Company shall reimburse the Buyer(s) for expenses relating to due diligence
up
to an aggregate of Ten Thousand Dollars ($10,000), which shall be paid directly
from the proceeds of the Closing.
(h) Warrants.
The
Company shall issue to the Buyer(s) the Warrants in substantially the form
attached hereto as Exhibit
C.
The
Warrant Shares shall have such registration rights as set forth in the Investor
Registration Rights Agreement.
(i) Registration
Statement.
The
Company shall be solely responsible for the contents of the registration
statement, prospectus or other filing made with the SEC or otherwise used in
the
offering of the Company’s securities (except as such disclosure relates
solely to the Buyer(s) and then only to the extent that such disclosure conforms
with information furnished in writing by the Buyer(s) to the Company), even
if
the Buyer(s) or its/their agents as an accommodation to the Company participate
or assist in the preparation of the registration statement, prospectus or other
SEC filing. The Company shall retain its own legal counsel to review, edit,
confirm and do all things such counsel deems necessary or desirable to the
registration statement, prospectus or other SEC filing to ensure that it does
not contain an untrue statement or alleged untrue statement of material fact
or
omit or alleged to omit a material fact necessary to make the statements made
therein, in light of the circumstances under which the statements were made,
not
misleading.
(j) Corporate
Existence.
So long
as any of the Convertible Debentures remain outstanding, if the Company engages
in any merger, consolidation, sale of all or substantially all of the Company’s
assets or any similar transaction, the Company shall make appropriate provision
with respect to such holders’ rights and interests to insure that the provisions
of this Section 4(i) will thereafter be applicable to the Convertible
Debentures.
(k) Transactions
With Affiliates.
So long
as any Convertible Debentures are outstanding, the Company shall not, and shall
cause each of its subsidiaries not to, enter into, amend, modify or supplement,
or permit any subsidiary to enter into, amend, modify or supplement any
agreement, transaction, commitment, or arrangement with any of its or any
subsidiary’s officers, directors, person who were officers or directors at any
time during the previous two (2) years, stockholders who beneficially own five
percent (5%) or more of the Common Stock, or Affiliates (as defined below)
or
with any individual related by blood, marriage, or adoption to any such
individual or with any entity in which any such entity or individual owns a
five
percent (5%) or more beneficial interest (each a “Related
Party”),
except for (a) customary employment arrangements and benefit programs on
reasonable terms, (b) any investment in an Affiliate of the Company, (c) any
agreement, transaction, commitment, or arrangement on an arms-length basis
on
terms no less favorable than terms which would have been obtainable from a
person other than such Related Party, or (d) any agreement, transaction,
commitment, or arrangement which is approved by a majority of the disinterested
directors of the Company. For purposes hereof, any director who is also an
officer of the Company or any subsidiary of the Company shall not be a
disinterested director with respect to any agreement, transaction, commitment,
or arrangement. “Affiliate”
for
purposes hereof means, with respect to any person or entity, another person
or
entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
interest in that person or entity, (ii) has ten percent (10%) or more common
ownership with that person or entity, (iii) controls that person or entity,
or
(iv) shares common control with that person or entity. “Control”
or
“controls”
for
purposes hereof means that a person or entity has the power, direct or indirect,
to conduct or govern the policies of another person or entity.
(l) Transfer
Agent.
The
Company covenants and agrees that, in the event that the Company’s agency
relationship with the transfer agent should be terminated for any reason prior
to a date which is two (2) years after the Closing Date, the Company shall
immediately appoint a new transfer agent and shall require that the new transfer
agent execute and agree to be bound by the terms of the Irrevocable Transfer
Agent Instructions (as defined herein).
(m) Restriction
on Issuance of the Capital Stock.
