SECURITIES PURCHASE AGREEMENT
dated as of
August 24, 1999
by and among
LAKOTA TECHNOLOGIES, INC.
as the Issuer,
and
THE PURCHASERS LISTED ON SCHEDULE I ATTACHED HERETO
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of August 24, 1999, among Lakota
Technologies, Inc., a Colorado corporation (the "Company"), and the
Purchasers listed on Schedule I attached hereto (each a "Purchaser"
and collectively, the "Purchasers").
R E C I T A L S:
WHEREAS, the Company desires to sell and issue to the
Purchasers, and the Purchasers desire to purchase from the Company,
$750,000 aggregate principal amount of the Company's 8% Convertible
Notes due August 24, 2001 (the "Convertible Notes"), with terms and
conditions as set forth in the form of Convertible Note attached
hereto as Exhibit A; and
WHEREAS, the Convertible Notes will be convertible into
shares of the Company's common stock, no par value per share (the
"Common Stock"); and
WHEREAS, in order to induce the Purchasers to enter into the
transactions described in this Agreement, the Company desires to
issue to the Purchasers warrants to purchase an aggregate of
5,000,000 shares of Common Stock on the terms and conditions
described in the form of the common stock purchase warrant attached
hereto as Exhibit B ("Warrants"); and
WHEREAS, the Purchasers will have certain registration rights
with respect to shares of Common Stock issuable (i) as interest
under, and upon conversion of, the Convertible Notes (collectively,
the "Conversion Shares"), and (ii) upon exercise of the Warrants
(the "Warrant Shares"), all as set forth in the Registration Rights
Agreement in the form attached hereto as Exhibit C; and
NOW, THEREFORE, in consideration of the foregoing premises
and the covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
DEFINITIONS
SECTION 1.1. DEFINITIONS. The following terms, as used
herein, have the following meanings:
"Affiliate" means, with respect to any Person (the "Subject
Person"), (i) any other Person (a "Controlling Person") that
directly, or indirectly through one or more intermediaries, Controls
the Subject Person or (ii) any other Person (other than the Subject
Person) which is Controlled by or is under common Control with a
Controlling Person.
"Agreement" means this Securities Purchase Agreement, as
amended, supplemented or otherwise modified from time to time in
accordance with its terms.
"Balance Sheet Date" has the meaning set forth in Section 4.7.
"Benefit Arrangement" means at any time an employee benefit
plan within the meaning of Section 3(3) of ERISA which is not a Plan
or a Multiemployer Plan and which is maintained or otherwise
contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 4.9(b).
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in the City of New York are
authorized or required by law to close.
"Capital Reorganization" has the meaning set forth in Section
7.13.
"Closing Bid Price" shall mean for any security as of any
date, the lowest closing bid price as reported by Bloomberg, L.P.
("Bloomberg") on the principal securities exchange or trading market
where such security is listed or traded or, if the foregoing does
not apply, the lowest closing bid price of such security in the
over-the-counter market on the electronic bulletin board, or, if no
lowest trading price is reported for such security by the electronic
bulletin board, then the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc.
"Closing Date" has the meaning set forth in Section 2.2(c).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or
any entity succeeding to all of its material functions.
"Common Stock" means the common stock, no par value per
share, of the Company.
"Company" means Lakota Technologies, Inc., a Colorado
corporation, and its successors.
"Company Corporate Documents" means the articles of
incorporation and by-laws of the Company.
"Control" (including, with correlative meanings, the terms
"Controlling," "Controlled by" and under "common Control with"), as
used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through the
ownership of voting securities, by contract or otherwise .
"Conversion Date" shall mean the date of delivery (including
delivery via telecopy) of a Notice of Conversion for all or a
portion of a Convertible Note by the holder thereof to the Company
as specified in each Convertible Note.
"Conversion Price" has the meaning set forth in the
Convertible Notes.
"Conversion Shares" has the meaning set forth in the Recitals.
"Convertible Notes" means the Company's 8% Convertible Notes
due August 24, 2001 in the form attached hereto as Exhibit A hereto.
"Debt" of any Person means at any date, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all
obligations of such Person evidenced by bonds, debentures, notes, or
other similar instruments issued by such Person, (iii) all
obligations of such Person as lessee which (x) are capitalized in
accordance with GAAP or (y) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in
respect of letters of credit or other similar instruments, (v) all
Debt of others secured by a Lien on any asset of such Person,
whether or not such Debt is otherwise an obligation of such Person
and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an
Event of Default or which with the giving of notice or lapse of time
or both would, unless cured or waived, become an Event of Default.
"Default Conversion Price" has the meaning set forth in the
Convertible Notes.
"Directors" means the individuals then serving on the Board
of Directors or similar such management council of the Company.
"Environmental Laws" means any and all federal, state, local
and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, permits, concessions, grants,
franchises, licenses, agreements or other governmental restrictions
relating to the environment or to emissions, discharges or releases
of pollutants, contaminants, petroleum or petroleum products,
chemicals or industrial, toxic or hazardous substances or wastes
into the environment, including, without limitation, ambient air,
surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants,
petroleum or petroleum products, chemicals or industrial, toxic or
hazardous substances or wastes or the cleanup or other remediation
thereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, or any successor statute.
