SECURITIES PURCHASE AGREEMENT
SECURITIES
PURCHASE AGREEMENT
(the
"Agreement"),
dated
as of November 29, 2007, by and among DigitalFX International, Inc., a Florida
corporation, with headquarters located at 0000 Xxxx Xxxxxxx Xxxx, Xxxxx 0,
Xxx
Xxxxx, XX 00000 (the "Company"),
and
the investors listed on the Schedule of Buyers attached hereto (individually,
a
"Buyer"
and
collectively, the "Buyers").
WHEREAS:
A. The
Company and each Buyer is executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2) of
the
Securities Act of 1933, as amended (the "1933
Act"),
and
Rule 506 of Regulation D ("Regulation D")
as
promulgated by the United States Securities and Exchange Commission (the
"SEC")
under
the 1933 Act.
B. The
Company has authorized a new series of senior secured convertible notes of
the
Company, in the form attached hereto as Exhibit
A
(the
"Notes"),
which
Notes shall be convertible into the Company's common stock, par value $0.001
per
share (the "Common
Stock")
(as
converted, the "Conversion
Shares"),
in
accordance with the terms of the Notes.
C. Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate principal amount of
the
Notes set forth opposite such Buyer's name in column (3) on the Schedule of
Buyers attached hereto (which aggregate amount for all Buyers shall be
$7,000,000) and (ii) warrants, in substantially the form attached hereto as
Exhibit
B
(the
"Warrants"),
to
acquire up to that number of additional shares of Common Stock set forth
opposite such Buyer's name in column (4) of the Schedule of Buyers (as
exercised, collectively, the "Warrant
Shares").
D. Contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, substantially in
the
form attached hereto as Exhibit
C
(the
"Registration
Rights Agreement"),
pursuant to which the Company will agree to provide certain registration rights
with respect to the Registrable Securities (as defined in the Registration
Rights Agreement) under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
E. The
Notes, the Conversion Shares, the Warrants and the Warrant Shares collectively
are referred to herein as the "Securities".
F. The
Notes
will rank senior to all outstanding and future indebtedness of the Company
and
its Subsidiaries (as hereinafter defined) and will be secured by a perfected
security interest, in all of the assets of the Company, the stock of each
Subsidiary and the assets of each U.S. Subsidiary, as evidenced by (i) a pledge
agreement, in the form attached hereto as Exhibit
H
(as
amended or modified from time to time in accordance with its terms, the
"Pledge
Agreement"),
(ii)
a security agreement, in the form attached hereto as Exhibit
I
(as
amended or modified from time to time in accordance with its terms, the
"Security
Agreement"),
and
(iii) the guarantees of certain Subsidiaries of the Company in the form attached
hereto as Exhibit
J
(as
amended or modified from time to time in accordance with its terms, the
"Guarantees"
and,
together with the Pledge Agreement, the Security Agreement, the Letter of Credit
(as defined in Section 4(r) below) and any ancillary documents related thereto,
collectively the "Security
Documents").
NOW,
THEREFORE,
the
Company and each Buyer hereby agree as follows:
1. PURCHASE
AND SALE OF NOTES AND WARRANTS.
(a) Purchase
of Notes and Warrants.
(i) Notes
and Warrants. Subject
to the satisfaction (or waiver) of the conditions set forth in Sections 6 and
7
below, the Company agrees to issue and sell to each Buyer, and each Buyer
severally, but not jointly, shall purchase from the Company on the Closing
Date
(as defined below), (x) a principal amount of Notes as is set forth opposite
such Buyer's name in column (3) on the Schedule of Buyers and (y) Warrants
to
acquire up to that number of Warrant Shares as is set forth opposite such
Buyer's name in column (4) on the Schedule of Buyers, (the "Closing").
(ii) Closing.
The
date and time of the Closing (the "Closing
Date")
shall
be 10:00 a.m., New York City time, on the date hereof (or such later date as
is
mutually agreed to by the Company and each Buyer) after notification of
satisfaction (or waiver) of the conditions to the Closing set forth in Sections
6 and 7 below at the offices of Xxxxxxx Xxxx & Xxxxx LLP, 000 Xxxxx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000.
(iii) Purchase
Price.
(1)
The aggregate purchase price for the Notes and the Warrants to be
purchased by each such Buyer at the Closing (the "Purchase
Price")
shall
be the amount set forth opposite each Buyer's name in column (5) of the Schedule
of Buyers. Each Buyer shall pay $1,000 for each $1,000 of principal amount
of
Notes and related Warrants to be purchased by such Buyer at the
Closing.
(2)
The Buyers and the Company agree that the Notes and the Warrants
constitute an "investment unit" for purposes of Section 1273(c)(2) of the
Internal Revenue Code of 1986, as amended (the "Code").
The
Buyers and the Company mutually agree that the allocation of the issue price
of
such investment unit between the Notes and the Warrants in accordance with
Section 1273(c)(2) of the Code and Treasury Regulation Section 1.1273-2(h)
shall
be an aggregate amount of $109,375 allocated to the Warrants and the balance
of
the Purchase Price allocated to the Notes, and neither the Buyers nor the
Company shall take any position inconsistent with such allocation in any tax
return or in any judicial or administrative proceeding in respect of
taxes.
(b) Form
of Payment.
On the
Closing Date, (i) each Buyer shall deliver its Purchase Price (less, in the
case
of Portside Growth and Opportunity Fund, the amounts withheld pursuant to
Section 4(g)) to the Escrow Agent (as defined below) pursuant to Section 2
of
the Escrow Agreement (as defined below), dated as of November 28, 2007 by and
among the Company, the Agent (as defined in Section 3(g) herein) and Continental
Stock Transfer & Trust Company (the "Escrow
Agent"),
a
financial institution chartered under the laws of the State of New York,
attached hereto as Exhibit
K
(the
"Escrow
Agreement")
for
the Notes and the Warrants to be issued and sold to such Buyer at the Closing,
by wire transfer of immediately available funds in accordance with the Company's
written wire instructions and (ii) the Company shall deliver to each Buyer
the Notes (allocated in the principal amounts as such Buyer shall request)
which
such Buyer is then purchasing hereunder along with the Warrants (allocated
in
the amounts as such Buyer shall request) which such Buyer is purchasing, in
each
case duly executed on behalf of the Company and registered in the name of such
Buyer or its designee.
-2-
2. BUYER'S
REPRESENTATIONS AND WARRANTIES.
Each
Buyer, severally and not jointly, represents and warrants with respect to only
itself, as of the date hereof and as of the Closing Date, that:
(a) No
Sale or Distribution.
Such
Buyer is acquiring the Notes, and the Warrants, and upon conversion of the
Notes
and exercise of the Warrants will acquire the Conversion Shares issuable upon
conversion of the Notes and the Warrant Shares issuable upon exercise of the
Warrants, for its own account and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Buyer does not agree to hold any of
the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act and pursuant to the
applicable terms of the Transaction Documents (as defined in Section 3(b)).
Such
Buyer is acquiring the Securities hereunder in the ordinary course of its
business. Such Buyer does not presently have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the
Securities.
(b) Accredited
Investor Status.
Such
Buyer is an "accredited investor" as that term is defined in Rule 501(a) of
Regulation D.
(c) Reliance
on Exemptions.
Such
Buyer understands that the Securities are being offered and sold to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying in
part
upon the truth and accuracy of, and such Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings
of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the
Securities.
(d) Information.
Such
Buyer and its advisors, if any, have been furnished with all materials relating
to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities that have been requested by such Buyer.
Such Buyer and its advisors, if any, have been afforded the opportunity to
ask
questions of the Company. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on
the
Company's representations and warranties contained herein. Such Buyer
understands that its investment in the Securities involves a high degree of
risk
and is able to afford a complete loss of such investment. Such Buyer has sought
such accounting, legal and tax advice as it has considered necessary to make
an
informed investment decision with respect to its acquisition of the
Securities.
-3-
(e) No
Governmental Review.
Such
Buyer understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation
or
endorsement of the Securities or the fairness or suitability of the investment
in the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.
(f) Transfer
or Resale.
Such
Buyer understands that except as provided in the Registration Rights Agreement:
(i) the Securities have not been and are not being registered under the 1933
Act
or any state securities laws, and may not be offered for sale, sold, assigned
or
transferred unless (A) subsequently registered thereunder, (B) such Buyer shall
have delivered to the Company an opinion of counsel, in a generally acceptable
form, to the effect that such Securities to be sold, assigned or transferred
may
be sold, assigned or transferred pursuant to an exemption from such
registration, or (C) such Buyer provides the Company with reasonable assurance
that such Securities can be sold, assigned or transferred pursuant to Rule
144
or Rule 144A promulgated under the 1933 Act, as amended (or a successor rule
thereto) (collectively, "Rule
144");
(ii)
any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person (as defined in Section 3(s)) through whom the sale is made)
may
be deemed to be an underwriter (as that term is defined in the 0000 Xxx) may
require compliance with some other exemption under the 1933 Act or the rules
and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
Person is under any obligation to register the Securities under the 1933 Act
or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder. The Securities may be pledged in connection with a bona
fide margin account or other loan or financing arrangement secured by the
Securities and such pledge of Securities shall not be deemed to be a transfer,
sale or assignment of the Securities hereunder, and no Buyer effecting a pledge
of Securities shall be required to provide the Company with any notice thereof
or otherwise make any delivery to the Company pursuant to this Agreement or
any
other Transaction Document, including, without limitation, this Section
2(f).
(g) Legends.
Such
Buyer understands that the certificates or other instruments representing the
Notes and the Warrants and, until such time as the resale of the Conversion
Shares and the Warrant Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the stock certificates
representing the Conversion Shares and the Warrant Shares, except as set forth
below, shall bear any legend as required by the "blue sky" laws of any state
and
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
[NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE
SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE]
HAVE
BEEN][THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN]
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A REASONABLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER
SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.
-4-
The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which
it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection
with
a sale, assignment or other transfer, such holder provides the Company with
an
opinion of a law firm reasonably acceptable to the Company (with Xxxxxxx Xxxx
& Xxxxx LLP being deemed acceptable), in a reasonably acceptable form, to
the effect that such sale, assignment or transfer of the Securities may be
made
without registration under the applicable requirements of the 1933 Act, or
(iii)
such holder provides the Company with reasonable assurance that the Securities
can be sold, assigned or transferred pursuant to Rule 144 or Rule
144A.
(h) Validity;
Enforcement.
This
Agreement, the Registration Rights Agreement and the Security Documents to
which
such Buyer is a party have been duly and validly authorized, executed and
delivered on behalf of such Buyer and shall constitute the legal, valid and
binding obligations of such Buyer enforceable against such Buyer in accordance
with their respective terms, except as such enforceability may be limited by
general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to,
or
affecting generally, the enforcement of applicable creditors' rights and
remedies.
(i) No
Conflicts.
