EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of May
31, 2002, among Pacific Magtron International Corp., a Nevada corporation (the
"COMPANY"), and the purchasers identified on the signature pages hereto (each a
"PURCHASER" and collectively the "PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933 (the "SECURITIES
ACT") and Rule 506 promulgated thereunder, the Company desires to issue and sell
to the Purchasers, and the Purchasers, severally and not jointly, desire to
purchase from the Company, securities of the Company as more fully described in
this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers agree
as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Certificate of Designation (as defined
herein), and (b) the following terms have the meanings indicated in this Section
1.1:
"ACTUAL MINIMUM" means, as of any date, the maximum aggregate number
of shares of Common Stock then issued or potentially issuable in the future
pursuant to the Transaction Documents, including any Underlying Shares
issuable upon exercise or conversion in full of all Warrants and shares of
Preferred Stock, ignoring any conversion or exercise limits set forth
therein, and assuming that any previously unconverted shares of Preferred
Stock are held until the third anniversary of the Closing Date, and all
dividends thereon are accreted to the Stated Value of such Preferred Stock.
"AFFILIATE" means any Person that, directly or indirectly through one
or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule
144 under the Securities Act.
"CAPITAL SHARES" shall mean the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the
Company.
"CAPITAL SHARES EQUIVALENTS" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right
to subscribe for any Capital Shares of the Company or any warrants, options
or other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
"CERTIFICATE OF DESIGNATIONS" shall mean the Certificate of
Designation to be filed prior to the Closing by the Company with the
Secretary of State of Nevada, in the form of EXHIBIT A attached hereto.
"CLOSINGS" means collectively, the First and Second Closings (as
defined in Section 2.1) of the purchase and sale of the Securities.
"CLOSING DATES" means the dates of the Closings.
"CLOSING PRICE" means on any particular date (a) the last reported
closing price per share of Common Stock on such date on the Principal
Market (as reported by Bloomberg L.P. at 4:15 PM (New York time), or (b) if
there is no such price on such date, then the closing price on such market
or exchange on the date nearest preceding such date (as reported by
Bloomberg L.P. at 4:15 PM (New York time) for the closing bid price for
regular session trading on such day), or (c) if the shares of Common Stock
are not then reported on the Principal Market, then the average of the
"OTCBB" bid and ask quotes for the relevant conversion period, as
determined in good faith by the Purchasers, or (c) if the shares of Common
Stock are not then publicly traded the fair market value of a share of
Common Stock as determined by an appraiser selected in good faith by the
Purchasers and the Company.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, par value $0.001
per share, and any securities into which such common stock shall
hereinafter be reclassified into.
"COMPANY COUNSEL" means Xxxxxxx & Xxxxx Xxxxxxx Xxxx LLP, outside
counsel to the Company.
"DISCLOSURE SCHEDULES" shall have the meaning ascribed to such term in
Section 3.1.
"EFFECTIVE DATE" means the date that the Registration Statement is
first declared effective by the Commission.
"ESCROW AGENT" shall have the meaning set forth in the Escrow
Agreement.
"ESCROW AGREEMENT" shall mean the Escrow Agreement in substantially
the form of EXHIBIT F hereto executed and delivered contemporaneously with
this Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"GAAP" shall have the meaning ascribed to such term in Section 3.1(h).
"LIENS" shall have the meaning ascribed to such term in Section
3.1(a).
"LOSSES" means any and all losses, claims, damages, liabilities,
settlement costs and expenses, including without limitation costs of
preparation and reasonable attorneys' fees.
"MATERIAL ADVERSE EFFECT" shall have the meaning assigned to such term
in Section 3.1(b).
"PERSON" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"PREFERRED STOCK" means the 1,000 shares of the Company's Series A
Preferred Stock issued hereunder having the rights, preferences and
privileges set forth in Certificate of Designation.
"PRINCIPAL MARKET" shall initially mean the NASDAQ Small-Cap Market
and shall also include the American Stock Exchange, the New York Stock
Exchange or the NASDAQ National Market, whichever is at the time the
principal trading exchange or market for the Common Stock, based upon share
volume.
"PROCEEDING" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding,
such as a deposition), whether commenced or threatened.
"PURCHASER COUNSEL" means Xxxxxxx Xxxxxxxxx LLP with offices at 00
Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000-0000.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated the Closing Date, among the Company and the Purchasers, in
the form of EXHIBIT B.
"REQUIRED APPROVALS" shall have the meaning ascribed to such term in
Section 3.1(e).
"REQUIRED MINIMUM" means, as of any date, the maximum aggregate number
of shares of Common Stock then issued or potentially issuable in the future
pursuant to the Transaction Documents, including any Underlying Shares
issuable upon exercise or conversion in full of all Warrants and Preferred
Stock, ignoring any conversion or exercise limits set forth therein, and
assuming that any previously unconverted shares of Preferred Stock are held
until the third anniversary of the Closing Date and all dividends thereon
are accreted to the Stated Value of such Preferred Stock.