"ERISA Group" means the Company and all members of a
controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which, together
with the Company, are treated as a single employer under the Code.
"Escrow Agent" means Xxxxx Xxxxx Xxxxxx Xxxxxxxx & Xxxxxxx.
"Escrow Agreement" means a certain Escrow Agreement executed
simultaneously herewith among Escrow Agent, the Company and Purchasers.
"Event of Default" has the meaning set forth in Article XI
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" has the meaning set forth in Section 1.2.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing
(whether by virtue of partnership arrangements, by agreement to keep
well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain a minimum net worth, financial ratio or
similar requirements, or otherwise) any Debt of any other Person
and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or (ii) entered into for the
purpose of assuring in any other manner the holder of such Debt of
the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part); provided that the term
Guarantee shall not include endorsements for collection or deposit
in the ordinary course of business. The term Guarantee used as a
verb has a corresponding meaning.
"Hazardous Materials" means any hazardous materials,
hazardous wastes, hazardous constituents, hazardous or toxic
substances or petroleum products (including crude oil or any
derivative or fraction thereof), defined or regulated as such in or
under any Environmental Laws.
"Holder" or "Holders" has the meaning set forth in the
Convertible Notes.
"Intellectual Property" has the meaning set forth in Section
4.18.
"Investment" means any investment in any Person, whether by
means of share purchase, partnership interest, capital contribution,
loan, time deposit or otherwise.
"Lien" means, any lien, mechanic's lien, materialmen's lien,
lease, easement, charge, encumbrance, mortgage, conditional sale
agreement, title retention agreement, agreement to sell or convey,
option, claim, title imperfection, encroachment or other survey
defect, pledge, restriction, security interest or other adverse
claim, whether arising by contract or under law or otherwise
(including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and
the filing of any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction in respect of any of the
foregoing).
"Majority Holders" means (i) as of the Closing Date, the
Purchasers and (ii) at any time thereafter, the holders of more than
50% in aggregate principal amount of the Convertible Notes
outstanding at such time.
"Market Price" shall mean the Closing Bid Price of the Common
Stock preceding the date of determination.
"Material Plan" means at any time a Plan or Plans having
aggregate Unfunded Liabilities in excess of $500,000.
"Maturity Date" shall mean the date of maturity of the
Convertible Notes; specifically, August 24, 2001.
"Notice of Conversion" means the form to be delivered by a
holder of a Convertible Note upon conversion of all or a portion
thereof to the Company in the form of Exhibit I to the form of
Convertible Note.
"Notice of Exercise" means the form to be delivered by a
holder of a Warrant upon exercise of all or a portion thereof to the
Company in the form of Exhibit A to the form of Warrant.
"Officer's Certificate" shall mean a certificate executed by
the President, chief executive officer or chief financial officer of
the Company in the form of Exhibit D attached hereto.
"Other Taxes" has the meaning set forth in Section 3.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses,
franchises, grants, authorizations, permits, easements, variances,
exemptions, consents, certificates, orders and approvals necessary
to own, lease and operate the properties of, and to carry on the
business of the Company.
"Person" means an individual, corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
joint stock company, government (or any agency or political
subdivision thereof) or other entity of any kind.
"Plan" means at any time an employee pension benefit plan
which is covered by Title IV of ERISA or subject to the minimum
funding standards under the Code and either (i) is maintained, or
contributed to, by any member of the ERISA group for employees of
any member of the ERISA group or (ii) has at any time within the
preceding five years been maintained, or contributed to, by any
Person which was at such time a member of the ERISA Group for
employees of any Person which was at such time a member of the ERISA
group.
"Purchase Price" means the purchase price for the Securities
set forth in Section 2.2(a) hereof.
"Purchasers" means, collectively, those entities listed on
the signature page hereto and their successors and assigns,
including holders from time to time of the Convertible Notes.
"Registrable Securities" has the meaning set forth in Section
10.2(a).
"Registration Statement" has the meaning set forth in Section
10.2(b).
"Registration Rights Agreement" means the agreement between
the Company and the Purchasers dated the date hereof in the form set
forth in Exhibit C attached hereto.
"SEC Reports" shall have the meaning set forth in Section 4.7.
"Securities" means the Convertible Notes, the Warrants and,
as applicable, the Conversion Shares and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to any Person, any
corporation or other entity of which (x) a majority of the capital
stock or other ownership interests having ordinary voting power to
elect a majority of the Board of Directors or other persons
performing similar functions are at the time directly or indirectly
owned by such Person or (y) the results of operations, the assets
and the liabilities of which are consolidated with such Person under
GAAP.
"Taxes" has the meaning set forth in Section 3.6.
"Trading Day" shall mean any Business Day on which the
automated quotation system or exchange on which the Common Stock is
then traded is open for trading for at least four (4) hours.
"Transaction Agreements" means this Agreement, the
Convertible Notes, the Warrants, and the Registration Rights Agreement.
"Transfer" means any disposition of Securities that would
constitute a sale thereof under the Securities Act.
"Unfunded Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the present value of all
benefits under such Plan exceeds (ii) the fair market value of all
Plan assets allocable to such benefits (excluding any accrued but
unpaid contributions), all determined as of the then most recent
valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA
Group to the PBGC or any other Person under Title IV of ERISA.
