SECURITIES PURCHASE AGREEMENT
Exhibit
10.1
This
Securities Purchase Agreement dated as of November 17, 2008 (this “Agreement”)
is
made by and between CSMG Technologies, Inc., a Texas corporation, with principal
executive offices located at 000 Xxxxx Xxxxxxxxx Xxxxx, Xxxxx 0000 Xxxxx, Xxxxxx
Xxxxxxx, Xxxxx 00000 (the “Company”),
and
La Jolla Cove Investors, Inc. (“Holder”).
WHEREAS,
Holder desires to purchase from the Company, and the Company desires to issue
and sell to Holder, upon the terms and subject to the conditions of this
Agreement, a Convertible Debenture of the Company in the aggregate principal
amount of $1,500,000 (the “Debenture”);
and
WHEREAS,
upon the terms and subject to the conditions set forth in the Debenture the
Debenture is convertible into shares of the Company’s Common Stock (the
“Common
Stock”).
NOW,
THEREFORE, in consideration of the premises and the mutual covenants contained
herein, the parties hereto, intending to be legally bound, hereby agree as
follows:
| I. |
PURCHASE
AND SALE OF DEBENTURE
|
A. Transaction.
Holder hereby agrees to purchase from the Company, and the Company has offered
and hereby agrees to issue and sell to Holder in a transaction exempt from
the
registration and prospectus delivery requirements of the Securities Act of
1933,
as amended (the “Securities
Act”),
the
Debenture.
B. Purchase
Price; Form of Payment.
The purchase price for the Debenture to be purchased by Holder hereunder shall
be $1,500,000 (the “Purchase
Price”).
Simultaneously with the execution of this Agreement, Holder shall pay the
Purchase Price by wire transfer of $125,000 in immediately available funds
to
the Company and delivery to the Company of a Secured Promissory Note in the
principal amount of $1,375,000, in the form attached hereto as Exhibit
A
(the
“Promissory
Note”).
Simultaneously with the execution of this Agreement, the Company shall deliver
the Debenture (which shall have been duly authorized, issued and executed I/N/O
Holder or, if the Company otherwise has been notified, I/N/O Holder’s nominee)
to the Holder.
C. Second
Debenture.
Provided that no Event of Default (as defined in the Debenture) has occurred
under the Debenture (provided that Holder may, in its sole and absolute
discretion waive the occurrence of such Event of Default with respect to this
Section), Holder shall, in Holder’s sole and absolute discretion, select a date
during the Second Debenture Period (as defined below) (with such date as
selected by Holder referred to herein as the “Second
Debenture Date”)
at
which the Company shall sell and the Holder shall purchase a debenture in the
principal amount of $1,500,000 in exchange for a purchase price of $1,500,000
(the “Second
Debenture”),
with
such purchase price paid via a cash payment of $400,000 and the issuance of
a
promissory note in the principal amount of $1,100,000 (the “Second
Promissory Note”),
with
the form of and terms of the Second Debenture and the Second Promissory Note
and
payment of the purchase price subject to the same terms and conditions of this
Agreement, the Debenture and the Promissory Note, as applicable, entered into
in
connection with this Agreement and the Debenture, and when the Second Debenture
is issued, the term “Debenture” as used in this Agreement shall be deemed to
include the Second Debenture in all respects and when the Second Promissory
Note
is issued, the term “Promissory Note” as used in this Agreement shall be deemed
to include the Second Promissory Note in all respects. The closing of the
purchase and sale of the Second Debenture and the issuance of the Second
Promissory Note shall occur within thirty days of the Second Debenture Date.
For
the purposes of this Agreement, the “Second Debenture Period” shall mean the
period that commences on the date hereof and terminates upon the date that
the
remaining Principal Amount of the Debenture is equal to an amount not greater
than $250,000.
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D. Third
Debenture.
Provided that no Event of Default (as defined in the Debenture) has occurred
under the Debenture (provided that Holder may, in its sole and absolute
discretion waive the occurrence of such Event of Default with respect to this
Section), Holder shall, in Holder’s sole and absolute discretion, select a date
during the Third Debenture Period (as defined below) (with such date as selected
by Holder referred to herein as the “Third
Debenture Date”)
at
which the Company shall sell and the Holder shall purchase a debenture in the
principal amount of $1,500,000 in exchange for a purchase price of $1,500,000
(the “Third
Debenture”),
with
such purchase price paid via a cash payment of $400,000 and the issuance of
a
promissory note in the principal amount of $1,100,000 (the “Third
Promissory Note”),
with
the form of and terms of the Third Debenture and the Third Promissory Note
and
payment of the purchase price subject to the same terms and conditions of this
Agreement, the Debenture and the Promissory Note, as applicable, entered into
in
connection with this Agreement and the Debenture, and when the Third Debenture
is issued, the term “Debenture” as used in this Agreement shall be deemed to
include the Third Debenture in all respects and when the Third Promissory Note
is issued, the term “Promissory Note” as used in this Agreement shall be deemed
to include the Third Promissory Note in all respects. The closing of the
purchase and sale of the Third Debenture and the issuance of the Third
Promissory Note shall occur within thirty days of the Third Debenture Date.
For
the purposes of this Agreement, the “Third Debenture Period” shall mean the
period that commences on the date of the issuance of the Second Debenture to
Holder and terminates upon the date that the remaining Principal Amount of
the
Second Debenture is equal to an amount not greater than $250,000.
E. Fourth
Debenture.
Provided that no Event of Default (as defined in the Debenture) has occurred
under the Debenture (provided that Holder may, in its sole and absolute
discretion waive the occurrence of such Event of Default with respect to this
Section), Holder shall, in Holder’s sole and absolute discretion, select a date
during the Fourth Debenture Period (as defined below) (with such date as
selected by Holder referred to herein as the “Fourth
Debenture Date”)
at
which the Company shall sell and the Holder shall purchase a debenture in the
principal amount of $1,500,000 in exchange for a purchase price of $1,500,000
(the “Fourth
Debenture”),
with
such purchase price paid via a cash payment of $400,000 and the issuance of
a
promissory note in the principal amount of $1,100,000 (the “Fourth
Promissory Note”),
with
the form of and terms of the Fourth Debenture and the Fourth Promissory Note
and
payment of the purchase price subject to the same terms and conditions of this
Agreement, the Debenture and the Promissory Note, as applicable, entered into
in
connection with this Agreement and the Debenture, and when the Fourth Debenture
is issued, the term “Debenture” as used in this Agreement shall be deemed to
include the Fourth Debenture in all respects and when the Fourth Promissory
Note
is issued, the term “Promissory Note” as used in this Agreement shall be deemed
to include the Fourth Promissory Note in all respects. The closing of the
purchase and sale of the Fourth Debenture and the issuance of the Fourth
Promissory Note shall occur within thirty days of the Fourth Debenture Date.
For
the purposes of this Agreement, the “Fourth Debenture Period” shall mean the
period that commences on the date of the issuance of the Second Debenture to
Holder and terminates upon the date that the remaining Principal Amount of
the
Second Debenture is equal to an amount not greater than $250,000.
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F. Non-Funding
Penalty.
Notwithstanding the foregoing requirements of Holder to purchase each of the
Second Debenture, Third Debenture and Fourth Debenture (each, an “Additional
Debenture”
and
collectively, the “Additional
Debentures”),
in
the event that Holder does not purchase any or all of the Additional Debentures
within 10 business days of the date that the delivery of funds associated with
such purchase would otherwise be due, upon 20 days’ prior written notice from
the Company of such failure to so purchase any or all of the Additional
Debentures (during such time Holder shall have the option to cure such failure
to so purchase any Additional Debenture with no penalty attached thereto),
Holder shall pay an amount equal to $25,000 (the “Non-Funding
Penalty”)
to the
Company, provided however that in the event that the Common Stock shall trade
on
the Trading Market (as defined in the Debenture) at a price per share that
is
$0.27 per share or lower at any time during the six month period commencing
on
the date hereof and ending on the six month anniversary of the date hereof
(as
adjusted for any stock splits, stock dividends, combinations, subdivisions,
recapitalizations or the like),
then
the Non-Funding Penalty shall be reduced to equal $5,000. The amount payable
by
the Holder to the Company in connection with any damages, losses, claims or
other amounts in connection with the failure of the Holder to purchase any
or
all of the Additional Debentures shall not exceed $25,000 (or $5,000, subject
to
the terms of this Section) in the aggregate. Upon the payment of the Non-Funding
Penalty to the Company, the Holder shall have no further obligations or duties
under this Agreement, the Debenture or any agreements or debentures entered
into
in connection with any of the Additional Debentures, if any, with respect to
the
purchase of any Additional Debenture or other duties to deliver any additional
funds to the Company, provided however, that other than with respect to the
removal of the requirement to purchase and enter into any Additional Debenture,
the Company and the Holder shall remain obligated and bound by the remaining
terms and conditions of this Agreement, the Debenture, the Promissory Note
and
any agreements or debentures previously entered into in connection with any
Additional Debenture. The Company’s sole and exclusive remedy in the event that
the Holder fails to purchase any or all of the Additional Debentures shall
be
the right of the Company to receive the Non-Funding Penalty from the Holder.