"RULE 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC REPORTS" shall have the meaning ascribed to such term in Section
3.1(h).
"SECURITIES" means the Preferred Stock, the Warrants and the
Underlying Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STATED VALUE" shall have the meaning ascribed to such term in the
Certificate of Designations.
"SUBSIDIARY" means any subsidiary of the Company that is required to
be listed in SCHEDULE 3.1(A).
"TRADING DAY" shall mean any day during which the Principal Market
shall be open for business.
"TRANSACTION DOCUMENTS" means this Agreement, the Certificate of
Designations, the Warrants, the Transfer Agent Instructions, the Escrow
Agreement, the Registration Rights Agreement and any other documents or
agreements executed in connection with the transactions contemplated
hereunder.
"UNDERLYING SHARES" means the shares of Common Stock issuable upon
conversion of the Preferred Stock and upon exercise of the Warrants.
"UNDERLYING SHARES REGISTRATION STATEMENT" OR "REGISTRATION STATEMENT"
means a registration statement meeting the requirements set forth in the
Registration Rights Agreement and covering the resale of the Underlying
Shares by the Purchasers.
"WARRANTS" means collectively the Common Stock purchase warrants, in
the form of EXHIBIT C delivered to the Purchasers at the Closing in
accordance with Section 2.2.
ARTICLE II
PURCHASE AND SALE
2.1 INVESTMENT.
(a) Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and the Purchasers agree to purchase, severally and
not jointly, the Preferred Stock together with the Warrants at the purchase
price of up to $1,000,000.00 ("PURCHASE PRICE") as follows:
(i) FIRST CLOSING. Within five (5) Trading Days of the date
hereof (the "FIRST CLOSING" and such date, the "FIRST CLOSING DATE"),
the Purchasers shall purchase, severally and not jointly, in the
aggregate, a number of shares of Preferred Stock equal to $600,000
divided by the Stated Value, together with the Warrants. On the First
Closing Date, each Investor shall deliver to the Company via wire
transfer or a certified check immediately available funds their amount
of the Purchase Price as set forth on the signature pages hereto and
labeled as the subscription amount, and the Company shall deliver the
certificates evidencing said number of shares of Preferred Stock and
the Warrants issuable at such Closing.
(ii) SECOND CLOSING. Within five (5) Trading Days of written
notice from the Company to the Purchasers that the Registration
Statement registering the shares of Common Stock underlying all of the
securities purchased at the First and Second Closing (as defined
below) has been declared effective by the Commission (the "SECOND
CLOSING" and such date, the "SECOND CLOSING DATE"), the Purchasers
shall purchase, severally and not jointly, in the aggregate, a number
of shares of Preferred Stock equal to $400,000 divided by the Stated
Value. On the Second Closing Date, each Investor shall deliver to the
Company via wire transfer or a certified check immediately available
funds their amount of the Purchase Price as set forth on the signature
pages hereto and labeled as the subscription amount, and the Company
shall deliver the certificates evidencing said number of shares of
Preferred Stock issuable at such Closing.
(iii) EACH CLOSING. Upon satisfaction of the conditions set forth
in Section 2.2, each Closing shall occur at the offices of the Escrow
Agent, or such other location as the parties shall mutually agree.
2.2 CONDITIONS TO CLOSINGS. Each Closing is subject to the satisfaction or
waiver by the party to be benefited thereby of the following conditions:
(a) At each Closing, the Company shall have delivered or caused to be
delivered to the Escrow Agent on behalf of each Purchaser the following:
(i) As to the First Closing only, this Agreement duly executed by
the Company.