So long
as any Convertible Debentures or the Warrants are outstanding, other than
securities issued in connection with the SEDA, and other than securities issued
pursuant to options, warrants or convertible securities outstanding on the
date
hereof or otherwise issued in accordance with the terms hereof, the Company
shall not, without the prior written consent of the Buyer(s), (i) issue or
sell
shares of Common Stock or Preferred Stock without consideration or for a
consideration per share less than the Closing Bid Price of the Common Stock
determined immediately prior to its issuance, (ii) issue any warrant, option,
right, contract, call, or other security instrument granting the holder thereof,
the right to acquire Common Stock without consideration or for a consideration
less than such Common Stock’s Closing Bid Price value determined immediately
prior to its issuance, (iii) enter into any security instrument granting the
holder a security interest in any and all assets of the Company, or (iv)
file
any
registration statement on Form S-8 except to register up to 5,000,000 shares
of
the Common Stock to be issued under a stock option plan providing for the
issuance of incentive stock options and non-statutory stock options to the
Company’s non-executive employees,
provided
that (x) such shares are not issued without consideration or for a consideration
less than the Common Stock’s closing Bid Price on the date of issuance or the
date on which the obligation to issue any such shares of capital stock first
arose, and (y) such Form S-8 registration statement is not filed prior to 90
days following the effectiveness of the registration statement. “Closing Bid
Price” on any day shall be the closing bid price for a share of Common Stock on
such date on the American Stock Exchange (or such other exchange, market, or
other system that the Common Stock is then traded on), as reported on Bloomberg,
L.P. (or similar organization or agency succeeding to its functions of reporting
prices).
(n) Resales
Absent Effective Registration Statement.
Each of
the Buyers understand and acknowledge that (i) this Agreement and the agreements
contemplated hereby may require the Company to issue and deliver Conversion
Shares or Warrant Shares to the Buyer(s)
with
legend restricting their transferability under the Securities Act, and (ii)
it
is aware that resales of such Conversion Shares or Warrant Shares may not be
made unless, at the time of resale, there is an effective registration statement
under the Securities Act covering such Buyer’s resale(s) or an applicable
exemption from registration.
(o) Legend.
Certificates evidencing the Warrant Shares and Conversion Shares shall not
contain any legend (including the legend set forth above), (A) while a
registration statement covering the resale of such security is effective under
the Securities Act (provided, however, that each Buyer’s prospectus delivery
requirements under the Securities Act will remain applicable), or (B) following
any sale of such Warrant Shares and/or Conversion Shares pursuant to Rule 144,
or (C) if such Convertible Debentures, Warrants, Warrant Shares and/or
Conversion Shares are eligible for sale under Rule 144(k), or (D) if such legend
is not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the Staff of the SEC).
The
Company shall cause its counsel to issue a legal opinion to the Company’s
transfer agent promptly after the effective date of any registration statement
(the “Effective
Date”)
if
required by the Company’s transfer agent to effect the removal of the legend
hereunder. The Company agrees that following the Effective Date or at such
time
as such legend is no longer required under this clause (ii), it will, no later
than three trading days following the delivery by the Buyer(s)
to the
Company or the Company’s transfer agent of a certificate representing Warrant
Shares and/or Conversion Shares issued with a restrictive legend, deliver or
cause to be delivered to such Buyer a certificate representing such Warrant
Shares and/or Conversion 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(s) the
restrictions on transfer set forth herein.
(p) Pledge.
The
Company acknowledges and agrees that the Buyer(s)
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 Convertible
Debentures, Warrants, Warrant Shares and /or Conversion Shares to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and, if required under the terms of such arrangement, the
Buyer(s)
may
transfer pledged or secured Convertible Debentures, Warrants, Warrant Shares
and/or Conversion Shares 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
Buyer’s expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Convertible Debentures, Warrants,
Warrant Shares and/or Conversion Shares may reasonably request in connection
with a pledge or transfer of the Convertible Debentures, Warrants, Warrant
Shares and/or Conversion Shares, including the preparation and filing of any
required prospectus supplement under Rule 424(b)(3) of the Securities Act or
other applicable provision of the Securities Act to appropriately amend the
list
of selling stockholders thereunder.
(q) Removal
of Legend.
Provided that all conditions to the removal of the applicable restrictive legend
have been satisfied, in addition to the Buyer(s)’ other available remedies, the
Company shall pay to the Buyer(s),
in
cash, as partial liquidated damages and not as a penalty, for each $1,000 of
Warrant Shares and/or Conversion Shares (based on the closing price of the
Common Stock on the date such Warrant Shares and/or Conversion Shares are
submitted to the Company’s transfer agent), $5 per trading day (increasing to
$10 per trading day five (5) trading days after such damages have begun to
accrue) for each trading day after the tenth (10th) trading day following
delivery by a Buyer to the Company or the Company’s transfer agent of a
certificate representing Warrant Shares and/or Conversion Shares issued with
a
restrictive legend, until such certificate is delivered to the Buyer(s)
with
such legend removed. Nothing herein shall limit the Buyer’s right to pursue
actual damages for the failure of the Company and its transfer agent to deliver
certificates representing any securities as required hereby or by the
Irrevocable Transfer Agent Instructions, and the Buyer(s)
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.
