SECURITIES PURCHASE AGREEMENT
Exhibit
4.7
SECURITIES
PURCHASE AGREEMENT (this "AGREEMENT"), dated as of July 14, 2006, by and
among
OMNI U.S.A., INC., a Nevada corporation, "COMPANY"), and the Potawatomi Business
Development Corp., (the "BUYER").
WHEREAS:
A.
The
Company and the Buyer are executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Rule 506 under
Regulation D ("REGULATION D") as promulgated by the United States Securities
and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 ACT");
B.
Buyer
desires to purchase and the Company desires to issue and sell, upon the terms
and conditions set forth in this Agreement (i) convertible debentures of
the
Company, in the form attached hereto as EXHIBIT "A", in the aggregate principal
amount (the "ORIGINAL PRINCIPAL AMOUNT") of One Million Dollars ($1,000,000.00)
(together with any debenture(s) issued in replacement thereof or as a dividend
thereon or otherwise with respect thereto in accordance with the terms thereof,
the "DEBENTURES"), convertible into shares of common stock, $0.004995 par
value
per share, of the Company (the "COMMON STOCK"), upon the terms and subject
to
the limitations and conditions set forth in such Debentures and (ii) warrants
(the WARRANTS"), in the form attached hereto as EXHIBIT "B", to purchase
2,000,000 shares (the "WARRANT AMOUNT") of Common Stock ; and
C.
Contemporaneous with the execution and delivery of this Agreement, the parties
hereto are executing and delivering a Registration Rights Agreement, in the
form
attached hereto as EXHIBIT "C" (the "REGISTRATION RIGHTS AGREEMENT"), pursuant
to which the Company has agreed to provide certain registration rights under
the
1933 Act and the rules and regulations promulgated thereunder, and applicable
state securities laws.
NOW
THEREFORE, the Company and the Buyer hereby agree as follows:
1.
PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
(A)
PURCHASE OF DEBENTURES AND WARRANTS. On the Closing Date (as defined below),
the
Company shall issue and sell to Buyer and Buyer agrees to purchase from the
Company $1,000,000.00 in principal amount (the "Original Principal Amount")
of
Debentures and an accompanying number of Warrants, in the form of EXHIBIT
"B"
attached, to purchase a number of shares equal to the Warrant
Amount.
(B)
FORM
OF PAYMENT. The Buyer agrees to wire funds for the Purchase Price on the
date
hereof.
(C)
CLOSING DATE. Subject to the satisfaction (or waiver) of the conditions thereto
set forth in Section 6 and Section 7 below, the date and time of the issuance
and sale of the Debentures and the Warrants pursuant to this Agreement (the
"CLOSING DATE") shall be 4:00 PM Eastern Standard Time on July 14, 2006 or
such
other mutually agreed upon time. The closing of the transactions contemplated
by
this Agreement (the "CLOSING") shall occur on the Closing Date at the offices
of
the Buyer, or at such other location as may be agreed to by the
parties.
2.
BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer represents and warrants to
the
Company solely as to such Buyer that:
(A)
INVESTMENT PURPOSE. As of the date hereof, the Buyer is purchasing the
Debentures and the shares of Common Stock issuable upon conversion of or
otherwise pursuant to the Debentures (such shares of Common Stock being
collectively referred to herein as the "CONVERSION SHARES") and the Warrants
and
the shares of Common Stock issuable upon exercise thereof (the "WARRANT SHARES"
and, collectively with the Debentures, Warrants and Conversion Shares, the
"SECURITIES") for its own account and not with a present view towards the
public
sale or distribution thereof, except pursuant to sales registered or exempted
from registration under the 1933 Act; PROVIDED, HOWEVER, that by making the
representations herein, the Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose
of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act and applicable state securities
laws.
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(B)
ACCREDITED INVESTOR STATUS. The Buyer is an "accredited investor" as that
term
is defined in Rule 501(a) of Regulation D (an ACCREDITED INVESTOR").
(C)
RELIANCE ON EXEMPTIONS. The Buyer understands that the Securities are being
offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws
and
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire
the
Securities.
(D)
INFORMATION. The 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 which have been
requested by the Buyer or its advisors. The 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 investigation conducted by Buyer or
any of
its advisors or representatives shall modify, amend or affect Buyer's right
to
rely on the Company's representations and warranties contained in Section
3
below. The Buyer understands that its investment in the Securities involves
a
significant degree of risk.
(E)
GOVERNMENTAL REVIEW. The Buyer understands that no United States federal
or
state agency or any other government or governmental agency has passed upon
or
made any recommendation or endorsement of the Securities.
(F)
TRANSFER OR RE-SALE. The Buyer understands that (i) except as provided in
the
Registration Rights Agreement, the sale or re-sale of the Securities has
not
been and is not being registered under the 1933 Act or any applicable state
securities laws, and the Securities may not be transferred or resold unless
(a)
the Securities are sold pursuant to an effective registration statement under
the 1933 Act, (b) the Buyer shall have delivered to the Company an opinion
of
counsel (which opinion shall be in form, substance and scope reasonably
satisfactory to counsel to the Company) to the effect that the Securities
to be
sold or transferred may be sold or transferred pursuant to an exemption from
such registration, (c) the Securities are sold or transferred to an "affiliate"
(as defined in Rule 144 promulgated under the 1933 Act (or a successor rule)
("RULE 144") of the Buyer who agrees to sell or otherwise transfer the
Securities only in accordance with this Section 2(f) and who is an Accredited
Investor, or (d) the Securities are sold pursuant to Rule 144; and (ii) any
sale
of such Securities made in reliance on Rule 144 may be made only in accordance
with the terms of said Rule and further, if said Rule is not applicable,
any
re-sale of such Securities under circumstances in which the seller (or the
person through whom the sale is made) may be deemed to be an underwriter
(as
that term is defined in the 0000 Xxx) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder.
Notwithstanding the foregoing or anything else contained herein to the contrary,
the Securities may be pledged as collateral in connection with a BONA FIDE
margin account or other lending arrangement.
