SECURITIES PURCHASE AGREEMENT
THIS SECURITIES
PURCHASE AGREEMENT
(this
“Agreement”),
dated
as of February 15, 2007, by and among IQ
MICRO INC.,
a
Colorado corporation (the “Company”),
and
the Buyers listed on Schedule I attached hereto (individually, a
“Buyer”
or
collectively “Buyers”).
WITNESSETH
WHEREAS,
the
Company and the Buyer(s) are executing and delivering this Agreement in reliance
upon an exemption from securities registration pursuant to Section 4(2) and/or
Rule 506 of Regulation D (“Regulation
D”)
as
promulgated by the U.S. Securities and Exchange Commission (the “SEC”)
under
the Securities Act of 1933, as amended (the “Securities
Act”);
WHEREAS,
the
parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Buyer(s), as provided herein,
and the Buyer(s) shall purchase (i) up to Ninety Five Thousand Dollars ($95,000)
of secured convertible debentures in the form attached hereto as “Exhibit
A”
(the
“Convertible
Debentures”),
which
shall be convertible into shares of the Company’s common stock, par value $0.001
(the “Common
Stock”)
(as
converted, the “Conversion
Shares”)
which
shall be funded on the date hereof (the “First
Closing”
or
“Closing”),
for a
total purchase price of up to Ninety Five Thousand Dollars ($95,000), (the
“Purchase
Price”)
in the
respective amounts set forth opposite each Buyer(s) name on Schedule I (the
“Subscription
Amount”);
WHEREAS,
contemporaneously with the execution and delivery of this Agreement, the parties
hereto are executing and delivering a Registration Rights Agreement (the
“Registration
Rights Agreement”)
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated there under,
and applicable state securities laws;
WHEREAS,
the
Convertible Debentures are secured by (i) a security interest in all of the
assets of the Company and of each of the Company's subsidiaries as evidenced
by
the security agreement of even date herewith (the “Security
Agreement”),
and
(ii) a partial guaranty by certain officers of the Company as evidenced by
the
guaranty agreement of even date herewith (the “Guaranty
Agreement,”
and
together with the Security Agreement collectively the “Security
Documents”);
and
WHEREAS,
the
Convertible Debentures and the Conversion Shares collectively are referred
to
herein as the “Securities”).
NOW,
THEREFORE,
in
consideration of the mutual covenants and other agreements contained in this
Agreement the Company and the Buyer(s) hereby agree as follows:
1. PURCHASE
AND SALE OF CONVERTIBLE DEBENTURES.
(a) Purchase
of Convertible Debentures.
Subject
to the satisfaction (or waiver) of the terms and conditions of this Agreement,
each Buyer agrees, severally and not jointly, to purchase at each Closing and
the Company agrees to sell and issue to each Buyer, severally and not jointly,
at each Closing, Convertible Debentures in amounts corresponding with the
Subscription Amount set forth opposite each Buyer’s name on Schedule I hereto.
(b) Closing
Date.
The
Closing of the purchase and sale of the Convertible Debentures shall take place
at 10:00 a.m. Eastern Standard Time on the date hereof, subject to notification
of satisfaction of the conditions to the Closing set forth herein and in
Sections 6 and 7 below (or such later date as is mutually agreed to by the
Company and the Buyer(s)) (the “First
Closing Date”
or
the
“Closing
Dates”).
The
Closing shall occur on the respective Closing Dates at the offices of Yorkville
Advisors, LLC, 0000 Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx Xxxx, Xxx Xxxxxx 00000
(or
such other place as is mutually agreed to by the Company and the Buyer(s)).
(c) Form
of Payment.
Subject
to the satisfaction of the terms and conditions of this Agreement, on each
Closing Date, (i) the Buyers shall deliver to the Company or the Company’s
designees, such aggregate proceeds for the Convertible Debentures to be issued
and sold to such Buyer at such Closing, minus the fees to be paid directly
from
the proceeds of such Closing as set forth herein, and (ii) the Company
shall deliver to each Buyer, Convertible Debentures which such Buyer is
purchasing at such Closing in amounts indicated opposite such Buyer’s name on
Schedule I, duly executed on behalf of the Company.
2. BUYER’S
REPRESENTATIONS AND WARRANTIES.
Each
Buyer represents and warrants, severally and not jointly, that:
(a) Investment
Purpose.
Each
Buyer is acquiring the Convertible Debentures and, upon conversion of
Convertible Debentures, the Buyer will acquire the Conversion Shares then
issuable, for its own account for investment only and not with a view towards,
or for resale in connection with, the public sale or distribution thereof,
except pursuant to sales registered or exempted under the Securities Act;
provided, however, that by making the representations herein, such Buyer
reserves the right to dispose of the Securities at any time in accordance with
or pursuant to an effective registration statement covering such Securities
or
an available exemption under the Securities Act. 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.
Each
Buyer is an “Accredited
Investor”
as
that
term is defined in Rule 501(a)(3) of Regulation D.
(c) Reliance
on Exemptions.
Each
Buyer understands that the 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.
Each
Buyer and its advisors (and his or, its counsel), if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and information he deemed material to making an informed investment
decision regarding his purchase of the Securities, which have been requested
by
such Buyer. Each Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and its management. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer
or
its advisors, if any, or its representatives shall modify, amend or affect
such
Buyer’s right to rely on the Company’s representations and warranties contained
in Section 3 below. Each Buyer understands that its investment in the Securities
involves a high degree of risk. Each Buyer is in a position regarding the
Company, which, based upon employment, family relationship or economic
bargaining power, enabled and enables such Buyer to obtain information from
the
Company in order to evaluate the merits and risks of this investment. Each
Buyer
has sought such accounting, legal and tax advice, as it has considered necessary
to make an informed investment decision with respect to its acquisition of
the
Securities.