The
execution, delivery and performance by such Buyer of this Agreement, the
Registration Rights Agreement and the Security Documents to which such Buyer
is
a party and the consummation by such Buyer of the transactions contemplated
hereby and thereby will not (i) result in a violation of the organizational
documents of such Buyer or (ii) conflict with, or constitute a default (or
an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which such Buyer
is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws) applicable
to
such Buyer, except in the case of clauses (ii) and (iii) above, for such
conflicts, defaults, rights or violations which would not, individually or
in
the aggregate, reasonably be expected to have a material adverse effect on
the
ability of such Buyer to perform its obligations hereunder.
-5-
(j) Residency.
Such
Buyer is a resident of that jurisdiction specified below its address on the
Schedule of Buyers.
(k) Certain
Trading Activities.
Other
than with respect to the transactions contemplated herein, since the time that
such Buyer was first contacted by the Company, the Agent (as defined below)
or
any other Person regarding this investment in the Company neither the Buyer
nor
any Affiliate of such Buyer which (x) had knowledge of the transactions
contemplated hereby, (y) has or shares discretion relating to such Buyer's
investments or trading or information concerning such Buyer's investments and
(z) is subject to such Buyer's review or input concerning such Affiliate's
investments or trading (collectively, "Trading
Affiliates")
has
directly or indirectly, nor has any Person acting on behalf of or pursuant
to
any understanding with such Buyer or Trading Affiliate, effected or agreed
to
effect any transactions in the securities of the Company. Such Buyer hereby
covenants and agrees not to, and shall cause its Trading Affiliates not to,
engage, directly or indirectly, in any transactions in the securities of the
Company or involving the Company's securities during the period from the date
hereof until such time as (i) the transactions contemplated by this Agreement
are first publicly announced as described in Section 4(i) hereof or (ii) this
Agreement is terminated in full pursuant to Section 8 hereof. Notwithstanding
the foregoing, for avoidance of doubt, nothing contained herein shall constitute
a representation or warranty, or preclude any actions, with respect to the
identification of the availability of, or securing of, available shares to
borrow in order to effect short sales or similar transactions in the
future.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
The
Company represents and warrants to each of the Buyers that, as of the date
hereof and as of the Closing Date:
(a) Organization
and Qualification.
The
Company and its "Subsidiaries"
(which
for purposes of this Agreement means any "subsidiary" as defined in Rule 1-02(x)
of Regulation S-X promulgated by the SEC under the 1934 Act (as defined below)
and any other entity required to be disclosed in the SEC Reports pursuant to
Item 601(b)(21) of Regulation S-K) are entities duly organized and validly
existing and, to the extent legally applicable, in good standing under the
laws
of the jurisdiction in which they are formed, and have the requisite power
and
authorization to own their properties and to carry on their business as now
being conducted. Each of the Company and its Subsidiaries is duly qualified
as a
foreign entity to do business and, to the extent legally applicable, is in
good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except
to
the extent that the failure to be so qualified or be in good standing would
not
reasonably be expected to have a Material Adverse Effect. As used in this
Agreement, "Material
Adverse Effect"
means
any material adverse effect on the business, properties, assets, operations,
results of operations, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries, individually or taken as a whole, or on the
transactions contemplated hereby or in the other Transaction Documents or by
the
agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below). The Company
has
no Subsidiaries except as set forth on Schedule
3(a).
Other
than the Subsidiaries, the Company has no joint venture or any entity in which
the Company, directly or indirectly, owns any of the capital stock or holds
an
equity or similar interest which, individually or in the aggregate, would be
classified as a "subsidiary" as defined in Rule 1-02(x) of Regulation S-X
promulgated by the SEC under the 1934 Act (as defined below) or otherwise be
required to be disclosed in the SEC Reports pursuant to Item 601(b)(21) of
Regulation S-K.
-6-
(b) Authorization;
Enforcement; Validity.
The
Company has the requisite corporate power and authority to enter into and
perform its obligations under this Agreement, the Notes, the Registration Rights
Agreement, the Security Documents, the Irrevocable Transfer Agent Instructions
(as defined in Section 5(b)) in the form attached hereto as Exhibit
D,
the
Warrants and each of the other agreements entered into by the parties hereto
in
connection with the transactions contemplated by this Agreement (collectively,
the "Transaction
Documents")
and to
issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Notes and the Warrants,
the
reservation for issuance and the issuance of the Conversion Shares issuable
upon conversion of the Notes, the reservation for issuance and issuance of
Warrant Shares issuable upon exercise of the Warrants, and the granting of
a
security interest in the Collateral (as defined in the Security Documents)
have
been duly authorized by the Company's Board of Directors and no further filing,
consent, or authorization is required by the Company, its Board of Directors
or
its stockholders. This Agreement and the other Transaction Documents of even
date herewith have been duly executed and delivered by the Company, and
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
laws
relating to, or affecting generally, the enforcement of applicable creditors'
rights and remedies.
(c) Issuance
of Securities.
The
issuance of the Notes and the Warrants are duly authorized and upon issuance
in
accordance with the terms of the Transaction Documents shall be free from all
taxes, liens and charges with respect to the issue thereof. As of the Closing,
a
number of shares of Common Stock shall have been duly authorized and reserved
for issuance which equals or exceeds 130% of the aggregate of the maximum number
of shares of Common Stock issuable (i) upon conversion of the Notes and (ii)
upon exercise of the Warrants. Upon conversion or exercise in accordance with
the Notes or the Warrants, as the case may be, the Conversion Shares and the
Warrant Shares, respectively, will be validly issued, fully paid and
nonassessable and free from all preemptive or similar rights, taxes, liens
and
charges with respect to the issue thereof, with the holders being entitled
to
all rights accorded to a holder of Common Stock. Assuming the accuracy of each
of the representations and warranties set forth in Section 2 of this Agreement,
the offer and issuance by the Company of the Securities is exempt from
registration under the 1933 Act.
(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 hereby
and
thereby (including, without limitation, the issuance of the Notes and Warrants
and reservation for issuance and issuance of the Conversion Shares, and the
Warrant Shares) will not (i) result in a violation of any certificate of
incorporation, certificate of formation, any certificate of designations or
other constituent documents of the Company or any of its Subsidiaries, any
capital stock of the Company or any of its Subsidiaries or bylaws of the Company
or any of its Subsidiaries or (ii) conflict with, or constitute a default (or
an
event which with notice or lapse of time or both would become a default) in
any
respect under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to
which
the Company or any of its Subsidiaries is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
foreign, federal and state securities laws and regulations and the rules and
regulations of The American Stock Exchange (the "Principal
Market")
applicable to the Company or any of its Subsidiaries or by which any property
or
asset of the Company or any of its Subsidiaries is bound or
affected.
-7-
(e) Consents.
Neither
the Company nor any of its Subsidiaries is required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case in accordance
with the terms hereof or thereof, except for the following consents,
authorizations, orders, filings and registrations: (i) the filing with the
SEC
of one or more Registration Statements in accordance with the requirements
of
the Registration Rights Agreement (which is not required to be filed or obtained
before the Closing) and (ii) the filing of a listing application for the
Conversion Shares and Warrant Shares with the Principal Market, which shall
be
done pursuant to the rules of the Principal Market. The Company and its
Subsidiaries are unaware of any facts or circumstances that might prevent the
Company from obtaining or effecting any of the registration, application or
filings pursuant to the preceding sentence. The Company is not in violation
of
the listing requirements of the Principal Market and has no knowledge of any
facts that would reasonably lead to delisting or suspension of the Common Stock
in the foreseeable future. The issuance by the Company of the Securities shall
not have the effect of delisting or suspending the Common Stock from the
Principal Market.
(f) Acknowledgment
Regarding Buyer's Purchase of Securities.
The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm's length purchaser with respect to the Transaction Documents and
the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company, (ii) an "affiliate" of the Company or any of its
Subsidiaries (as defined in Rule 144) or (iii) to the knowledge of the Company,
a "beneficial owner" of more than 10% of the shares of Common Stock (as defined
for purposes of Rule 13d-3 of the Securities Exchange Act of 1934, as amended
(the "1934
Act")).
The
Company further acknowledges that no Buyer is acting as a financial advisor
or
fiduciary of the Company or any of its Subsidiaries (or in any similar capacity)
with respect to the Transaction Documents and the transactions contemplated
hereby and thereby, and any advice given by a Buyer or any of its
representatives or agents in connection with the Transaction Documents and
the
transactions contemplated hereby and thereby is merely incidental to such
Buyer's purchase of the Securities. The Company further represents to each
Buyer
that the Company's decision to enter into the Transaction Documents has been
based solely on the independent evaluation by the Company and its
representatives.
(g) No
General Solicitation; Placement Agent's Fees.
Neither
the Company, nor any of its Subsidiaries or affiliates, nor any Person acting
on
its or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the offer
or
sale of the Securities. The Company shall be responsible for the payment of
any
placement agent's fees, financial advisory fees, or brokers' commissions (other
than for persons engaged by any Buyer or its investment advisor) relating to
or
arising out of the transactions contemplated hereby, including, without
limitation, placement agent fees payable to Maxim Group LLC as placement agent
(the "Agent")
in
connection with the sale of the Securities. The Company shall pay, and hold
each
Buyer harmless against, any liability, loss or expense (including, without
limitation, attorney's fees and out-of-pocket expenses) arising in connection
with any such claim. The Company acknowledges that it has engaged the Agent
in
connection with the sale of the Securities. Other than the Agent, neither the
Company nor any of its Subsidiaries has engaged any placement agent or other
agent in connection with the sale of the Securities.
-8-
(h) No
Integrated Offering.
None of
the Company, its Subsidiaries, any of their affiliates, and any Person acting
on
their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would require registration of the issuance of any of the Securities under the
1933 Act, whether through integration with prior offerings or otherwise, or
cause this offering of the Securities to require approval of stockholders of
the
Company for purposes of any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of any exchange
or automated quotation system on which any of the securities of the Company
are
listed or designated. None of the Company, its Subsidiaries, their affiliates
and any Person acting on their behalf will take any action or steps referred
to
in the preceding sentence that would require registration of the issuance of
any
of the Securities under the 1933 Act or cause the offering of the Securities
to
be integrated with other offerings for purposes of any such applicable
stockholder approval provisions.
(i) Dilutive
Effect.
The
Company understands and acknowledges that the number of Conversion Shares
issuable upon conversion of the Notes and the Warrant Shares issuable upon
exercise of the Warrants will increase in certain circumstances. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Notes in accordance with this Agreement and the
Notes and
its
obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrants is, in each case, absolute
and
unconditional regardless of the dilutive effect that such issuance may have
on
the ownership interests of other stockholders of the Company.
(j) Application
of Takeover Protections; Rights Agreement.
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 Certificate of Incorporation
(as defined in Section 3(r)) or the laws of the state of its incorporation
which
is or could become applicable to any Buyer as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company's
issuance of the Securities and any Buyer's ownership of the Securities. The
Company and its board of directors have taken all necessary action, if any,
in
order to render inapplicable any stockholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of Common Stock or a change
in
control of the Company.
-9-
(k) SEC
Documents; Financial Statements.
During
the two (2) years prior to the date hereof, the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it
with
the SEC pursuant to the reporting requirements of the 1934 Act (all of the
foregoing filed prior to the date hereof and all exhibits included therein
and
financial statements, notes and schedules thereto and documents incorporated
by
reference therein being hereinafter referred to as the "SEC
Documents").