(G)
LEGENDS. The Buyer understands that the Debentures and the Warrants and,
until
such time as the Conversion Shares and Warrant Shares have been registered
under
the 1933 Act as contemplated by the Registration Rights Agreement or otherwise
may be sold pursuant to Rule 144 without any restriction as to the number
of
securities as of a particular date that can then be immediately sold, the
Conversion Shares and Warrant Shares, may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities):
2
"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 sold, transferred
or assigned in the absence of an effective registration statement
for the securities under said Act, or an opinion of counsel,
in form, substance and scope reasonably satisfactory to counsel
to the Company, that registration is not required under said Act
or
unless sold pursuant to Rule 144 under said Act."
Upon
the
request of any holder and the surrender of certificates, the legend set
forth
above shall be removed and the Company shall issue a certificate without
such
legend to the holder of any Security upon which it is stamped, if (a) such
Security
is registered for sale under an effective registration statement filed
under
the
1933 Act or otherwise may be sold pursuant to Rule 144 without any restriction
as to the number of securities as of a particular date that can then
be
immediately sold, or (b) such holder provides the Company with an opinion
of
counsel,
in form, substance and scope reasonably satisfactory to counsel to the
Company,
to the effect that a public sale or transfer of such Security may be
made
without registration under the 1933 Act and such sale or transfer is
effected
or (c) such holder provides the Company with reasonable assurances that
such
Security can be sold pursuant to Rule 144. The Buyer agrees to sell all
Securities,
including those represented by a certificate(s) from which the legend
has been removed, in compliance with applicable prospectus delivery requirements,
if any.
(H)
[INTENTIONALLY LEFT BLANK]
(I)
RESIDENCY. The Buyer is a resident of the state of Wisconsin.
(J)
KNOWLEDGE AND EXPERIENCE. Buyer has such knowledge and experience
in financial and business matters that it is capable of evaluating the
merits and risks of the investment in the Securities.
3.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to Buyer that, except as set forth on the Company's disclosure
schedules or any update thereto prior to the Closing Date:
(A)
ORGANIZATION AND QUALIFICATION. The Company and each of its Subsidiaries
(as
defined below), if any, is a corporation duly organized, validly existing
and in
good standing under the laws of the jurisdiction in which it is incorporated,
with full power and authority (corporate and other) to own, lease, use and
operate its properties and to carry on its business as and where now owned,
leased, used, operated and conducted. SCHEDULE 3(A) sets forth a list of
all of
the Subsidiaries of the Company and the jurisdiction in which each is
incorporated. The Company and each of its Subsidiaries is duly qualified
as a
foreign corporation to do business and is in good standing in every jurisdiction
in which its ownership or use of property or the nature of the business
conducted by it makes such qualification necessary except where the failure
to
be so qualified or in good standing would not have a Material Adverse Effect.
"MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the
Securities, (ii) the business, operations, assets, financial condition or
prospects of the Company and its Subsidiaries, if any, taken as a whole,
(iii)
on the transactions contemplated hereby or by the agreements or instruments
to
be entered into in connection herewith or (iv) the authority or the ability
of
the Company to perform its obligation under this Agreement, the Registration
Rights Agreement, the Debentures or the Warrants. "SUBSIDIARIES" means any
corporation or other organization, whether incorporated or unincorporated,
in
which the Company owns, directly or indirectly, any equity or other ownership
interest.
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(B)
AUTHORIZATION; ENFORCEMENT. (i) The Company has all requisite corporate power
and authority to enter into and perform this Agreement, the Registration
Rights
Agreement, the Debentures and the Warrants and to consummate the transactions
contemplated hereby and thereby and to issue the Securities, in accordance
with
the terms hereof and thereof, (ii) except as otherwise set forth in SCHEDULE
3(B), the execution and delivery of this Agreement, the Registration Rights
Agreement, the Debentures and the Warrants by the Company and the consummation
by it of the transactions contemplated hereby and thereby (including without
limitation, the issuance of the Debentures and the Warrants and the issuance
and
reservation for issuance of the Conversion Shares issuable upon conversion
of or
otherwise pursuant to the Debentures and the Warrant Shares issuable upon
exercise of or otherwise pursuant to the Warrants) have been duly authorized
by
the Company's Board of Directors and no further consent or authorization
of the
Company, its Board of Directors, or its stockholders is required, (iii) this
Agreement has been duly executed and delivered by the Company, and (iv) this
Agreement constitutes, and upon execution and delivery by the Company of
the
Registration Rights Agreement, the Debentures and the Warrants, each of such
agreements and instruments will constitute, a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with
its
terms.
(C)
CAPITALIZATION. As of the date hereof, the authorized capital stock of the
Company is as set forth on SCHEDULE 3(C). All of such outstanding shares
of
capital stock set forth in SCHEDULE 3(C) are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable.
No
shares
of capital stock of the Company are subject to preemptive rights or any other
similar rights of the stockholders of the Company or any liens or encumbrances
imposed through the actions or failure to act of the Company. Except as
disclosed in SCHEDULE 3(C), as of the effective date of this Agreement, (i)
there are no outstanding options, warrants, scrip, rights to subscribe for,
puts, calls, rights of first refusal, agreements, understandings, claims
or
other commitments or rights of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for any shares of capital
stock of the Company or any of its Subsidiaries, or arrangements by which
the
Company or any of its Subsidiaries is or may become bound to issue additional
shares of capital stock of the Company or any of its Subsidiaries, (ii) there
are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of its or their securities
under the 1933 Act (except the Registration Rights Agreement) and (iii) there
are no anti-dilution or price adjustment provisions contained in any security
issued by the Company (or in any agreement providing rights to security holders)
that will be triggered by the issuance of the Debentures, the Warrants, the
Conversion Shares or Warrant Shares. The Company has furnished to the Buyer
true
and correct copies of the Company's Certificate of Incorporation as in effect
on
the date hereof ("CERTIFICATE OF INCORPORATION"), the Company's By-laws,
as in
effect on the date hereof (the "BY-LAWS"), and the terms of all securities
convertible into or exercisable for Common Stock of the Company and the material
rights of the holders thereof in respect thereto. In the event that the date
of
execution of this Agreement is not the Closing Date, the Company shall provide
the Buyer with a written update of this representation signed by the Company's
President and Chief Executive or Chief Financial Officer on behalf of the
Company as of the Closing Date.
(D)
ISSUANCE OF SHARES. Upon issuance upon conversion of the Debentures and upon
exercise of the Warrants in accordance with their respective terms, the
Conversion Shares and Warrant Shares will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and encumbrances and
shall not be subject to preemptive rights or other similar rights of
stockholders of the Company and will not impose personal liability upon the
holder thereof.