(e) No
Governmental Review.
Each
Buyer understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation
or
endorsement of the 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.
Each
Buyer understands that except as provided in the Registration Rights Agreement:
(i) the Securities have not been and are not being registered under the
Securities Act or any state securities laws, and may not be offered for sale,
sold, assigned or transferred unless (A) subsequently registered thereunder,
(B)
such Buyer shall have delivered to the Company an opinion of counsel, in a
generally acceptable form, to the effect that such Securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration requirements, or (C) such Buyer provides the
Company with reasonable assurances (in the form of seller and broker
representation letters) that such Securities can be sold, assigned or
transferred pursuant to Rule 144, Rule 144(k), or Rule 144A promulgated under
the Securities Act, as amended (or a successor rule thereto) (collectively,
“Rule
144”),
in
each case following the applicable holding period set forth therein; (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 through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules
and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register the Securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder.
(g) Legends.
Each
Buyer agrees to the imprinting, so long as is required by this Section 2(g),
of
a restrictive legend in substantially the following form:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW
TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR
AN
OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.
Certificates
evidencing the Conversion Shares shall not contain any legend (including the
legend set forth above), (i) while a registration statement (including the
Registration Statement) covering the resale of such security is effective under
the Securities Act, (ii) following any sale of such Conversion Shares pursuant
to Rule 144, (iii) if such Conversion Shares are eligible for sale under Rule
144(k), or (iv) if such legend is not required under applicable requirements
of
the Securities Act (including judicial interpretations and pronouncements issued
by the staff of the Commission). The Company shall cause its counsel to issue
a
legal opinion to the Company’s transfer agent promptly after the effective date
(the “Effective
Date”)
of a
Registration Statement if required by the Company’s transfer agent to effect the
removal of the legend hereunder. If all or any portion of the Convertible
Debentures are exercised by a Buyer that is not an Affiliate of the Company
(a
“Non-Affiliated
Buyer”)
at a
time when there is an effective registration statement to cover the resale
of
the Conversion Shares, such Conversion Shares shall be issued free of all
legends. The Company agrees that following the Effective Date or at such time
as
such legend is no longer required under this Section 2(g), it will, no later
than three (3) Trading Days following the delivery by a Non-Affiliated Purchaser
to the Company or the Company’s transfer agent of a certificate representing
Conversion Shares issued with a restrictive legend (such third Trading Day,
the
“Legend
Removal Date”),
deliver or cause to be delivered to such Non-Affiliated Purchaser a certificate
representing such shares that is free from all restrictive and other legends.
The Company may not make any notation on its records or give instructions to
any
transfer agent of the Company that enlarge the restrictions on transfer set
forth in this Section. The Buyer’s acknowledge that the Company’s agreement
hereunder to remove all legends from Conversion Shares is not an affirmative
statement or representation that such Conversion Shares are freely tradeable.
Each Buyer, severally and not jointly with the other Buyers, agrees that the
removal of the restrictive legend from certificates representing Securities
as
set forth in this Section 3(g) is predicated upon the Company’s reliance that
the buyer will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if Securities are sold
pursuant to a Registration Statement, they will be sold in compliance with
the
plan of distribution set forth therein.
(h) Authorization,
Enforcement.
This
Agreement has been duly and validly authorized, executed and delivered on behalf
of such Buyer and is a valid and binding agreement of such Buyer enforceable
in
accordance with its terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to,
or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.
(i) Receipt
of Documents.
Each
Buyer and his or its counsel has received and read in their entirety: (i) this
Agreement and each representation, warranty and covenant set forth herein and
the Transaction Documents (as defined herein); (ii) all due diligence and other
information necessary to verify the accuracy and completeness of such
representations, warranties and covenants; (iii) the Company’s Form 10-SB filed
with the SEC on July 17, 2006, as amended and (iv) answers to all questions
each
Buyer submitted to the Company regarding an investment in the Company; and
each
Buyer has relied on the information contained therein and has not been furnished
any other documents, literature, memorandum or prospectus.
(j) Due
Formation of Corporate and Other Buyers.
If the
Buyer(s) is a corporation, trust, partnership or other entity that is not an
individual person, it has been formed and validly exists and has not been
organized for the specific purpose of purchasing the Securities and is not
prohibited from doing so.
(k) No
Legal Advice From the Company.
Each
Buyer acknowledges, that it had the opportunity to review this Agreement and
the
transactions contemplated by this Agreement with his or its own legal counsel
and investment and tax advisors. Each Buyer is relying solely on such counsel
and advisors and not on any statements or representations of the Company or
any
of its representatives or agents for legal, tax or investment advice with
respect to this investment, the transactions contemplated by this Agreement
or
the securities laws of any jurisdiction.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
Except
as
set forth under the corresponding section of the Disclosure Schedules which
Disclosure Schedules shall be deemed a part hereof and to qualify any
representation or warranty otherwise made herein to the extent of such
disclosure, the Company hereby makes the representations and warranties set
forth below to each Buyer:
(a) Subsidiaries.
All of
the direct and indirect subsidiaries of the Company are set forth on
Schedule
3(a).
The
Company owns, directly or indirectly, all of the capital stock or other equity
interests of each subsidiary free and clear of any liens, and all the issued
and
outstanding shares of capital stock of each subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.
(b) Organization
and Qualification.