The
Company has delivered to the Buyers or their respective representatives true,
correct and complete copies of the SEC Documents not available on the XXXXX
system. As of their respective filing dates, the SEC Documents complied in
all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. As of their respective filing dates, the financial statements of
the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have
been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in
all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company
to
the Buyers which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d) of this Agreement or in
any
disclosure schedules, contains any untrue statement of a material fact or omits
to state any material fact necessary in order to make the statements therein,
in
the light of the circumstance under which they are or were made, not
misleading.
(l) Absence
of Certain Changes.
Since
December 31, 2006, there has been no material adverse change and no material
adverse development in the business, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company
or
its Subsidiaries. Except as disclosed in Schedule
3(l),
since
December 31, 2006, the Company has not (i) declared or paid any dividends,
(ii)
sold any assets, individually or in the aggregate, in excess of $100,000 outside
of the ordinary course of business or (iii) had capital expenditures,
individually or in the aggregate, in excess of $100,000. Neither the Company
nor
any of its Subsidiaries has taken any steps to seek protection pursuant to
any
bankruptcy law nor does the Company have any knowledge or reason to believe
that
its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact that would reasonably lead a creditor to do so.
The
Company and its Subsidiaries, individually and on a consolidated basis, are
not
as of the date hereof, and after giving effect to the transactions contemplated
hereby to occur at the Closing, will not be Insolvent (as defined below). For
purposes of this Section 3(l), "Insolvent"
means,
with respect to any Person (as defined in Section 3(s)), (i) the present fair
saleable value of such Person's assets is less than the amount required to
pay
such Person's total Indebtedness (as defined in Section 3(s)), (ii) such Person
is unable to pay its debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured, (iii)
such
Person intends to incur or believes that it will incur debts that would be
beyond its ability to pay as such debts mature or (iv) such Person has
unreasonably small capital with which to conduct the business in which it is
engaged as such business is now conducted and is proposed to be
conducted.
-10-
(m) No
Undisclosed Events, Liabilities, Developments or Circumstances.
No
event, liability, development or circumstance has occurred or exists, or is
contemplated to occur with respect to the Company, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced.
(n) Conduct
of Business; Regulatory Permits.
Neither
the Company nor any of its Subsidiaries is in violation of any term of or in
default under its Certificate of Incorporation, any certificate of designations
of any outstanding series of preferred stock of the Company or the Bylaws or
their organizational charter or bylaws, respectively. Neither the Company nor
any of its Subsidiaries is in violation of any judgment, decree or order or
any
statute, ordinance, rule or regulation applicable to the Company or its
Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except for possible
violations which could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Without limiting the generality
of
the foregoing, the Company is not in violation of any of the rules, regulations
or requirements of the Principal Market and has no knowledge of any facts or
circumstances that would reasonably lead to delisting or suspension of the
Common Stock by the Principal Market in the foreseeable future. During the
two
(2) years prior to the date hereof, (i) the Common Stock has been designated
as
of August 23, 2007 for quotation on the Principal Market, (ii) trading in the
Common Stock has not been suspended by the SEC or the Principal Market and
(iii)
the Company has received no communication, written or oral, from the SEC or
the
Principal Market regarding the suspension or delisting of the Common Stock
from
the Principal Market. The Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate regulatory authorities
necessary to conduct their respective businesses, except where the failure
to
possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.
(o) Foreign
Corrupt Practices.
Neither
the Company nor any of its Subsidiaries nor any director, officer, agent,
employee or other Person acting on behalf of the Company or any of its
Subsidiaries has, in the course of its actions for, or on behalf of, the Company
or any of its Subsidiaries (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign
or
domestic government official or employee.
-11-
(p) Xxxxxxxx-Xxxxx
Act.
The
Company is in compliance with any and all applicable requirements of the
Xxxxxxxx-Xxxxx Act of 2002 that are effective as of the date hereof, and any
and
all applicable rules and regulations promulgated by the SEC thereunder that
are
effective as of the date hereof.
(q) Transactions
With Affiliates.
Except
as set forth in the SEC Documents filed at least ten (10) days prior to the
date
hereof and other than the grant of stock options disclosed on Schedule
3(q),
none of
the officers, directors or employees of the Company or any of its Subsidiaries
is presently a party to any transaction with the Company or any of its
Subsidiaries (other than for ordinary course services as employees, officers
or
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 such
officer, director or employee or, to the knowledge of the Company or any of
its
Subsidiaries, any corporation, partnership, trust or other entity in which
any
such officer, director, or employee has a substantial interest or is an officer,
director, trustee or partner.
(r) Equity
Capitalization.
As of
the date hereof, the authorized capital stock of the Company consists of (i)
100,000,000 shares of Common Stock, of which as of the date hereof, 24,173,281
are issued and outstanding, 1,381,184 shares are reserved for issuance pursuant
to the Company's stock option and purchase plans and 866,851 shares are reserved
for issuance pursuant to securities (other than the aforementioned options,
the
Notes and the Warrants) exercisable or exchangeable for, or convertible into,
shares of Common Stock and (ii) 5,000,000 shares of preferred stock, $0.01
par
value, of which as of the date hereof no shares are issued and outstanding.
All
of such outstanding shares have been, or upon issuance will be, validly issued
and are fully paid and nonassessable. Except as disclosed in Schedule
3(r):
(i)
none of the Company's capital stock is subject to preemptive rights or any
other
similar rights or any liens or encumbrances suffered or permitted by the
Company; (ii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or
securities or rights convertible into, or exercisable or exchangeable for,
any
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of
its
Subsidiaries is or may become bound to issue additional capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or
securities or rights convertible into, or exercisable or exchangeable for,
any
capital stock of the Company or any of its Subsidiaries; (iii) there are no
outstanding debt securities, notes, credit agreements, credit facilities or
other agreements, documents or instruments evidencing Indebtedness of the
Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements
securing obligations in any material amounts, either singly or in the aggregate,
filed in connection with the Company or any of its Subsidiaries; (v) there
are
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933
Act
(except pursuant to the Registration Rights Agreement); (vi) there are no
outstanding securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of
its
Subsidiaries is or may become bound to redeem a security of the Company or
any
of its Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance
of
the Securities; (viii) the Company does not have any stock appreciation rights
or "phantom stock" plans or agreements or any similar plan or agreement; and
(ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company's
or
its Subsidiaries' respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect. The Company
has
furnished to the Buyers true, correct and complete copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate
of Incorporation"),
and
the Company's Bylaws, as amended and as in effect on the date hereof (the
"Bylaws"),
and
the terms of all securities convertible into, or exercisable or exchangeable
for, shares of Common Stock and the material rights of the holders thereof
in
respect thereto.
-12-
(s) Indebtedness
and Other Contracts.
Except
as disclosed in Schedule
3(s),
neither
the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness
(as
defined below), (ii) is a party to any contract, agreement or instrument, the
violation of which, or default under which, by the other party(ies) to such
contract, agreement or instrument could reasonably be expected to result in
a
Material Adverse Effect, (iii) is in violation of any term of or in default
under any contract, agreement or instrument relating to any Indebtedness, except
where such violations and defaults would not result, individually or in the
aggregate, in a Material Adverse Effect, or (iv) is a party to any contract,
agreement or instrument relating to any Indebtedness, the performance of which,
in the judgment of the Company's officers, has or is expected to have a Material
Adverse Effect. Schedule
3(s)
provides
a detailed description of the material terms of any such outstanding
Indebtedness. For purposes of this Agreement: (x) "Indebtedness"
of any
Person means, without duplication (A) all indebtedness for borrowed money,
(B)
all obligations issued, undertaken or assumed as the deferred purchase price
of
property or services (including, without limitation, "capital leases" in
accordance with generally accepted accounting principles) (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and
other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect
to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in
the
event of default are limited to repossession or sale of such property), (F)
all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment
of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; (y) "Contingent
Obligation"
means,
as to any Person, any direct or indirect liability, contingent or otherwise,
of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) "Person"
means
an individual, a limited liability company, a partnership, a joint venture,
a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
-13-
(t) Absence
of Litigation.
Except
as set forth in Schedule
3(t),
there
is no action, suit, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries, the Common Stock
or
any of the Company's Subsidiaries or any of the Company's or its Subsidiaries'
officers or directors.
(u) Insurance.
The
Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts
as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its Subsidiaries are engaged. Neither the Company
nor
any such Subsidiary has been refused any insurance coverage sought or applied
for and neither the Company nor any such Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as
may
be necessary to continue its business at a cost that would not have a Material
Adverse Effect.
(v) Employee
Relations.
(i) Neither
the Company nor any of its Subsidiaries is a party to any collective bargaining
agreement or employs any member of a union. The Company and its Subsidiaries
believe that their relations with their employees are good. No executive officer
of the Company or any of its Subsidiaries (as defined in Rule 501(f) of the
0000
Xxx) has notified the Company or any such Subsidiary that such officer intends
to leave the Company or any such Subsidiary or otherwise terminate such
officer's employment with the Company or any such Subsidiary. No executive
officer of the Company or any of its Subsidiaries is, or is now expected to
be,
in violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition agreement,
or
any other contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer does not subject the Company or any
of
its Subsidiaries to any liability with respect to any of the foregoing
matters.
(ii) The
Company and its Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, either individually or
in
the aggregate, reasonably be expected to result in a Material Adverse
Effect.
(w) Title.
The
Company and its Subsidiaries have good and marketable title in fee simple to
all
real property and good and marketable title to all personal property owned
by
them which is material to the business of the Company and its Subsidiaries,
in
each case free and clear of all liens, encumbrances and defects except such
as
do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and any
of
its Subsidiaries. Any real property and facilities held under lease by the
Company or any of its Subsidiaries are held by them under valid, subsisting
and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by
the
Company and its Subsidiaries.
-14-
(x) Intellectual
Property Rights.
(i) The
Company and its Subsidiaries own or possess adequate rights or licenses to
use
all trademarks, trade names, service marks and all applications and
registrations therefor, patents, patent rights, copyrights, original works
of
authorship (including computer software) and all applications and registrations
therefor, inventions, trade secrets and other intellectual property rights
("Intellectual
Property Rights")
necessary to conduct their respective businesses as now conducted. None of
the
Company's registered, or applied for, Intellectual Property Rights have expired
or terminated or have been abandoned, or are expected to expire or terminate
or
expected to be abandoned, within three years from the date of this Agreement.
The Company does not have any knowledge of any infringement by the Company
or
its Subsidiaries of Intellectual Property Rights of others. There is no claim,
action or proceeding being made or brought, or to the knowledge of the Company,
being threatened, by or against the Company or its Subsidiaries regarding the
infringement, misappropriation or other violation of any Intellectual Property
Rights. Neither the Company nor any of its Subsidiaries is aware of any facts
or
circumstances which might give rise to any of the foregoing infringements or
claims, actions or proceedings. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their Intellectual Property Rights.