"Warrants" means the Common Stock Purchase Warrants issued to
the Purchasers for 5,000,000 shares of Common Stock in the aggregate
on the Closing Date in the form of Exhibit B attached hereto.
"Warrant Shares" has the meaning set forth in the Recitals.
SECTION 1.2. Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall
be interpreted, all accounting determinations hereunder shall be
made, and all financial statements required to be delivered
hereunder shall be prepared, in accordance with generally accepted
accounting principles as in effect from time to time, applied on a
consistent basis (except for changes concurred in by the Company's
independent public accountants) ("GAAP"). All references to
"dollars," "Dollars" or "$" are to United States dollars unless
otherwise indicated.
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.1. Authorization of Securities.
(a) The Company has duly authorized the issuance of its
8% Convertible Notes due August 24, 2001 in the original aggregate
principal amount of up to $750,000, in the form annexed hereto as
Exhibit A.
(b) The Company has duly authorized the issuance of
Warrants to purchase up to 5,000,000 shares of Common Stock in the
form annexed hereto as Exhibit B. The Warrants shall be exercisable
at any time during the period commencing September 1, 1999 and
ending on or before August 24, 2002 at the purchase price specified
in the Warrants.
SECTION 2.2. Purchase and Sale of Debentures.
(a) Subject to the terms and conditions set forth herein,
the Company agrees to issue and sell to each Purchaser, and each
Purchaser severally agrees to purchase from the Company, on the
Closing Date (as hereinafter defined), Convertible Notes in the
principal amount set opposite its name on Schedule I for a purchase
price of 100% of the principal amount thereof (the "Purchase
Price"). Each Purchaser shall deliver a check in payment of the
Purchase Price to the Escrow Agent.
(b) In connection with the Purchasers agreement to
purchase the Convertible Notes, the Company shall issue and deliver
to the Purchasers Warrants to purchase the number of shares of
Common Stock set forth opposite its name on Schedule I. No part of
the purchase price of the Convertible Notes shall be allocated to
the Warrants.
(c) The closing for the purchase and sale of the
Convertible Notes shall be held on such date (the "Closing Date"),
not later than August 30, 1999, that the Escrow Agent receives the
Purchase Price (in cleared funds) from the Purchasers and the
Convertible Notes and Warrants registered in the names of the
Purchasers in the principal amounts and numbers, respectively, set
forth on Schedule I, duly executed by the Company.
SECTION 2.3. Deliveries.
On the Closing Date, subject to the satisfaction of all terms
and conditions set forth herein, the Escrow Agent shall deliver:
(a) to the Company, $500,000 of the total Purchase Price, the
balance to be paid in accordance with the terms and conditions of
the Escrow Agreement.
(b) to each Purchaser, Convertible Notes duly executed on behalf of
the Company registered in the name of such Purchaser in the
principal amount set opposite its name on Schedule I annexed hereto,
together with Warrants duly executed on behalf of the Company to
purchase the number of shares of Common Stock set forth
opposite the name of such Purchaser on Schedule 1, registered in
the name of such Purchaser.
ARTICLE III
PAYMENT TERMS OF CONVERTIBLE NOTE
SECTION 3.1. Payment of Principal and Interest. The
Company will pay all amounts due on each Convertible Note by the
method and at the address specified for such purpose by the
applicable Purchaser in writing, without the presentation or
surrender of any Convertible Note or the making of any notation
thereon, except that upon written request of the Company made
concurrently with or reasonably promptly after payment or prepayment
in full of the Convertible Note, the holder shall surrender the
Convertible Note for cancellation, reasonably promptly after any
such request, to the Company at its principal executive office.
Prior to any sale or other disposition of any Convertible Note, the
holder thereof will, at its election, either endorse thereon the
amount of principal paid thereon and the last date to which interest
has been paid thereon or surrender the Convertible Note to the
Company in exchange for a new Convertible Note or Convertible Notes.
The Company will afford the benefits of this Section 3.1 to any
direct or indirect transferee of the Convertible Note purchased
under this Agreement and that has made the same agreement relating
to this Convertible Note as the Purchaser has in this Section 3.1;
provided that such transferee is an "accredited investor" under Rule
501 of the Securities Act.
SECTION 3.2 Payment of Interest. Interest shall accrue on
the outstanding principal amount of each Convertible Note and shall
be payable monthly on the last day of each calendar month of each
year, commencing October 31, 1999, in the manner set forth in the
Convertible Note.
SECTION 3.3. Voluntary Prepayment. For so long as no Event
of Default shall have occurred and is continuing, the Company may,
at its option, repay, in whole or in part, the Convertible Notes at
130% of the principal amount thereof, plus accrued but unpaid
interest through the date of prepayment following at least five (5)
Business Days prior written notice to the Purchasers (the expiration
of such five (5) Business Day period being referred to as the
"prepayment date"); provided, however, that if such date is not a
Business Day, the prepayment date shall be the next Business Day
thereafter. Partial prepayments shall be in an aggregate principal
amount of at least $100,000 and a principal amount of at least
$10,000 or a multiple thereof for the Convertible Notes purchased
from any Holder, unless all of the Convertible Notes registered in
the name of the Holder are to be redeemed.
SECTION 3.4. Mandatory Prepayments.