4
(E)
ACKNOWLEDGMENT OF DILUTION. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock upon the issuance of the
Conversion Shares upon conversion of or otherwise pursuant to the Debentures
or
upon issuance of the Warrant Shares upon exercise of or otherwise pursuant
to
the Warrants. The Company's directors and executive officers have studied
and
fully understand the nature of the Securities being sold hereunder. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of or otherwise pursuant to the Debentures and to issue Warrant
Shares upon exercise of or otherwise pursuant to the Warrants in accordance
with
this Agreement, the Debentures and the Warrants is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company. Taking the foregoing into
account, the Company's Board of Directors has determined, in its good faith
business judgment, that the issuance of the Securities hereunder and under
the
Debentures and the Warrants and the consummation of the transactions
contemplated hereby and thereby are in the best interest of the Company and
its
stockholders.
(F)
NO
CONFLICTS. The execution, delivery and performance of this Agreement, the
Registration Rights Agreement, the Debentures and the Warrants by the Company
and the consummation by the Company of the transactions contemplated hereby
and
thereby (including, without limitation, the issuance and reservation for
issuance of the Conversion Shares and Warrant Shares) will not (i) except
as
otherwise set forth in SCHEDULE 3(F), conflict with or result in a violation
of
any provision of the Certificate of Incorporation or By-laws or (ii) violate
or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both would become
a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture, patent, patent
license or instrument to which the Company or any of its Subsidiaries is
a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and regulations of any self-regulatory organizations to which the Company
or its
securities are subject) applicable to the Company or any of its Subsidiaries
or
by which any property or asset of the Company or any of its Subsidiaries
is
bound or affected (except, in the case of clauses (i), (ii) and (iii) above,
for
such conflicts, defaults, terminations, amendments, accelerations, cancellations
and violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Neither the Company nor any of its Subsidiaries is in violation
of its Certificate of Incorporation, By-laws or other organizational documents
and neither the Company nor any of its Subsidiaries is in default (and no
event
has occurred which with notice or lapse of time or both could put the Company
or
any of its Subsidiaries in default) under, and neither the Company nor any
of
its Subsidiaries has taken any action or failed to take any action that would
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company
or
any of its Subsidiaries is a party or by which any property or assets of
the
Company or any of its Subsidiaries is bound or affected, except for possible
defaults as would not, individually or in the aggregate, have a Material
Adverse
Effect. The businesses of the Company and its Subsidiaries, if any, are not
being conducted, and shall not be conducted so long as a Buyer owns any of
the
Securities, in violation of any law, ordinance or regulation of any governmental
entity the violation of which would have a Material Adverse Effect. Except
as
disclosed in SCHEDULE 3(F) and as specifically contemplated by this Agreement
and as required under the 1933 Act and any applicable state securities laws,
the
Company is not required to obtain any consent, authorization or order of,
or
make any filing or registration with, any court, governmental agency, regulatory
agency, self regulatory organization or stock market or any third party in
order
for it to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement, the Debentures or the Warrants
in
accordance with the terms hereof or thereof or to issue and sell the Debentures
and Warrants in accordance with the terms hereof and to issue the Conversion
Shares upon conversion of or otherwise pursuant to the Debentures and the
Warrant Shares upon exercise of or otherwise pursuant to the Warrants. Except
as
disclosed in SCHEDULE 3(F), all consents, authorizations, orders, filings
and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company is not in violation of the listing requirements of the OTC-BB and
does
not reasonably anticipate that the Common Stock will be delisted by the OTC-BB
in the foreseeable future. The Company and its Subsidiaries are unaware of
any
facts or circumstances which might give rise to any of the
foregoing.
5
(G)
SEC
DOCUMENTS; FINANCIAL STATEMENTS. Since at least January 1, 2006, the Company
has
timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 ACT") (all
of the
foregoing filed prior to the date hereof and since at least January 1, 2006
and
all exhibits included therein and financial statements and schedules thereto
and
documents (other than exhibits to such documents) incorporated by reference
therein, being hereinafter referred to herein as the "SEC DOCUMENTS"). The
Company has delivered to Buyer true and complete copies of the SEC Documents,
except for such exhibits and incorporated documents. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the 1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time
they
were filed with the SEC, contained any untrue statement of a material fact
or
omitted to state a material fact required to be stated therein or necessary
in
order to make the statements therein, in light of the circumstances under
which
they were made, not misleading. None of the statements made in any such SEC
Documents is, or has been, required to be amended or updated under applicable
law (except for such statements as have been amended or updated in subsequent
filings prior to the date hereof). As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form
in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles, consistently applied, during the periods involved
(except
(i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent
they
may not include footnotes or may be condensed or summary statements) and
fairly
present in all material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the financial statements of the Company
included in the SEC Documents, the Company has no liabilities, contingent
or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to December 31, 2005 and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not material to
the
financial condition or operating results of the Company.
(H)
ABSENCE OF CERTAIN CHANGES. Except for losses incurred in the ordinary course
of
business that have been publicly disclosed prior to the date hereof or as
set
forth on SCHEDULE 3(H) hereof, since January 1, 2006, there has been no material
adverse change and no material adverse development in the assets, liabilities,
business, properties, operations, financial condition, results of operations
or
prospects of the Company or any of its Subsidiaries. For purposes of this
Section 3(h), the terms "material adverse change" and "material adverse
development" shall exclude continuing losses that are consistent with the
Company's historical losses.
(I)
ABSENCE OF LITIGATION. Except as disclosed in SCHEDULE 3(I)(A), to the knowledge
of the Company or any of its subsidiaries, there is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or directors
in their capacity as such, that would have a Material Adverse Effect. SCHEDULE
3(I)(B) contains a complete list and summary description of any known, pending,
or threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it, if adversely decided, would have
a
Material Adverse Effect. The Company and its Subsidiaries are unaware of
any
facts or circumstances which might give rise to any of the
foregoing.