(ii) All
material computer hardware, software and systems that are used or held for
use
in the conduct of the Company's and its Subsidiaries' respective businesses
is
in good working condition (normal wear and tear excepted). There has not been
any material malfunction with respect to such hardware, software and systems
since January 1, 2005 that has not been remedied or replaced in all material
respects.
(iii) All
material computer software that is used or held for use the conduct of the
Company's and its Subsidiaries' respective businesses (x) performs in accordance
with the documentation or other written material used in connection with it,
(y)
is in machine readable form and contains all current revisions, and (z) does
not
contain any viruses, worms or other disabling devices. The source code for
all
computer software that is owned by the Company and its Subsidiaries (A) will
compile into object code or otherwise be capable of performing the functions
described in the documentation pertaining thereto, (B) is sufficiently
documented to enable a computer software developer of reasonable skill to
understand, modify, repair, maintain, compile and otherwise utilize all aspects
of such computer software without reference to other sources of information;
and
(C) constitutes trade secrets that are valid and protectable and are not part
of
the public knowledge or literature.
-15-
(y) Environmental
Laws.
The
Company and its Subsidiaries (i) are in compliance with any and all
Environmental Laws (as hereinafter defined), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws
to conduct their respective businesses and (iii) are in compliance with all
terms and conditions of any such permit, license or approval where, in each
of
the foregoing clauses (i), (ii) and (iii), the failure to so comply could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. The term "Environmental
Laws"
means
all federal, state, local or foreign laws relating to pollution or protection
of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "Hazardous
Materials") into
the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved
thereunder.
(z) Subsidiary
Rights.
The
Company or one of its Subsidiaries has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by the
Company or such Subsidiary.
(aa) Tax
Status.
The
Company and each of its Subsidiaries (i) has made or filed all foreign, federal
and state income and all other tax returns, reports and declarations required
by
any jurisdiction to which it is subject, (ii) 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 (iii) 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.
(bb)
Internal
Accounting and Disclosure Controls.
The
Company and each of its Subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities
at
reasonable intervals and appropriate action is taken with respect to any
difference. The Company maintains disclosure controls and procedures (as such
term is defined in Rule 13a-14 under the 0000 Xxx) that are effective in
ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is recorded, processed, summarized
and reported, within the time periods specified in the rules and forms of the
SEC, including, without limitation, controls and procedures designed to ensure
that information required to be disclosed by the Company in the reports that
it
files or submits under the 1934 Act is accumulated and communicated to the
Company's management, including its principal executive officer or officers
and
its principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure. During the twelve months prior to
the
date hereof neither the Company nor any of its Subsidiaries have received any
notice or correspondence from any accountant relating to any potential material
weakness in any part of the system of internal accounting controls of the
Company or any of its Subsidiaries.
-16-
(cc) Ranking
of Notes.
Except
as set forth on Schedule
3(cc),
no
Indebtedness of the Company is senior to or ranks pari
passu
with the
Notes in right of payment, whether with respect of payment of redemptions,
interest, damages or upon liquidation or dissolution or otherwise.
(dd) Off
Balance Sheet Arrangements.
There
is no transaction, arrangement, or other relationship between the Company and
an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its 1934 Act filings and is not so disclosed or
that
otherwise would be reasonably likely to have a Material Adverse
Effect.
(ee) Investment
Company Status.
The
Company is not, and upon consummation of the sale of the Securities will not
be,
an "investment company," a company controlled by an "investment company" or
an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company" as such terms are defined in the Investment Company Act
of
1940, as amended.
(ff) Form
S-3 Eligibility.
The
Company is eligible to register the Conversion Shares and the Warrant Shares
for
resale by the Buyers using Form S-3 promulgated under the 1933 Act.
(gg) Transfer
Taxes.
On the
Closing Date, all stock transfer or other taxes (other than income or similar
taxes) which are required to be paid in connection with the sale and transfer
of
the Securities to be sold to each Buyer hereunder will be, or will have been,
fully paid or provided for by the Company, and all laws imposing such taxes
will
be or will have been complied with.
(hh) Manipulation
of Price.
The
Company has not, and to its knowledge no one acting on its behalf has, (i)
taken, directly or indirectly, any action designed to cause or to result, or
that could reasonably be expected to cause or result, in the stabilization
or
manipulation of the price of any security of the Company to facilitate the
sale
or resale of any of the Securities, (ii) other than the Agent, sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of the
Securities or (iii) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
(ii) U.S.
Real Property Holding Corporation.
The
Company is not, nor has it ever been, a U.S. real property holding corporation
within the meaning of Section 897 of the Internal Revenue Code of 1986, as
amended, and the Company shall so certify upon any Buyer's request.
(jj) Bank
Holding Company Act.
Neither
the Company nor any of its Subsidiaries is subject to the Bank Holding Company
Act of 1956, as amended (the "BHCA")
and to
regulation by the Board of Governors of the Federal Reserve System (the
"Federal
Reserve").
Neither the Company nor any of its Subsidiaries or affiliates owns or controls,
directly or indirectly, five percent (5%) or more of the outstanding shares
of
any class of voting securities or twenty-five (25%) or more of the total equity
of a bank or any equity that is subject to the BHCA and to regulation by the
Federal Reserve. Neither the Company nor any of its Subsidiaries or affiliates
exercises a controlling influence over the management or policies of a bank
or
any entity that is subject to the BHCA and to regulation by the Federal
Reserve.
-17-
(kk) Disclosure.
The
Company confirms that neither it nor any other Person acting on its behalf
has
provided any of the Buyers or their agents or counsel with any information
that
constitutes or could reasonably be expected to constitute material, nonpublic
information. The Company understands and confirms that each of the Buyers will
rely on the foregoing representations in effecting transactions in securities
of
the Company. All disclosure provided to the Buyers regarding the Company or
any
of its Subsidiaries, their business and the transactions contemplated hereby,
including the Schedules to this Agreement, furnished by or on behalf of the
Company is true and correct and does 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 the light of the circumstances under which they
were
made, not misleading. Each press release issued by the Company or any of its
Subsidiaries during the twelve (12) months preceding the date of this Agreement
did not at the time of release contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred
or
information exists with respect to the Company or any of its Subsidiaries or
its
or their business, properties, prospects, operations or financial conditions,
which, under applicable law, rule or regulation, requires public disclosure
or
announcement by the Company but which has not been so publicly announced or
disclosed.
(ll) Acknowledgement
Regarding Buyers' Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding,
but subject to compliance by the Buyers with applicable law and the provisions
of Section 4(t) hereto, it is understood and acknowledged by the Company (i)
that none of the Buyers have been asked by the Company or its Subsidiaries
to
agree, nor has any Buyer agreed with the Company or its Subsidiaries, to desist
from purchasing or selling, long and/or short, securities of the Company, or
"derivative" securities based on securities issued by the Company or to hold
the
Securities for any specified term; (ii) that past or future open market or
other
transactions by any Buyer, including, without limitation, short sales or
"derivative" transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the Company's
publicly-traded securities; (iii) that any Buyer, and counter parties in
"derivative" transactions to which any such Buyer is a party, directly or
indirectly, presently may have a "short" position in the Common Stock, and
(iv)
that each Buyer shall not be deemed to have any affiliation with or control
over
any arm's length counter-party in any "derivative" transaction. The Company
further understands and acknowledges that (a) one or more Buyers may engage
in
hedging and/or trading activities at various times during the period that the
Securities are outstanding, including, without limitation, during the periods
that the value of the Conversion Shares and the Warrant Shares deliverable
with
respect to Securities are being determined and (b) such hedging and/or trading
activities, if any, can reduce the value of the existing stockholders' equity
interest in the Company both at and after the time the hedging and/or trading
activities are being conducted. The Company acknowledges that such
aforementioned hedging and/or trading activities do not constitute a breach
of
this Agreement, the Notes, the Warrants or any of the documents executed in
connection herewith.
-18-
4. COVENANTS.
(a) Best
Efforts.
Each
party shall use its best efforts timely to satisfy each of the conditions to
be
satisfied by it as provided in Sections 6 and 7 of this Agreement.
(b) Form
D
and Blue Sky.
The
Company agrees to file a Form D with respect to the Securities as required
under
Regulation D and to provide a copy thereof to each Buyer promptly after such
filing. The Company shall, on or before the Closing Date, take such action
as
the Company shall reasonably determine is necessary in order to obtain an
exemption for or to qualify the Securities for sale to the Buyers at the Closing
pursuant to this Agreement under applicable securities or "Blue Sky" laws of
the
states of the United States (or to obtain an exemption from such qualification),
and shall provide evidence of any such action so taken to the Buyers and the
Agent on or prior to the Closing Date. The Company shall make all filings and
reports relating to the offer and sale of the Securities required under
applicable securities or "Blue Sky" laws of the states of the United
States.
(c) Reporting
Status.
Until
the date on which the Investors (as defined in the Registration Rights
Agreement) shall have sold all the Conversion Shares and Warrant
Shares and
none
of the Notes or
Warrants is outstanding (the "Reporting
Period"),
the
Company shall timely file all reports required to be filed with the SEC pursuant
to the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would no longer require or otherwise permit such
termination, and the Company shall take all actions necessary to maintain its
eligibility to register the Conversion Shares and Warrant Shares for resale
by
the Buyers on Form S-3.
(d) Use
of
Proceeds.
The
Company will use the proceeds from the sale of the Securities for general
corporate purposes, including general and administrative expenses and not for
(i) the repayment of any outstanding Indebtedness of the Company or any of
its
Subsidiaries or (ii) the redemption or repurchase of any of its or its
Subsidiaries' equity securities.
(e) Financial
Information.
As long
as any Notes or Warrants are outstanding, the Company agrees to send the
following to each Investor (as defined in the Registration Rights Agreement)
during the Reporting Period unless the following are filed with the SEC through
XXXXX and are available to the public through the XXXXX system: (i) within
three
(3) Business Days after the filing thereof with the SEC, a copy of its Annual
Reports and Quarterly Reports on Forms 10-K, 10-KSB, 10-Q or 10-QSB, any interim
reports or any consolidated balance sheets, income statements, stockholders'
equity statements and/or cash flow statements for any period other than annual,
any Current Reports on Form 8-K and any registration statements (other than
on
Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day
as
the release thereof, facsimile or e-mailed copies of all press releases issued
by the Company or any of its Subsidiaries, and (iii) copies of any notices
and
other information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to
the
stockholders. As used herein, "Business
Day"
means
any day other than Saturday, Sunday or other day on which commercial banks
in
The City of New York are authorized or required by law to remain
closed.
-19-
(f) Listing.
The
Company shall promptly secure the listing of all of the Registrable Securities
(as defined in the Registration Rights Agreement) upon each national securities
exchange and automated quotation system, if any, upon which the Common Stock
is
then listed (subject to official notice of issuance) and shall maintain, in
accordance with the Notes and Warrants, such listing of all Registrable
Securities from time to time issuable under the terms of the Transaction
Documents. The Company shall maintain the Common Stocks' authorization for
quotation on the Principal Market. Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal Market.
The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(f).
(g) Fees.