(r) Press
Release.
In
addition to any and all other public statements or disclosures made by the
Company in its sole discretion (subject to the last sentence of this Section
3(r), the Company will issue a press release and file a Current Report on Form
8-K with the SEC regarding the Closing of the purchase and sale of the
Convertible Debentures and Warrants on the date of the Closing or such later
date as required by law. Notwithstanding the foregoing, the Company shall not
publicly disclose the names of the Buyer(s), or include the names of the
Buyer(s) in any filing with the SEC, without the prior written consent of the
Buyer(s), except (i) as required by federal securities law and (ii) to the
extent such disclosure is required by law or regulations, in which case the
Company shall provide the Buyer(s) with prior notice of such disclosure
permitted under subclause (i) or (ii). Furthermore, the Company covenants and
agrees that neither it nor any other person acting on its behalf will provide
the Buyer(s) or its/their agents or counsel with any information that the
Company believes constitutes material non-public information, unless prior
thereto the Buyer(s) shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that the Buyer(s) shall be relying on the foregoing representations
in
effecting transactions in securities of the Company.
(s) Stock
Splits, Etc.
The
provisions of this Agreement shall be appropriately adjusted to reflect any
stock split, stock divided, reverse stock split, reorganization or other similar
event effected after the date hereof.
(t) No
Short Position.
Each of
the Buyers and any of its affiliates do not have an open short position in
the
Common Stock, and each Buyer agrees that it will not, and that it will cause
its
affiliates not to, engage in any short sales of, or hedging transactions with
respect to the Common Stock until such Buyer no longer owns a principal balance
of the Convertible Debentures.
5. TRANSFER
AGENT INSTRUCTIONS.
The
Company shall issue the Irrevocable Transfer Agent Instructions to its transfer
agent irrevocably appointing Gottbetter & Partners, LLP as its agent for
purpose of having certificates issued, registered in the name of the Buyer(s)
or
their respective nominee(s), for the Conversion Shares representing such amounts
of Convertible Debentures as specified from time to time by the Buyer(s) to
the
Company upon conversion of the Convertible Debentures, for interest owed
pursuant to the Convertible Debenture, and for any and all Liquidated Damages
(as this term is defined in the Investor Registration Rights Agreement).
Gottbetter & Partners, LLP shall be paid a cash fee of One Hundred Fifty
Dollars ($150) by the Buyer(s) or its/their assigns for every occasion they
act
pursuant to the Irrevocable Transfer Agent Instructions. The Company shall
not
change its transfer agent without the express written consent of the Buyer(s),
which may be withheld by the Buyer(s) in their sole discretion. The successor
transfer agent shall be required to execute the Irrevocable Transfer Agent
Instructions. Prior to registration of the Conversion Shares under the
Securities Act, 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(g)
hereof (in the case of the Conversion Shares prior to registration of such
shares under the Securities Act) will be given by the Company to its transfer
agent and that the Conversion Shares shall otherwise be freely transferable
on
the books and records of the Company as and to the extent provided in this
Agreement and the Investor Registration Rights Agreement. Nothing in this
Section 5 shall affect in any way the Buyer’s obligations and agreement to
comply with all applicable securities laws upon resale of Conversion Shares.
If
the Buyer(s) provides the Company with an opinion of counsel, in form, scope
and
substance customary for opinions of counsel in comparable transactions to the
effect that registration of a resale by the Buyer(s) of any of the Conversion
Shares is not required under the Securities Act, and absent manifest error
in
such opinion, the Company shall within two (2) business days instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by the Buyer(s). The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Buyer(s) 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 Section 5 will be inadequate and agrees,
in
the event of a breach or threatened breach by the Company of the provisions
of
this Section 5, that the Buyer(s) shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic
loss
and without any bond or other security being required.