G. Non-Funding
Election.
In the event that the Common Stock shall trade on the Trading Market (as defined
in the Debenture) at a price per share that is $0.25 per share or lower at
any
time during the six month period commencing on the date hereof and ending on
the
six month anniversary of the date hereof (as
adjusted for any stock splits, stock dividends, combinations, subdivisions,
recapitalizations or the like),
the
Holder shall have the right, in the Holder’s sole and absolute discretion,
during the time period commencing on the date hereof and ending on the six
month
anniversary of the date hereof, to terminate the right and obligation of the
Holder to purchase any or all of the Additional Debentures through the delivery
of written notice to the Company of such termination in the manner provided
in
Section XVII hereof. In the event that Holder so terminates Holder’s right and
obligation to purchase any or all of the Additional Debentures under the terms
of this Section I.G., the Holder shall have no obligation to pay any of the
Non-Funding Penalty and shall have no further obligations or duties under this
Agreement, the Debenture or any agreements or debentures entered into in
connection with any of the Additional Debentures, if any, with respect to the
purchase of any Additional Debenture or other duties to deliver any additional
funds to the Company, provided however, that other than with respect to the
removal of the requirement to purchase and enter into any Additional Debenture
and pay any of the Non-Funding Penalty, the Company and the Holder shall remain
obligated and bound by the remaining terms and conditions of this Agreement,
the
Debenture, the Promissory Note and any agreements or debentures previously
entered into in connection with any Additional Debenture.
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H. Company
Redemption of Debenture and Termination of Additional Debenture
Purchases.
Provided that no Event of Default has occurred under the Debenture, the Company
shall have the right, in the Company’s sole and absolute discretion, during the
time period commencing on the date hereof and terminating on the 45th
day
following the date hereof, to (i) redeem the Debenture for a redemption price
equal to 100% of the outstanding principal amount of the Debenture, plus any
accrued and unpaid interest thereon (such aggregate amount referred to herein
as
the “Redemption
Amount”),
and
(ii) terminate the right and obligation of the Holder to purchase all of the
Additional Debentures through (x) the delivery of written notice to the Holder
of such termination in the manner provided in Article XVII hereof and (y) the
delivery to the Holder of a payment in cash equal to the Redemption Amount
within 3 business days of the delivery of such notice. Notwithstanding the
foregoing, the payment of the Redemption Amount shall first be satisfied by
and
offset against any amounts due to the Company under the Promissory Note and
such
amounts of the Promissory Note so applied against the Redemption Amount that
the
Company is required or permitted to redeem shall reduce the amount outstanding
under the Promissory Note by a like amount. After the application of the amount
owed under the Promissory Note, if any, to the Redemption Amount, the Company
shall immediately pay in cash to the Holder any remaining amount owed by the
Company to the Holder in connection with the payment of the Redemption Amount,
return all copies of the Promissory Note marked “Cancelled” to the Holder, and
file all appropriate documentation with the appropriate authorities to cancel,
release and terminate any and all UCC Financing Statements, liens, restrictions,
security interests or encumbrances on any of the Holder’s assets or properties
that have been made in connection with the Promissory Note and promptly deliver
copies of such filings to the Holder. The Company shall provide such other
assistance related to the termination of such financing statements, liens,
restrictions, security interests or encumbrances on any of the Holder’s assets
or properties made in connection with the Promissory Note including, but not
limited to, the filing of any UCC termination or financing statements, releases
or reconveyances as reasonably requested by the Holder.
| II. |
HOLDER’S
REPRESENTATIONS AND
WARRANTIES
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Holder
represents and warrants to and covenants and agrees with the Company as
follows:
1. Holder
is
purchasing the Debenture and the Common Stock issuable upon conversion or
redemption of or payment of interest under the Debenture (the “Conversion
Shares”
and,
collectively with the Debenture, the “Securities”)
for
its own account, for investment purposes only and not with a view towards or
in
connection with the public sale or distribution thereof in violation of the
Securities Act.
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2. Holder
is
(i) an “accredited investor” within the meaning of Rule 501 of Regulation D
under the Securities Act, (ii) experienced in making investments of the kind
contemplated by this Agreement, (iii) capable, by reason of its business and
financial experience, of evaluating the relative merits and risks of an
investment in the Securities, and (iv) able to afford the loss of its investment
in the Securities.
3. Holder
understands that the Securities are being offered and sold by the Company in
reliance on an exemption from the registration requirements of the Securities
Act and equivalent state securities and “blue sky” laws, and that the Company is
relying upon the accuracy of, and Holder’s compliance with, Holder’s
representations, warranties and covenants set forth in this Agreement to
determine the availability of such exemption and the eligibility of Holder
to
purchase the Securities;
4. Holder
understands that the Securities have not been approved or disapproved by the
Securities and Exchange Commission (the “Commission”)
or any
state or provincial securities commission.
5. This
Agreement has been duly and validly authorized, executed and delivered by Holder
and is a valid and binding agreement of Holder enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors’ rights and remedies generally and except as rights to indemnity and
contribution may be limited by federal or state securities laws or the public
policy underlying such laws.
| III. |
THE
COMPANY’S REPRESENTATIONS
|
The
Company represents and warrants as of the date hereof to the Holder that, except
as set forth on Schedule III attached hereto, the statements contained in this
Section 3 are complete and accurate as of the date of this Agreement. As used
in
this Section 3, the term “Knowledge” shall mean the knowledge of the members of
the board of directors of the Company and/or the officers or employees of the
Company after reasonable investigation.
A. Capitalization.
1. The
authorized capital stock of the Company consists of 80,000,000 shares of Common
Stock and 10,000,000 shares of Preferred Stock of which 41,668,875 shares and
no
shares, respectively, are issued and outstanding as of the date hereof and
are
fully paid and nonassessable. The amount, exercise, conversion or subscription
price and expiration date for each outstanding option and other security or
agreement to purchase shares of Common Stock is accurately set forth on
Schedule
III.A.1.
2. The
Securities have been duly and validly authorized and reserved for issuance
by
the Company, and, when issued by the Company upon conversion of the Debenture,
will be duly and validly issued, fully paid and nonassessable and will not
subject the holder thereof to personal liability by reason of being such
holder.
3. Except
as
disclosed on Schedule III.A.3.,
there
are no preemptive, subscription, “call,” right of first refusal or other similar
rights to acquire any capital stock of the Company or other voting securities
of
the Company that have been issued or granted to any person and no other
obligations of the Company to issue, grant, extend or enter into any security,
option, warrant, “call,” right, commitment, agreement, arrangement or
undertaking with respect to any of their respective capital stock. The issuance
of the Securities will not obligate the Company to issue any other securities
to
any third party and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under
such securities.
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B. Organization;
Reporting Company Status.
1. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the state or jurisdiction in which it is incorporated and
is
duly qualified as a foreign corporation in all jurisdictions in which the
failure so to qualify would reasonably be expected to have a material adverse
effect on the business, properties, prospects, condition (financial or
otherwise) or results of operations of the Company or on the consummation of
any
of the transactions contemplated by this Agreement (a “Material
Adverse Effect”).
2. The
Company is subject to the reporting requirements of the Securities Exchange
Act
of 1934, as amended (the “Exchange
Act”).