Subject
to Section 8 below, at Closing, the Company shall pay an expense allowance
to
Portside Growth and Opportunity Fund (a Buyer) or its designee(s) (in addition
to any other expense amounts paid to any Buyer prior to the date of this
Agreement) for all reasonable costs and expenses incurred in connection with
the
transactions contemplated by the Transaction Documents (including all reasonable
legal fees and disbursements in connection therewith, documentation and
implementation of the transactions contemplated by the Transaction Documents
and
due diligence in connection therewith), in an amount not to exceed $45,000
(in
addition to any other expense amounts paid to any Buyer prior to the date of
this Agreement), which amount shall be withheld by such Buyer from its Purchase
Price at the Closing. The Company shall be responsible for the payment of any
placement agent's fees, financial advisory fees, or broker's commissions
relating to or arising out of the transactions contemplated hereby, including,
without limitation, any fees payable to the Agent. The Company shall pay, and
hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, reasonable attorney's fees and out-of-pocket expenses)
arising in connection with any claim relating to any such payment.
(h) Pledge
of Securities.
The
Company acknowledges and agrees that the Securities may be pledged by an
Investor (as defined in the Registration Rights Agreement) in connection with
a
bona fide margin agreement or other loan or financing arrangement that is
secured by the Securities. The pledge of Securities shall not be deemed to
be a
transfer, sale or assignment of the Securities hereunder, and no Investor
effecting a pledge of Securities shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document, including, without limitation,
Section 2(f) hereof; provided that an Investor and its pledgee shall be required
to comply with the provisions of Section 2(f) hereof in order to effect a sale,
transfer or assignment of Securities to such pledgee. The Company hereby agrees
to execute and deliver such documentation as a pledgee of the Securities may
reasonably request in connection with a pledge of the Securities to such pledgee
by an Investor.
-20-
(i) Disclosure
of Transactions and Other Material Information.
On or
before 8:30 a.m., New York City time, on the first Business Day following the
date of this Agreement, the Company shall issue a press release and file a
Current Report on Form 8-K, which the Agent shall have approved prior to its
release and filing, describing the terms of the transactions contemplated by
the
Transaction Documents in the form required by the 1934 Act and attaching the
material Transaction Documents (including, without limitation, this Agreement
(and all schedules to this Agreement), the form of the Notes, the form of
Warrant, the form of Security Documents and the form of the Registration Rights
Agreement) as exhibits to such filing (including all attachments, the
"8-K
Filing").
From
and after the filing of the 8-K Filing with the SEC, no Buyer shall be in
possession of any material, nonpublic information received from the Company,
any
of its Subsidiaries or any of their respective officers, directors, employees
or
agents, that is not disclosed in the 8-K Filing. The Company shall not, and
shall cause each of its Subsidiaries and its and each of their respective
officers, directors, employees and agents, not to, provide any Buyer with any
material, nonpublic information regarding the Company or any of its Subsidiaries
from and after the filing of the 8-K Filing with the SEC without the express
prior written consent of such Buyer. If a Buyer has, or believes it has,
received any such material, nonpublic information regarding the Company or
any
of its Subsidiaries, it shall provide the Company with written notice thereof.
The Company shall, within five (5) Trading Days (as defined in the Notes) of
receipt of such notice, make public disclosure of such material, nonpublic
information. In the event of a breach of the foregoing covenant by the Company,
any of its Subsidiaries, or any of its or their respective officers, directors,
employees and agents, in addition to any other remedy provided herein or in
the
Transaction Documents, a Buyer shall have the right to make a public disclosure,
in the form of a press release, public advertisement or otherwise, of such
material, nonpublic information without the prior approval by the Company,
its
Subsidiaries, or any of its or their respective officers, directors, employees
or agents. No Buyer shall have any liability to the Company, its Subsidiaries,
or any of its or their respective officers, directors, employees, stockholders
or agents for any such disclosure. Subject to the foregoing, neither the
Company, its Subsidiaries nor any Buyer shall issue any press releases or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of any Buyer, to make any press release or other public disclosure
with
respect to such transactions (i) in substantial conformity with the 8-K Filing
and contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) each Buyer and the Agent
shall be consulted by the Company in connection with any such press release
or
other public disclosure prior to its release). Without the prior written consent
of any applicable Buyer, neither the Company nor any of its Subsidiaries or
affiliates shall disclose the name of such Buyer in any filing (other than
as is
required by applicable law and regulations), announcement, release or
otherwise.
(j) Restriction
on Redemption and Cash Dividends.
So long
as any Notes are outstanding, the Company shall not, directly or indirectly,
redeem, or declare or pay any cash dividend or distribution on, the Common
Stock
without the prior express written consent of the holders of Notes representing
not less than a majority of the aggregate principal amount of the then
outstanding Notes.
(k) Additional
Notes; Variable Securities; Dilutive Issuances.
So long
as any Buyer beneficially owns any Securities, the Company will not issue any
Notes (other than to the Buyers as contemplated hereby) and the Company shall
not issue any other securities that would cause a breach or default under the
Notes. For so long as any Notes or Warrants remain outstanding, the Company
shall not, in any manner, issue or sell any rights, warrants or options to
subscribe for or purchase Common Stock or directly or indirectly convertible
into or exchangeable or exercisable for Common Stock at a price which varies
or
may vary with the market price of the Common Stock, including by way of one
or
more reset(s) to any fixed price unless the conversion, exchange or exercise
price of any such security cannot be less than the then applicable Conversion
Price (as defined in the Notes) with respect to the Common Stock into which
any
Note is convertible or the then applicable Exercise Price (as defined in the
Warrants) with respect to the Common Stock into which any Warrant is
exercisable. For so long as any Notes or Warrants remain outstanding, the
Company shall not, in any manner, enter into or affect any Dilutive Issuances
(as defined in the Notes) if the effect of such Dilutive Issuance is to cause
the Company to be required to issue upon conversion of any Note or exercise
of
any Warrant any shares of Common Stock in excess of that number of shares of
Common Stock which the Company may issue upon conversion of the Notes and
exercise of the Warrants without breaching the Company's obligations under
the
rules or regulations of the Principal Market or any applicable Eligible Market
(as defined in the Warrants).
-21-
(l) Corporate
Existence.
So long
as any Buyer beneficially owns any Securities, the Company shall not be party
to
any Fundamental Transaction (as defined in the Notes) unless the Company is
in
compliance with the applicable provisions governing Fundamental Transactions
set
forth in the Notes and the Warrants.
(m) Reservation
of Shares.
The
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than 130% of the sum of the number
of shares of Common Stock issuable (i) upon conversion of the Notes issued
at
the Closing and (ii) upon exercise of the Warrants issued at the Closing
(without taking into account any limitations on the Conversion of the Notes
or
exercise of the Warrants set forth in the Notes and Warrants,
respectively).
(n) Conduct
of Business.
The
business of the Company and its Subsidiaries shall not be conducted in violation
of any law, ordinance or regulation of any governmental entity, except where
such violations would not result, either individually or in the aggregate,
in a
Material Adverse Effect.
(o) Additional
Issuances of Securities.
(i) For
purposes of this Section 4(o), the following definitions shall
apply.
(1) "Convertible
Securities"
means
any stock or securities (other than Options) convertible into or exercisable
or
exchangeable for shares of Common
Stock.
(2) "Options"
means
any rights, warrants or options to subscribe for or purchase shares of
Common
Stock or
Convertible Securities.
(3) "Common
Stock Equivalents"
means,
collectively, Options and Convertible Securities.
-22-
(ii) From
the
date hereof until the date that is thirty (30) Trading Days (as defined in
the
Notes) following the Effective Date (as defined in the Registration Rights
Agreement) (the "Trigger
Date"),
the
Company will not, directly or indirectly, file any registration statement with
the SEC other than the Registration Statement (as defined in the Registration
Rights Agreement). From the date hereof until the Trigger Date, the Company
will
not, directly or indirectly, offer, sell, grant any option to purchase, or
otherwise dispose of (or announce any offer, sale, grant or any option to
purchase or other disposition of) any of its or its Subsidiaries' equity or
equity equivalent securities, including without limitation any debt, preferred
stock or other instrument or security that is, at any time during its life
and
under any circumstances, convertible into or exchangeable or exercisable for
shares of Common Stock or Common Stock Equivalents (any such offer, sale, grant,
disposition or announcement being referred to as a "Subsequent
Placement").
(iii) From
the
Trigger Date until the second anniversary of the Closing Date, the Company
will
not, directly or indirectly, effect any Subsequent Placement unless the Company
shall have first complied with this Section 4(o)(iii).
(1) The
Company shall deliver to each Buyer an irrevocable written notice
(the "Offer
Notice")
of any
proposed or intended issuance or sale or exchange (the "Offer")
of the
securities being offered (the "Offered
Securities")
in a
Subsequent Placement, which Offer Notice shall (w) identify and describe the
Offered Securities, (x) describe the price and other terms upon which they
are to be issued, sold or exchanged, and the number or amount of the Offered
Securities to be issued, sold or exchanged, (y) identify the persons or
entities (if known) to which or with which the Offered Securities are to be
offered, issued, sold or exchanged and (z) offer to issue and sell to or
exchange with such Buyers at least thirty percent (30%) of the Offered
Securities, allocated among such Buyers (a) based on such Buyer's pro rata
portion of the aggregate principal amount of Notes purchased hereunder (the
"Basic
Amount"),
and
(b) with respect to each Buyer that elects to purchase its Basic Amount, any
additional portion of the Offered Securities attributable to the Basic Amounts
of other Buyers as such Buyer shall indicate it will purchase or acquire should
the other Buyers subscribe for less than their Basic Amounts (the "Undersubscription
Amount"),
which
process shall be repeated until the Buyers shall have an opportunity to
subscribe for any remaining Undersubscription Amount.
(2) To
accept
an Offer, in whole or in part, such Buyer must deliver a written notice to
the
Company prior to the end of the tenth (10th)
Business Day after such Buyer's receipt of the Offer Notice (the "Offer
Period"),
setting forth the portion of such Buyer's Basic Amount that such Buyer elects
to
purchase and, if such Buyer shall elect to purchase all of its Basic Amount,
the
Undersubscription Amount, if any, that such Buyer elects to purchase (in either
case, the "Notice
of Acceptance").
If
the Basic Amounts subscribed for by all Buyers are less than the total of all
of
the Basic Amounts, then each Buyer who has set forth an Undersubscription Amount
in its Notice of Acceptance shall be entitled to purchase, in addition to the
Basic Amounts subscribed for, the Undersubscription Amount it has subscribed
for; provided,
however,
that if
the Undersubscription Amounts subscribed for exceed the difference between
the
total of all the Basic Amounts and the Basic Amounts subscribed for (the
"Available
Undersubscription Amount"),
each
Buyer who has subscribed for any Undersubscription Amount shall be entitled
to
purchase only that portion of the Available Undersubscription Amount as the
Basic Amount of such Buyer bears to the total Basic Amounts of all Buyers that
have subscribed for Undersubscription Amounts, subject to rounding by the
Company to the extent its deems reasonably necessary. Notwithstanding the
foregoing, if the Company desires to modify or amend the terms and conditions
of
the Offer prior to the expiration of the Offer Period, the Company may deliver
to the Buyers a new Offer Notice and the Offer Period shall expire on the third
(3rd)
Business Day after such Buyer's receipt of such new Offer Notice.