(ii) a certificate evidencing a number of shares of Preferred
Stock equal to the subscription amount as to the applicable Closing
indicated below such Purchaser's name on the signature page of this
Agreement divided by the Stated Value, registered in the name of such
Purchaser;
(iii) at the First Closing only, a Warrant, registered in the
name of such Purchaser, pursuant to which such Purchaser shall have
the right to acquire up to its pro-rata share of, in the aggregate,
300,000 shares of Common Stock with a term of exercise of 3 years and
with an exercise price equal to 120% of the Closing Price immediately
prior to the First Closing;
(iv) as to the First Closing only, a legal opinion of Company
Counsel, in the form of EXHIBIT D attached hereto, addressed to the
Purchasers;
(v) as to the First Closing only, the Registration Rights
Agreement duly executed by the Company;
(vi) as to the First Closing only, the Escrow Agreement duly
executed by the Company;
(vii) as to the First Closing only, delivery to the Purchasers of
the executed agreements, in the form of attached hereto as EXHIBIT G,
by each member of the Board of Directors of the Company and each other
executive officer of the Company that own shares of the Company; and
(vii) as to the First Closing only, the Transfer Agent
Instructions executed by the Company and delivered to and acknowledged
by the Company's transfer agent in the form annexed hereto as EXHIBIT
E;
(b) At the Closing, each Purchaser shall have delivered or caused to
be delivered to the Escrow Agent the following:
(i) as to the First Closing only, this Agreement duly executed by
such Purchaser;
(ii) the subscription amount as to the applicable Closing
indicated below such Purchaser's name on the signature page of this
Agreement, in United States dollars and in immediately available
funds, by wire transfer to the account of the Escrow Agent;
(iii) as to the First Closing only, a Registration Rights
Agreement duly executed by such Purchaser; and
(iv) as to the First Closing only, an Escrow Agreement duly
executed by such Purchaser;
(c) All representations and warranties of the other party contained
herein shall remain true and correct in all material respects as of the
applicable Closing Date;
(d) As to the Second Closing only, there shall have been no Material
Adverse Effect (as defined in Section 3.1(b)) with respect to the Company
since the date of the First Closing;
(e) From the date hereof to the Second Closing Date, trading in the
Common Stock shall not have been suspended by the Commission (except for
any suspension of trading of limited duration agreed to by the Company,
which suspension shall be terminated prior to the applicable Closing), and,
at any time prior to such Closing Date, trading in securities generally as
reported by Bloomberg Financial Markets shall not have been suspended or
limited, or minimum prices shall not have been established on securities
whose trades are reported by such service, or on the Principal Market, nor
shall a banking moratorium have been declared either by the United States
or New York State authorities, which, in each case, in the reasonable
judgment of the Purchasers, makes it impracticable or inadvisable to
purchase the shares of Preferred Stock at the Second Closing; and
(f) As to the Second Closing only, the Company shall have filed with
the Commission the Registration Statement registering all of the Underlying
Shares relating to both Closings and such Registration Statement shall have
been declared effective by the Commission as to all such securities.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
under the corresponding section of the disclosure schedules attached hereto (the
"DISCLOSURE SCHEDULES"), the Company hereby makes the following representations
and warranties to the Purchasers:
(a) SUBSIDIARIES. The Company has no direct or indirect subsidiaries.
The Company owns, directly or indirectly, all of the capital stock of each
Subsidiary free and clear of any lien, charge, security interest,
encumbrance, right of first refusal or other restriction (collectively,
"LIENS"), and all the issued and outstanding shares of capital stock of
each Subsidiary are validly issued and are fully paid, non-assessable and
free of preemptive and similar rights. If the Company has no subsidiaries,
then references in the Transaction Documents to the Subsidiaries will be
disregarded.
(b) ORGANIZATION AND QUALIFICATION. Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. Neither the Company nor any Subsidiary is
in violation of any of the provisions of its respective certificate or
articles of incorporation, bylaws or other organizational or charter
documents. Each of the Company and the Subsidiaries is duly qualified to do
business and is in good standing as a foreign corporation or other entity
in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, would
not, individually or in the aggregate: (i) adversely affect the legality,
validity or enforceability of any Transaction Document, (ii) have or result
in a material 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) adversely impair the
Company's ability to perform fully on a timely basis its obligations under
any of the Transaction Documents (any of (i), (ii) or (iii), a "MATERIAL
ADVERSE EFFECT").
(c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no
further action is required by the Company. Each of the Transaction
Documents has been (or upon delivery will be) duly executed by the Company
and, when delivered in accordance with the terms hereof, will constitute
the valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally and general
principles of equity. Neither the Company nor any Subsidiary is in
violation of any of the provisions of its respective certificate or
articles of incorporation, by-laws or other organizational or charter
documents.
(d) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not: (i) conflict
with or violate any provision of the Company's or any Subsidiary's
certificate or articles of incorporation, bylaws or other organizational or
charter documents, or (ii) subject to obtaining the Required Approvals (as
defined below), conflict with, or constitute a default (or an event that
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 (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary debt or otherwise) or other understanding to which the
Company or any Subsidiary is a party or by which any property or asset of
the Company or any Subsidiary is bound or affected, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree
or other restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state securities
laws and regulations), or by which any property or asset of the Company or
a Subsidiary is bound or affected; except in the case of each of clauses
(ii) and (iii), such as would not, individually or in the aggregate, have
or result in a Material Adverse Effect.