Upon (i) a transfer of all or substantially all of the
assets of the Company to any Person in a single transaction or
series of related transactions, or (ii) a consolidation, merger or
amalgamation of the Company with or into another Person in which the
Company is not the surviving entity (other than a merger which is
effected solely to change the jurisdiction of incorporation of the
Company and results in a reclassification, conversion or exchange of
outstanding shares of Common Stock solely into shares of Common
Stock) (each of items (i) and (ii) being referred to as a "Sale
Event"), then, in each case, the Company shall, upon request of any
Holder, redeem the Convertible Notes registered in the name of such
Holder in cash for 130% of the principal amount, plus accrued but
unpaid interest through the date of redemption, or at the election
of the Holder, such Holder may convert the unpaid principal amount
of such Convertible Notes (together with the amount of accrued but
unpaid interest) into shares of Common Stock at the Conversion Price.
SECTION 3.5. Prepayment Procedures.
(a) Any permitted prepayment or redemption of the Convertible Notes
pursuant to Sections 3.3 or 3.4 above shall be deemed to be
effective and consummated (for purposes of determining the time at
which the Purchasers shall thereafter not be entitled to deliver a
Notice of Conversion for the Convertible Notes) as follows:
(i) A prepayment pursuant to Section 3.3, the "prepayment date"
specified therein;
(ii) A redemption pursuant to Section 3.4, the date of consummation
of the applicable Sale Event;
(b) On the Maturity Date and on the effective date of a repayment
or redemption of the Convertible Notes as specified in Section
3.5(a) above, the Company shall deliver by wire transfer of funds
the repayment/redemption price to each Purchaser of the Convertible
Notes subject to redemption. Should any Purchaser not receive
payment of any amounts due on redemption of its Convertible Notes by
reason of the Company's failure to make payment at the times
prescribed above for any reason, the Company shall pay to the
applicable holder on demand (x) interest on the sums not paid when
due at an annual rate equal to the lesser of (i) the maximum lawful
rate and (ii) 2% per annum, compounded at the end of each thirty
(30) days, until the applicable holder is paid in full and (y) all
costs of collection, including, but not limited to, reasonable
attorneys' fees and costs, whether or not suit or other formal
proceedings are instituted.
(c) The Company shall select the Convertible Notes to be redeemed
in any redemption in which not all of the Convertible Notes are to
be redeemed so that the ratio of the Convertible Notes of each
holder selected for redemption to the total Convertible Notes owned
by that holder shall be the same as the ratio of all such
Convertible Notes selected for redemption bears to the total of all
then outstanding Convertible Notes. Should any Convertible Notes
required to be redeemed under the terms hereof not be redeemed
solely
by reason of limitations imposed by law, the applicable
Convertible Notes shall be redeemed on the earliest possible dates
thereafter to the maximum extent permitted by law.
(d) Any Notice of Conversion delivered by any Purchaser (including
delivery via telecopy) to the Company prior to the (x) Maturity Date
or (y) effective date of a voluntary repayment pursuant to Section
3.3 or a mandatory prepayment pursuant to Section 3.4 as specified
in Section 3.5(a) above), shall be honored by the Company and the
conversion of the Convertible Notes shall be deemed effected on the
Conversion Date. In addition, between the effective date of a
voluntary prepayment pursuant to Section 3.3 or a mandatory
prepayment pursuant to Section 3.4 as specified in Section 3.5(a)
above and the date the Company is required to deliver the redemption
proceeds in full to the Purchasers, the Purchasers may deliver a
Notice of Conversion to the Company. Such notice will be (x) of no
force or effect if the Company timely pays the redemption proceeds
to the Purchasers when due or (y) honored on or as of the date the
Notice of Conversion if the Company fails to timely pay the
redemption proceeds to the Purchasers when due.
SECTION 3.6 Payment of Additional Amounts.
(a) Any and all payments by the Company hereunder or under the
Convertible Notes to any Purchaser and each "qualified assignee"
thereof shall be made free and clear of and without deduction or
withholding for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities
with respect thereto (all such taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to
as "Taxes") unless such Taxes are required by law or the
administration thereof to be deducted or withheld. If the Company
shall be required by law or the administration thereof to deduct or
withhold any Taxes from or in respect of any sum payable under the
Convertible Notes (i) the holders of Convertible Notes subject to
such Taxes shall have the right, but not the obligation, for a
period of thirty (30) days commencing upon the day it shall have
received written notice form the Company that it is required to
withhold Taxes to transfer all or any portion of the Convertible
Notes to a qualified assignee to the extent such transfer can be
effected in accordance with the other provisions of this Agreement
and applicable law; (ii) the Company shall make such deductions or
withholdings; (iii) the sum payable shall be increased as may be
necessary so that after making all required deductions or
withholdings (including deductions or withholdings applicable to
additional amounts paid under this Section 3.6) such Purchaser
receives an amount equal to the sum it would have received if no
such deduction or withholding had been made; and (iv) the Company
shall forthwith pay the full amount deducted or withheld to the
relevant taxation or other authority in accordance with applicable
law. A "qualified assignee" of a Purchaser is a Person that is (x)
organized under the laws of (i) the United States or (ii) any
jurisdiction other than the United States or any political
subdivision thereof and that (y) represents and warrants to the
Company that payments of the Company to such assignee under the laws
in existence on the date of this Agreement would not be subject to
any Taxes and (z) from time to time, as and when requested by the
Company, executes and delivers to the Company and the Internal
Revenue Service forms, and provides the Company with any information
necessary to establish such assignee's continued exemption from
Taxes under applicable law.