-23-
(3) The
Company shall have fifteen (15) Business Days from the expiration of the Offer
Period above (i) to offer, issue, sell or exchange all or any part of such
Offered Securities as to which a Notice of Acceptance has not been given by
the
Buyers (the "Refused
Securities")
pursuant to a definitive agreement(s) (the "Subsequent
Placement Agreement"),
but
only to the offerees described in the Offer Notice (if so described therein)
and
only upon terms and conditions (including, without limitation, unit prices
and
interest rates) that are not more favorable to the acquiring person or persons
or less favorable to the Company than those set forth in the Offer Notice and
(ii) to publicly announce (a) the execution of such Subsequent Placement
Agreement, and (b) either (x) the consummation of the transactions contemplated
by such Subsequent Placement Agreement or (y) the termination of such Subsequent
Placement Agreement, which shall be filed with the SEC on a Current Report
on
Form 8-K with such Subsequent Placement Agreement and any documents contemplated
therein filed as exhibits thereto.
(4) In
the
event the Company shall propose to sell less than all the Refused Securities
(any such sale to be in the manner and on the terms specified in Section
4(o)(iii)(3) above), then each Buyer may, at its sole option and in its sole
discretion, reduce the number or amount of the Offered Securities specified
in
its Notice of Acceptance to an amount that shall be not less than the number
or
amount of the Offered Securities that such Buyer elected to purchase pursuant
to
Section 4(o)(iii)(2) above multiplied by a fraction, (i) the numerator of which
shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued
or sold to Buyers pursuant to Section 4(o)(iii)(3) above prior to such
reduction) and (ii) the denominator of which shall be the original amount of
the
Offered Securities. In the event that any Buyer so elects to reduce the number
or amount of Offered Securities specified in its Notice of Acceptance, the
Company may not issue, sell or exchange more than the reduced number or amount
of the Offered Securities unless and until such securities have again been
offered to the Buyers in accordance with Section 4(o)(iii)(1)
above.
(5) Upon
the
closing of the issuance, sale or exchange of all or less than all of the Refused
Securities, the Buyers shall acquire from the Company, and the Company shall
issue to the Buyers, the number or amount of Offered Securities specified in
the
Notices of Acceptance, as reduced pursuant to Section 4(o)(iii)(4) above if
the
Buyers have so elected, upon the terms and conditions specified in the Offer.
Notwithstanding anything to the contrary contained in this Agreement, if the
Company does not consummate the closing of the issuance, sale or exchange of
all
or less than all of the Refused Securities, within fifteen (15) Business Days
of
the expiration of the Offer Period, the Company shall issue to the Buyers,
the
number or amount of Offered Securities specified in the Notices of Acceptance,
as reduced pursuant to Section 4(o)(iii)(4) above if the Buyers have so elected,
upon the terms and conditions specified in the Offer. The purchase by the Buyers
of any Offered Securities is subject in all cases to the preparation, execution
and delivery by the Company and the Buyers of a purchase agreement relating
to
such Offered Securities reasonably satisfactory in form and substance to the
Buyers and their respective counsel.
-24-
(6) Any
Offered Securities not acquired by the Buyers or other persons in accordance
with Section 4(o)(iii)(3) above may not be issued, sold or exchanged until
they
are again offered to the Buyers under the procedures specified in this
Agreement.
(7) The
Company and the Buyers agree that if any Buyer elects to participate in the
Offer, (x) neither the Subsequent Placement Agreement with respect to such
Offer
nor any other transaction documents related thereto (collectively, the
"Subsequent
Placement Documents")
shall
include any term or provisions whereby any Buyer shall be required to agree
to
any restrictions in trading as to any securities of the Company owned by such
Buyer prior to such Subsequent Placement, and (y) any registration rights set
forth in such Subsequent Placement Documents shall be similar in all material
respects to the registration rights contained in the Registration Rights
Agreement.
(8) Notwithstanding
anything to the contrary in this Section 4(o) and unless otherwise agreed to
by
the Buyers, the Company shall either confirm in writing to the Buyers that
the
transaction with respect to the Subsequent Placement has been abandoned or
shall
publicly disclose its intention to issue the Offered Securities, in either
case
in such a manner such that the Buyers will not be in possession of material
non-public information, by the fifteen
(15th)
Business Day following delivery of the Offer Notice. If by the fifteen
(15th)
following delivery of the Offer Notice no public disclosure regarding a
transaction with respect to the Offered Securities has been made, and no notice
regarding the abandonment of such transaction has been received by the Buyers,
such transaction shall be deemed to have been abandoned and the Buyers shall
not
be deemed to be in possession of any material, non-public information with
respect to the Company. Should the Company decide to pursue such transaction
with respect to the Offered Securities, the Company shall provide each Buyer
with another Offer Notice and each Buyer will again have the right of
participation set forth in this Section 4(o)(iii). The Company shall not be
permitted to deliver more than one such Offer Notice to the Buyers in any sixty
(60) day period.
(9) The
restrictions contained in subsections (ii) and (iii) of this Section 4(o) shall
not apply in connection with the issuance of any Excluded Securities (as defined
in the Notes).
-25-
(p) Collateral
Agent.
Each
Buyer hereby (a) appoints Portside Growth & Opportunity Fund, as the
collateral agent hereunder, under the Notes and under the other Security
Documents (in such capacity, the "Collateral
Agent"),
and
(b) authorizes the Collateral Agent (and its officers, directors, employees
and
agents) to take such action on such Buyer's behalf in accordance with the terms
hereof and thereof. The Collateral Agent shall not have, by reason hereof or
any
of the other Transaction Documents, a fiduciary relationship in respect of
any
Buyer. Neither the Collateral Agent nor any of its officers, directors,
employees and agents shall have any liability to any Buyer for any action taken
or omitted to be taken in connection hereof or any other Transaction Document
except to the extent caused by its own gross negligence or willful misconduct,
and each Buyer agrees to defend, protect, indemnify and hold harmless the
Collateral Agent and all of its officers, directors, employees and agents
(collectively, the "Indemnitees")
from
and against any losses, damages, liabilities, obligations, penalties, actions,
judgments, suits, fees, costs and expenses (including, without limitation,
reasonable attorneys' fees, costs and expenses) incurred by such Indemnitee,
whether direct, indirect or consequential, arising from or in connection with
the performance by such Indemnitee of the duties and obligations of Collateral
Agent pursuant hereto or any of the Transaction Documents. The Collateral Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected
in so
acting or refraining from acting) upon the instructions of the holders of a
majority in principal amount of the Notes then outstanding, and such
instructions shall be binding upon all holders of Notes; provided,
however,
that
the Collateral Agent shall not be required to take any action which, in the
reasonable opinion of the Agent, exposes the Agent to liability or which is
contrary to this Agreement or any other Transaction Document or applicable
law.
The Collateral Agent shall be entitled to rely upon any written notices,
statements, certificates, orders or other documents or any telephone message
believed by it in good faith to be genuine and correct and to have been signed,
sent or made by the proper Person, and with respect to all matters pertaining
to
this Agreement or any of the other Transaction Documents and its duties
hereunder or thereunder, upon advice of counsel selected by it.
(q) Successor
Collateral Agent .
(i) The
Collateral Agent may resign from the performance of all its functions and duties
hereunder and under the other Transaction Documents at any time by giving at
least thirty (30) Business Days' prior written notice to the Company and each
holder of Notes. Such resignation shall take effect upon the acceptance by
a
successor Collateral Agent of appointment pursuant to clauses (ii) and (iii)
below or as otherwise provided below.
(ii) Upon
any
such notice of resignation, the holders of a majority in principal amount of
the
Notes then outstanding shall appoint a successor collateral agent. Upon the
acceptance of any appointment as collateral agent hereunder by a successor
agent, such successor collateral agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the collateral
agent, and the Collateral Agent shall be discharged from its duties and
obligations under this Agreement and the other Transaction Documents. After
the
Collateral Agent's resignation hereunder as the collateral agent, the provisions
of this Section 4(s) shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was the Collateral Agent under this Agreement
and the other Transaction Documents.
-26-
(iii) If
a
successor collateral agent shall not have been so appointed within said thirty
(30) Business Day period, the Collateral Agent shall then appoint a successor
collateral agent who shall serve as the collateral agent until such time, if
any, as the holders of a majority in principal amount of the Notes then
outstanding appoint a successor collateral agent as provided above.
(r) Letter
of Credit.
(i) On
or
prior to the Closing Date, the Company shall obtain an irrevocable letter of
credit (the "Letter
of Credit"),
in
the amount of $2,000,000 (the "Initial
LC Amount")
issued
in favor of the Collateral Agent by a bank acceptable to such Collateral Agent
(the "Letter
of Credit Bank")
and in
form and substance acceptable to such Collateral Agent. The Letter of Credit,
including any renewals, extensions or replacements referred to below, shall
expire not earlier than the later of (x) the earlier to occur of (A) the date
as
of which the Investors may sell all of the Registrable Securities covered by
the
Registration Statement without restriction pursuant to Rule 144(k) (or any
successor thereto) promulgated under the 1933 Act and (B) the Effective Date,
(y) the Holder Optional Redemption Date (as defined in the Notes), (z) the
date
each holder of Notes (each, a "Holder")
that
has submitted Holder Optional Redemption Notices (as defined in the Notes)
to
the Company on or prior to the Holder Optional Redemption Notice Eligibility
Date shall have received the payment of the Holder Optional Redemption Amount
(as defined in the Notes) of each such Holder, whether by payment by the Company
or withdrawal from the Letter of Credit in accordance herewith (the
"LC
Redemption Expiration Date"),
unless the Letter of Credit shall have been reduced to zero in accordance with
the terms contained in this Section 4(r) prior to such date.
(ii) Upon
any
Holder Optional Redemption (as defined in the Notes), any Holder may draw under
the Letter of Credit, including any renewals, extensions or replacements
referred to below, such portion of the Letter of Credit not to exceed, in the
aggregate, the Holder Optional Redemption Amount of such Holder. Upon the
occurrence and during the continuance of an Event of Default under (and as
defined in) any of the Notes, the Collateral Agent shall be entitled to draw
under the Letter of Credit, including any renewals, extensions or replacements
referred to below, for the full amount then available under the Letter of
Credit, it being understood that the Collateral Agent shall act for the benefit
of the Holders of the Notes on a pro rata basis based on the principal amount
of
the Notes held by each of the Holders and hold such amount as collateral
security for the obligations under the Notes for the benefit of the Holders.
The
Company shall obtain such renewals, extensions or replacements of the Letter
of
Credit as necessary to ensure that the Letter of Credit shall not expire prior
to the LC Redemption Expiration Date (unless the Letter of Credit shall have
been reduced to zero in accordance with the terms contained in this Section
4(p)
prior to such date). If, at any time, the Company cannot obtain a renewal,
extension or replacement of the Letter of Credit such that the Letter of Credit
will expire prior to the LC Redemption Expiration Date (a "Withdrawal
Event"),
the
Company and the Letter of Credit Bank shall each give the Collateral Agent
written notice of the occurrence of a Withdrawal Event at least forty-five
(45)
days prior to the then current expiration date of the Letter of Credit.