(e) FILINGS, CONSENTS AND APPROVALS. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or
order of, give any notice to, or make any filing or registration with, any
court or other federal, state, local or other governmental authority or
other Person in connection with the execution, delivery and performance by
the Company of the Transaction Documents, other than (i) the filing with
the Commission of the Underlying Shares Registration Statement, (ii) the
application(s) to each applicable Principal Market for the listing of the
Underlying Shares for trading thereon in the time and manner required
thereby, and (iii) applicable Blue Sky filings (collectively, the "REQUIRED
APPROVALS").
(f) ISSUANCE OF THE SECURITIES. The Securities are duly authorized
and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable,
free and clear of all Liens. The Company has reserved from its duly
authorized capital stock a number of shares of Common Stock for issuance of
the Underlying Shares at least equal to the Required Minimum on the date
hereof.
(g) CAPITALIZATION. The number of shares and type of all authorized,
issued and outstanding capital stock of the Company is set forth in the
Disclosure Schedules attached hereto. No securities of the Company are
entitled to preemptive or similar rights, and no Person has any right of
first refusal, preemptive right, right of participation, or any similar
right to participate in the transactions contemplated by the Transaction
Documents. Except as a result of the purchase and sale of the Securities,
there are no outstanding options, warrants, script rights to subscribe to,
calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares of
Common Stock, or contracts, commitments, understandings or arrangements by
which the Company or any Subsidiary is or may become bound to issue
additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. The issuance and sale of the
Securities will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such securities.
(h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed all
reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the
two years preceding the date hereof (or such shorter period as the Company
was required by law to file such material) (the foregoing materials being
collectively referred to herein as the "SEC REPORTS" and, together with the
Disclosure Schedules) on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. The Company has delivered to the
Purchasers a copy of all SEC Reports filed within the 10 days preceding the
date hereof. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The financial statements of the Company included in the SEC Reports comply
in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect
at the time of filing. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved ("GAAP"), except as may be
otherwise specified in such financial statements or the notes thereto, and
fairly present in all material respects the financial position of the
Company and its consolidated subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i) MATERIAL CHANGES. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports: (i) there has been no event, occurrence or
development that has had or that could result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice and (B) liabilities not
required to be reflected in the Company's financial statements pursuant to
GAAP or required to be disclosed in filings made with the Commission, (iii)
the Company has not altered its method of accounting or the identity of its
auditors, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its
capital stock, and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company
stock option or similar plans.
(j) LITIGATION. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any
of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal,
state, county, local or foreign) (collectively, an "ACTION") which: (i)
adversely affects or challenges the legality, validity or enforceability of
any of the Transaction Documents or the Securities or (ii) could, if there
were an unfavorable decision, individually or in the aggregate, have or
result in a Material Adverse Effect. Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the subject
of any Action involving a claim of violation of or liability under federal
or state securities laws or a claim of breach of fiduciary duty. The
Company does not have pending before the Commission any request for
confidential treatment of information. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or
former director or officer of the Company. The Commission has not issued
any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act.
(k) COMPLIANCE. Neither the Company nor any Subsidiary: (i) is in
default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute,
rule or regulation of any governmental authority, except in each case as
could not, individually or in the aggregate, have or result in a Material
Adverse Effect.
(l) LABOR RELATIONS. No material labor problem exists or, to the
knowledge of the Company, is imminent with respect to any of the employees
of the Company.
(m) REGULATORY PERMITS. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the
failure to possess such permits could not, individually or in the
aggregate, have or result in a Material Adverse Effect ("MATERIAL
PERMITS"), and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any
Material Permit.
(n) TITLE TO ASSETS. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to
the business of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for Liens as do not materially affect the value
of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries.
Any real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable
leases of which the Company and the Subsidiaries are in compliance.
(o) PATENTS AND TRADEMARKS. The Company and the Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other
similar rights that are necessary or material for use in connection with
their respective businesses as described in the SEC Reports and which the
failure to so have could have a Material Adverse Effect (collectively, the
"INTELLECTUAL PROPERTY RIGHTS"). Neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any
Person. To the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights.
(p) INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which the Company and the Subsidiaries are engaged. Neither the Company nor
any Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.
(q) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set forth in
SEC Reports, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently
a party to any transaction with the Company or any Subsidiary (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to
or by, providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
(r) INTERNAL ACCOUNTING CONTROLS. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with 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.
(s) SOLVENCY. Based on the financial condition of the Company as of
the Closing Date: (i) the Company's fair saleable value of its assets
exceeds the amount that will be required to be paid on or in respect of the
Company's existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company's assets do not constitute
unreasonably small capital to carry on its business for the current fiscal
year as now conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the
Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses
of the cash, would be sufficient to pay all amounts on or in respect of its
debt when such amounts are required to be paid. The Company does not intend
to incur debts beyond its ability to pay such debts as they mature (taking
into account the timing and amounts of cash to be payable on or in respect
of its debt).