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(J)
PATENTS, COPYRIGHTS, ETC. All of the Company's material patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and copyrights
("INTELLECTUAL PROPERTY") are set forth in Schedule A to the Debenture. The
Company and each of its Subsidiaries owns or possesses the requisite licenses
or
rights to use all Intellectual Property necessary to enable it to conduct
its
business as now operated, including but not limited to the intellectual property
set forth in Schedule A to the Debenture (and, except as otherwise set forth
in
SCHEDULE 3(J) hereof, to the best of the Company's knowledge, as presently
contemplated to be operated in the future), except for such licenses or rights
the failure of which to own or possess would not, individually or in the
aggregate, have a Material Adverse Effect; there is no claim or action by
any
person pertaining to, or proceeding pending, or to the Company's knowledge
threatened, which challenges the right of the Company or of a Subsidiary
with
respect to any Intellectual Property necessary to enable it to conduct its
business as now operated (and, except as otherwise set forth in SCHEDULE
3(J)
hereof, to the best of the Company's knowledge, as presently contemplated
to be
operated in the future), except for actions or claims which, if adversely
decided, would not have a Material Adverse Effect; to the best of the Company's
knowledge, the Company's or its Subsidiaries' current and intended products,
services and processes do not infringe on any Intellectual Property or other
rights held by any person, and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company
and
each of its Subsidiaries have taken reasonable security measures to protect
the
secrecy, confidentiality and value of their Intellectual Property. The Company
has no liens on its Intellectual Property.
(K)
NO
MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company nor any of its
Subsidiaries is subject to any charter, corporate or other legal restriction,
or
any judgment, decree, order, rule or regulation which in the judgment of
the
Company's officers has or is reasonably likely in the future to have a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries is a party
to
any contract or agreement which in the judgment of the Company's officers
has or
is reasonably likely to have a Material Adverse Effect.
(L)
TAX
STATUS. Except as set forth on SCHEDULE 3(L), the Company and each of its
Subsidiaries has made or filed all federal, state and foreign income and
all
other tax returns, reports and declarations required by any jurisdiction
to
which it is subject (unless and only to the extent that the Company and each
of
its Subsidiaries has set aside on its books provisions reasonably adequate
for
the payment of all unpaid and unreported taxes) and has paid all taxes and
other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to
the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority
of
any jurisdiction, and the officers of the Company know of no basis for any
such
claim. The Company has not executed a waiver with respect to the statute
of
limitations relating to the assessment or collection of any foreign, federal,
state or local tax. Except as set forth on SCHEDULE 3(L), none of the Company's
tax returns are presently being audited by any taxing authority.
(M)
CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 3(M) and except for
arm's
length transactions pursuant to which the Company or any of its Subsidiaries
makes payments in the ordinary course of business upon terms no less favorable
than the Company or any of its Subsidiaries could obtain from third parties
and
other than the grant of stock options disclosed on SCHEDULE 3(C), none of
the
officers, directors, or employees of the Company is presently a party to
any
transaction with the Company or any of its Subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement
or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which
any
officer, director, or any such employee has a substantial interest or is
an
officer, director, trustee or partner.
(N)
DISCLOSURE. All information relating to or concerning the Company or any
of its
Subsidiaries set forth in this Agreement and provided to the Buyer pursuant
to
Section 2(d) hereof and otherwise in connection with the transactions
contemplated hereby is true and correct in all material respects and the
Company
has not omitted to state any material fact necessary in order to make the
statements made herein or therein, in light of the circumstances under which
they were made, not misleading. No event or circumstance has occurred or
exists
with respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which has not
been
publicly announced or disclosed but under applicable law, rule or regulation,
requires public disclosure or announcement by the Company (assuming for this
purpose that the Company's reports filed under the 1934 Act are being
incorporated into an effective registration statement filed by the Company
under
the 1933 Act).
7
(O)
ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF SECURITIES. The Company
acknowledges and agrees that the Buyer is acting solely in the capacity of
arm's
length purchaser with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that Buyer is not acting
as a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated hereby and
that
any statement made by Buyer or any of its respective representatives or agents
in connection with this Agreement and the transactions contemplated hereby
is
not advice or a recommendation and is merely incidental to the Buyer's purchase
of the Securities and has not been relied upon by the Company, its officers
or
directors in any way. The Company further represents to Buyer that the Company's
decision to enter into this Agreement has been based solely on the independent
evaluation of the Company and its representatives.
(P)
NO
INTEGRATED OFFERING. Neither the Company, nor any of its affiliates, nor
any
person acting on its or their behalf, has directly or indirectly made any
offers
or sales of any security or solicited any offers to buy any security under
circumstances that would require registration under the 1933 Act of the issuance
of the Securities to the Buyer. The issuance of the Securities to the Buyer
will
not be integrated with any other issuance of the Company's securities (past,
current or future) for purposes of any stockholder approval provisions
applicable to the Company or its securities.
(Q)
NO
BROKERS. The Company has taken no action which would give rise to any claim
by
any person for brokerage commissions, finder's fees or similar payments relating
to this Agreement or the transactions contemplated hereby.
(R)
PERMITS; COMPLIANCE. The Company and each of its Subsidiaries is in possession
of all franchises, grants, authorizations, licenses, permits, easements,
variances, exemptions, consents, certificates, approvals and orders necessary
to
own, lease and operate its properties and to carry on its business as it
is now
being conducted (collectively, the "COMPANY PERMITS"), except where the failure
to so possess any such Company Permits would not have a Material adverse
Effect,
and there is no action pending or, to the knowledge of the Company, threatened
regarding suspension or cancellation of any of the Company Permits. To the
best
of the Company's knowledge, neither the Company nor any of its Subsidiaries
is
in conflict with, or in default or violation of, any of the Company Permits,
except for any such conflicts, defaults or violations which, individually
or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect. Since December 31, 2005, neither the Company nor any of its Subsidiaries
has received any notification with respect to possible conflicts, defaults
or
violations of applicable laws, except for notices relating to possible
conflicts, defaults or violations, which conflicts, defaults or violations
would
not have a Material Adverse Effect.
(S)
ENVIRONMENTAL MATTERS.
(i)
Except as set forth in SCHEDULE 3(S), there are, to the Company's knowledge,
with respect to the Company or any of its Subsidiaries or any predecessor
of the
Company, no past or present violations of Environmental Laws (as defined
below),
releases of any material into the environment, actions, activities,
circumstances, conditions, events, incidents, or contractual obligations
which
may give rise to any common law environmental liability or any liability
under
the Comprehensive Environmental Response, Compensation and Liability Act
of 1980
or similar federal, state, local or foreign laws and neither the Company
nor any
of its Subsidiaries has received any notice with respect to any of the
foregoing, nor is any action pending or, to the Company's knowledge, threatened
in connection with any of the foregoing. The term "ENVIRONMENTAL LAWS" means
all
federal, state, local or foreign laws relating to pollution or protection
of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants contaminants, or toxic or hazardous
substances or wastes (collectively, "HAZARDOUS MATERIALS") into the environment,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials,
as
well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved
thereunder.