Following a Withdrawal Event, the Collateral Agent shall be entitled to draw
down the Letter of Credit Amount in its entirety (whether or not an Event of
Default shall have occurred or be continuing under any of the Notes) and hold
such amount as collateral security for the obligations under the Notes for
the
benefit of the Holders.
-27-
(iii) At
such
time that less than $2,000,000 aggregate amount of the Notes are outstanding
(the "Reduction
Threshold Event"),
the
Company may deliver a notice to the Collateral Agent (the "LC
Reduction Notice"),
certifying as to the occurrence of the Reduction Threshold Event, that no Event
of Default (or event that with the passage of time or giving of notice would
constitute an Event of Default) has occurred or is pending and the aggregate
amount then outstanding under the Notes. Within seven (7) Business Days after
the Collateral Agent's receipt of the LC Reduction Notice, unless the Collateral
Agent reasonably objects to such LC Reduction Notice, the Collateral Agent
shall
issue a written instruction to the Letter of Credit Bank to request the
reduction of the Letter of Credit Amount as set forth in the LC Reduction
Notice, such reduction amount to equal to the difference between $2,000,000
and
the aggregate amount of the Notes outstanding at such time.
(s) Closing
Documents.
On or
prior to fourteen (14) calendar days after the Closing Date, the Company agrees
to deliver, or cause to be delivered, to each Buyer and Xxxxxxx Xxxx & Xxxxx
LLP executed copies of the Transaction Documents, Securities and other document
required to be delivered to any party pursuant to Section 7 hereof.
(t) Lock-Up.
The
Company shall not amend or waive any provision of any of the Lock-Up Agreements
(as defined below) except to extend the term of the lock-up period.
5. REGISTER;
TRANSFER AGENT INSTRUCTIONS.
(a) Register.
The
Company shall maintain at its principal executive offices (or such other office
or agency of the Company as it may designate by notice to each holder of
Securities), a register for the Notes and the Warrants in which the Company
shall record the name and address of the Person in whose name the Notes
and the
Warrants have been issued (including the name and address of each transferee),
the principal amount of Notes held by such Person, the number of Conversion
Shares issuable upon conversion of the Notes and the number of Warrant Shares
issuable upon exercise of the Warrants held by such Person. The Company shall
keep the register open and available at all times during business hours for
inspection of any Buyer or its legal representatives.
(b) Transfer
Agent Instructions.
The
Company shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates or credit shares to the
applicable balance accounts at The Depository Trust Company ("DTC"),
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares and the Warrant Shares issued at the Closing or upon
conversion of the Notes or exercise of the Warrants in such amounts as specified
from time to time by each Buyer to the Company upon conversion of the Notes
or
exercise of the Warrants in the form of Exhibit
D
attached
hereto (the "Irrevocable
Transfer Agent Instructions").
The
Company warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5(b), and stop transfer instructions
to
give effect to Section 2(g) hereof, will be given by the Company to its transfer
agent, and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the other Transaction Documents. If a Buyer effects a sale, assignment
or
transfer of the Securities in accordance with Section 2(f), the Company shall
permit the transfer and shall promptly instruct its transfer agent to issue
one
or more certificates or credit shares to the applicable balance accounts at
DTC
in such name and in such denominations as specified by such Buyer to effect
such
sale, transfer or assignment. In the event that such sale, assignment or
transfer involves Conversion Shares or Warrant Shares sold, assigned or
transferred pursuant to an effective registration statement or pursuant to
Rule
144, the transfer agent shall issue such Securities to the Buyer, assignee
or
transferee, as the case may be, without any restrictive legend. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Buyer. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5(b) will
be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5(b), that a Buyer shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
-28-
6. CONDITIONS
TO THE COMPANY'S OBLIGATION TO SELL.
The
obligation of the Company hereunder to issue and sell the Notes and the related
Warrants to each Buyer at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:
(a) Such
Buyer shall have executed each of the Transaction Documents to which it is
a
party and delivered the same to the Company.
(b) Such
Buyer and each other Buyer shall have delivered to the Company the Purchase
Price (less, in the case of Portside Growth and Opportunity Fund, the amounts
withheld pursuant to Section 4(g)) for the Notes and the related Warrants being
purchased by such Buyer at the Closing by wire transfer of immediately available
funds pursuant to the wire instructions provided by the Company.
(c) The
representations and warranties of such Buyer shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Closing Date
as
though made at that time (except for representations and warranties that speak
as of a specific date, which shall be true and correct as of such specified
date), and such Buyer shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by
this
Agreement to be performed, satisfied or complied with by such Buyer at or prior
to the Closing Date.
7. CONDITIONS
TO EACH BUYER'S OBLIGATION TO PURCHASE.
The
obligation of each Buyer hereunder to purchase the Notes and
the
related Warrants at the Closing is subject to the satisfaction, at or before
the
Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer
at
any time in its sole discretion by providing the Company with prior written
notice thereof:
-29-
(a) The
Company shall have duly executed and delivered to such Buyer (i) each of the
Transaction Documents and (ii) the Notes (allocated in such principal amounts
as
such Buyer shall request), being purchased by such Buyer at the Closing pursuant
to this Agreement, and (iii) the related Warrants (allocated in such amounts
as
such Buyer shall request) being purchased by such Buyer at the Closing pursuant
to this Agreement.
(b) Such
Buyer shall have received the opinion of Xxxxxx Xxxxxxxx & Markiles, LLP,
the Company's outside counsel, dated as of the Closing Date, in substantially
the form of Exhibit E
attached
hereto.
(c) The
Company shall have delivered to such Buyer a copy of the Irrevocable Transfer
Agent Instructions, in the form of Exhibit D
attached
hereto, which instructions shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
(d) The
Company shall have delivered to such Buyer a certificate evidencing the
formation and good standing of the Company and each of its Subsidiaries in
such
entity's jurisdiction of formation issued by the Secretary of State (or
comparable office) of such jurisdiction, as of a date within ten (10) days
of
the Closing Date.
(e) The
Company shall have delivered to such Buyer a certificate evidencing the
Company's qualification as a foreign corporation and good standing issued by
the
Secretary of State (or comparable office) of each jurisdiction in which the
Company conducts business, as of a date within ten (10) days of the Closing
Date.
(f) The
Company shall have delivered to such Buyer a certified copy of the Certificate
of Incorporation as certified by the Secretary of State of the State of Florida
within ten (10) days of the Closing Date.
(g) The
Company shall have delivered to such Buyer a certificate, executed by the
Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the Company's Board
of
Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate
of
Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the
form attached hereto as Exhibit F.
(h) The
representations and warranties of the Company shall be true and correct in
all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Closing Date
as
though made at that time (except for representations and warranties that speak
as of a specific date, which shall be true and correct as of such specified
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by
the
Transaction Documents to be performed, satisfied or complied with by the Company
at or prior to the Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be reasonably
requested by such Buyer in the form attached hereto as Exhibit
G.
-30-
(i) The
Company shall have delivered to such Buyer a letter from the Company's transfer
agent certifying the number of shares of Common Stock outstanding as of a date
within five days of the Closing Date.
(j) The
Common Stock (I) shall be designated for quotation or listed on the Principal
Market and (II) shall not have been suspended, as of the Closing Date, by the
SEC or the Principal Market from trading on the Principal Market nor shall
suspension by the SEC or the Principal Market have been threatened, as of the
Closing Date, either (A) in writing by the SEC or the Principal Market or (B)
by
falling below the minimum listing maintenance requirements of the Principal
Market.
(k) The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Securities.
(l) In
accordance with the terms of the Security Documents, the Company shall have
delivered to the Collateral Agent (i) certificates representing the
Subsidiaries' shares of capital stock to the extent such subsidiary is a
corporation or otherwise has certificated capital stock, along with duly
executed blank stock powers and (ii) appropriate financing statements on Form
UCC-1 to be duly filed in such office or offices as may be necessary or, in
the
opinion of the Collateral Agent, desirable to perfect the security interests
purported to be created by each Security Document.
(m) Within
two (2) Business Days prior to the Closing, the Company shall have delivered
or
caused to be delivered to each Buyer (i) true copies of UCC search results,
listing all effective financing statements which name as debtor the Company
or
any of its Subsidiaries filed in the prior five years to perfect an interest
in
any assets thereof, together with copies of such financing statements, none
of
which, except as otherwise agreed in writing by the Buyers, shall cover any
of
the Collateral (as defined in the Security Documents) and the results of
searches for any tax lien and judgment lien filed against such Person or its
property, which results, except as otherwise agreed to in writing by the Buyers
shall not show any such Liens (as defined in the Security Documents); and (ii)
a
perfection certificate, duly completed and executed by the Company and each
of
its Subsidiaries, in form and substance satisfactory to the Buyers.
(n) The
Company shall have delivered to such Buyer such other documents relating to
the
transactions contemplated by this Agreement as such Buyer or its counsel may
reasonably request.
(o) VM
Investors LLC shall have entered into a Lock-Up Agreement in the form attached
hereto as Exhibit
L
(the
"Lock-Up
Agreement").
8. TERMINATION.
In the
event that the Closing shall not have occurred with respect to a Buyer on or
before five (5) Business Days from the date hereof due to the Company's or
such
Buyer's failure to satisfy the conditions set forth in Sections 6 and 7 above
(and the nonbreaching party's failure to waive such unsatisfied condition(s)),
the nonbreaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party; provided,
however,
that if
this Agreement is terminated pursuant to this Section 8, the Company shall
remain obligated to reimburse the non-breaching Buyers for the expenses
described in Section 4(g) above.
-31-
9. MISCELLANEOUS.
(a) Governing
Law; Jurisdiction; Jury Trial.
All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision
or
rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State
of
New York. Each party hereby irrevocably submits to the exclusive jurisdiction
of
the state and federal courts sitting in The City of New York, Borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, 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 brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. 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 to such party at the address for such 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.
EACH
PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
(b) Counterparts.
This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if
the
signature were an original, not a facsimile signature.
(c) Headings.
The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.
(d) Severability.
If any
provision of this Agreement is prohibited by law or otherwise determined to
be
invalid or unenforceable by a court of competent jurisdiction, the provision
that would otherwise be prohibited, invalid or unenforceable shall be deemed
amended to apply to the broadest extent that it would be valid and enforceable,
and the invalidity or unenforceability of such provision shall not affect the
validity of the remaining provisions of this Agreement so long as this Agreement
as so modified continues to express, without material change, the original
intentions of the parties as to the subject matter hereof and the prohibited
nature, invalidity or unenforceability of the provision(s) in question does
not
substantially impair the respective expectations or reciprocal obligations
of
the parties or the practical realization of the benefits that would otherwise
be
conferred upon the parties. The parties will endeavor in good faith negotiations
to replace the prohibited, invalid or unenforceable provision(s) with a valid
provision(s), the effect of which comes as close as possible to that of the
prohibited, invalid or unenforceable provision(s).