The
Common Stock is traded on the OTC Bulletin Board (“OTCBB”)
and
the Company has not received any notice regarding, and to its Knowledge there
is
no threat of, the termination or discontinuance of the eligibility of the Common
Stock for such trading.
C. Authorization.
The Company (i) has duly and validly authorized and reserved for issuance shares
of Common Stock, which is a number sufficient for the conversion of the
Debenture in full and issuable upon payment of interest under the Debenture
and
(ii) at all times from and after the date hereof shall have a sufficient number
of shares of Common Stock duly and validly authorized and reserved for issuance
to satisfy the conversion of the Debenture in full. The Company understands
and
acknowledges the potentially dilutive effect on the Common Stock of the issuance
of the Conversion Shares. The Company further acknowledges that its obligation
to issue Conversion Shares upon conversion of the Debenture in accordance with
this Agreement is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other stockholders
of
the Company and notwithstanding the commencement of any case under 11 U.S.C.
§ 101 et
seq.
(the
“Bankruptcy
Code”).
In
the event the Company is a debtor under the Bankruptcy Code, the Company hereby
waives to the fullest extent permitted any rights to relief it may have under
11 U.S.C. § 362 in respect of the conversion of the Debenture. The
Company agrees, without cost or expense to Holder, to take or consent to any
and
all action necessary to effectuate relief under 11 U.S.C.
§ 362.
D. Authority;
Validity and Enforceability.
The Company has the requisite corporate power and authority to enter into the
Documents (as such term is hereinafter defined) and to perform all of its
obligations hereunder and thereunder (including the issuance, sale and delivery
to Holder of the Securities). The execution, delivery and performance by the
Company of the Documents and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance
of
the Debenture and the issuance and reservation for issuance of the Conversion
Shares) have been duly and validly authorized by all necessary corporate action
on the part of the Company and no further filing, consent, or authorization
is
required by the Company, its board of directors, or its stockholders. Each
of
the Documents has been duly and validly executed and delivered by the Company
and each Document constitutes a valid and binding obligation of the Company
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors’ rights and remedies generally and except as
rights to indemnity and contribution may be limited by federal or state
securities laws or the public policy underlying such laws. The Securities have
been duly and validly authorized for issuance by the Company and, when executed
and delivered by the Company, will be valid and binding obligations of the
Company enforceable against it in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors’ rights and
remedies generally. For purposes of this Agreement, the term “Documents”
means
(i) this Agreement; (ii) the Debenture; and (iii) the Promissory
Note.
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E. Validity
of Issuance of the Securities.
The Debenture and the Conversion Shares upon their issuance in accordance with
the Debenture, will be validly issued and outstanding, fully paid and
nonassessable, and not subject to any preemptive rights, rights of first
refusal, tag-along rights, drag-along rights or other similar
rights.
F. Non-contravention.
The execution and delivery by the Company of the Documents, the issuance of
the
Securities, and the consummation by the Company of the transactions contemplated
hereby and thereby do not, and compliance with the provisions of this Agreement
and other Documents will not, conflict with, or result in any violation of,
or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of a material benefit under, or result in the creation of any Lien (as
such
term is hereinafter defined) upon any of the properties or assets of the Company
or any of its Subsidiaries under, or result in the termination of, or require
that any consent be obtained or any notice be given with respect to (i) the
Articles or Certificate of Incorporation or By-Laws of the Company or the
comparable charter or organizational documents of any of its Subsidiaries,
in
each case as amended to the date of this Agreement, (ii) any loan or credit
agreement, debenture, bond, mortgage, indenture, lease, contract or other
agreement, instrument or permit applicable to the Company or any of its
Subsidiaries or their respective properties or assets or (iii) any statute,
law,
rule or regulation applicable to, or any judgment, decree or order of any court
or government body having jurisdiction over, the Company or any of its
Subsidiaries or any of their respective properties or assets. A “Lien”
means
any assignment, transfer, pledge, mortgage, security interest or other
encumbrance of any nature, or an agreement to do so, or the ownership or
acquisition or agreement to acquire any asset or property of any character
subject to any of the foregoing encumbrances (including any conditional sale
contract or other title retention agreement).
G. Approvals.
No
authorization, approval or consent of any court or public or governmental
authority is required to be obtained by the Company for the performance by
the
Company of its obligations hereunder and the other Documents, including the
issuance and sale of the Securities to Holder as contemplated by this Agreement,
except such authorizations, approvals and consents as have been obtained by
the
Company prior to the date hereof.
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H. Commission
Filings.
The Company is subject to the reporting requirements of Section 13 or 15(d)
of
the Exchange Act. The Company has properly and timely filed with the Commission
all reports, proxy statements, forms and other documents required to be filed
with the Commission under the Securities Act and the Exchange Act since becoming
subject to such Acts (the “Commission
Filings”),
including without limitation the timely filing of all required reports under
Section 13 or 15(d) of the Exchange Act during the 12 months prior to the date
hereof (or for such shorter period that the Company was required to file such
reports). As of their respective dates, (i) the Commission Filings complied
in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the
Commission promulgated thereunder applicable to such Commission Filings and
(ii)
none of the Commission Filings contained at the time of its filing any untrue
statement of a material fact or omitted to state a material fact required to
be
stated therein or necessary in order to make the statements therein, in light
of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the Commission Filings, as of the dates
of
such documents, were true and complete in all material respects and complied
with applicable accounting requirements and the published rules and regulations
of the Commission with respect thereto, were prepared in accordance with
generally accepted accounting principles in the United States (“GAAP”)
(except in the case of unaudited statements permitted by Form 10-QSB under
the
Exchange Act) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly presented the consolidated
financial position of the Company and its Subsidiaries as of the dates thereof
and the consolidated results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments that in the aggregate are not material and to any other
adjustment described therein).
I. Full
Disclosure.
There is no fact (other than general economic or industry conditions known
to
the public generally) that has not been fully disclosed in the Commission
Filings that (i) reasonably could be expected to have a Material Adverse Effect
or (ii) reasonably could be expected to materially and adversely affect the
ability of the Company to perform its obligations pursuant to the
Documents.
J. Absence
of Events of Default.
No
“Event
of Default”
(as
defined in any agreement or instrument to which the Company is a party) and
no
event which, with notice, lapse of time or both, would constitute an Event
of
Default (as so defined), has occurred and is continuing.
K. Securities
Law Matters.
Assuming the accuracy of the representations and warranties of Holder set forth
in Article II, the offer and sale by the Company of the Securities is exempt
from (i) the registration and prospectus delivery requirements of the Securities
Act and the rules and regulations of the Commission thereunder and (ii) the
registration and/or qualification provisions of all applicable state and
provincial securities and “blue sky” laws. The Company shall not directly or
indirectly take, and shall not permit any of its directors, officers or
Affiliates directly or indirectly to take, any action (including, without
limitation, any offering or sale to any person or entity of any security similar
to the Debenture) which will make unavailable the exemption from Securities
Act
registration being relied upon by the Company for the offer and sale to Holder
of the Debenture and the Conversion Shares, as contemplated by this Agreement.
No form of general solicitation or advertising has been used or authorized
by
the Company or any of its officers, directors or Affiliates in connection with
the offer or sale of the Debenture (and the Conversion Shares), as contemplated
by this Agreement or any other agreement to which the Company is a party. As
used in the Documents, “Affiliate”
has the
meaning ascribed to such term in Rule 12b-2 under the Exchange Act.
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L. Registration
Rights.
Except
as set forth on Schedule III.L.,
no
Person has, and as of the Closing (as such term is hereinafter defined), no
Person shall have, any demand, “piggy-back” or other rights to cause the Company
to file any registration statement under the Securities Act relating to any
of
its securities or to participate in any such registration
statement.
M. Interest.
The
timely payment of interest on the Debenture is not prohibited by the Articles
or
Certificate of Incorporation or By-Laws of the Company, in each case as amended
to the date of this Agreement, or any agreement, contract, document or other
undertaking to which the Company is a party.
N. No
Misrepresentation.
No
representation or warranty of the Company contained in this Agreement or any
of
the other Documents, any schedule, annex or exhibit hereto or thereto or any
agreement, instrument or certificate furnished by the Company to Holder pursuant
to this Agreement contains any untrue statement of a material fact or omits
to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
O. Finder’s
Fee.