(b) The Company shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or
similar levies (all such taxes, charges and levies hereinafter
referred to as "Other Taxes") which arise from any payment made
under any of the Transaction Agreements or from the execution,
delivery or registration of, or otherwise with respect to, this
Agreement other than Taxes payable solely as a result of the
transfer from the Purchasers to a Person of any Security.
(c) The Company shall indemnify each Purchaser, or qualified
assignee, for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 3.6) paid by each
Purchaser, or qualified assignee, and any liability (including
penalties, interest and expenses) arising therefrom or with respect
thereto, unless such Taxes or Other Taxes are required by law to be
deducted or withheld. Payment under this indemnification shall be
made within 30 days from the date such Purchaser or assignee makes
written demand therefor. A certificate as to the amount of such
Taxes or Other Taxes submitted to the Company by such Purchaser or
assignee shall be conclusive evidence of the amount due from the
Company to such party.
(d) Within 30 days after the date of any payment of Taxes, the
Company will furnish to each Purchaser the original or a certified
copy of a receipt evidencing payment thereof.
(e) Each Purchaser shall provide to the Company a Form W-8, stating
that it is a non-U.S. person, together with any additional tax forms
which may be required under the Code, as amended after the date
hereof, to allow interest payments to be made to it without deduction.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers, and
each of them, as of the Closing Date the following:
SECTION 4.1. Organization and Qualification. The Company
is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, with
full power and authority to own, lease, use and operate its
properties and to carry on its business as and where now owned,
leased, used, operated and conducted. The Company has no
Subsidiaries except as set forth on Schedule 4.1 . The Company is
duly qualified to conduct business as a foreign corporation and is
in good standing in every jurisdiction in which the nature of the
business conducted by it makes such qualification necessary, except
where such failure would not have a Material Adverse Effect. A
"Material Adverse Effect" means any material adverse effect on the
operations, results of operations, properties, assets or condition
(financial or otherwise) of the Company, or on the transactions
contemplated hereby or by the agreements or instruments to be
entered into in connection herewith.
SECTION 4.2. Authorization and Execution.
(a) The Company has all requisite corporate power and authority to
enter into and perform each Transaction Agreement and to consummate
the transactions contemplated hereby and thereby and to issue the
Securities in accordance with the terms hereof and thereof.
(b) The execution, delivery and performance by the Company of each
Transaction Agreement and the issuance by the Company of the
Securities have been duly and validly authorized and no further
consent or authorization of the Company, its Board of Directors or
its shareholders is required.
(c) This Agreement has been duly executed and delivered by the
Company.
(d) This Agreement constitutes, and upon execution and delivery
thereof by the Company, each of the other Transaction Agreements
will constitute, a valid and binding agreement of the Company, in
each case enforceable against the Company in accordance with its
respective terms.
SECTION 4.3. Capitalization. As of the date hereof, the
authorized shares of Common Stock are 100,000,000 shares, and as of
August 24, 1999 the issued and outstanding common stock of the
Company is approximately 36,000,000 shares. All of such outstanding
shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and non-assessable. No
shares of capital stock of the Company are subject to preemptive
rights or similar rights of the stockholders of the Company or any
liens or encumbrances imposed through the actions or failure to act
of the Company. Other than as set forth on Schedule 4.3 hereto, as
of the date hereof, (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 arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the
Company, and (ii) there are no agreements or arrangements under
which the Company is obligated to register the sale of any of its
securities under the Securities Act (except pursuant to 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 Convertible
Notes, Conversion Shares, Warrants or Warrant Shares. The Company
has furnished to Purchasers true and correct copies of the Company's
Corporate Documents, and the terms of all securities convertible
into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
SECTION 4.4. Governmental Authorization. The execution and
delivery by the Company of the Transaction Agreements does not and
will not, the issuance and sale by the Company of the Securities
does not and will not, and the consummation of the transactions
contemplated hereby and by the other Transaction Agreements will
not, require any action by or in respect of, or filing with, any
governmental body, agency or governmental official except (a) such
actions or filings that have been undertaken or made prior to the
date hereof and that will be in full
force and effect (or as to which all applicable waiting periods have
expired) on and as of the date hereof or which are not required to
be filed on or prior to the Closing Date, (b) such actions or filings
that, if not obtained, would not result in a Material Adverse Effect,
and (c) the filing of a "Form D" as described in Section 7.12 below.
SECTION 4.5. Issuance of Shares. Upon conversion in
accordance with the terms of the Convertible Notes or upon exercise
in accordance with the terms of the Warrants (assuming the payment
of the exercise price set forth in the Warrants), the Conversion
Shares and Warrant Shares shall be duly and validly issued and
outstanding, fully paid and nonassessable, free and clear of any
Taxes, Liens and charges with respect to issuance except as set
forth in Article IX below and shall not be subject to preemptive
rights or similar rights of any other stockholders of the Company.