The
Company and its subsidiaries are corporations duly organized and validly
existing in good standing under the laws of the jurisdiction in which they
are
incorporated, and have the requisite corporate power to own their properties
and
to carry on their business as now being conducted. Each of the Company and
its
subsidiaries is duly qualified as a foreign corporation to do business and
is in
good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary, except to the extent that
the failure to be so qualified or be in good standing would not have or
reasonably be expected to result in (i) a material adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business or
condition (financial or otherwise) of the Company and the subsidiaries, taken
as
a whole, or (iii) a material adverse effect on the Company’s ability to perform
in any material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a “Material
Adverse Effect”)
and no
proceeding has been instituted in any such jurisdiction revoking, limiting
or
curtailing or seeking to revoke, limit or curtail such power and authority
or
qualification..
(c) Authorization,
Enforcement, Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to enter
into and perform this Agreement, The Convertible Debentures, the Security
Documents, the Registration Rights Agreement, 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, (ii)
the
execution and delivery of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Securities, the reservation
for issuance and the issuance of the Conversion Shares, have been duly
authorized by the Company’s Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders, (iii) the Transaction Documents have been duly executed and
delivered by the Company, (iv) the Transaction Documents constitute the valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors’ rights and remedies. The
authorized officer of the Company executing the Transaction Documents knows
of
no reason why the Company cannot file the registration statement as required
under the Registration Rights Agreement or perform any of the Company’s other
obligations under such documents.
(d) Capitalization.
The
authorized capital stock of the Company consists of 300,000,000 shares of Common
Stock and 25,000,000 shares of Preferred Stock, par value $0.001 (“Preferred
Stock”)
of
which 50,199,500 shares of Common Stock and zero shares of Preferred Stock
are
issued and outstanding. All of the outstanding shares of capital stock of the
Company are validly issued, fully paid and nonassessable, have been issued
in
compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. Except as disclosed in Schedule
3(d): (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 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; (vi) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities; (vii) the Company does not have any stock
appreciation rights or "phantom stock" plans or agreements or any similar plan
or agreement; and (viii) 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. No further approval or authorization of any stockholder, the
Board of Directors of the Company or others is required for the issuance and
sale of the Securities. There are no stockholders agreements, voting agreements
or other similar agreements with respect to the Company’s capital stock to which
the Company is a party or, to the knowledge of the Company, between or among
any
of the Company’s stockholders.
(e) Issuance
of Securities.
The
issuance of the Convertible Debentures are duly authorized and are free from
all
taxes, liens and charges with respect to the issue thereof. Upon conversion
in
accordance with the terms of the Convertible Debentures, the Conversion Shares
when issued will be validly issued, fully paid and nonassessable, are free
from
all taxes, liens and charges with respect to the issue thereof. The Company
has
reserved from its duly authorized capital stock the appropriate number of shares
of Common Stock as set forth in this Agreement.
(f) 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 Convertible
Debentures, and reservation for issuance and issuance of the Conversion Shares
and) 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
National Association of Securities Dealers Inc.’s OTC Bulletin Board) 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 each of clauses (ii) and (iii), such as could
not, individually or in the aggregate, have or reasonably be expected to result
in a Material Adverse Effect.
The
business of the Company and its subsidiaries is not being conducted, and shall
not be conducted in violation of any material law, ordinance, or regulation
of
any governmental entity. Except as specifically contemplated by this Agreement
and as required under the Securities Act and any applicable state securities
laws, the Company is not required to obtain any consent, authorization or order
of, or make any filing or registration with, any court or governmental agency
in
order for it to execute, deliver or perform any of its obligations under or
contemplated by this Agreement or the Registration Rights Agreement in
accordance with the terms hereof or thereof. All consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior
to
the date hereof. The Company and its subsidiaries are unaware of any facts
or
circumstance, which might give rise to any of the foregoing.
(g) SEC
Documents; Financial Statements.
The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC under the Securities Exchange Act of
1934, as amended (the “Exchange
Act”),
for
the two years preceding the date hereof (or such shorter period as the Company
was required by law or regulation to file such material) (all of the foregoing
filed prior to the date hereof or amended after the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein, being hereinafter referred to as the
“SEC
Documents”)
on
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Document prior to the expiration of any such extension.
The
Company has delivered to the Buyers or their representatives, or made available
through the SEC’s website at xxxx://xxx.xxx.xxx., true and complete copies of
the SEC Documents. As of their respective dates, the SEC Documents complied
in
all material respects with the requirements of the Exchange 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 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(i) of this Agreement, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made and not misleading.
(h) 10(b)-5.
The SEC
Documents do not include any untrue statements of material fact, nor do they
omit to state any material fact required to be stated therein necessary to
make
the statements made, in light of the circumstances under which they were made,
not misleading.
(i) Absence
of Litigation.
There
is no action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
against or affecting the Company, the Common Stock or any of the Company’s
subsidiaries, wherein an unfavorable decision, ruling or finding would (i)
have
a Material Adverse Effect.
(j) Acknowledgment
Regarding Buyer’s Purchase of the Convertible Debentures.
The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm’s length purchaser with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that each Buyer is not
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any advice given by each Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to such Buyer’s purchase of the
Securities. The Company further represents to each Buyer that the Company’s
decision to enter into this Agreement has been based solely on the independent
evaluation by the Company and its representatives.
(k) No
General Solicitation.
Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) in connection
with
the offer or sale of the Securities.
(l) No
Integrated Offering.
Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any security
or
solicited any offers to buy any security, under circumstances that would require
registration of the Securities under the Securities Act or cause this offering
of the Securities to be integrated with prior offerings by the Company for
purposes of the Securities Act.
(m) Employee
Relations.
Neither
the Company nor any of its subsidiaries is involved in any labor dispute nor,
to
the knowledge of the Company or any of its subsidiaries, is any such dispute
threatened. None of the Company’s or its subsidiaries’ employees is a member of
a union and the Company and its subsidiaries believe that their relations with
their employees are good.
(n) Intellectual
Property Rights.