8
(ii)
Other than those that are or were stored, used or disposed of in compliance
with
applicable law, no Hazardous Materials are contained on or about any real
property currently owned, leased or used by the Company or any of its
Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by
the
Company or any of its Subsidiaries, except in the normal course of the Company's
or any of its Subsidiaries' business.
(iii)
Except as set forth in SCHEDULE 3(S), there are no underground storage tanks
on
or under any real property owned, leased or used by the Company or any of
its
Subsidiaries that are not in compliance with applicable law.
(T)
TITLE
TO PROPERTY. The Company and its Subsidiaries have good and marketable title
in
fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and
its
Subsidiaries, in each case free and clear of all liens, encumbrances and
defects
except such as are described in SCHEDULE 3(T) or such as would not have a
Material Adverse Effect. Any real property and facilities held under lease
by
the Company and its Subsidiaries are held by them under valid, subsisting
and
enforceable leases with such exceptions as would not have a Material Adverse
Effect.
(U)
INSURANCE. The Company and each of its Subsidiaries are insured by insurers
of
recognized financial responsibility against such losses and risks and in
such
amounts as management of the Company believes to be prudent and customary
in the
businesses in which the Company and its Subsidiaries are engaged. Neither
the
Company nor any such Subsidiary has any reason to believe that it will not
be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse
Effect.
(V)
INTERNAL ACCOUNTING CONTROLS. The Company and each of its Subsidiaries maintain
a system of internal accounting controls sufficient, in the judgment of the
Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access
to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared
with
the existing assets at reasonable intervals and appropriate action is taken
with
respect to any differences.
(W)
FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its Subsidiaries,
nor
any director, officer, agent, employee or other person acting on behalf of
the
Company or any Subsidiary has, in the course of his actions for, or on behalf
of, the Company, used any corporate funds for any unlawful contribution,
gift,
entertainment or other unlawful expenses relating to political activity;
made
any direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated or is in violation of
any
provision of the U.S. Foreign Corrupt Practices Act of 1977; or made any
bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to
any
foreign or domestic government official or employee.
9
(X)
SOLVENCY. The Company (both before and after giving effect to the transactions
contemplated by this Agreement) is solvent (I.E., its assets have a fair
market
value in excess of the amount required to pay its probable liabilities on
its
existing debts as they become absolute and matured) and currently the Company
has no information that would lead it to reasonably conclude that the Company
would not have the ability to, nor does it intend to take any action that
would
impair its ability to, pay its debts from time to time incurred in connection
therewith as such debts mature. Except as disclosed in SCHEDULE 3(X), the
Company did not receive a qualified opinion from its auditors with respect
to
its most recent fiscal year end and does not anticipate or know of any basis
upon which its auditors might issue a qualified opinion in respect of its
current fiscal year.
(Y)
NO
INVESTMENT COMPANY. The Company is not, and upon the issuance and sale of
the
Securities as contemplated by this Agreement will not be an "investment company"
required to be registered under the Investment Company Act of 1940 (an
"INVESTMENT COMPANY"). The Company is not controlled by an Investment
Company.
4.
COVENANTS.
(A)
BEST
EFFORTS. The parties shall use their best efforts to satisfy timely each
of the
conditions described in Section 6 and 7 of this Agreement.
(B)
FORM
D; BLUE SKY LAWS. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to
Buyer
promptly after such filing. The Company shall, on or before the Closing Date,
take such action as the Company shall reasonably determine is necessary to
qualify the Securities for sale to the Buyer 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 Buyer on or prior to the
Closing
Date.
(C)
REPORTING STATUS; ELIGIBILITY TO USE FORM SB-2. The Company's Common Stock
is
registered under Section 12(g) of the 1934 Act. So long as any Buyer
beneficially owns any of the Securities, the Company shall timely file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination. The Company currently meets, and will take
all
necessary action to continue to meet, the "registrant eligibility" requirements
set forth in the general instructions to Form SB-2 for registration of the
resale of the securities purchased hereunder.
(D)
USE
OF PROCEEDS. The Company shall use the proceeds from the sale of the Debentures
and the Warrants in the manner set forth in SCHEDULE 4(D) attached hereto
and
made a part hereof and shall not use such proceeds in a manner inconsistent
with
the provisions of Article II of the Debentures.
(E)
[INTENTIONALLY LEFT BLANK].
(F)
[INTENTIONALLY LEFT BLANK].
(G)
FINANCIAL INFORMATION. The Company agrees to send the following reports to
Buyer
until Buyer transfers, assigns, or sells all of the Securities: (i) within
ten
(10) days after the filing with the SEC, a copy of its Annual Report on Form
10-K, its Quarterly Reports on Form 10-Q and any Current Reports on Form
8-K;
(ii) within one (1) day after release, copies of all press releases issued
by
the Company or any of its Subsidiaries; and (iii) contemporaneously with
the
making available or giving to the stockholders of the Company, copies of
any
notices or other information the Company makes available or gives to such
stockholders.