6. LIMITATION
ON CONVERSION.
(a) Buyer’s
Ownership of Common Stock.
In
addition to and not in lieu of the limitations on conversion set forth in the
Convertible Debentures, the conversion rights of the Buyer(s) set forth in
the
Convertible Debentures shall be limited, solely to the extent required, from
time to time, such that, unless the Buyer(s) gives written notice 65 days
in advance to the Company of the Buyer’s intention to exceed the Limitation on
Conversion as defined herein, with respect to all or a specified amount of
the
Convertible Debentures and the corresponding number of the Conversion Shares
in
no instance the Buyer (singularly, together with any Persons who in the
determination of the Buyer, together with the Buyer, constitute a group as
defined in Rule 13d-5 of the Exchange Act) be entitled to convert the
Convertible Debentures to the extent such conversion would result in the Buyer
beneficially owning four point nine nine percent (4.99%) of the outstanding
shares of Common Stock of the Company. For these purposes, beneficial ownership
shall be defined and calculated in accordance with Rule 13d-3, promulgated
under
the Exchange Act (the foregoing being herein referred to as the “Limitation
on Conversion”);
provided,
however,
that
the Limitation on Conversion shall not apply to any forced or automatic
conversion pursuant to this Agreement or the Convertible Debentures; and
provided,
further
that if
the Company shall have breached any of the Transaction Documents, the provisions
of this Section 6(a) shall be null and void from and after such date. The
Company shall, promptly upon its receipt of a Conversion Notice tendered by
the
Buyer (or its sole designee) for the Convertible Debentures, as applicable,
notify the Buyer(s) by telephone and by facsimile (the “Limitation
Notice”)
of the
number of shares of Common Stock outstanding on such date and the number of
Conversion Shares, which would be issuable to the Buyer (or its sole designee,
as the case may be) if the conversion requested in such Conversion Notice were
effected in full and the number of shares of Common Stock outstanding giving
full effect to such conversion whereupon, in accordance with the Convertible
Debentures, notwithstanding anything to the contrary set forth in the
Convertible Debentures, the Buyer may, by notice to the Company within one
(1)
business day of its receipt of the Limitation Notice by facsimile, revoke such
conversion to the extent (in whole or in part) that the Buyer determines that
such conversion would result in the ownership by the Buyer of shares of Common
Stock in excess of the Limitation on Conversion. The Limitation Notice shall
begin the 65 day advance notice required in this Section 6(a).
7. CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL.
The
obligation of the Company hereunder to issue and sell the Convertible Debentures
and the Warrants to the Buyer(s) 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 the Company’s sole benefit and may be waived by
the Company at any time in its sole discretion:
(a) Each
Buyer shall have executed the Transaction Documents and delivered them to the
Company.
(b) The
Buyer(s) shall have delivered to the Company the net proceeds of the Purchase
Price for Convertible Debentures in respective amounts as set forth next to
each
Buyer as outlined on Schedule I attached hereto by wire transfer of immediately
available U.S. funds pursuant to the wire instructions provided by the Company
and the Warrants.
(c) The
representations and warranties of the Buyer(s) 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 Buyer(s) 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 Buyer(s)
at or
prior to the Closing Date.
8. CONDITIONS
TO THE BUYER’S OBLIGATION TO PURCHASE.
The
obligation of the Buyer(s) hereunder to Purchase the Convertible Debentures
at
the Closing is subject to the satisfaction, at or before the Closing Date,
of
each of the following conditions:
(i) The
Company shall have executed the Transaction Documents and delivered the same
to
the Buyer(s).
(ii) The
Common Stock shall be authorized for quotation on the American Stock Exchange,
trading in the Common Stock shall not have been suspended for any reason, and
all the Conversion Shares issuable upon the conversion of the Convertible
Debentures shall have been approved by The American Stock Exchange.
(iii) The
representations and warranties of the Company shall be true and correct in
all
material respects (except to the extent that any of such representations and
warranties is already qualified as to materiality in Section 3 above, in which
case, such representations and warranties shall be true and correct without
further qualification) 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 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. If requested by the Buyer(s), the
Buyer(s) shall have received a certificate, executed by the President 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 the Buyer(s) including, without
limitation an update as of the Closing Date regarding the representation
contained in Section 3(c) above.