Assuming the representations and warranties of the Purchasers herein
are true and correct in all material respects, each of the
Securities will have been issued in material compliance with all
applicable U.S. federal and state securities laws. The Company
understands and acknowledges that, in certain circumstances, the
issuance of Conversion Shares and Warrant Shares could dilute the
ownership interests of other stockholders of the Company. The
Company further acknowledges that its obligation to issue Conversion
Shares upon conversion of the Convertible Notes, and Warrant Shares
upon exercise of 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.
SECTION 4.6. No Conflicts. The execution and delivery by
the Company of the Transaction Agreements to which it is a party did
not and will not, the issuance and sale by the Company of the
Securities did not and will not and the consummation of the
transactions contemplated hereby and by the other Transaction
Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation, (ii)
the Company Corporate Documents, (iii) any agreement, judgment,
injunction, order, decree or other instrument binding upon the
Company or any its assets, or result in the creation or imposition
of any Lien on any asset of the Company. The Company is in
compliance with and conforms to all statutes, laws, ordinances,
rules, regulations, orders, restrictions and all other legal
requirements of any domestic or foreign government or any
instrumentality thereof having jurisdiction over the conduct of its
businesses or the ownership of its properties, except where such
failure would not have a Material Adverse Effect.
SECTION 4.7. Financial Information. The Company has
delivered to each Purchaser true and complete copies of its
financial statements and schedules included therein through and
including December, 31, 1998 and June 30, 1999 ("Financial
Statements"), and such Financial Statements and schedules do not
contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in
light of the circumstances under which they were made, not
misleading. There have been no material adverse changes in the
Company's business, properties, results of operations, condition
(financial or otherwise) or prospects since the date of the
Financial Statements which have not been disclosed to the Purchasers
in writing. The Financial Statements, including the footnotes
thereto, except as indicated therein, (i) complied in all material
respects with applicable accounting requirements and the published
rules and regulations of the Commission with respect thereto and
(ii) have been prepared in accordance with GAAP consistently applied
throughout the periods indicated, except that the unaudited
financial statements do not contain notes and may be subject to
normal audit adjustments and normal annual
adjustments. Such financial statements fairly present the financial
condition of the Company at the dates indicated and its results of
their operations and cash flows for the periods then ended and,
except as indicated therein, reflect all claims against and all
Debts and liabilities of the Company, fixed or contingent. Since
June 30, 1999 (the "Balance Sheet Date"), there has been (x) no
Material Adverse Change in the assets or liabilities, or in the
business or condition, financial or otherwise, or in the results of
operations or prospects, of the Company, whether as a result of any
legislative or regulatory change, revocation of any license or rights
to do business, fire, explosion, accident, casualty, labor trouble,
flood, drought, riot, storm, condemnation, act of God, public force
or otherwise and (y) no Material Adverse Change in the assets or
liabilities, or in the business or condition, financial or otherwise,
or in the results of operations or prospects, of the Company, except
in the ordinary course of business; and no fact or condition exists or is
contemplated or threatened which might cause such a change in the
future.
SECTION 4.8. Litigation. There is no action, suit or
proceeding pending or, to the knowledge of the Company, threatened
against the Company, before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely
affect the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company or which
challenges the validity of any Transaction Agreements.
SECTION 4.9. Compliance with ERISA and other Benefit Plans.
(a) Each member of the ERISA Group has fulfilled its
obligations under the minimum funding standards of ERISA and the
Code with respect to each Plan and is in compliance in all material
respects with the presently applicable provisions of ERISA and the
Code with respect to each Plan. No member of the ERISA Group has (i)
sought a waiver of the minimum funding standard under Section 412 of
the Code in respect of any Plan, (ii) failed to make any required
contribution or payment to any Plan or Multiemployer Plan or in
respect of any Benefit Arrangement, or made any amendment to any
Plan or Benefit Arrangement, which has resulted or could result in
the imposition of a Lien or the posting of a bond or other security
under ERISA or the Code or (iii) incurred any liability under Title
IV of ERISA other than a liability to the PBGC for premiums under
Section 4007 of ERISA.
(b) The benefit plans not covered under clause (a) above
(including profit sharing, deferred compensation, stock option,
employee stock purchase, bonus, retirement, health or insurance
plans, collectively the "Benefit Plans") relating to the employees
of the Company are duly registered where required by, and are in
good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under
the Benefit Plans to the date hereof have been made, the respective
fund or funds established under the Benefit Plans are funded in
accordance with applicable laws, and no past service funding
liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities,
either on a "going concern" or "winding up" basis and determined in
accordance with all applicable laws and actuarial practices and
using actuarial assumptions and methods that are reasonable in the
circumstances. No event has occurred and no condition exists with
respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration
revoked or wound up (in
whole or in part) or refused for the purposes of any applicable laws
or being placed under the administration of any relevant pension
benefits regulatory authority or being required to pay any taxes or
penalties (in any material amounts) under any applicable laws.
SECTION 4.10. Environmental Matters. The costs and
liabilities associated with Environmental Laws (including the cost
of compliance therewith) are unlikely to have a material adverse
effect on the business, condition (financial or otherwise),
operations, performance, properties or prospects of the Company.
The Company conducts its businesses in compliance in all material
respects with all applicable Environmental Laws.