10
(H)
RESERVATION OF SHARES. The Company covenants that it will initially reserve
(the
"INITIAL SHARE RESERVATION") from its authorized and unissued Common Stock
a
number of shares of Common Stock equal to at least one hundred (100%) of
the
Original Principal Amount of the Debenture, divided by the Conversion Price
in
effect on the date of the Initial Share Reservation, free from preemptive
rights, to provide for the issuance of Common Stock upon the conversion of
the
Debenture and shall initially reserve an additional number of shares equal
to
the Warrant Amount, free from preemptive rights, to provide for the issuance
of
Common Stock upon the exercise of the Warrants. The Company further covenants
that, beginning on the date of the Initial Share Reservation (the "CONVERSION
BEGINNING DATE"), and continuing throughout the period the conversion right
exists, the Company shall at all times have authorized, and reserved (the
"ONGOING SHARE RESERVATION REQUIREMENT") for the purpose of issuance, a
sufficient number of shares of Common Stock to provide for the full conversion
or exercise of the outstanding Debentures and Warrants and issuance of the
Conversion Shares and Warrant Shares in connection therewith (based on the
Conversion Price (as defined in the Debentures) in effect from time to time
and
the Exercise Price of the Warrants in effect from time to time). The Company
shall not reduce the number of shares of Common Stock reserved for issuance
upon
conversion of or otherwise pursuant to the Debentures and exercise of or
otherwise pursuant to the Warrants without the consent of Buyer. The Company
shall use its best efforts at all times to maintain the number of shares
of
Common Stock so reserved for issuance at no less than one hundred percent
(100%)
the number that is then actually issuable upon full conversion of the Debentures
(based on the Conversion Price (as defined in the Debentures) in effect from
time to time) and full exercise of the Warrants (based on the Exercise Price
of
the Warrants in effect from time to time). If at any time the number of shares
of Common Stock authorized and reserved for issuance is below the number
of
Conversion Shares issued and issuable upon conversion of or otherwise pursuant
to the Debentures (based on the Conversion Price (as defined in the Debentures)
in effect from time to time) and Warrant Shares issued or issuable upon exercise
of or otherwise pursuant to the Warrants (based on the Exercise Price of
the
Warrants in effect from time to time), the Company will promptly take all
corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of stockholders
to authorize additional shares to meet the Company's obligations under this
Section 4(h), in the case of an insufficient number of authorized shares,
and
using its best efforts to obtain stockholder approval of an increase in such
authorized number of shares.
(I)
LISTING. The Company shall use its best efforts to promptly secure the listing
of the Conversion Shares and Warrant Shares upon each national securities
exchange or automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and, so long
as
any Buyer owns any of the Securities, shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all Conversion
Shares
from time to time issuable upon conversion of or otherwise pursuant to the
Debentures and all Warrant Shares from time to time issuable upon exercise
of or
otherwise pursuant to the Warrants. The Company will use its best efforts
to
obtain and, so long as any Buyer owns any of the Securities, maintain the
listing and trading of its Common Stock on the OTC-BB, the Nasdaq National
Market (the "NNM"), the Nasdaq SmallCap Market (the "NASDAQ SMALLCAP"), the
New
York Stock Exchange ("NYSE"), or the American Stock Exchange ("AMEX") and
will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers ("NASD") and such exchanges, as applicable. The Company shall promptly
provide to Buyer copies of any notices it receives from the OTC-BB and any
other
exchanges or quotation systems on which the Common Stock is then listed
regarding the continued eligibility of the Common Stock for listing on such
exchanges and quotation systems.
(J)
CORPORATE EXISTENCE. So long as a Buyer beneficially owns any Debentures
or
Warrants, the Company shall maintain its corporate existence and shall not
merge, consolidate or sell all or substantially all of the Company's assets,
except in the event of a merger or consolidation or sale of all or substantially
all of the Company's assets, where the (i) the successor or acquiring entity
and, if an entity different from the successor or acquiring entity, the entity
whose securities into which the Debentures shall become convertible pursuant
to
Section 1.5(b) of the Debentures, in such transaction assumes the Company's
obligations hereunder and under the agreements and instruments entered into
in
connection herewith (including the Debentures and the Warrants) and (ii)
the
entity whose securities into which the Debentures shall become convertible
pursuant to Section 1.5(b) of the Debentures is a publicly traded corporation
whose Common Stock is listed for trading on the NNM, NASDAQ SmallCap, NYSE
or
AMEX.
11
(K)
NO
INTEGRATION. The Company shall not make any offers or sales of any security
(other than the Securities) under circumstances that would require registration
of the Securities being offered or sold hereunder under the 1933 Act or cause
the offering of the Securities to be integrated with any other offering of
securities by the Company for the purpose of any stockholder approval provision
applicable to the Company or its securities.
(L)
IRREVOCBLE TRANSFER AGENT INSTRUCTIONS. Within ten (10) business days after
the
Closing Date, the Company agrees to deliver to Buyer the Irrevocable Transfer
Agent Instructions (as defined below), in form and substance satisfactory
to the
Buyer, which instructions shall be acknowledged in writing by the Company's
Transfer Agent.
5.
TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable instructions
to
its transfer agent to issue certificates, registered in the name of Buyer
or its
nominee, for the Conversion Shares and Warrant Shares in such amounts as
specified from time to time by Buyer to the Company upon conversion of the
Debentures or exercise of the Warrants in accordance with the terms thereof
(the
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to registration of the
Conversion Shares and Warrant Shares under the 1933 Act or the date on which
the
Conversion Shares and Warrant Shares may be sold pursuant to Rule 144 without
any restriction as to the number of securities as of a particular date that
can
then be immediately sold, all such certificates shall bear the restrictive
legend specified in Section 2(g) of this Agreement. The Company warrants
that no
instruction other than the Irrevocable Transfer Agent Instructions referred
to
in this Section 5, and stop transfer instructions to give effect to Section
2(f)
hereof (in the case of the Conversion Shares and Warrant Shares, prior to
registration of the Conversion Shares and Warrant Shares under the 1933 Act
or
the date on which the Conversion Shares and Warrant Shares may be sold pursuant
to Rule 144 without any restriction as to the number of securities as of
a
particular date that can then be immediately sold), will be given by the
Company
to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing
in
this Section shall affect in any way the Buyer's obligations and agreement
set
forth in Section 2(g) hereof to comply with all applicable prospectus delivery
requirements, if any, upon re-sale of the Securities. If a Buyer provides
the
Company with (i) an opinion of counsel in form, substance and scope customary
for opinions in comparable transactions, to the effect that a public sale
or
transfer of such Securities may be made without registration under the 1933
Act
and such sale or transfer is effected or (ii) the Buyer provides reasonable
assurances that the Securities can be sold pursuant to Rule 144, the Company
shall permit the transfer, and, in the case of the Conversion Shares and
Warrant
Shares, promptly instruct its transfer agent to issue one or more certificates,
free from any restrictive legend, in such name and in such denominations
as
specified by such Buyer.
6.
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company
hereunder to issue and sell the Debentures and Warrants to a Buyer at the
Closing is subject to the satisfaction, at or before the Closing Date, of
each
of the following conditions thereto, provided that these conditions are for
the
Company's sole benefit and may be waived by the Company at any time in its
sole
discretion:
(a)
The
Buyer shall have executed this Agreement and the Registration Rights Agreement,
and delivered the same to the Company.