There is
no finder’s fee, brokerage commission or like payment in connection with the
transactions contemplated by this Agreement for which Holder is liable or
responsible.
P. Subsidiaries.
Other
than the Subsidiaries (as hereinafter defined) listed on Schedule III.P., the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, association, or other business entity. The Company
is
not a participant in any joint venture, partnership, or similar arrangement.
The
Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all the issued
and
outstanding shares of capital stock of each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.
Q. Litigation.
Other
than as disclosed in the Commission Filings, there is no action, suit,
proceeding or investigation pending or, to the Company’s knowledge, currently
threatened against the Company or its Subsidiaries that questions the validity
of this Agreement, the Documents, or the right of the Company to enter into
such
agreements, or to consummate the transactions contemplated hereby or thereby,
or
that might result, either individually or in the aggregate, in any material
adverse changes in the business, assets or condition of the Company and its
Subsidiaries, taken as a whole, financially or otherwise, or any change in
the
current equity ownership of the Company or its Subsidiaries. Neither the Company
nor its Subsidiaries are parties or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company or its Subsidiaries currently pending or that the Company or its
Subsidiaries intends to initiate.
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R. Agreements.
Except for agreements explicitly contemplated hereby, or disclosed in the
Commission Filings, there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, Affiliates,
or any affiliate thereof.
S. Tax
Returns.
The Company and each of its Subsidiaries has made and filed all federal and
state income and all other tax returns, reports and declarations required by
any
jurisdiction to which it is subject and (unless and only to the extent that
the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) has
paid
all taxes and other governmental assessments and charges that are material
in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
T. Acknowledgment
Regarding Holder’s Purchase of Securities.
The Company acknowledges and agrees that the Holder is acting solely in the
capacity of an arm's length purchaser with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that Holder
is not acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by Holder or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to the Holder’s purchase of the Securities. The Company further represents to
Holder that the Company's decision to enter into this Agreement has been based
solely on the independent evaluation of the Company and its
representatives.
U. No
Integrated Offering.
Neither the Company, nor any of its affiliates, nor any person acting on its
or
their behalf, has directly or indirectly made any offers or sales in any
security or solicited any offers to buy any security under circumstances that
would require registration under the Securities Act of the issuance of the
Securities to the Holder. The issuance of the Securities to the Holder will
not
be integrated with any other issuance of the Company's securities (past, current
or future) for purposes of any shareholder approval provisions applicable to
the
Company or its securities.
V. Solvency.
The Company (after giving effect to the transactions contemplated by this
Agreement) is solvent (i.e., its assets have a fair market value in excess
of
the amount required to pay its probable liabilities on its existing debts as
they become absolute and matured) and currently the Company has no information
that would lead it to reasonably conclude that the Company would not, after
giving effect to the transaction contemplated by this Agreement, have the
ability to, nor does it intend to take any action that would impair its ability
to, pay its debts from time to time incurred in connection therewith as such
debts mature. The Company did not receive a qualified opinion from its auditors
with respect to its most recent fiscal year end and, after giving effect to
the
transactions contemplated by this Agreement, does not anticipate or know of
any
basis upon which its auditors might issue a qualified opinion in respect of
its
current fiscal year.
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W. No
Shell Company.
The Company is not, nor at any time preceding the date hereof has the Company
been a “shell company,” as such term is defined in paragraph (i)(1)(i) of Rule
144 or Rule 12b-2 of the Exchange Act, the effect of which would prevent the
Holder from selling the Conversion Shares without restriction pursuant to Rule
144 (as hereinafter defined).
X. No
Investment Company.
The Company is not, and upon the issuance and sale of the Securities as
contemplated by this Agreement will not be an "investment company" required
to
be registered under the Investment Company Act of 1940 (an "Investment
Company"). The Company is not controlled by an Investment Company.
Y. Material
Changes.
Since the date of the Company’s latest audited financial statements, (i) there
has been no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect, (ii) the Company
has not incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected
in the Company's financial statements pursuant to GAAP or required to be
disclosed in Commission filings, (iii) the Company has not altered its method
of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option
plans.
Z. Compliance.
Neither the Company nor any Subsidiary (i) is in default under or in violation
of (and no event has occurred that has not been waived that, with notice or
lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice of
a
claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is
a
party or by which it or any of its properties is bound (whether or not such
default or violation has been waived), (ii) is in violation of any order of
any
court, arbitrator or governmental body, or (iii) is or has been in violation
of
any statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business
except in each case as could not have a Material Adverse Effect.
AA. Regulatory
Permits.
The Company and the Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses, except where
the
failure to possess such permits could not have or reasonably be expected to
result in a Material Adverse Effect (“Material
Permits”),
and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
BB. Title
to Assets.
The Company and the Subsidiaries have good and marketable title in fee simple
to
all real property owned by them that is material to the business of the Company
and the Subsidiaries and good and marketable title in all personal property
owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for (i) Liens
that do not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Company and the Subsidiaries, and (ii) Liens for the payment of federal, state
or other taxes, the payment of which is neither delinquent nor subject to
penalties. Any real property and facilities held under lease by the Company
and
the Subsidiaries are held by them under valid, subsisting and enforceable leases
of which the Company and the Subsidiaries are in compliance.
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CC. Patents
and Trademarks. The
Company and the Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights necessary or material for use
in
connection with their respective businesses and which the failure to so have
could have a Material Adverse Effect (collectively, the “Intellectual
Property Rights”).
Neither the Company nor any Subsidiary has received a written notice that the
Intellectual Property Rights used by the Company or any Subsidiary violates
or
infringes upon the rights of any person or entity. To the knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is
no
existing infringement by another person or entity of any of the Intellectual
Property Rights of others.
DD. Xxxxxxxx-Xxxxx;
Internal Accounting Controls.
The Company is in material compliance with all provisions of the Xxxxxxxx-Xxxxx
Act of 2002. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that material information relating
to the Company, including its Subsidiaries, is made known to the certifying
officers by others within those entities, particularly during the period in
which the Company's most recently filed periodic report under the Securities
Exchange Act of 1934, as the case may be, is being prepared. The Company's
certifying officers have evaluated the effectiveness of the Company's controls
and procedures as of the date prior to the filing date of the most recently
filed periodic report under the Exchange Act (such date, the “Evaluation
Date”).
The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company's internal controls (as such term is defined in Item
307(b) of Regulation S-K under the Exchange Act) or, to the Company's knowledge,
in other factors that could significantly affect the Company's internal
controls.
EE. Application
of Takeover Protections.
The Company and its Board of Directors have taken all necessary action, if
any,
in order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company's Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to Holder as a result of Holder
and the Company fulfilling their obligations or exercising their rights under
the Documents, including without limitation as a result of the Company's
issuance of the Securities and Holder’s ownership of the
Securities.
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FF. Disclosure.
The Company confirms that neither it nor any other Person acting on its behalf
has provided any of Holder or their agents or counsel with any information
that
constitutes or might constitute material, nonpublic information. The Company
understands and confirms that Holder will rely on the foregoing representations
and covenants in effecting transactions in securities of the
Company.
GG. Tax
Status.
Except for matters that would not, individually or in the aggregate, have or
reasonably be expected to result in a material adverse effect, the Company
and
each Subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid or accrued all taxes shown as due thereon,
and the Company has no knowledge of a tax deficiency which has been asserted
or
threatened against the Company or any Subsidiary.
HH. Seniority.
As
of the Closing Date, no indebtedness or other equity of the Company is senior
to, or pari passu with, the Debenture in right of payment, whether with respect
to interest or upon liquidation or dissolution, or otherwise.
II. No
Disagreements with Accountants and Lawyers.
There are no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the accountants and lawyers
formerly or presently employed by the Company and the Company is current with
respect to any fees owed to its accountants and lawyers. By making this
representation the Company does not, in any manner, waive the attorney/client
privilege or the confidentiality of the communications between the Company
and
its lawyers.
| IV. |
CERTAIN
COVENANTS AND
ACKNOWLEDGMENTS
|
A. Filings.
The Company shall take all actions and make all necessary Commission Filings
and
“blue sky” filings required to be made by the Company in connection with the
sale of the Securities to Holder as required by all applicable laws, including
without limitation such action as the Company shall reasonably determine is
necessary to qualify the Securities, or obtain an exemption for the Securities
for sale to the Holder at the Closing pursuant to this Agreement under all
applicable laws, and shall provide a copy thereof to Holder promptly after
such
filing.