SECTION 4.11. Taxes. All United States federal, state,
county, municipality local or foreign income tax returns and all
other material tax returns (including foreign tax returns) which are
required to be filed by or on behalf of the Company have been filed
and all material taxes due pursuant to such returns or pursuant to
any assessment received by the Company have been paid, except those
being disputed in good faith and for which adequate reserves have
been established. The charges, accruals and reserves on the books of
the Company in respect of taxes or other governmental charges have
been established in accordance with GAAP.
SECTION 4.12. Investments, Joint Ventures. Except as set
forth on Schedule 4.1, the Company does not have a direct or
indirect Investment in any Person, and the Company is not a party to
any partnership, management, shareholders' or joint venture or
similar agreement.
SECTION 4.13. Not an Investment Company. The Company is
not an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
SECTION 4.14. Full Disclosure. The information heretofore
furnished by the Company to the Purchasers for purposes of or in
connection with this Agreement or any transaction contemplated
hereby does not, and all such information hereafter furnished by the
Company to the Purchasers will not (in each case taken together and
on the date as of which such information is furnished), contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in the
light of the circumstances under which they are made, not misleading.
SECTION 4.15. No solicitation; No Integration with Other
Offerings. No form of general solicitation or general advertising
was used by the Company or, to the best of its actual knowledge, any
other Person acting on behalf of the Company, in connection with the
offer and sale of the Securities. Neither the Company, nor, to its
knowledge, any Person acting on behalf of the Company, has, either
directly or indirectly, sold or offered for sale to any Person
(other than the Purchasers) any of the Securities or, within the six
months prior to the date hereof, any other similar security of the
Company except as contemplated by this Agreement, and the Company
represents that neither itself nor any Person authorized to act on
its behalf (except that the Company makes no representation as to
the Purchasers and their Affiliates) will sell or offer for sale any
such security to, or solicit any offers to buy any such security
from, or otherwise approach or negotiate in respect thereof with,
any Person or Persons so as thereby to cause the issuance or sale of
any of the Securities to be in violation of any of the provisions of
Section 5 of the Securities Act.
SECTION 4.16. Permits. (a) The Company has all material
Permits; (b) all such Permits are in full force and effect, and the
Company has fulfilled and performed all material obligations with
respect to such Permits; (c) no event has occurred which allows, or
after notice or lapse of time would allow, revocation or termination
by the issuer thereof or which results in any other material
impairment of the rights of the holder of any such Permit; and (d)
the Company has no reason to believe that any governmental body or
agency is considering limiting, suspending or revoking any such Permit.
SECTION 4.17. ABSENCE OF ANY UNDISCLOSED LIABILITIES OR
CAPITAL CALLS. There are no liabilities of the Company of any kind
whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, and there is no existing condition,
situation or set of circumstances which could reasonably be expected
to result in such a liability, other than (i) those liabilities
provided for in the financial statements delivered pursuant to
Section 4.7 hereof and (ii) other undisclosed liabilities which,
individually or in the aggregate, would not have a Material Adverse
Effect.
SECTION 4.18. Intellectual Property Rights. The Company
owns, or is licensed under, and has the rights to use, all material
patents, trademarks, trade names, copyrights, technology, know-how
and processes (collectively, "Intellectual Property") used in, or
necessary for the conduct of its business; no claims have been
asserted by any Person to the use of any such Intellectual Property
or challenging or questioning the validity or effectiveness of any
license or agreement related thereto. To the best of the Company's
knowledge, there is no valid basis for any such claim and the use of
such Intellectual Property by the Company will not infringe upon the
rights of any Person.
SECTION 4.19. Insurance. The Company maintains, with
financially sound and reputable insurance companies, insurance in at
least such amounts and against such risks such that any uninsured
loss would not have a Material Adverse Effect. All insurance
coverages of the Company are in full force and effect and there are
no past due premiums in respect of any such insurance.
SECTION 4.20. Title to Properties. The Company has good and
marketable title to all its properties reflected on the financial
statements referred to in Section 4.7, free and clear of all Liens,
other than Liens set forth on the Financial Statements or Schedule
4.20.
SECTION 4.21. Internal Accounting Controls. The Company
maintains 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 GAAP and to maintain asset
accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
SECTION 4.22. Foreign Practices. Neither the Company nor,
to the Company's knowledge, any employee or agent of the Company has
made any payments of funds of the
Company, or received or retained any funds, in each case (x) in
violation of any law, rule or regulation or (y) of a character required
to be disclosed by the Company in any of the SEC Reports.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
SECTION 5.1. Purchasers. Each Purchaser severally (and not
jointly) hereby represents and warrants to the Company solely as to
such Purchaser that:
(a) the Purchaser is an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act and the Securities to be
acquired by it pursuant to this Agreement are being acquired for its
own account and, as of the date hereof, not with a view toward, or
for sale in connection with, any distribution thereof except in
compliance with applicable United States federal and state
securities law; provided that the disposition of the Purchaser's
property shall at all times be and remain within its control;
(b) if the Purchaser is a corporation or partnership, the
execution, delivery and performance of this Agreement and the
purchase of the Securities pursuant hereto are within the
Purchaser's corporate or partnership powers, as applicable, and have
been duly and validly authorized by all requisite corporate or
partnership action;
(c) this Agreement has been duly executed and delivered by the
Purchaser.