(iv) The
Company shall have executed and delivered to the Buyer(s) the Convertible
Debentures in the respective amounts set forth opposite each Buyer(s) name
on
Schedule I attached hereto and the Warrants in the respective numbers set forth
opposite each Buyer(s) name on Schedule I attached hereto.
(v) The
Buyer(s) shall have received an opinion of counsel from Wolf, Block, Xxxxxx
and
Xxxxx-Xxxxx LLP and Xxxxxx, Colicchio and Xxxxxxxxx, LLP in a form reasonably
satisfactory to the Buyer(s).
(vi) The
Company shall have provided to the Buyer(s) a certificate of good standing
from
the Secretary of State from the state in which the company is
incorporated.
(vii) The
Company’s shareholders approve (i) the transactions contemplated by the
Transaction Documents, and (ii) increase the authorized shares to
225,000,000.
(viii) The
Company shall have provided to the Buyer(s) an acknowledgement, to the
satisfaction of the Buyer(s), from the Company’s certified public accountant as
to its ability to provide all consents required in order to file a registration
statement in connection with this transaction.
(ix) The
Company shall have reserved out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Convertible
Debentures, shares of Common Stock to effect the conversion of all of the
Conversion Shares then outstanding.
(x) The
Irrevocable Transfer Agent Instructions, in form and substance satisfactory
to
the Buyer(s), shall have been delivered to and acknowledged in writing by the
Company’s transfer agent.
(xi) The
Company shall have filed a Form UCC-1 with regard to the Pledged Property and
Pledged Collateral as detailed in the Security Agreement dated the date hereof
and provided proof of such filing to the Buyer(s).
(xii) The
Company shall have entered into an agreement with Cornell Capital Partners,
LP,
for a One Hundred Million Dollar ($100,000,000) SEDA and execute all documents
thereto and provide a written use of proceeds for the Purchase Price.
(xiii) The
Company shall have executed an Asset Purchase Agreement with Playtex Products,
Inc. and Playtex Manufacturing, Inc., in a form reasonably satisfactory to
the
Buyer(s).
9. INDEMNIFICATION.
(a) In
consideration of the Buyer’s execution and delivery of this Agreement and
acquiring the Convertible Debentures, the Warrants and the Conversion Shares
hereunder, and in addition to all of the Company’s other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless the
Buyer(s) and each other holder of the Convertible Debentures, the Warrants
and
the Conversion Shares, and all of their officers, directors, employees and
agents (including, without limitation, those retained in connection with
the transactions contemplated by this Agreement) (collectively, the
“Buyer
Indemnitees”)
from
and against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Buyer Indemnitee is a party to the action
for
which indemnification hereunder is sought), and including reasonable attorneys’
fees and disbursements (the “Indemnified
Liabilities”),
incurred by the Buyer Indemnitees or any of them as a result of, or arising
out
of, or relating to (a) any misrepresentation or breach of any representation
or
warranty made by the Company in this Agreement, the Convertible Debentures
or
the Investor Registration Rights Agreement, (b) any breach of any covenant,
agreement or obligation of the Company contained in this Agreement, or the
Investor Registration Rights Agreement or any other certificate, instrument
or
document contemplated hereby or thereby, or (c) any cause of action, suit or
claim brought or made against such Indemnitee and arising out of or resulting
from the execution, delivery, performance or enforcement of this Agreement
or
any other instrument, document or agreement executed pursuant hereto by any
of
the Indemnities, any transaction financed or to be financed in whole or in
part,
directly or indirectly, with the proceeds of the issuance of the Convertible
Debentures or the status of the Buyer or holder of the Convertible Debentures,
the Warrants or the Conversion Shares, as a Buyer of Convertible Debentures,
the
Warrants or the Conversion Shares in the Company. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction
of
each of the Indemnified Liabilities, which is permissible under applicable
law.