(t) CERTAIN FEES. No brokerage or finder's fees or commissions are or
will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions contemplated by this Agreement, and
the Company has not taken any action that would cause any Purchaser to be
liable for any such fees or commissions. The Company agrees that the
Purchasers shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of any Person for fees of the
type contemplated by this Section with the transactions contemplated by
this Agreement.
(u) PRIVATE PLACEMENT. Assuming the accuracy of the representations
and warranties of the Purchasers set forth in Sections 3.2(b)-(f), the
offer, issuance and sale of the Securities to the Purchasers as
contemplated hereby are exempt from the registration requirements of the
Securities Act. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Principal Market and no
shareholder approval is required for the Company to fulfill its obligations
under the Transaction Documents.
(v) LISTING AND MAINTENANCE REQUIREMENTS. The Company has not, in the
12 months preceding the date hereof, received notice from any Principal
Market on which the Common Stock is or has been listed or quoted to the
effect that the Company is not in compliance with the listing or
maintenance requirements of such Principal Market. The Company is, and has
no reason to believe that it will not in the foreseeable future continue to
be, in compliance with all such listing and maintenance requirements.
(w) REGISTRATION RIGHTS. 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.
(x) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Certificate of Incorporation
(or similar charter documents) or the laws of its state of incorporation
that is or could become applicable to the Purchasers as a result of the
Purchasers and the Company fulfilling their obligations or exercising their
rights under the Transaction Documents, including without limitation as a
result of the Company's issuance of the Securities and the Purchasers'
ownership of the Securities.
(z) DISCLOSURE. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Purchasers or their
agents or counsel with any information that constitutes or might constitute
material, nonpublic information. The Company understands and confirms that
the Purchasers will rely on the foregoing representations in effecting
transactions in securities of the Company. All disclosure provided to the
Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Schedules to this Agreement, furnished
by or on behalf of the Company with respect to the representations and
warranties made herein are true and correct with respect to such
representations and warranties and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they
were made, not misleading. The Company acknowledges and agrees that no
Purchaser makes or has made any representations or warranties with respect
to the transactions contemplated hereby other than those specifically set
forth in SECTION 3.2.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants to the
Company as follows:
(a) ORGANIZATION; AUTHORITY. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations thereunder. The purchase by such Purchaser of the
Securities hereunder has been duly authorized by all necessary action on
the part of such Purchaser. Each of this Agreement, and the Registration
Rights Agreement has been duly executed by such Purchaser, and when
delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms.
(b) INVESTMENT INTENT. Such Purchaser is acquiring the Securities as
principal for its own account for investment purposes only and not with a
view to or for distributing or reselling such Securities or any part
3
thereof, without prejudice, however, to such Purchaser's right, subject to
the provisions of this Agreement, at all times to sell or otherwise dispose
of all or any part of such Securities pursuant to an effective registration
statement under the Securities Act or under an exemption from such
registration and in compliance with applicable federal and state securities
laws. Nothing contained herein shall be deemed a representation or warranty
by such Purchaser to hold Securities for any period of time. Such Purchaser
is acquiring the Securities hereunder in the ordinary course of its
business. Such Purchaser does not have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the
Securities.
(c) PURCHASER STATUS. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on which
it exercises any Warrants or converts any Preferred Stock, it will be an
"accredited investor" as defined in Rule 501(a) under the Securities Act.
Such Purchaser has not been formed solely for the purpose of acquiring the
Securities. Such Purchaser is not a broker-dealer requiring registration
under Section 15 of the Exchange Act.
(d) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
(e) ACCESS TO INFORMATION. Such Purchaser has been afforded: (i) the
opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms
and conditions of the offering of the Securities and the merits and risks
of investing in the Securities; (ii) access to information about the
Company and the Subsidiaries and their respective financial condition,
results of operations, business, properties, management and prospects
sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information that the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation conducted by
or on behalf of such Purchaser or its representatives or counsel shall
modify, amend or affect such Purchaser's right to rely on the truth,
accuracy and completeness of the Company's representations and warranties
contained in the Transaction Documents.
(f) GENERAL SOLICITATION. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine
or similar media or broadcast over television or radio or presented at any
seminar or any other general solicitation or general advertisement.
(g) RELIANCE. Such Purchaser understands and acknowledges that: (i)
the Securities are being offered and sold to it without registration under
the Securities Act in a private placement that is exempt from the
registration provisions of the Securities Act and (ii) the availability of
such exemption depends in part on, and the Company will rely upon the
accuracy and truthfulness of, the foregoing representations and such
Purchaser hereby consents to such reliance.