B. Reporting
Status.
With a view to making available to the Holder the benefits of Rule 144
promulgated under the Securities Act or any similar rule or regulation of the
Commission that may at any time permit Holder to sell securities of the Company
to the public without registration (“Rule 144”), and as a material inducement to
the Holder’s purchase of the Securities, the Company represents, warrants, and
covenants to the following:
1. The
Company's Common Stock is and for the last 12 months prior to the date hereof
has been registered under Section 12(g) of the Exchange Act;
2. The
Company is not and for at least the last 12 months prior to the date hereof
has
not been a "shell company," as defined in paragraph (i)(1)(i) of Rule 144 or
Rule 12b-2 of the Exchange Act;
3. The
Company is and for the last 12 months prior to the date hereof has been subject
to the reporting requirements of section 13 or 15(d) of the Exchange Act and
has
filed all required reports under section 13 or 15(d) of the Exchange Act during
the 12 months prior to the date hereof, other than Form 8-K reports;
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4. From
the
date hereof until all the Securities either have been sold by the Holder, or
may
permanently be sold by the Holder without any restrictions pursuant to Rule
144,
(the "Registration
Period")
(i)
the Company shall file with the SEC in a timely manner all required reports
under section 13 or 15(d) of the Exchange Act and such reports shall conform
to
the requirements of the Exchange Act and the SEC for filing thereunder, and
(ii)
the Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination;
5. During
the Registration Period the Company shall not become a "shell company," as
defined in paragraph (i)(1)(i) of Rule 144 or Rule 12b-2 of the Exchange Act;
and
6. The
Company shall furnish to the Holder so long as the Holder owns Securities,
promptly upon request, (i) a written statement by the Company that it has
complied with the reporting requirements of Rule 144, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may
be
reasonably requested to permit the Holders to sell such securities pursuant
to
Rule 144 without registration.
C. 8-K
Filing.
On
or before the fourth Business Day following the date hereof, the Company shall
file a Current Report on Form 8-K describing the terms of the transactions
contemplated by the Documents in the form required by the Exchange Act and
attaching the material Documents (including, without limitation, this Agreement
and the Debenture) as exhibits to such filing (the “8-K
Filing”).
In
the event that the Company does not file the 8-K Filing within four Business
Days following the date hereof, the Discount Multiplier (as defined in the
Debenture) under the Debenture shall decrease by one percentage point (1%)
for
each period of five Business Days that the 8-K Filing is not filed by the
Company following the date hereof for all conversions of the Debenture
thereafter.
D. Listing.
Except
to the extent the Company lists its Common Stock on The New York Stock Exchange,
The American Stock Exchange or The Nasdaq Stock Market, the Company shall have
its Common Stock traded on OTCBB. If the Common Stock is delisted from OTCBB,
the Company will arrange to have the Common Stock traded on the most liquid
national securities exchange or quotation system that the Common Stock is
qualified to be listed on, it being understood, however, that compliance with
the foregoing shall not be deemed a waiver of any Event of Default under the
Debenture.
E. Reserved
Conversion Shares.
The Company at all times from and after the date hereof shall have such number
of shares of Common Stock duly and validly authorized and reserved for issuance
as shall be sufficient for issuance in full of the Conversion Shares. The
Company shall take all action reasonably necessary to at all times have
authorized, and reserved for the purpose of issuance, such number of shares
of
Common Stock as shall be necessary to effect the full conversion of the
Debenture and the Additional Debentures outstanding, if any. If at any time
the
number of authorized shares of Common Stock of the Company is insufficient
to
effect the full conversion of the Debenture and the Additional Debentures
outstanding, if any, the Company shall call and hold a special meeting of the
shareholders of the Company within thirty (30) days of such occurrence, for
the
sole purpose of increasing the number of authorized shares of the Common Stock.
The Company's management shall recommend to the shareholders to vote in favor
of
increasing the number of shares of authorized Common Stock. Management shall
also vote all of its shares in favor of increasing the number of authorized
shares of Common Stock.
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F. Information.
Each of the parties hereto acknowledges and agrees that Holder shall not be
provided with, nor be given access to, any material non-public information
relating to the Company.
G. Accounting
and Reserves.
The Company shall maintain a standard and uniform system of accounting and
shall
keep proper books and records and accounts in which full, true, and correct
entries shall be made of its transactions, all in accordance with GAAP applied
on consistent basis through all periods, and shall set aside on such books
for
each fiscal year all such reserves for depreciation, obsolescence, amortization,
bad debts and other purposes in connection with its operations as are required
by such principles so applied.
H. Transactions
with Affiliates.
So
long as the Debenture is outstanding, neither the Company nor any of its
Subsidiaries shall, directly or indirectly, enter into any material transaction
or agreement with any stockholder, officer, director or Affiliate of the Company
or family member of any officer, director or Affiliate of the Company, unless
the transaction or agreement is (i) reviewed and approved by a majority of
Disinterested Directors (as such term is hereinafter defined) and (ii) on
terms no less favorable to the Company or the applicable Subsidiary than those
obtainable from a nonaffiliated person. A “Subsidiary”
means
any entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are owned directly or indirectly by the Company.
A
“Disinterested
Director”
shall
mean a director of the Company who is not and has not been an officer or
employee of the Company and who is not a member of the family of, controlled
by
or under common control with, any such officer or employee.
I. Certain
Restrictions.
So
long as the Debenture is outstanding, no dividends shall be declared or paid
or
set apart for payment nor shall any other distribution be declared or made
upon
any capital stock of the Company, nor shall any capital stock of the Company
be
redeemed, purchased or otherwise acquired (other than a redemption, purchase
or
other acquisition of shares of Common Stock made for purposes of an employee
incentive or benefit plan (including a stock option plan) of the Company or
pursuant to any of the security agreements listed on Schedule
IV.I)
for any
consideration by the Company, directly or indirectly, nor shall any moneys
be
paid to or made available for a sinking fund for the redemption of any Common
Stock. So
long
as the Debenture remains outstanding, the Company shall not, without the prior
written consent of the Holder, (i) issue or sell shares of Common Stock or
Preferred Stock without consideration or for a consideration per share less
than
the bid price as determined on the Trading Market (the “Bid
Price”)
of the
Common Stock determined immediately prior to its issuance, (ii) issue any
preferred stock, warrant, option, right, contract, call, or other security
or
instrument granting the holder thereof the right to acquire Common Stock without
consideration or for a consideration less than such Common Stock's Bid Price
determined immediately prior to its issuance, or (iii) file any registration
statements on Form S-8 covering securities valued at more than $500,000 in
the
aggregate as reflected on the table in the registration statement, provided,
however, that nothing in this Section IV. shall prohibit the Company from
selling convertible debt to raise capital where the conversion price is fixed
at
a value that is greater than the Bid Price immediately prior to the issuance
of
such debt (such financing an “Angel
Financing”)
or
selling shares of common stock of Live Tissue Connect, Inc. (“LTC”),
a
subsidiary of the Company, in an initial public offering registered with the
Commission (“IPO”)
or
shares of LTC preferred stock through an offering placed by Jesup & Xxxxxx
Securities Corporation, or selling shares of Common Stock in that
IPO.
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J. Short
Selling.
So
long
as the Debenture is outstanding, Holder agrees and covenants on its behalf
and
on behalf of its affiliates that neither Holder nor its affiliates shall at
any
time engage in any short sales with respect to the Company’s Common Stock, or
sell put options or similar instruments with respect to the Company’s Common
Stock. The parties acknowledge that Holder shall be entitled to sell the Common
Stock from each Debenture conversion immediately upon submission of the
applicable Debenture Conversion Notice, and payment of the purchase price,
to
the Company for such Common Stock.
K. Shareholder
Rights Plan.
No
claim will be made or enforced by the Company or, to the knowledge of the
Company, any other person or entity that Holder is an “Acquiring Person” under
any shareholder rights plan or similar plan or arrangement in effect or
hereafter adopted by the Company, or that Holder could be deemed to trigger
the
provisions of any such plan or arrangement, by virtue of receiving Securities
under the Transaction Documents or under any other agreement between the Company
and Holder.