(b) In
consideration of the Company’s execution and delivery of this Agreement, and in
addition to all of the Buyer’s other obligations under this Agreement, the
Buyer(s) shall defend, protect, indemnify and hold harmless the Company and
all
of its officers, directors, employees and agents (including, without limitation,
those retained in connection with the transactions contemplated by this
Agreement) (collectively, the “Company
Indemnitees”)
from
and against any and all Indemnified Liabilities incurred by the Indemnitees
or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Buyer(s) in this Agreement, instrument or document contemplated hereby or
thereby executed by the Buyer(s), (b) any breach of any covenant, agreement
or
obligation of the Buyer(s) contained in this Agreement, the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby executed by the Buyer(s), or (c) any cause of
action, suit or claim brought or made against such Company Indemnitee based
on
material misrepresentations or due to a material breach and arising out of
or
resulting from the execution, delivery, performance or enforcement of this
Agreement, the Investor Registration Rights Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Company
Indemnities. To the extent that the foregoing undertaking by each Buyer(s)
may
be unenforceable for any reason, each Buyer shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities, which
is
permissible under applicable law.
10. GOVERNING
LAW: MISCELLANEOUS.
(a) Governing
Law.
The
parties hereto acknowledge that the transactions contemplated by this Agreement
and the exhibits hereto bear a reasonable relation to the State of New York.
The
parties hereto agree that the internal laws of the State of New York shall
govern this Agreement and the exhibits hereto, including, but not limited to,
all issues related to usury. Any action to enforce the terms of this Agreement
or any of its exhibits shall be brought exclusively in the state and/or federal
courts situated in the County and State of New York. Service of process in
any
action by the Buyer(s) to enforce the terms of this Agreement may be made by
serving a copy of the summons and complaint, in addition to any other relevant
documents, by commercial overnight courier to the Company at its principal
address set forth in this Agreement.
(b) Counterparts.
This
Agreement may be executed in two or more identical counterparts, all of which
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.
In
the event any signature page is delivered by facsimile transmission, the party
using such means of delivery shall cause four (4) additional original executed
signature pages to be physically delivered to the other party within five (5)
days of the execution and delivery hereof.
(c) Headings.
The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.
(d) Severability.
If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or
the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
(e) Entire
Agreement, Amendments.
This
Agreement supersedes all other prior oral or written agreements between the
Buyer(s), the Company, their affiliates and persons acting on their behalf
with
respect to the matters discussed herein, and 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 any 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, consents, waivers, or other communications required or permitted to
be
given under the terms of this Agreement must be in writing and will be deemed
to
have been delivered (i) upon receipt, when delivered personally; (ii) upon
confirmation of receipt, when sent by facsimile; (iii) three (3) days after
being sent by U.S. certified mail, return receipt requested, or (iv) one (1)
day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
|
If
to the Company, to:
|
Cenuco,
Inc.
|
|
000
Xxxxx Xxxxx
|
|
|
Xxxxxxxxxxxxx,
XX 00000
|
|
|
Attention:
Xxxxxx
X. Xxxxxxxx
|
|
|
Telephone:
(000)
000-0000
|
|
|
Facsimile:
(000)
000-0000
|
|
|
With
a copy to:
|
Wolf,
Block, Xxxxxx and Xxxxx-Xxxxx LLP
|
|
000
Xxxx Xxxxxx
|
|
|
Xxx
Xxxx, XX 00000
|
|
|
Attn:
Xxxxxxx
Xxxxxxxx
|
|
|
Telephone:
(000)
000-0000
|
|
|
Facsimile:
(000)
000-0000
|
|
If
to the Transfer Agent, to:
|
American
Stock Transfer & Trust Company
|
|
00
Xxxxxx Xxxx
Xxxxx
Xxxxx
|
|
|
Xxx
Xxxx, XX 00000
|
|
|
Attention:
[ ]
|
|
|
Telephone:
(000)
000-0000
|
|
|
Facsimile:
(000)
000-0000
|
If
to the
Buyer(s), to its address and facsimile number on Schedule I, with copies to
the
Buyer’s counsel as set forth on Schedule I. Each party shall provide five (5)
days’ prior written notice to the other party of any change in address or
facsimile number.
(g) Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective 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 party hereto.
(h) No
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.
(i) Survival.
Unless
this Agreement is terminated under Section 10(l), the representations and
warranties of the Company and the Buyer(s) contained in Sections 2 and 3, the
agreements and covenants set forth in Sections 4, 5 and 10, and the
indemnification provisions set forth in Section 9, shall survive the Closing
for
a period of two (2) years following the date on which the Convertible Debentures
are converted in full. The Buyer(s) shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
(j) Publicity.