The
Company and its subsidiaries own or possess adequate rights or licenses to
use
all trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct
their
respective businesses as now conducted. The Company and its subsidiaries do
not
have any knowledge of any infringement by the Company or its subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service xxxx registrations, trade secret
or other similar rights of others, and, to the knowledge of the Company there
is
no claim, action or proceeding being made or brought against, or to the
Company’s knowledge, being threatened against, the Company or its subsidiaries
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service xxxx registrations, trade secret
or other infringement; and the Company and its subsidiaries are unaware of
any
facts or circumstances which might give rise to any of the
foregoing.
(o) Environmental
Laws.
The
Company and its subsidiaries are (i) in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants (“Environmental
Laws”),
(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 material compliance with all terms and conditions of any such permit,
license or approval.
(p) Title.
Any
real property and facilities held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use
made
and proposed to be made of such property and buildings by the Company and its
subsidiaries.
(q) Insurance.
The
Company and each of its subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts
as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its subsidiaries are engaged. Neither the Company
nor
any such subsidiary has been refused any insurance coverage sought or applied
for and neither the Company nor any such subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as
may
be necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its subsidiaries, taken as a
whole.
(r) Regulatory
Permits.
The
Company and its subsidiaries possess all material certificates, authorizations
and permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, and neither the
Company nor any such subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.
(s) Internal
Accounting Controls.
The
Company and each of its subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to
maintain asset accountability, and (iii) the recorded amounts for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(t) No
Material Adverse Breaches, 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 expected in the future
to have a material adverse effect on the business, properties, operations,
financial condition, results of operations or prospects of the Company or its
subsidiaries. Neither the Company nor any of its subsidiaries is in breach
of
any contract or agreement which breach, in the judgment of the Company’s
officers, has or is expected to have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries.
(u) Tax
Status.
The
Company and each of its subsidiaries has made and filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject and (unless and only to the extent that
the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) has
paid
all taxes and other governmental assessments and charges that are material
in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
(v) Certain
Transactions.
Except
for arm’s length transactions pursuant to which the Company makes payments in
the ordinary course of business upon terms no less favorable than the Company
could obtain from third parties and other than the grant of stock options
disclosed in the SEC Documents, none of the officers, directors, or employees
of
the Company is presently a party to any transaction with the Company (other
than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to
or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to
the
knowledge of the Company, any corporation, partnership, trust or other entity
in
which any officer, director, or any such employee has a substantial interest
or
is an officer, director, trustee or partner.
(w) Fees
and Rights of First Refusal.
The
Company is not obligated to offer the securities offered hereunder on a right
of
first refusal basis or otherwise to any third parties including, but not limited
to, current or former shareholders of the Company, underwriters, brokers, agents
or other third parties.
(x) Investment
Company.
The
Company is not, and is not an affiliate of, and immediately after receipt of
payment for the Securities, will not be or be an affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.
The Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act.
(y) Registration
Rights.
Other
than each of the Buyers, no Person has any right to cause the Company to effect
the registration under the Securities Act of any securities of the Company.
There are no outstanding registration statements not yet declared effective
and
there are no outstanding comment letters from the SEC or any other regulatory
agency.
(z) Private
Placement.
Assuming the accuracy of the Buyers’ representations and warranties set forth in
Section 2, no registration under the Securities Act is required for the offer
and sale of the Securities by the Company to the Buyers as contemplated hereby.
The issuance and sale of the Securities hereunder does not contravene the rules
and regulations of the Primary Market.
(aa) Listing
and Maintenance Requirements.
The
Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the
Exchange Act, and the Company has taken no action designed to, or which to
its
knowledge is likely to have the effect of, terminating the registration of
the
Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such registration.
The Company has not, in the twelve (12) months preceding the date hereof,
received notice from any Primary Market on which the Common Stock is or has
been
listed or quoted to the effect that the Company is not in compliance with the
listing or maintenance requirements of such Primary Market. The Company is,
and
has no reason to believe that it will not in the foreseeable future continue
to
be, in compliance with all such listing and maintenance
requirements.
(bb) 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 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) 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, other than,
in the case of clauses (ii) and (iii), compensation paid to the Company’s
placement agent in connection with the placement of the Securities.
(cc) Dilutive
Effect.
The
Company understands and acknowledges that the number of Conversion Shares
issuable upon conversion of the Convertible Debentures will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Convertible Debentures in accordance
with this Agreement and the Convertible Debentures is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company.
4. COVENANTS.
(a) Best
Efforts.
Each
party shall use its best efforts to timely satisfy each of the conditions to
be
satisfied by it as provided in Sections 6 and 7 of this Agreement.
(b) Form
D.
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 to qualify the Securities,
or obtain an exemption for 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, and shall provide evidence of any such action
so
taken to the Buyers on or prior to the Closing Date.
(c) Reporting
Status.
Until
the earlier of (i) the date as of which the Buyer(s) may sell all of the
Securities without restriction pursuant to Rule 144(k) promulgated under the
Securities Act (or successor thereto), or (ii) the date on which (A) the Buyers
shall have sold all the Securities and (B) none of the Convertible Debentures
are outstanding (the “Registration
Period”),
the
Company shall file in a timely manner all reports required to be filed with
the
SEC pursuant to the Exchange Act and the regulations of the SEC thereunder,
and
the Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would otherwise permit such termination.
(d) Use
of
Proceeds.
The
Company will use the proceeds from the sale of the Convertible Debentures only
for the specific uses set forth on Exhibit B attached hereto.
(e) Reservation
of Shares.
On the
date hereof, the Company shall reserve for issuance to the Buyers 815,000 shares
for issuance upon conversions of the Convertible Dentures (the “Share
Reserve”).