-32-
(e) Entire
Agreement; Amendments.
This
Agreement and the other Transaction Documents supersede all other prior oral
or
written agreements between the Buyers, the Company, their affiliates and Persons
acting on their behalf with respect to the matters discussed herein, and this
Agreement, the other Transaction Documents and the instruments referenced herein
and therein contain the entire understanding of the parties with respect to
the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
of
this Agreement may be amended other than by an instrument in writing signed
by
the Company and the holders of at least a majority of the aggregate number
of
Registrable Securities issued and issuable hereunder and under the Notes, and
any amendment to this Agreement made in conformity with the provisions of this
Section 9(e) shall be binding on all Buyers and holders of Securities as
applicable. No provision hereof may be waived other than by an instrument in
writing signed by the party against whom enforcement is sought. No such
amendment shall be effective to the extent that it applies to less than all
of
the holders of the applicable Securities then outstanding. No consideration
shall be offered or paid to any Person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents unless the
same consideration also is offered to all of the parties to the Transaction
Documents, holders of Notes or holders of the Warrants, as the case may be.
The
Company has not, directly or indirectly, made any agreements with any Buyers
relating to the terms or conditions of the transactions contemplated by the
Transaction Documents except as set forth in the Transaction Documents. Without
limiting the foregoing, the Company confirms that, except as set forth in this
Agreement, no Buyer has made any commitment or promise or has any other
obligation to provide any financing to the Company or otherwise.
(f) Notices.
Any
notices, consents, waivers or other communications required or permitted to
be
given under the terms of this Agreement must be in writing and will be deemed
to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one Business Day after deposit with an overnight courier service,
in
each case properly addressed to the party to receive the same. The addresses
and
facsimile numbers for such communications shall be:
If
to the
Company:
DigitalFX
International, Inc.
0000
Xxxx
Xxxxxxx Xxxx, Xxxxx 0
Xxx
Xxxxx, Xxxxxx 00000
Telephone: (000)
000-0000
Facsimile:
(000)
000-0000
Attention:
Xxxxxx
Xxxxxxxxx
-33-
Copy
(for
informational purposes only) to:
Xxxxxx
Xxxxxxxx & Markiles, LLP
00000
Xxxxxxx Xxxxxxxxx
00xx
Xxxxx
Xxxxxxx
Xxxx, Xxxxxxxxxx 00000
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
Attention:
Xxxxxxx Xxxxxxxx
If
to the
Transfer Agent:
Continental
Stock Transfer & Trust Company
00
Xxxxxxx Xxxxx
Xxx
Xxxx,
XX 00000
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
Attention:
Xxxxxxx X. Xxxxxx
If
to a
Buyer, to its address and facsimile number set forth on the Schedule of Buyers,
with copies to such Buyer's representatives as set forth on the Schedule of
Buyers,
with
a
copy (for informational purposes only) to:
Xxxxxxx
Xxxx & Xxxxx LLP
000
Xxxxx
Xxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Telephone:
(000)
000-0000
Facsimile:
(000)
000-0000
Attention:
Xxxxxxx
X. Xxxxx, Esq.
or
to
such other address and/or facsimile number and/or to the attention of such
other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated
by
the sender's facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided
by an
overnight courier service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from an overnight courier service in accordance
with clause (i), (ii) or (iii) above, respectively.
(g) Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including any purchasers of the Notes
or the Warrants. The Company shall not assign this Agreement or any rights
or
obligations hereunder without the prior written consent of the holders of at
least a majority of the aggregate number of Registrable Securities issued and
issuable hereunder and under the Notes, including by way of a Fundamental
Transaction (unless the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Notes and the Warrants).
A
Buyer may assign some or all of its rights hereunder without the consent of
the
Company, in which event such assignee shall be deemed to be a Buyer hereunder
with respect to such assigned rights.
-34-
(h) No
Third Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person.
(i) Survival.
Unless
this Agreement is terminated under Section 8, the representations and warranties
of the Company and the Buyers contained in Sections 2 and 3 and the agreements
and covenants set forth in Sections 4, 5 and 9 shall survive the Closing and
the
delivery and exercise of Securities, as applicable. Each Buyer shall be
responsible only for its own representations, warranties, agreements and
covenants hereunder.
(j) Further
Assurances.
Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as any other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
(k) Indemnification.
In
consideration of each Buyer's execution and delivery of the Transaction
Documents and acquiring the Securities thereunder and in addition to all of
the
Company's other obligations under the Transaction Documents, the Company shall
defend, protect, indemnify and hold harmless each Buyer and each other holder
of
the Securities and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
Persons' agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees")
from
and against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified
Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to
(a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents
or
any other certificate, instrument or document contemplated hereby or thereby
or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought
on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status
of
such Buyer or holder of the Securities as an investor in the Company pursuant
to
the transactions contemplated by the Transaction Documents. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities that is permissible under applicable
law.
Except as otherwise set forth herein, the mechanics and procedures with respect
to the rights and obligations under this Section 9(k) shall be the same as
those
set forth in Section 6 of the Registration Rights Agreement.
-35-
(l) No
Strict Construction.
The
language used in this Agreement will be deemed to be the language chosen by
the
parties to express their mutual intent, and no rules of strict construction
will
be applied against any party.
(m) Remedies.
Each
Buyer and each holder of the Securities shall have all rights and remedies
set
forth in the Transaction Documents and all rights and remedies which such
holders have been granted at any time under any other agreement or contract
and
all of the rights which such holders have under any law. Any Person having
any
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. Furthermore, the Company recognizes
that in the event that it fails to perform, observe, or discharge any or all
of
its obligations under the Transaction Documents, any remedy at law may prove
to
be inadequate relief to the Buyers. The Company therefore agrees that the Buyers
shall be entitled to seek temporary and permanent injunctive relief in any
such
case without the necessity of proving actual damages and without posting a
bond
or other security.
(n) Rescission
and
Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without limiting
any
similar provisions of) the Transaction Documents, whenever any Buyer 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 Buyer 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.
(o) Payment
Set Aside.
To the
extent that the Company makes a payment or payments to the Buyers hereunder
or
pursuant to any of the other Transaction Documents or the Buyers enforce or
exercise their rights hereunder or 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, foreign, 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.
-36-
(p) Independent
Nature of Buyers' Obligations and Rights.
The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under
any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall
be
deemed to constitute the Buyers as, and the Company acknowledges that the Buyers
do not so constitute, a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group, and the Company will not assert any such claim
with respect to such obligations or the transactions contemplated by the
Transaction Documents and the Company acknowledges that the Buyers are not
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
and each Buyer confirms that it has independently participated in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Each Buyer shall be entitled to independently protect
and
enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other Transaction Documents, and it shall not
be
necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose.
[Signature
Page Follows]
-37-
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
COMPANY:
|
||
| DIGITALFX INTERNATIONAL, INC. | ||
| |
|
|
| By: | /s/ Xxxxx Xxxxxx | |
|
Name: Xxxxx Xxxxxx |
||
| Title: Chief Executive Officer | ||
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
BUYERS:
|
||
| PORTSIDE GROWTH AND OPPORTUNITY FUND | ||
| |
|
|
| By: | /s/ Xxxxxxx X. Xxxxx | |
|
Name: Xxxxxxx X. Xxxxx |
||
| Title: Authorized Signatory | ||
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
| HIGHBRIDGE INTERNATIONAL LLC | ||
| |
|
|
| By: | /s/ Xxxx X. Chill | |
|
Name: Xxxx X. Chill |
||
| Title: | ||
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
| IROQUOIS MASTER FUND, LTD. | ||
| |
|
|
| By: | /s/ Xxxxxxx Xxxx | |
|
Name: Xxxxxxx Xxxx |
||
| Title: Authorized Signator | ||
SCHEDULE
OF BUYERS
|
(1)
|
(2)
|
(3)
|
(4)
|
(5)
|
(6)
|
|
Buyer
|
Address
and
Facsimile
Number
|
Aggregate
Principal
Amount
of
Notes
|
Number
of
Warrant
Shares
|
Purchase
Price
|
Legal
Representative's Address and Facsimile Number
|
|
Portside
Growth & Opportunity Fund
|
c/o
Ramius Capital Group, L.L.C.
000
Xxxxx Xxxxxx, 00xx Xxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attention:
Xxxxxxx Xxxxx
Xxxx Xxxxxxx
Facsimile:
(000) 000-0000
(000) 000-0000
Telephone:
(000) 000-0000
(000) 000-0000
Residence: Cayman
Islands
|
$5,000,000
|
625,000
|
$5,000,000
|
Xxxxxxx
Xxxx & Xxxxx LLP
000
Xxxxx Xxxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attention:
Xxxxxxx Xxxxx, Esq.
Facsimile:
(000) 000-0000
Telephone:
(000) 000-0000
|
|
Highbridge
International LLC
|
c/o
Highbridge Capital Management, LLC
0
Xxxx 00xx Xx, 00xx Xxxxx
Xxx
Xxxx, XX 00000
Attn:
Xxx X. Xxxxxx / Xxxx X. Chill
Tel:
000-000-0000
Fax:
000-000-0000
Residence:
Cayman Islands
|
$1,500,000
|
187,500
|
$1,500,000
|
N/A
|
|
Iroquois
Master Fund, Ltd.
|
000
Xxxxxxxxx Xxxxxx
00xx
Xxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attention:
Xxxxxx Xxxxxxxxx
Facsimile: (000)
000-0000
Telephone:
(000) 000-0000
Residence: Cayman
Islands
|
$500,000
|
62,500
|
$500,000
|
N/A
|
|
TOTAL
|
|
$7,000,000
|
875,000
|
$7,000,000
|
|
EXHIBITS
|
Exhibit
A
|
Form
of Notes
|
|
Exhibit
B
|
Form
of Warrants
|
|
Exhibit
C
|
Registration
Rights Agreement
|
|
Exhibit
D
|
Irrevocable
Transfer Agent Instructions
|
|
Exhibit
E
|
Form
of Outside Company Counsel Opinion
|
|
Exhibit
F
|
Form
of Secretary's Certificate
|
|
Exhibit
G
|
Form
of Officer's Certificate
|
|
Exhibit
H
|
Form
of Pledge Agreement
|
|
Exhibit
I
|
Form
of Security Agreement
|
|
Exhibit
J
|
Form
of Guarantee
|
|
Exhibit
K
|
Form
of Escrow Agreement between the Company, Maxim Group LLC and American
Stock Transfer & Trust Company
|
|
Exhibit
L
|
Form
of Lock-Up Agreement
|
SCHEDULES
|
Schedule
3(a)
|
Subsidiaries
|
|
Schedule
3(l)
|
Absence
of Certain Changes
|
|
Schedule
3(q)
|
Transactions
with Affiliates
|
|
Schedule
3(r)
|
Capitalization
|
|
Schedule
3(s)
|
Indebtedness
and Other Contracts
|
|
Schedule
3(t)
|
Litigation
|
|
Schedule
3(cc)
|
Ranking
of Notes
|