(h) FURTHER REPRESENTATION BY FOREIGN PURCHASERS. If Purchaser is not
a U.S. person or entity, Purchaser hereby represents that, to the best of
its knowledge, the Purchaser is satisfied as to the full observance of the
laws of such Purchaser's jurisdiction in connection with any invitation to
subscribe for the Securities or any use of this Agreement, including (i)
the legal requirements with such Purchaser's jurisdiction for the purchase
of the Securities, (ii) any foreign exchange restrictions applicable to
such purchase, (iii) any governmental or other consents that may need to be
obtained, and (iv) the income tax and other tax consequences, if any, which
may be relevant to the purchase, holding, redemption, sale or transfer of
the Securities and does hereby warrant that, to the best of its knowledge,
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby do not violate any laws, regulation or
requirements of such Purchaser's jurisdiction or require any further action
required thereunder.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 TRANSFER RESTRICTIONS.
(a) The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement, to the Company,
to an Affiliate of a Purchaser, to an entity managed by a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company may
require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities under
the Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall have
the rights of a Purchaser under this Agreement and the Registration Rights
Agreement.
(b) The Purchasers agree to the imprinting, so long as is required by
this SECTION 4.1(B), of the following legend on any certificate evidencing
Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE
REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES
ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
THE COMPANY SHALL ISSUE STOP TRANSFER INSTRUCTIONS IN CONNECTION HEREWITH.
The Company acknowledges and agrees that a Purchaser may from time to
time pledge pursuant to a bona fide margin agreement or grant a security
interest in some or all of the Securities and, if required under the terms
of such arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or transfer
would not be subject to approval of the Company and no legal opinion of the
pledgee, secured party or pledgor shall be required in connection
therewith. Further, no notice shall be required of such pledge. At the
appropriate Purchaser's expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the
Securities, including 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.
(c) Certificates evidencing Securities shall not contain any legend
(including the legend set forth in Section 4.1(b)): (i) while a
registration statement (including the Underlying Shares Registration
Statement) covering the resale of such security is effective under the
Securities Act, provided the Purchaser represents to the Company that it
has sold or will promptly sell such security, or (ii) following any sale of
such Securities pursuant to Rule 144, or (iii) if such Securities are
eligible for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the Commission)
as determined by the Company in good faith. In the event that any
certificate does not bear the legend set forth in Section 4.1(b), and, to
the knowledge of the holder, none of the above-referenced conditions exist,
then the holder shall submit the certificate to the Company for application
of such legend to the certificate. The Company shall cause its counsel to
issue the legal opinion included in the Transfer Agent Instructions to the
Company's transfer agent on the Effective Date. If all or any shares of
Preferred Stock or any portion of a Warrant is converted or exercised (as
applicable) at a time when there is a effective registration statement to
cover the resale of the Underlying Shares, or if such Underlying Shares may
be sold under Rule 144(k) or if such legend is not otherwise required under
applicable requirements of the Securities Act (including judicial
interpretations thereof) then such Underlying Shares shall be issued free
of all legends. The Company agrees that following the Effective Date or at
such time as such legend is no longer required under this Section 4.1(c),
it will, no later than three Trading Days following the delivery by a
Purchaser to the Company or the Company's transfer agent of a certificate
representing Securities issued with a restrictive legend, deliver or cause
to be delivered to such Purchaser a certificate representing such
Securities that is free from all restrictive and other legends. The Company
may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions on transfer set
forth in this Section.
4.3 FURNISHING OF INFORMATION. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. Upon the request
of any Purchaser, the Company shall deliver to such Purchaser a written
certification of a duly authorized officer as to whether it has complied with
the preceding sentence. Until such time as all Securities are eligible for sale
under Rule 144(k), if the Company is not required to file reports pursuant to
such laws, it will prepare and furnish to the Purchasers and make publicly
available in accordance with Rule 144(c) such information as is required for the
Purchasers to sell the Securities under Rule 144.
4.4 INTEGRATION. The Company shall not, and shall use its best efforts to
ensure that no Affiliate of the Company shall, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers, or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Principal Market.
4.5 RESERVATION AND LISTING OF SECURITIES.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction Documents
in such amount as may be required to fulfill its obligations in full under
the Transaction Documents.
(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than 125% of (i) the
Actual Minimum on such date, minus (ii) the number of shares of Common
Stock previously issued pursuant to the Transaction Documents, then the
Board of Directors of the Company shall use its best efforts to amend the
Company's certificate or articles of incorporation to increase the number
of authorized but unissued shares of Common Stock to at least the Required
Minimum at such time (minus the number of shares of Common Stock previously
issued pursuant to the Transaction Documents), as soon as possible and in
any event not later than the 60th day after such date; provided that the
Company will not be required at any time to authorize a number of shares of
Common Stock greater than the maximum remaining number of shares of Common
Stock that could possibly be issued after such time pursuant to the
Transaction Documents.