L. Use
of Proceeds.
The Company shall use the net proceeds from the sale of the Securities hereunder
for the payment of payroll and other working capital purposes and not for the
repayment or redemption of any obligations or interests held by any officers,
directors, or shareholders of the Company.
M. Subsequent
Equity Sales. In
addition to the limitations set forth herein and except as provided in Section
IV.I., from the date hereof until such time as Holder does not hold any of
the
Securities, the Company shall be prohibited from effecting or entering into
an
agreement to effect any financing involving a “Variable Rate Transaction” or an
“MFN Transaction” (each as defined below). The term “Variable
Rate Transaction”
shall
mean a transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at
a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities, or
(B)
with a conversion, exercise or exchange price that is subject to being reset
at
some future date after the initial issuance of such debt or equity security
or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock.
The
term “MFN
Transaction”
shall
mean a transaction in which the Company issues or sells any securities in a
capital raising transaction or series of related transactions which grants
to an
investor the right to receive additional shares based upon future transactions
of the Company on terms more favorable than those granted to such investor
in
such offering. Holder shall be entitled to obtain injunctive relief against
the
Company to preclude any such issuance, which remedy shall be in addition to
any
right to collect damages
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N. Most
Favored Nation Provision.
Any time the Company effects a subsequent financing other than an Angel
Financing, Holder may elect, in its sole discretion, to exchange all or some
portion of the Debenture(s) then held by it for the securities issued in a
subsequent financing based on the then outstanding principal amount of the
Debenture(s) plus any other fees then owed by the Company to Holder, at the
effective price at which such securities are sold in such subsequent
financing.
| V. |
ISSUANCE
OF COMMON STOCK
|
A. The
Company undertakes and agrees that no instruction other than the instructions
referred to in this Article V shall be given to its transfer agent for the
Conversion Shares and that the Conversion Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and applicable law. Nothing contained in this Section
V.A. shall affect in any way Holder’s obligations and agreement to comply with
all applicable securities laws upon resale of such Common Stock.
X. Xxxxxx
shall have the right to convert the Debenture by telecopying an executed and
completed Conversion Notice (as such term is defined in the Debenture) to the
Company. Each date on which a Conversion Notice is telecopied to and received
by
the Company in accordance with the provisions hereof shall be deemed a
Conversion Date (as such term is defined in the Debenture). The Company shall
cause the transfer agent to transmit the certificates evidencing the Common
Stock issuable upon conversion of the Debenture (together with a new debenture,
if any, representing the principal amount of the Debenture not being so
converted) to Holder via express courier, or if a Registration Statement
covering the Common Stock has been declared effective by the SEC by electronic
transfer, within two (2) business days after receipt by the Company of the
Conversion Notice, as applicable (the “Delivery
Date”).
C. Upon
the
conversion of the Debenture or respective part thereof, the Company shall,
at
its own cost and expense, take all necessary action (including the issuance
of
an opinion of counsel) to assure that the Company's transfer agent shall issue
stock certificates in the name of Holder (or its nominee) or such other persons
as designated by Holder and in such denominations to be specified at conversion
or exercise representing the number of shares of common stock issuable upon
such
conversion or exercise. The Company covenants that the Conversion Shares will
be
unlegended, free-trading, and freely transferable, and will not contain a legend
restricting the resale or transferability of the Company Common Stock provided
the Conversion Shares, as applicable, are being sold pursuant to an effective
registration statement covering the Common Stock to be sold or is otherwise
exempt from registration when sold.
D. The
Company understands that a delay in the delivery of the Common Stock in the
form
required pursuant to this section, or the Mandatory Redemption Amount described
in Section E hereof, beyond the Delivery Date or Mandatory Redemption Payment
Date (as hereinafter defined) could result in economic loss to the Holder.
As
compensation to the Holder for such loss, the Company agrees to pay late
payments to the Holder for late issuance of Common Stock in the form required
pursuant to Section E hereof upon Conversion of the Debenture or late payment
of
the Mandatory Redemption Amount, in the amount of $100 per business day after
the Delivery Date or Mandatory Redemption Payment Date, as the case may be,
for
each $10,000 of Debenture principal amount being converted or redeemed. The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Furthermore, in addition to any other remedies
which may be available to the Holder, in the event that the Company fails for
any reason to effect delivery of the Common Stock by the Delivery Date or make
payment by the Mandatory Redemption Payment Date, the Holder will be entitled
to
revoke all or part of the relevant Notice of Conversion or rescind all or part
of the notice of Mandatory Redemption by delivery of a notice to such effect
to
the Company whereupon the Company and the Holder shall each be restored to
their
respective positions immediately prior to the delivery of such notice, except
that late payment charges described above shall be payable through the date
notice of revocation or rescission is given to the Company.
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E. Mandatory
Redemption.
In the
event the Company is prohibited from issuing Common Stock, or fails to timely
deliver Common Stock on a Delivery Date, or upon the occurrence of an Event
of
Default (as defined in the Debenture) or for any reason other than pursuant
to
the limitations set forth herein, then at the Holder's election, the Company
must pay to the Holder ten (10) business days after request by the Holder or
on
the Delivery Date (if requested by the Holder) a sum of money determined by
multiplying up to the outstanding Principal Amount (as defined in the Debenture)
of the Debenture designated by the Holder by 118%, together with accrued but
unpaid interest thereon ("Mandatory
Redemption Payment").
The
Mandatory Redemption Payment must be received by the Holder on the same date
as
the Company Common Stock otherwise deliverable or within ten (10) business
days
after request, whichever is sooner ("Mandatory
Redemption Payment Date").
Upon
receipt of the Mandatory Redemption Payment, the corresponding Debenture
principal and interest will be deemed paid and no longer outstanding.
F. Buy-In.
In
addition to any other rights available to the Holder, if the Company fails
to
deliver to the Holder such Common Stock issuable upon conversion of a Debenture
by the Delivery Date and if ten (10) days after the Delivery Date the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock
to
deliver in satisfaction of a sale by the Holder of the Common Stock which the
Holder anticipated receiving upon such conversion (a "Buy-In"),
then
the Company shall pay in cash to the Holder (in addition to any remedies
available to or elected by the Holder) the amount by which (A) the Holder's
total purchase price (including brokerage commissions, if any) for the shares
of
Common Stock so purchased exceeds (B) the aggregate principal and/or interest
amount of the Debenture for which such conversion was not timely honored,
together with interest thereon at a rate of 15% per annum, accruing until such
amount and any accrued interest thereon is paid in full (which amount shall
be
paid as liquidated damages and not as a penalty). For example, if the Holder
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of $10,000 of Debenture
principal, the Company shall be required to pay the Holder $1,000, plus
interest. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In.
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G. The
Securities shall be delivered by the Company to the Holder pursuant to Section
I.B. hereof on a “delivery-against-payment basis” at the Closing.
H. Certificates
evidencing the Conversion Shares shall not contain any legend: (i) while a
registration statement covering the resale of such security is effective under
the Securities Act, or (ii) following any sale of such Conversion Shares
pursuant to Rule 144, or (iii) if such Conversion Shares are eligible for sale
under Rule 144, or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company shall cause
its counsel to issue a legal opinion to the Company’s transfer agent promptly if
required by the Company’s transfer agent to effect the removal of the legend
hereunder. If all or any portion of a Debenture is converted or exercised (as
applicable) at a time when there is an effective registration statement to
cover
the resale of the Conversion Shares, or if such Conversion Shares may be sold
under Rule 144 or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations thereof)
then such Conversion Shares shall be issued free of all legends. The Company
agrees that at such time as such legend is no longer required under this
Section, it will, no later than three Trading Days following the delivery by
Holder to the Company or the Company's transfer agent of a certificate
representing the Conversion Shares, as applicable, issued with a restrictive
legend, deliver or cause to be delivered to Holder a certificate representing
such shares that is free from all restrictive and other legends. The Company
may
not make any notation on its records or give instructions to any transfer agent
of the Company that enlarge the restrictions on transfer set forth in this
Section.
| VI. |
CLOSING
DATE
|
The
“Closing”
shall
occur by the delivery: (i) to the Holder of the documents evidencing the
Debenture and all other Documents, and (ii) to the Company the Purchase Price,
including the Promissory Note, and the date on which the Closing occurs shall
be
referred to herein as the “Closing
Date”.