(b)
The
Buyer shall have delivered the Purchase Price in accordance with Section
1(b)
above.
(c)
The
representations and warranties of the Buyer shall be true and correct in
all
material respects as of the date when made and as of the Closing Date as
though
made at that time (except for representations and warranties that speak as
of a
specific date, which representations and warranties shall be true and correct
as
of such date), and the Buyer shall have performed, satisfied and complied
in all
material respects with the covenants, agreements and conditions required
by this
Agreement to be performed, satisfied or complied with by the Buyer at or
prior
to the Closing Date.
12
(d)
No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or
in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
7.
CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE. The obligation of Buyer hereunder
to purchase the Debentures and Warrants at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for such Buyer's sole benefit
and
may be waived by such Buyer at any time in its sole discretion:
(a)
The
Company shall have executed this Agreement and the Registration Rights
Agreement, and delivered the same to the Buyer.
(b)
The
Company shall have delivered to such Buyer duly executed Debentures (in such
denominations as the Buyer shall request) and Warrants in accordance with
Section 1(b) above.
(c)
[Intentionally Left Blank].
(d)
The
representations and warranties of the Company contained in this Agreement,
as
modified by the Exhibits and Schedules hereto, shall be true and correct
in all
material respects as of the date when made and as of the Closing Date as
though
made at such time (except for representations and warranties that speak as
of a
specific date, which representations and warranties shall be true and correct
as
of such date) and the Company shall have performed, satisfied and complied
in
all material respects with the covenants, agreements and conditions required
by
this Agreement to be performed, satisfied or complied with by the Company
at or
prior to the Closing Date. The Buyer shall have received a certificate or
certificates, executed by the President and Chief Executive Officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to
such
other matters as may be reasonably requested by such Buyer including, but
not
limited to certificates with respect to the Company's Certificate of
Incorporation, By-laws and Board of Directors' resolutions relating to the
transactions contemplated hereby.
(e)
No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or
in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
(f)
Trading in the Common Stock on the OTC-BB shall not have been suspended by
the
SEC or the Nasdaq and, within two (2) business days of the Closing, the Company
will make application to the OTC-BB, if legally required by Nasdaq, to have
the
Conversion Shares and the Warrant Shares authorized for quotation.
(g)
The
Buyer shall have received an opinion of the Company's counsel, dated as of
the
Closing Date, in form, scope and substance reasonably satisfactory to the
Buyer
and in substantially the same form as EXHIBIT "D" attached hereto.
(h)
The
Buyer shall have received an officer's certificate described in Section 3(c)
above, dated as of the Closing Date.
13
8.
GOVERNING LAW; MISCELLANEOUS.
(A)
GOVERNING LAW; ARBITRATION. This Agreement shall be governed by and construed
in
accordance with the internal laws of the State of California. Any controversy
or
claim arising out of or related to this Debenture or the breach thereof,
shall
be settled by binding arbitration in San Diego, CA in accordance with the
Expedited Procedures (Rules 53-57) of the Commercial Arbitration Rules of
the
American Arbitration Association ("AAA"). A proceeding shall be commenced
upon
written demand by the Company or Buyer to the other. The arbitrator(s) shall
enter a judgment by default against any party, which fails or refuses to
appear
in any properly noticed arbitration proceeding. The proceeding shall be
conducted by one (1) arbitrator, unless the amount alleged to be in dispute
exceeds two hundred fifty thousand dollars ($250,000), in which case three
(3)
arbitrators shall preside. The arbitrator(s) will be chosen by the parties
from
a list provided by the AAA, and if the parties are unable to agree within
ten
(10) days, the AAA shall select the arbitrator(s). The arbitrators must be
experts in securities law and financial transactions. The arbitrators shall
assess costs and expenses of the arbitration, including all attorneys' and
experts' fees, as the arbitrators believe is appropriate in light of the
merits
of the parties' respective positions in the issues in dispute. Each party
submits irrevocably to the jurisdiction of any state court sitting in San
Diego,
CA or to the United States District Court sitting in San Diego, CA for purposes
of enforcement of any discovery order, judgment or award in connection with
such
arbitration. The award of the arbitrator(s) shall be final and binding upon
the
parties and may be enforced in any court having jurisdiction. The arbitration
shall be held in such place as set by the arbitrator(s) in accordance with
Rule
55. With respect to any arbitration proceeding in accordance with this section,
the prevailing party's reasonable attorney's fees and expenses shall be borne
by
the non-prevailing party.
Although
the parties, as expressed above, agree that all claims, including claims
that
are equitable in nature, for example specific performance, shall initially
be
prosecuted in the binding arbitration procedure outlined above, if the
arbitration panel dismisses or otherwise fails to entertain any or all of the
equitable claims asserted by reason of the fact that it lacks jurisdiction,
power and/or authority to consider such claims and/or direct the remedy
requested, then, in only that event, will the parties have the right to initiate
litigation respecting such equitable claims or remedies. The forum for such
equitable relief shall be in either a state or federal court sitting in San
Diego, CA. Each party waives any right to a trial by jury, assuming such
right
exists in an equitable proceeding, and irrevocably submits to the jurisdiction
of said San Diego, CA court. California law shall govern both the proceeding
as
well as the interpretation and construction of this Agreement and the
transaction as a whole.
(B)
COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may be executed in
one or
more 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. This Agreement, once executed by a party, may
be
delivered to the other party hereto by facsimile transmission of a copy of
this
Agreement bearing the signature of the party so delivering this
Agreement.
(C)
HEADINGS. The headings of this Agreement are for convenience of reference
and
shall not form part of, or affect the interpretation of, this
Agreement.
(D)
SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
not
affect the validity or enforceability of the remainder of this Agreement
or the
validity or enforceability of this Agreement in any other
jurisdiction.
(E)
ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth
herein
or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
(F)
NOTICES. Any notices required or permitted to be given under the terms of
this
Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular United States mail,
or upon
receipt, if delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:
14
If
to the
Company: To the address set forth immediately below such Company's
name on the signature pages hereto.
With
copy
to:
Xxxxx
Xxxxxxxx, Esq.