(c) The Company shall: (i) in the time and manner required by each
Principal Market, prepare and file with such Principal Market an additional
shares listing application covering a number of shares of Common Stock at
least equal to the greater of (A) the Required Minimum on the Closing Date
and (B) the Required Minimum on the date of such application, (ii) take all
steps necessary to cause such shares of Common Stock to be approved for
listing on each Principal Market as soon as possible thereafter, (iii)
provide to the Purchasers evidence of such listing, and (iv) maintain the
listing of such Common Stock on each such Principal Market or another
Principal Market.
(d) If, on any date, the number of shares of Common Stock previously
listed on a Principal Market is less than 125% of the Actual Minimum on
such date, then the Company shall take the necessary actions to list on
such Principal Market, as soon as reasonably possible, a number of shares
of Common Stock at least equal to the Required Minimum on such date;
provided that the Company will not be required at any time to list a number
of shares of Common Stock greater than the maximum number of shares of
Common Stock that could possibly be issued pursuant to the Transaction
Documents.
4.6 CONVERSION AND EXERCISE PROCEDURES. The form of Election to Purchase
included in the Warrants and the forms of Conversion Notice included in the
Preferred Stock set forth the totality of the procedures required in order to
exercise the Warrants or convert the Preferred Stock. No additional legal
opinion or other information or instructions shall be necessary to enable the
Purchasers to exercise their Warrants or convert their Preferred Stock. The
Company shall honor exercises of the Warrants and conversions of the Preferred
Stock and shall deliver Underlying Shares in accordance with the terms,
conditions and time periods set forth in the Transaction Documents.
4.7 SUBSEQUENT EQUITY SALES. From the date hereof until 60 days after the
Effective Date, neither the Company nor any Subsidiary shall issue additional
shares of Common Stock or Capital Share Equivalents at an effective net price to
the Company per share of Common Stock (the "EFFECTIVE PRICE") less than the
Conversion Price (as defined in the Certificate of Designations).
4.8 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, within five
business days after the Closing Date, issue a press release or file a Current
Report on Form 8-K reasonably acceptable to the Purchasers disclosing all
material terms of the transactions contemplated hereby. The Company and the
Purchasers shall consult with each other in issuing any press releases with
respect to the transactions contemplated hereby. Notwithstanding the foregoing,
other than in any registration statement filed pursuant to the Registration
Rights Agreement and filings related thereto, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Principal Market, without
the prior written consent of such Purchaser, except to the extent such
disclosure is required by law or Principal Market regulations, in which case the
Company shall provide the Purchasers with prior notice of such disclosure.
4.9 NON-PUBLIC INFORMATION. The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.
4.10 USE OF PROCEEDS. The Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables, inventory line payments, capital lease obligations, and accrued
expenses in the ordinary course of the Company's business and prior practices),
to redeem any Company equity or equity-equivalent securities or to settle any
outstanding litigation.
4.11 INDEMNIFICATION OF PURCHASERS. The Company will indemnify and hold the
Purchasers and their directors, officers, shareholders, partners, employees and
agents (each, a "PURCHASER PARTY") harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys' fees and costs of investigation that any such Purchaser Party may
suffer or incur as a result of or relating to: (a) any misrepresentation, breach
or inaccuracy, or any allegation by a third party that, if true, would
constitute a breach or inaccuracy, of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents; or (b) any cause of action, suit or claim brought or made
against such Purchaser Party and arising solely out of or solely resulting from
the execution, delivery, performance or enforcement of this Agreement or any of
the other Transaction Documents; PROVIDED such cause of action, suit or claim is
not due to or the result of any activity, obligation, condition or liability of
such Purchaser other than as contemplated by this Agreement. resulting from the
execution, delivery, performance or enforcement of this Agreement. The Company
will reimburse such Purchaser for its reasonable legal and other expenses
(including the cost of any investigation, preparation and travel in connection
therewith) incurred in connection therewith, as such expenses are incurred.
4.12 SHAREHOLDERS RIGHTS PLAN. In the event that a shareholders rights plan
is adopted by the Company, no claim will be made or enforced by the Company or
any other Person that any Purchaser is an "Acquiring Person" under the plan or
in any way could be deemed to trigger the provisions of such plan by virtue of
receiving Securities under the Transaction Documents.
4.13 COMPLIANCE WITH LAW. The Purchasers agree that they will comply with
the prospectus delivery requirements under the Securities Act.