| VII. |
CONDITIONS
TO THE COMPANY’S
OBLIGATIONS
|
Holder
understands that the Company’s obligation to sell the Debenture on the Closing
Date to Holder pursuant to this Agreement is conditioned upon:
A. Delivery
by Holder to the Company of the Purchase Price, including the Promissory Note
evidencing such applicable portion of the Purchase Price;
B. The
accuracy on the Closing Date of the representations and warranties of Holder
contained in this Agreement as if made on the Closing Date (except for
representations and warranties which, by their express terms, speak as of and
relate to a specified date, in which case such accuracy shall be measured as
of
such specified date) and the performance by Holder in all material respects
on
or before the Closing Date of all covenants and agreements of Holder required
to
be performed by it pursuant to this Agreement on or before the Closing Date;
and
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C. There
shall not be in effect any law or order, ruling, judgment or writ of any court
or public or governmental authority restraining, enjoining or otherwise
prohibiting any of the transactions contemplated by this Agreement.
| VIII. |
CONDITIONS
TO HOLDER’S OBLIGATIONS
|
The
Company understands that Holder’s obligation to purchase the Securities on the
Closing Date pursuant to this Agreement is conditioned upon:
A. Delivery
by the Company of the Debenture (I/N/O Holder or I/N/O Holder’s nominee) to
Holder;
B. The
accuracy on the Closing Date of the representations and warranties of the
Company contained in this Agreement as if made on the Closing Date (except
for
representations and warranties which, by their express terms, speak as of and
relate to a specified date, in which case such accuracy shall be measured as
of
such specified date) and the performance by the Company in all respects on
or
before the Closing Date of all covenants and agreements of the Company required
to be performed by it pursuant to this Agreement on or before the Closing Date,
all of which shall be confirmed to Holder by delivery of the certificate of
the
chief executive officer of the Company to that effect;
C. The
Company shall have delivered to the Holder a certificate of the Company executed
by an officer of the Company, dated as of the Closing, certifying
the resolutions adopted by the Company’s board of directors authorizing the
execution of the Documents, the issuance of the Securities, and the transactions
contemplated hereby, and copies of any required third party consents, approvals
and filings required in connection with the consummation of the transactions
contemplated by this Agreement;
D. There
not
having occurred (i) any general suspension of trading in, or limitation on
prices listed for, the Common Stock on the Trading Market, (ii) the declaration
of a banking moratorium or any suspension of payments in respect of banks in
the
United States, (iii) the commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving the United
States or any of its territories, protectorates or possessions or (iv) in
the case of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof;
E. There
not
having occurred any event or development, and there being in existence no
condition, having or which reasonably and foreseeably could have a Material
Adverse Effect;
F. There
shall not be in effect any law, order, ruling, judgment or writ of any court
or
public or governmental authority restraining, enjoining or otherwise prohibiting
any of the transactions contemplated by this Agreement;
G. The
Company shall have obtained all consents, approvals or waivers from governmental
authorities and third persons necessary for the execution, delivery and
performance of the Documents and the transactions contemplated
thereby;
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X. Xxxxxx
shall have received such additional documents, certificates, payment,
assignments, transfers and other deliveries as it or its legal counsel may
reasonably request and as are customary to effect a closing of the matters
herein contemplated;
I. Delivery
by the Company of a legal opinion with respect to the Company and the
Subsidiaries regarding the enforceability of this Agreement and the transactions
contemplated hereunder from its outside counsel in form and substance
satisfactory to Holder; and
J. Delivery
by the Company of a valid waiver of any preemptive rights held by the
individuals and/or parties listed on Schedule III.A.3 hereto in form and
substance satisfactory to Holder.
| IX. |
SURVIVAL;
INDEMNIFICATION
|
A. The
representations, warranties and covenants made by each of the Company and Holder
in this Agreement, the annexes, schedules and exhibits hereto and in each
instrument, agreement and certificate entered into and delivered by them
pursuant to this Agreement, including without limitation the terms of this
Article IX, shall survive the Closing and the consummation of the transactions
contemplated hereby. In the event of a breach or violation of any of such
representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of
any
investigation made by or on behalf of such party on or prior to the Closing
Date.
B. The
Company hereby agrees to indemnify and hold harmless Holder, its affiliates
and
their respective officers, directors, employees, consultants, partners, members
and attorneys (collectively, the “Holder
Indemnitees”)
from
and against any and all losses, claims, damages, judgments, penalties,
liabilities and deficiencies (collectively, “Losses”)
and
agrees to reimburse Holder Indemnitees for all reasonable out-of-pocket expenses
(including the reasonable fees and expenses of legal counsel), in each case
promptly as incurred by Holder Indemnitees and to the extent arising out of
or
in connection with:
1. any
misrepresentation, omission of fact or breach of any of the Company’s
representations or warranties contained in this Agreement or the other
Documents, or the annexes, schedules or exhibits hereto or thereto or any
instrument, agreement or certificate entered into or delivered by the Company
pursuant to this Agreement or the other Documents;
2. any
failure by the Company to perform any of its covenants, agreements, undertakings
or obligations set forth in this Agreement or the other Documents or any
instrument, certificate or agreement entered into or delivered by the Company
pursuant to this Agreement or the other Documents;
3. the
purchase of the Debenture, the conversion of the Debenture, the payment of
interest on the Debenture, the consummation of the transactions contemplated
by
this Agreement and the other Documents, the use of any of the proceeds of the
Purchase Price by the Company, the purchase or ownership of any or all of the
Securities, the performance by the parties hereto of their respective
obligations hereunder and under the Documents or any claim, litigation,
investigation, proceedings or governmental action relating to any of the
foregoing, whether or not Holder is a party thereto; and/or
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4. resales
of the Common Stock by Holder in the manner and as contemplated by this
Agreement and the Documents.
C. Promptly
after receipt by a party seeking indemnification pursuant to this
Article IX (an “Indemnified
Party”)
of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a “Claim”),
the
Indemnified Party promptly shall notify the Company against whom indemnification
pursuant to this Article IX is being sought (the “Indemnifying
Party”)
of the
commencement thereof, but the omission so to notify the Indemnifying Party
shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights or defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of
any
Claim by the Indemnifying Party, the Indemnified Party shall have the right
to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party and the
Indemnifying Party reasonably shall have concluded that representation of the
Indemnified Party and the Indemnifying Party by the same legal counsel would
not
be appropriate due to actual or, as reasonably determined by legal counsel
to
the Indemnified Party, potentially differing interests between such parties
in
the conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party or (z) the Indemnifying Party
shall have failed to employ legal counsel reasonably satisfactory to the
Indemnified Party within a reasonable period of time after notice of the
commencement of such Claim. If the Indemnified Party employs separate legal
counsel in circumstances other than as described in clauses (x), (y) or (z)
above, the fees, costs and expenses of such legal counsel shall be borne
exclusively by the Indemnified Party. Except as provided above, the Indemnifying
Party shall not, in connection with any Claim in the same jurisdiction, be
liable for the fees and expenses of more than one firm of legal counsel for
the
Indemnified Party (together with appropriate local counsel). The Indemnifying
Party shall not, without the prior written consent of the Indemnified Party
(which consent shall not unreasonably be withheld), settle or compromise any
Claim or consent to the entry of any judgment that does not include an
unconditional release of the Indemnified Party from all liabilities with respect
to such Claim or judgment.
D. In
the
event one party hereunder should have a claim for indemnification that does
not
involve a claim or demand being asserted by a third party, the Indemnified
Party
promptly shall deliver notice of such claim to the Indemnifying Party. If the
Indemnifying Party disputes the claim, such dispute shall be resolved by mutual
agreement of the Indemnified Party and the Indemnifying Party or by binding
arbitration conducted in accordance with the procedures and rules of the
American Arbitration Association. Judgment upon any award rendered by any
arbitrators may be entered in any court having competent jurisdiction
thereof.