The
Company represents that it has sufficient authorized and unissued shares of
Common Stock available to create the Share Reserve after considering all other
commitments that may require the issuance of Common Stock. The Company shall
take all action reasonably necessary to at all times have authorized, and
reserved for the purpose of issuance, such number of shares of Common Stock
as
shall be necessary to effect the full conversion of the Convertible Debentures.
If at any time the Share Reserve is insufficient to effect the full conversion
of the Convertible Debentures, the Company shall increase the Share Reserve
accordingly. If the Company does not have sufficient authorized and unissued
shares of Common Stock available to increase the Share Reserve, the Company
shall call and hold a special meeting of the shareholders within one hundred
twenty (120) days of such occurrence, for the sole purpose of increasing the
number of shares authorized. The Company’s management shall recommend to the
shareholders to vote in favor of increasing the number of shares of Common
Stock
authorized. Management shall also vote all of its shares in favor of increasing
the number of authorized shares of Common Stock.
(f) Listings
or Quotation.
The
Company’s Common Stock shall be listed or quoted for trading on any of (a) the
American Stock Exchange, (b) New York Stock Exchange, (c) the Nasdaq Global
Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin Board
(“OTC”)
(each,
a “Primary
Market”).
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 such
listing of all Registrable Securities from time to time issuable under the
terms
of the Transaction Documents.
(g) Fees
and Expenses.
(i) Each
of
the Company and the Buyer(s) shall pay all costs and expenses incurred by such
party in connection with the negotiation, investigation, preparation, execution
and delivery of the Transaction Documents. The Company shall pay Yorkville
Advisors, LLC a fee equal to ten percent (10%) of the Purchase Price which
shall
be paid pro rata directly from the gross proceeds of each Closing.
(ii) The
Company shall pay a structuring fee to Yorkville Advisors, LLC of Five Thousand
Five Hundred Dollars ($5,500) which shall be paid directly from the proceeds
of
the First Closing.
(iii) At
the
Closing, the Company shall issue to the Buyer a warrant to purchase 212,000
shares of the Company’s Common Stock for a period of five (5) years at an
exercise price of $0.001 per share.
(h) Corporate
Existence.
So long
as any of the Convertible Debentures remain outstanding, the Company shall
not
directly or indirectly consummate any merger, reorganization, restructuring,
reverse stock split consolidation, sale of all or substantially all of the
Company’s assets or any similar transaction or related transactions (each such
transaction, an “Organizational
Change”)
unless, prior to the consummation an Organizational Change, the Company obtains
the written consent of each Buyer. In any such case, the Company will make
appropriate provision with respect to such holders’ rights and interests to
insure that the provisions of this Section 4(h) will thereafter be applicable
to
the Convertible Debentures.
(i) Transactions
With Affiliates.
So long
as any Convertible Debentures are outstanding, the Company shall not, and shall
cause each of its subsidiaries not to, enter into, amend, modify or supplement,
or permit any subsidiary to enter into, amend, modify or supplement any
agreement, transaction, commitment, or arrangement with any of its or any
subsidiary’s officers, directors, person who were officers or directors at any
time during the previous two (2) years, stockholders who beneficially own five
percent (5%) or more of the Common Stock, or Affiliates (as defined below)
or
with any individual related by blood, marriage, or adoption to any such
individual or with any entity in which any such entity or individual owns a
five
percent (5%) or more beneficial interest (each a “Related
Party”),
except for (a) customary employment arrangements and benefit programs on
reasonable terms, (b) any investment in an Affiliate of the Company, (c) any
agreement, transaction, commitment, or arrangement on an arms-length basis
on
terms no less favorable than terms which would have been obtainable from a
person other than such Related Party, (d) any agreement, transaction,
commitment, or arrangement which is approved by a majority of the disinterested
directors of the Company; for purposes hereof, any director who is also an
officer of the Company or any subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment, or arrangement. “Affiliate”
for
purposes hereof means, with respect to any person or entity, another person
or
entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
interest in that person or entity, (ii) has ten percent (10%) or more common
ownership with that person or entity, (iii) controls that person or entity,
or
(iv) shares common control with that person or entity. “Control”
or
“controls”
for
purposes hereof means that a person or entity has the power, direct or indirect,
to conduct or govern the policies of another person or entity.
(j) Transfer
Agent.
The
Company covenants and agrees that, in the event that the Company’s agency
relationship with the transfer agent should be terminated for any reason prior
to a date which is two (2) years after the Closing Date, the Company shall
immediately appoint a new transfer agent and shall require that the new transfer
agent execute and agree to be bound by the terms of the Irrevocable Transfer
Agent Instructions (as defined herein).
(k) Restriction
on Issuance of the Capital Stock.
Except
for issuances of Common Stock to Cornell Capital Partners, L.P. under any
pre-existing obligations, so long as any Convertible Debentures are outstanding,
the Company shall not, without the prior written consent of the Buyer(s), (i)
issue or sell shares of Common Stock or Preferred Stock without consideration
or
for a consideration per share less than 80% of the bid price of the Common
Stock
determined immediately prior to its issuance, (ii) issue any preferred stock,
warrant, option, right, contract, call, or other security or instrument granting
the holder thereof the right to acquire Common Stock without consideration
or
for a consideration less than 80% of such Common Stock’s Bid Price determined
immediately prior to it’s issuance, (iii) enter into any security instrument
granting the holder a security interest in any and all assets of the Company,
or
(iv) file any registration statement on Form S-8.
The
foregoing restrictions shall not apply to the issuance of shares of Common
Stock
pursuant to a bona fide employee stock option plan of no more than 15% of the
Company’s outstanding shares of Common Stock as of the date hereof provided,
however, such options are issued not less than the closing bid price of the
Company’s Common Stock
on the
Primary Market as quoted by Bloomberg, LP
at the
date of issuance.