The
Company and the Buyer(s) shall have the right to approve, before issuance any
press release or any other public statement with respect to the transactions
contemplated hereby made by any party; provided, however, that the Company
shall
be entitled, without the prior approval of the Buyer(s), to issue any press
release or other public disclosure with respect to such transactions required
under applicable securities or other laws or regulations (including the rules
of
the American Stock Exchange) (the Company shall use its reasonable best efforts
to consult the Buyer(s) in connection with any such press release or other
public disclosure prior to its release and Buyer(s) shall be provided with
a
copy thereof upon release thereof).
(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) Termination.
In the
event that the Closing shall not have occurred with respect to the Buyer(s)
on
or before December 31, 2005 due to the Company’s or the Buyer’s failure to
satisfy the conditions set forth in Sections 7 and 8 above (and any
non-breaching party’s failure to waive such unsatisfied condition(s)), any
non-breaching party shall have the option to terminate this Agreement at the
close of business on such date without liability of any party to any other
party; provided, however, that if this Agreement is terminated by the Company
pursuant to this Section 10(l), the Company shall remain obligated to reimburse
the Buyer(s) for the fees and expenses of Gottbetter & Partners, LLP
described in Section 4(g) above.
(m) 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.
(n) Remedies.
In
addition to being entitled to exercise all rights provided herein or granted
by
law, including recovery of damages, the Buyer(s) and the Company will be
entitled to specific performance under the Agreement. 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 agree to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
[REMAINDER
PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF,
the
Buyer(s) and the Company have caused this Securities Purchase Agreement to
be
duly executed as of the date first written above.
|
COMPANY:
|
||
|
CENUCO,
INC.
|
||
|
By:
|
||
| Name: Xxxxxx X. Xxxxxxxx | ||
| Title: Chief Executive Officer | ||
EXHIBIT
A
FORM
OF INVESTOR REGISTRATION RIGHTS AGREEMENT
EXHIBIT
B
SECURITY
AGREEMENT
EXHIBIT
C
WARRANT
EXHIBIT
D
IRREVOCABLE
TRANSFER AGENT INSTRUCTIONS
SCHEDULE
E
SCHEDULE
OF BUYERS
|
Name
|
Signature
|
Address/Facsimile
Number
of Buyer
|
Amount
of Subscription
|
Number
of Warrants
|
|||||
|
Highgate
House Funds, Ltd.
|
By: |
|
000
Xxxxxxx Xxxxxx
|
$6,000,000
|
157,895
|
||||
| Name: |
Xxxx
X. Xxxxxxxxxx
|
New
York, NY 10022
|
|||||||
| Its: |
Portfolio Manager
|
Telephone:
(000) 000-0000
|
|||||||
|
Facsimile:
(000) 000-0000
|
|||||||||
|
With
a copy to:
|
Xxxxx
Xxxxxxx, Esq.
|
Gottbetter
& Partners, LLP
000
Xxxxxxx Xxxxxx
|
|||||||
|
Xxx
Xxxx, XX 00000
|
|||||||||
|
Telephone:
(000) 000-0000
|
|||||||||
|
Facsimile:
(000) 000-0000
|
|||||||||
|
Prencen,
LLC
|
By: PRENTICE CAPITAL MANAGEMENT, LP, as Manager |
000
Xxxxx Xxxxxx. 00xx
Xx
|
$34,000,000
|
894,736
|
|||||
| By: |
|
Xxx
Xxxx, XX 00000
|
|||||||
|
Name:
Xxxxxxx Xxxxx
|
Telephone:
(000) 000-0000
|
||||||||
|
Title:
Chief Financial Officer
|
Facsimile:
(000) 0000000
|
||||||||
|
With
a copy to:
|
Xxxxx Xxxxxxx, Esq. |
Gottbetter
& Partners, LLP
000
Xxxxxxx Xxxxxx
|
|||||||
|
Xxx
Xxxx, XX 00000
|
|||||||||
|
Telephone:
(000) 000-0000
|
|||||||||
|
Facsimile:
(000) 000-0000
|
|||||||||
1