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| X. |
GOVERNING
LAW
|
This
Agreement shall be governed by and interpreted in accordance with the laws
of
the State of California, without regard to the conflicts of law principles
of
such state.
| XI. |
SUBMISSION
TO JURISDICTION
|
Each
of
the parties hereto consents to the exclusive jurisdiction of the federal courts
whose districts encompass any part of the City of San Diego or the state courts
of the State of California sitting in the City of San Diego in connection with
any dispute arising under this Agreement and the other Documents. Each party
hereto hereby irrevocably and unconditionally waives, to the fullest extent
it
may effectively do so, any defense of an inconvenient forum or improper venue
to
the maintenance of such action or proceeding in any such court and any right
of
jurisdiction on account of its place of residence or domicile. Each party hereto
irrevocably and unconditionally consents to the service of any and all process
in any such action or proceeding in such courts by the mailing of copies of
such
process by registered or certified mail (return receipt requested), postage
prepaid, at its address specified in Article XVII. Each party hereto agrees
that
a final judgment in any such action or proceeding shall be conclusive and may
be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
| XII. |
WAIVER
OF JURY TRIAL
|
TO
THE FULLEST EXTENT PERMITTED BY LAW, EACH OF THE PARTIES HERETO HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RESPECTIVE RIGHTS TO A
JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OTHER DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT AND OTHER DOCUMENTS. EACH PARTY HERETO (i)
CERTIFIES THAT NEITHER OF THEIR RESPECTIVE REPRESENTATIVES, AGENTS OR ATTORNEYS
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE
EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (ii) ACKNOWLEDGES
THAT
IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.
| XIII. |
COUNTERPARTS;
EXECUTION
|
This
Agreement may be executed in counterparts, each of which when so executed and
delivered shall be an original, but both of which counterparts shall together
constitute one and the same instrument. A facsimile transmission of this signed
Agreement shall be legal and binding on both parties hereto.
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| XIV. |
HEADINGS
|
The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.
| XV. |
SEVERABILITY
|
In
the
event any one or more of the provisions contained in this Agreement or in the
other Documents should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein or therein shall not in any way be affected or impaired thereby. The
parties shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions, the economic effect
of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
| XVI. |
ENTIRE
AGREEMENT; REMEDIES, AMENDMENTS AND
WAIVERS
|
This
Agreement and the Documents constitute the entire agreement between the parties
hereto pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of such parties. No supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by both parties. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute
a
waiver of any other provision hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly
provided.
| XVII. |
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:
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24
|
A.
|
If
to the Company, to:
|
|
|
Attn:
Xxxxxx X. Xxxxxxx, President and CEO
|
||
|
000
Xxxxx Xxxxxxxxx Xxxxx, Xxxxx 0000 Xxxxx
|
||
|
Xxxxxx
Xxxxxxx, Xxxxx 00000
|
||
|
Telephone:
000-000-0000
|
||
|
Facsimile:
000-000-0000
|
||
|
B.
|
If
to Holder, to:
|
|
|
La
Jolla Cove Investors, Inc.
|
||
|
0000
Xxxxxxxxx Xxxxxx, Xxxxx 000
|
||
|
Xx
Xxxxx, Xxxxxxxxxx 00000
|
||
|
Telephone:
000-000-0000
|
||
|
Facsimile:
000-000-0000
|
The
Company or Holder may change the foregoing address by notice given pursuant
to
this Article XVII.
| XVIII. |
CONFIDENTIALITY
|
Each
of
the Company and Holder agrees to keep confidential and not to disclose to or
use
for the benefit of any third party the terms of this Agreement or any other
information which at any time is communicated by the other party as being
confidential without the prior written approval of the other party; provided,
however, that this provision shall not apply to information which, at the time
of disclosure, is already part of the public domain (except by breach of this
Agreement) and information which is required to be disclosed by law (including,
without limitation, pursuant to Item 601(b)(10) of Regulation S-K under the
Securities Act and the Exchange Act).
| XIX. |
MAXIMUM
INTEREST RATE
|
Notwithstanding
anything herein to the contrary, if at any time the applicable interest rate
as
provided for herein shall exceed the maximum lawful rate which may be contracted
for, charged, taken or received by the Holder in accordance with any applicable
law (the “Maximum
Rate”),
the
rate of interest applicable to this Agreement shall be limited to the Maximum
Rate. To the greatest extent permitted under applicable law, the Company hereby
waives and agrees not to allege or claim that any provisions of this Agreement
could give rise to or result in any actual or potential violation of any
applicable usury laws.
| XX. |
ASSIGNMENT
|
This
Agreement shall not be assignable by the Company without the prior written
consent of the Holder. The Holder may assign this Agreement upon 10 days prior
written notice to the Company.
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IN
WITNESS WHEREOF, the parties hereto have duly caused this Agreement to be
executed and delivered on the date first above written.
| CSMG Technologies, Inc. | La Jolla Cove Investors, Inc. | |||
| By: |
/s/
Xxxxxx X. Xxxxxxx
|
By:
|
/s/
Xxxxxx Xxxxxxx Xxxx
|
|
| Name: |
Xxxxxx
X. Xxxxxxx
|
Name:
|
Xxxxxx
Xxxxxxx Xxxx
|
|
| Title: |
President
and CEO
|
Title:
|
Portfolio
Manager/Vice President
|
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SCHEDULE
III.A.1
|
Stock
Options Date
|
Date
exp
|
Shares
|
Exercise
Price
|
Remaining
1
|
|
|
Xxxxxxx
|
Mar,
2009
|
100,000
|
0.33
|
||
|
Mar,
2009
|
200,000
|
0.28
|
|||
|
Xxxxxxx
|
May-13
|
225,000
|
0.605
|
||
|
Xxxxx
|
May-13
|
100,000
|
0.55
|
||
|
Xxxxx
|
May-13
|
100,000
|
0.24
|
||
|
Xxxxx
|
May-13
|
50,000
|
0.55
|
||
|
Xxxxx
|
May-13
|
50,000
|
0.55
|
||
|
Hohauser
|
May-13
|
100,000
|
0.55
|
||
|
Nemachek
|
2/7/2007
|
2/7/2017
|
50,000
|
0.625
|
|
|
Xxxxx
Xxxxxxx
|
100,000
|
0.75
|
|||
|
X
Xxxxxxx
|
7/21/2008
|
7/21/2013
|
200,000
|
1.1
|
|
|
R
Xxxxxx
|
7/21/2008
|
7/21/2013
|
200,000
|
1.1
|
|
|
Xxxxx
Xxxxx
|
7/21/2008
|
7/21/2013
|
200,000
|
1.1
|
|
|
H
Hohauser
|
7/21/2008
|
7/21/2013
|
200,000
|
1.1
|
|
|
C
Derdeyn
|
7/21/2008
|
7/21/2013
|
200,000
|
1.1
|
|
|
E
Xxxxxxx
|
7/21/2008
|
7/21/2013
|
200,000
|
1.1
|
|
____________________
1
No options have been exercised.
|
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SCHEDULE
III.A.3
PREEMPTIVE
RIGHTS
None.
|
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SCHEDULE
III.L.
REGISTRATION
RIGHTS
|
Name
|
|
|
1.
Xxxxxx Xxxxxx
|
Right
to convert restricted shares of CSMG at $0.625/share.
|
|
2.
Xxx Xxxxxxx
|
Right
to convert restricted shares of CSMG at $0.625/share.
|
|
3.
Jesup & Xxxxxx Securities
|
Has
(i) one demand registration right for the Warrant Shares upon an
IPO of
Live Tissue Connect, Inc. and (ii) unlimited piggyback rights,
upon CSMG
filing a registration statement other than a Form S-4 or Form
S-8.
|
|
4.
Series A Preferred Stockholders
|
In
connection with the issuance of Series A convertible preferred,
each
holder has unlimited piggyback rights following the IPO of Live
Tissue
Connect, Inc. (“LTC”), CSMG’s subsidiary, either in shares of LTC or if
there is no IPO of LTC, then into shares of CSMG. The registration
rights
terminate at the earlier of five years after the IPO or at the
time any
holder of such conversion shares can sell their conversion shares
within a
three month period under Rule
144.
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SCHEDULE
III.P.
SUBSIDIARIES
Live
Tissue Connect, Inc.
|
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|
____________
|
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30
SCHEDULE
IV.I.
SECURITY
AGREEMENTS
None.
|
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EXHIBIT
A
SECURED
PROMISSORY NOTE
|
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|
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|
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