XXXX
& XXXXX PC
0000
Xxxxxxx Xxxx Xxxx, Xxxxx 0000
Xxx
Xxxxxxx, XX 00000-0000
Tel
(000)
000-0000
Fax
(000)
000-0000
If
to a
Buyer: To the address set forth immediately below such Buyer's name
on
the signature pages hereto.
Each
party shall provide notice to the other party of any change in
address.
(G)
SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to
the
benefit of the parties and their successors and assigns. Neither the Company
nor
any Buyer shall assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other. Notwithstanding the foregoing,
subject to Section 2(f), Buyer may assign its rights hereunder to any person
that purchases Securities in a private transaction from a Buyer or to any
of its
"affiliates," as that term is defined under the 1934 Act, without the consent
of
the Company; PROVIDED, HOWEVER, that prior to any assignment of its rights
hereunder to a person (other than an affiliate) that purchases any Debentures
or
Warrants from such Buyer in a private transaction such Buyer shall provide
the
Company with written notice of its intention to sell some or all of the
Debentures or Warrants, which notice shall disclose the proposed purchase
price
for such Debentures or Warrants, and the Company shall have the option, during
the ten (10) business day period following such notice, to purchase all,
but not
less than all, of such Debentures and/or Warrants at the proposed purchase
price, after which period the Buyer shall be free to sell the Debentures
and/or
Warrants to a third party at such proposed purchase price.
(H)
THIRD
PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not
for the
benefit of, nor may any provision hereof be enforced by, any other
person.
(I)
SURVIVAL. The covenants, agreements, representations and warranties of the
parties hereto contained in this Agreement shall survive the closing hereunder
for a period of two (2) years notwithstanding any due diligence investigation
conducted by or on behalf of the Buyer.
(J)
INDEMNIFICATION. The Company (the "INDEMNIFYING PARTY") agrees to indemnify
and
hold harmless the Buyer and all its officers, directors, employees, agents,
members and managers (the "INDEMNIFIED PARTY") for loss or damage arising
as a
result of or related to any breach or alleged breach by the Company of any
of
its representations, warranties and covenants set forth in Sections 3 and
4
hereof or any of its covenants and obligations under this Agreement or the
Registration Rights Agreement, including advancement of expenses as they
are
incurred with respect to claims by third parties.
15
Promptly
after receipt of notice of the commencement of any action against an Indemnified
Party, such Indemnified Party shall notify the Indemnifying Party in writing
of
the commencement thereof and the basis hereunder upon which a claim for
indemnification is asserted, but the failure to do so shall not relieve the
Indemnifying Party of its obligations hereunder except to the extent the
Indemnifying Party is materially prejudiced by such failure. In the event
of the
commencement of any such action, the Indemnifying Party shall be entitled
to
participate therein and to assume the defense thereof with counsel satisfactory
to the Indemnified Party, and, after notice from the Indemnifying Party to
the
Indemnified Party of its election so to assume the defense thereof, the
Indemnifying Party shall not be liable to the Indemnified Party hereunder
for
any legal expenses (including attorneys' fees) subsequently incurred by such
Indemnified Party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the Indemnified
Party and the Indemnifying Party and the Indemnified Party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the Indemnifying Party
or if
the interests of the Indemnified Party reasonably may be deemed to conflict
with
the interests of the Indemnifying Party, the Indemnified Party shall have
the
right to select one separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the reasonable
expenses and fees of such separate counsel and other expenses related to
such
participation to be reimbursed by the Indemnifying Party as
incurred.
As
to
cases in which the Indemnifying Party has assumed and is providing the defense
for the Indemnified Party, the control of such defense shall be vested in
the
Indemnifying Party; provided that the consent of the Indemnified Party shall
be
required prior to any settlement of such case or action, which consent shall
not
be unreasonably withheld. As to any action, the party which is controlling
such
action shall provide to the other party reasonable information (including
reasonable advance notice of all proceedings and depositions in respect thereto)
regarding the conduct of the action and the right to attend all proceedings
and
depositions in respect thereto through its agents and attorneys, and the
right
to discuss the action with counsel for the party controlling such
action.
(K)
PUBLICITY. The Company and the Buyer shall have the right to review for a
reasonable period of time before issuance of any press releases, filings
with
the SEC, NASD or any stock exchange or interdealer quotation system, 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 the Buyer, to make any press release or public filings with respect
to such transactions as is required by applicable law and regulations (although
the Buyer shall be consulted by the Company in connection with any such press
release prior to its release and shall be provided with a copy thereof and
be
given an opportunity to comment thereon).
(L)
FURTHER ASSURANCES. Each party shall do and perform, or cause to be done
and
performed, all such further acts and things, and shall execute and deliver
all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish
the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
(M)
NO
STRICT CONSTRUCTION. The language used in this Agreement will be deemed to
be
the language chosen by the parties to express their mutual intent, and no
rules
of strict construction will be applied against any party.
(N)
REMEDIES. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to Buyer, by vitiating the intent and
purpose of the transactions contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under
this
Agreement will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement, that Buyer shall
be
entitled, in addition to all other available remedies in law or in equity,
to an
injunction or injunctions to prevent or cure any breaches of the provisions
of
this Agreement and to enforce specifically the terms and provisions of this
Agreement, without the necessity of showing economic loss and without any
bond
or other security being required.
16
(O)
NO
ORAL AMENDMENTS. There shall be no oral modifications or amendments to this
Agreement. This Agreement may be modified or amended only in
writing.
IN
WITNESS WHEREOF, the undersigned Buyer and the Company have caused this
Agreement to be duly executed as of the 14th day of July 2006.
| OMNI U.S.A., INC., the Company | Potawatomi Business Development Corp., the Buyer |
|
By:
/S/ XXXXXX X.
XXXXXXXX
|
By:
/S/ XXXXX
XXXXX
|
|
Xxxxxx
X. Xxxxxxxx, CFO
|
Xxxxx
Xxxxx, CEO
|
|
ADDRESS:
|
ADDRESS:
|
|
0000
Xxxxxxxxxx Xx., Xxxxx 000
|
000
X. Xxxxxxx Xx., Xxxxx 000
|
|
Xxxxxxxx,
XX 00000
|
Xxxxxxxxx,
XX 00000
|
|
Telephone:
(000) 000-0000 Ext 210
|
Telephone:
000-000-0000
|
|
Facsimile:
(000) 000-0000
|
Facsimile:
000-000-0000
|
17