(l) Neither
the Buyer(s) nor any of its affiliates have an open short position in the Common
Stock of the Company, and the Buyer(s) agrees that it shall not, and that it
will cause its affiliates not to, engage in any short sales of or hedging
transactions with respect to the Common Stock as long as any Convertible
Debentures shall remain outstanding.
(m) Rights
of First Refusal.
So
long
as any portion of Convertible Debentures are outstanding, if the Company intends
to raise additional capital by the issuance or sale of capital stock of the
Company, including without limitation shares of any class of common stock,
any
class of preferred stock, options, warrants or any other securities convertible
or exercisable into shares of common stock (whether the offering is conducted
by
the Company, underwriter, placement agent or any third party) the Company shall
be obligated to offer to the Buyers such issuance or sale of capital stock,
by
providing in writing the principal amount of capital it intends to raise and
outline of the material terms of such capital raise, prior to the offering
such
issuance or sale of capital stock to any third parties including, but not
limited to, current or former officers or directors, current or former
shareholders and/or investors of the obligor, underwriters, brokers, agents
or
other third parties. The Buyers shall have ten (10) business days from
receipt of such notice of the sale or issuance of capital stock to accept or
reject all or a portion of such capital raising offer.
(n) Lock
Up Agreements.
On the
date hereof, the Company shall obtain from each officer and director a lock
up
agreement in the form attached hereto as Exhibit
C.
(o) Additional
Registration Statements.
Until
the effective date of the initial Registration Statement, the Company will
not
file a registration statement under the 1933 Act relating to securities that
are
not the Securities.
(p) Review
of Public Disclosures.
All SEC
filings (including, without limitation, all filings required under the Exchange
Act, which include Forms 10-Q and 10-QSB, 10-K and 10K-SB, 8-K, etc) and other
public disclosures made by the Company, including, without limitation, all
press
releases, investor relations materials, and scripts of analysts meetings and
calls, shall be reviewed and approved for release by the Company’s attorneys
and, if containing financial information, the Company’s independent certified
public accountants.
(q) Disclosure
of Transaction.
Within
four Business Day following the date of this Agreement, the Company shall file
a
Current Report on Form 8-K describing the terms of the transactions contemplated
by the Transaction Documents in the form required by the Exchange Act and
attaching the material Transaction Documents (including, without limitation,
this Agreement, the form of the Convertible Debenture, and the form of the
Registration Rights Agreement) as exhibits to such filing.
5. TRANSFER
AGENT INSTRUCTIONS.
(a) The
Company shall issue the Irrevocable Transfer Agent Instructions to its transfer
agent, and any subsequent transfer agent, irrevocably appointing Xxxxx Xxxxxxxx,
Esq. as the Company’s agent for purpose instructing its transfer agent to issue
certificates or credit shares to the applicable balance accounts at The Deposity
Trust Company (“DTC”),
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares issued upon conversion of the Convertible Debentures as
specified from time to time by each Buyer to the Company upon conversion of
the
Convertible Debentures. The Company shall not change its transfer agent without
the express written consent of the Buyers, which may be withheld by the Buyers
in their sole discretion. The Company warrants that no instruction other than
the Irrevocable Transfer Agent Instructions referred to in this Section 5,
and
stop transfer instructions to give effect to Section 2(g) hereof (in the case
of
the Conversion Shares prior to registration of such shares under the Securities
Act) will be given by the Company to its transfer agent, and that the 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 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 and, with
respect to any transfer, shall permit the transfer. In the event that such
sale,
assignment or transfer involves Conversion 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. Nothing in this Section
5
shall affect in any way the Buyer’s obligations and agreement to comply with all
applicable securities laws upon resale of Conversion Shares. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyer by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that
the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyer(s) shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL.
The
obligation of the Company hereunder to issue and sell the Convertible Debentures
to the Buyer(s) at the Closings is subject to the satisfaction, at or before
the
Closing Dates, of each of the following conditions, provided that these
conditions are for the Company’s sole benefit and may be waived by the Company
at any time in its sole discretion:
(a) Each
Buyer shall have executed the Transaction Documents and delivered them to the
Company.
(b) The
Buyer(s) shall have delivered to the Company the Purchase Price for Convertible
Debentures in respective amounts as set forth next to each Buyer as outlined
on
Schedule I attached hereto, minus any fees to be paid directly from the proceeds
the Closings as set forth herein, by wire transfer of immediately available
U.S.
funds pursuant to the wire instructions provided by the Company.
(c) The
representations and warranties of the Buyer(s) shall be true and correct in
all
material respects as of the date when made and as of the Closing Dates as though
made at that time (except for representations and warranties that speak as
of a
specific date), and the Buyer(s) shall have performed, satisfied and complied
in
all material respects with the covenants, agreements and conditions required
by
this Agreement to be performed, satisfied or complied with by the Buyer(s)
at or
prior to the Closing Dates.
7. CONDITIONS
TO THE BUYER’S OBLIGATION TO PURCHASE.
(a) The
obligation of the Buyer(s) hereunder to purchase the Convertible Debentures
at
the First Closing is subject to the satisfaction, at or before the First Closing
Date, of each of the following conditions:
(i) The
Company shall have executed the Transaction Documents and delivered the same
to
the Buyers.
(ii) The
Common Stock shall be authorized for quotation or trading on the Primary Market,
trading in the Common Stock shall not have been suspended for any reason, and
all the Conversion Shares issuable upon the conversion of the Convertible
Debentures shall be approved for listing or trading on the Primary Market.