4.14 LIMITATIONS ON SHORT SALES. Each Purchaser agrees that it will not
enter into any Short Sales (as hereinafter defined) from the period commencing
on the Closing Date and ending on the date that such Purchaser no longer holds
any Preferred Stock. For purposes of this Section 4.15, a "Short Sale" by any
Purchaser shall mean a sale of Common Stock by such Purchaser that is marked as
a short sale and that is made at a time when there is no equivalent offsetting
long position in Common Stock held by such Purchaser. For purposes of
determining whether there is an equivalent offsetting long position in Common
Stock held by the Purchasers, all Underlying Shares issued and held by such
Purchaser, Underlying Shares underlying up to $50,000 aggregate Stated Value of
Preferred Stock that has not yet been converted and Underlying Shares that have
not yet been issued upon exercise of the Warrant shall be deemed to be held long
by the Purchasers, and the amount of shares of Common Stock held in a long
position shall be the number of Underlying Shares issuable pursuant to up to
$50,000 aggregate Stated Value of Preferred Stock assuming such holder converted
all the such Stated Value on such date notwithstanding any limitations therein,
and (ii) the number of Underlying Shares issuable pursuant to the Warrant
notwithstanding any limitations therein.
ARTICLE V
MISCELLANEOUS
5.1 TERMINATION. This Agreement may be terminated by the Company or any
Purchaser, by written notice to the other parties, if the First Closing has not
been consummated by the third business day following the date of this Agreement;
provided that no such termination will affect the right of any party to xxx for
any breach by the other party (or parties).
5.2 FEES AND EXPENSES. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all transfer
agent fees, stamp taxes and other taxes and duties levied in connection with the
issuance of any Securities.
5.3 ENTIRE AGREEMENT. The Transaction Documents, together with the Exhibits
and Schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules. At or
after the Closing, and without further consideration, the Company and the
Purchasers will execute and deliver to each other such further documents as may
be reasonably requested in order to give practical effect to the intention of
the parties under the Transaction Documents.
5.4 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 5:30 p.m. (New York City time) on a Trading
Day and confirmation of receipt is received, (b) the next Trading Day after the
date of transmission and confirmation of receipt, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 5:30 p.m. (New
York City time) on any Trading Day, (c) the Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The addresses for such notices and communications are those set forth on the
signature pages hereof, or such other address as may be designated in writing
hereafter, in the same manner, by such Person.
5.5 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each of the Purchasers or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.6 CONSTRUCTION. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Any Purchaser may assign
its rights under this Agreement and the Registration Rights Agreement to any
Person to whom such Purchaser assigns or transfers any Securities.
5.8 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Sections 4.11 and 4.12.
5.9 GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by and construed and enforced in accordance with the internal
laws of the State of New York, without regard to the principles of conflicts of
law thereof. Each party hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting in the City of New York, borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents),
and hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper or inconvenient
venue for such proceeding. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. The parties hereby waive all rights to a trial
by jury. If either party shall commence an action or proceeding to enforce any
provisions of this Agreement, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
5.10 SURVIVAL. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery, exercise and/or
conversion of the Securities, as applicable.
5.11 EXECUTION. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.12 SEVERABILITY. If any provision of this Agreement is held to be invalid
or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.13 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
5.14 REPLACEMENT OF SECURITIES. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.15 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.16 PAYMENT SET ASIDE. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.18 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. If there is
more than one Purchaser, the obligations of each Purchaser under any Transaction
Document are several and not joint with the obligations of any other Purchaser,
and no Purchaser shall be responsible in any way for the performance of the
obligations of any other Purchaser under any Transaction Document. Nothing
contained herein or in any Transaction Document, and no action taken by any
Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction Document. Each Purchaser shall be entitled to independently protect
and enforce its rights, including without limitation the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.
***********************
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
WIRE INSTRUCTIONS: PACIFIC MAGTRON INTERNATIONAL CORP.
By: /s/ Xxxxxxxx X. Xx
--------------------------------
Name: Xxxxxxxx X. Xx
Title: Chairman of the Board and President
ADDRESS FOR NOTICE:
0000 Xxxxxxxxxx Xxxxxx,
Xxxxxxxx, Xxxxxxxxxx 00000
Attn:
Tel:
Fax:
WITH A COPY TO: Xxxxxxx & Xxxxx Xxxxxxx Xxxx LLP
Renaissance Xxx
Xxx Xxxxx Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000-0000
Tel: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxxxxx X. Xxxxxxx III
XXXXXXXXXXX X.X. ADDRESS FOR NOTICE:
000 Xxxx Xxxxxx Xxxx.
Xxxxx 000
By:_________________________ Markham, ON X0X 0X0 Xxxxxx
Name: Attn: Fund Manager
Title:
WITH A COPY TO:
SUBSCRIPTION AMOUNT: Xxxxxxx Xxxxxxxxx LLP
First Closing: $600,000 00 Xxxx 00xx Xxxxxx
Second Closing: $400,000 Xxx Xxxx, Xxx Xxxx 00000
Warrant Shares: 300,000 Attn: Xxxxxx X. Xxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