(iii) The
representations and warranties of the Company shall be true and correct in
all
material respects (except to the extent that any of such representations and
warranties is already qualified as to materiality in Section 3 above, in which
case, such representations and warranties shall be true and correct without
further qualification) as of the date when made and as of the First Closing
Date
as though made at that time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed, satisfied
and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the First Closing Date
(iv) The
Company shall have executed and delivered to the Buyer(s) the Convertible
Debentures in the respective amounts set forth opposite each Buyer’s name on
Schedule I attached hereto.
(v) The
Buyers shall have received an opinion of counsel from counsel to the Company
in
a form satisfactory to the Buyers.
(vi) The
Company shall have provided to the Buyers a true copy of a certificate of good
standing evidencing the formation and good standing of the Company from the
secretary of state (or comparable office) from the jurisdiction in which the
Company is incorporated, as of a date within 10 days of the First Closing
Date.
(vii) The
Company shall have delivered to the Buyers a certificate, executed by the
Secretary of the Company and dated as of the First Closing Date, as to (i)
the
resolutions consistent with Section 3(c) 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 First
Closing.
(viii) The
Company shall have filed a form UCC-1 or such other forms as may be required
to
perfect the Buyer’s interest in the Pledged Property as detailed in the Security
Agreement dated the date hereof and provided proof of such filing to the
Buyer(s).
(ix) The
Guaranty Agreement shall have been executed and delivered to the
Buyers.
(x) The
Company shall have created the Share Reserve.
8. INDEMNIFICATION.
(a) In
consideration of the Buyer’s execution and delivery of this Agreement and
acquiring the Convertible Debentures and the Conversion Shares hereunder, and
in
addition to all of the Company’s other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless the Buyer(s) and
each
other holder of the Convertible Debentures and the Conversion Shares, and all
of
their officers, directors, employees and agents (including, without
limitation, those retained in connection with the transactions contemplated
by
this Agreement) (collectively, the “Buyer
Indemnitees”)
from
and against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Buyer Indemnitee is a party to the action
for
which indemnification hereunder is sought), and including reasonable attorneys’
fees and disbursements (the “Indemnified
Liabilities”),
incurred by the Buyer Indemnitees or any of them as a result of, or arising
out
of, or relating to (a) any misrepresentation or breach of any representation
or
warranty made by the Company in this Agreement, the Convertible Debentures
or
the 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 this Agreement, or 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 and arising out of or resulting from the execution, delivery,
performance or enforcement of this Agreement or any other instrument, document
or agreement executed pursuant hereto by any of the parties hereto, any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Convertible Debentures
or
the status of the Buyer or holder of the Convertible Debentures the Conversion
Shares, as a Buyer of Convertible Debentures in the Company. To the extent
that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities, which is permissible under applicable
law.
(b) In
consideration of the Company’s execution and delivery of this Agreement, and in
addition to all of the Buyer’s other obligations under this Agreement, the Buyer
shall defend, protect, indemnify and hold harmless the Company and all of its
officers, directors, employees and agents (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the “Company
Indemnitees”)
from
and against any and all Indemnified Liabilities incurred by the Indemnitees
or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Buyer(s) in this Agreement, instrument or document contemplated hereby or
thereby executed by the Buyer, (b) any breach of any covenant, agreement or
obligation of the Buyer(s) contained in this Agreement, the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby executed by the Buyer, or (c) any cause of action, suit or claim
brought or made against such Company Indemnitee based on material
misrepresentations or due to a material breach and arising out of or resulting
from the execution, delivery, performance or enforcement of this Agreement,
the
Transaction Documents or any other instrument, document or agreement executed
pursuant hereto by any of the parties hereto. To the extent that the foregoing
undertaking by each Buyer may be unenforceable for any reason, each Buyer shall
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities, which is permissible under applicable law.
9. GOVERNING
LAW: MISCELLANEOUS.
(a) Governing
Law.
This
Agreement shall be governed by and interpreted in accordance with the laws
of
the State of New Jersey without regard to the principles of conflict of laws.
The parties further agree that any action between them shall be heard in Xxxxxx
County, New Jersey, and expressly consent to the jurisdiction and venue of
the
Superior Court of New Jersey, sitting in Xxxxxx County and the United States
District Court for the District of New Jersey sitting in Newark, New Jersey
for
the adjudication of any civil action asserted pursuant to this
Paragraph.
(b) Counterparts.
This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party.
In
the event any signature page is delivered by facsimile transmission, the party
using such means of delivery shall cause four (4) additional original executed
signature pages to be physically delivered to the other party within five (5)
days of the execution and delivery hereof.
(c) Headings.
The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.
(d) Severability.
If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or
the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
(e) Entire
Agreement, Amendments.
This
Agreement supersedes all other prior oral or written agreements between the
Buyer(s), the Company, their affiliates and persons acting on their behalf
with
respect to the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
(f) Notices.
Any
notices, consents, waivers, or other communications required or permitted to
be
given under the terms of this Agreement must be in writing and will be deemed
to
have been delivered (i) upon receipt, when delivered personally; (ii) upon
confirmation of receipt, when sent by facsimile; (iii) three (3) days after
being sent by U.S. certified mail, return receipt requested, or (iv) one (1)
day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
|
If
to the Company, to:
|
|
|
000
Xxxxxxxxxx Xxxxxx, Xxxxx 000
|
|
|
Xxxx
Xxxx Xxxxx, Xxxxxxx 00000
|
|
|
Attention:
Chief Executive Officer
|
|
|
Telephone: (000)
000-0000
|
|
|
Facsimile: (000)
000-0000
|
|
|
With
a copy to:
|
Xxxxxxxxx,
Xxxxxx & Xxxxxx
|
|
Princeton
Xxxxxxxxx Village
|
|
|
000
Xxxxxxx Xxxx., Xxxxx 000
Xxxxxxxxx,
XX 00000
|
|
|
Telephone: (000)
000-0000
|
|
|
Facsimile: (000)
000-0000
|
|
If
to the
Buyer(s), to its address and facsimile number on Schedule I, with copies to
the
Buyer’s counsel as set forth on Schedule I. Each party shall provide five (5)
days’ prior written notice to the other party of any change in address or
facsimile number.
(g) Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns. Neither the Company nor any Buyer
shall
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the other party hereto.
(h) No
Third Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
(i) Survival.
Unless
this Agreement is terminated under Section 9(l), the representations and
warranties of the Company and the Buyer(s) contained in Sections 2 and 3, the
agreements and covenants set forth in Sections 4, 5 and 9, and the
indemnification provisions set forth in Section 8, shall survive the Closing
for
a period of two (2) years following the date on which the Convertible Debentures
are converted in full. The Buyer(s) shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
(j) Publicity.
The
Company and the Buyer(s) shall have the right to approve, before issuance any
press release or any other public statement with respect to the transactions
contemplated hereby made by any party; provided, however, that the Company
shall
be entitled, without the prior approval of the Buyer(s), to issue any press
release or other public disclosure with respect to such transactions required
under applicable securities or other laws or regulations (the Company shall
use
its best efforts to consult the Buyer(s) in connection with any such press
release or other public disclosure prior to its release and Buyer(s) shall
be
provided with a copy thereof upon release thereof).
(k) Further
Assurances.
Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
(l) Termination.
In the
event that the First Closing shall not have occurred with respect to the Buyers
on or before five (5) business days from the date hereof due to the Company’s or
the Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7
above (and the non-breaching party’s failure to waive such unsatisfied
condition(s)), the non-breaching 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 by the Company pursuant to this Section 9(l),
the Company shall remain obligated to reimburse the Buyer(s) for the fees and
expenses of Yorkville Advisors LLC described in Section 4(g) above.
(m) Brokerage.
The
Company represents that no broker, agent, finder or other party has been
retained by it in connection with the transactions contemplated hereby and
that
no other fee or commission has been agreed by the Company to be paid for or
on
account of the transactions contemplated hereby.
(n) 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.
[REMAINDER
PAGE INTENTIONALLY LEFT BLANK]
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:
|
||
|
By:
/s/ Xxxxxx X. Xxxxxx
|
||
|
Name: Xxxxxx
X. Xxxxxx
|
||
|
Title: Chief
Financial 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:
|
|
|
CORNELL
CAPITAL PARTNERS, LP
|
|
|
By:
Yorkville
Advisors, LLC
|
|
|
Its: General
Partner
|
|
|
By:
/s/Xxxx Xxxxxx
|
|
|
Name: Xxxx
Xxxxxx
|
|
|
Its: Portfolio
Manager
|
SCHEDULE
I
SCHEDULE
OF BUYERS
|
(1)
|
(2)
|
(3)
|
||
|
Buyer
|
Subscription
Amount
|
Legal
Representative’s Address and Facsimile Number
|
||
|
First
Closing
|
||||
|
Cornell
Capital Partners, LP
000
Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx
Xxxx, XX 00000
Attention:
Xxxx Xxxxxx
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
Residence:
Delaware
|
$95,000
|
Xxxx
Xxxxx, Esq.
000
Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx
Xxxx, Xxx Xxxxxx 00000
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
|
||
DISCLOSURE
SCHEDULE
EXHIBIT
A
FORM
OF CONVERTIBLE DEBENTURE
EXHIBIT
B
USE
OF PROCEEDS
|
1.
|
Commitment
Fee to Yorkville Advisors, LLC of
$9,500
|
|
2.
|
Structuring
Fee to Yorkville Advisors, LLC of
$5,500
|
|
3.
|
To
Xxxxxxxxx, Xxxxxx & Xxxxxx $30,000 ($25,000 legal fees; $5,000 in
escrow for SEC filing fees and XXXXX processing
fees)
|
|
4.
|
Audit
Fees to Daszkal Xxxxxx of
$50,000.
|
EXHIBIT
C
LOCK
UP AGREEMENT
The
undersigned hereby agrees that for a period commencing on February 15, 2007
and
expiring on the date thirty (30) days after the date that all amounts owed
to
Cornell Capital Partners, LP (the “Buyer”),
under
the Secured Convertible Debentures issued to the Buyer pursuant to the
Securities Purchase Agreement between IQ Micro Inc. (the “Company”)
and
the Buyer dated February 15, 2007 have been paid (the “Lock-up
Period”),
he,
she or it will not, directly or indirectly, without the prior written consent
of
the Buyer, issue, offer, agree or offer to sell, sell, grant an option for
the
purchase or sale of, transfer, pledge, assign, hypothecate, distribute or
otherwise encumber or dispose of any securities of the Company, including common
stock or options, rights, warrants or other securities underlying, convertible
into, exchangeable or exercisable for or evidencing any right to purchase or
subscribe for any common stock (whether or not beneficially owned by the
undersigned), or any beneficial interest therein (collectively, the
“Securities”)
except
in accordance with the volume limitations set forth in Rule 144(e) of the
General Rules and Regulations under the Securities Act of 1933, as
amended.
In
order
to enable the aforesaid covenants to be enforced, the undersigned hereby
consents to the placing of legends and/or stop-transfer orders with the transfer
agent of the Company’s securities with respect to any of the Securities
registered in the name of the undersigned or beneficially owned by the
undersigned, and the undersigned hereby confirms the undersigned’s investment in
the Company.
Dated:
_______________, 2006
|
Signature
|
|||
|
Name:
|
|||
|
Address:
|
|||
|
City,
State, Zip Code:
|
|||
|
Print
Social Security Number
|
|||
|
or
Taxpayer I.D. Number
|
|||