(d) the execution and delivery by the Purchaser of the Transaction
Agreements to which it is a party does not, and the consummation of
the transactions contemplated hereby and thereby will not,
contravene or constitute a default under or violation of (i) any
provision of applicable law or regulation, or (ii) any agreement,
judgment, injunction, order, decree or other instrument binding upon
such Purchaser;
(e) such Purchaser understands that the Securities have not been
registered under the Securities Act and may not be transferred or
sold except as specified in this Agreement or the remaining
Transition Agreements;
(f) this Agreement constitutes a valid and binding agreement of the
Purchaser enforceable in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency or similar laws affecting the
enforceability of creditors rights generally and (ii) equitable
principles of general applicability;
(g) the Purchaser has such knowledge and experience in financial
and business matters so as to be capable of evaluating the merits
and risks of its investment in the Securities and the Purchaser is
capable of bearing the economic risks of such investment;
(h) the Purchaser is knowledgeable, sophisticated and experienced
in business and financial matters; the Purchaser has previously
invested in securities similar to the
Securities and fully understands the limitations on transfer described
herein; the Purchaser has been afforded access to information about the
Company and the financial condition, results of operations, property,
management and prospects of the Company sufficient to enable it to
evaluate its investment in the Securities; the Purchaser has been
afforded the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the
Company concerning the terms and conditions of the offering of the
Securities and the merits and the risks of investing in the
Securities; and the Purchaser has been afforded the opportunity to
obtain such additional information which the Company possesses or
can acquire that is necessary to verify the accuracy and
completeness of the information given to the Purchaser concerning
the Company. The foregoing does not in any way relieve the Company
of its representations and other undertakings hereunder, and shall
not limit any Purchaser's ability to rely thereon; and
(i) no part of the source of funds used by the Purchaser to acquire
the Securities constitutes assets allocated to any separate account
maintained by the Purchaser in which any employee benefit plan (or
its related trust) has any interest.
(J) Purchaser is not a citizen of the United States.
ARTICLE VI
CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
SECTION 6.1. Conditions Precedent to the Purchasers' Obligation
to Purchase. The obligation of each Purchaser hereunder
to purchase the Convertible Notes at the Closing is subject to the
satisfaction, on or before the Closing Date of each of the following
conditions, provided that these conditions are for such Purchaser's
sole benefit and may be waived by such Purchaser 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 Purchasers;
(b) The Company shall have delivered to the Escrow Agent duly
executed certificates representing the Convertible Notes and the
Warrants in accordance with Section 2.3(b) hereof;
(c) The representations and warranties of the Company contained in
each Transaction Agreement 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 specified date) and the Company shall have
performed, satisfied and complied with all covenants, agreements and
conditions required by such Transaction Agreements to be performed,
satisfied or complied with by it at or prior to the Closing Date.
The Purchasers' shall have received an Officer's Certificate
executed by the chief executive officer of the Company, dated as of
the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by the Purchasers, including
but not limited
to certificates with respect to the Company Corporate Documents,
resolutions relating to the transactions contemplated hereby and the
incumbencies of certain officers and Directors of the Company.
The form of such certificate is attached hereto as Exhibit D;
(d) The Company shall have received all governmental, Board of
Directors, shareholders and third party consents and approvals
necessary or desirable in connection with the issuance and sale of
the Securities;
(e) All applicable waiting periods in respect to the issuance and
sale of the Securities shall have expired without any action having
been taken by any competent authority that could restrain, prevent
or impose any materially adverse conditions thereon or that could
seek or threaten any of the foregoing;
(f) No law or regulation shall have been imposed or enacted that,
in the judgment of the Purchasers, could adversely affect the
transactions set forth herein or in the other Transaction
Agreements, and no law or regulation shall have been proposed that
in the reasonable judgment of Purchasers could reasonably have any
such effect;
(g) The Company Corporate Documents shall be in full force and
effect and no term or condition thereof shall have been amended,
waived or otherwise modified without the prior written consent of
the Purchasers;
(h) There shall have occurred no material adverse change in the
business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company since June 30,
1999;
(i) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any
arbitrator or governmental instrumentality that challenges the
validity of or purports to affect this Agreement or any other
Transaction Agreement, or other transaction contemplated hereby or
thereby or that could reasonably be expected to have a Material
Adverse Effect, or any material adverse effect on the enforceability
of the Transaction Agreements or the Securities or the rights of the
holders of the Securities or the Purchasers hereunder;
(j) The Purchasers shall have confirmed receipt of the Convertible
Notes and the Warrants to be issued, duly executed by the Company in
the denominations and registered in the names of the Purchasers
specified in or pursuant to Schedule I;
(k) There shall not have occurred any disruption or adverse change
in the financial or capital markets generally, or in the market for
the Common Stock (including but not limited to any suspension or
delisting), which the Purchasers reasonably deem material in
connection with the purchase of the Securities;
(l) Immediately before and after the Closing Date, no Default or
Event of Default shall have occurred and be continuing; and
(m) The Purchasers shall have received all other certificates,
instruments, agreements or other documents as they shall reasonably
request.
SECTION 6.2. Conditions to the Company's Obligations. The
obligations of the Company to issue and sell the Securities to the
Purchasers pursuant to this Agreement are subject to the
satisfaction, at or prior to any Closing Date, of the following
conditions:
(a) The representations and warranties of the Purchasers contained
herein shall be true and correct in all material respects on the
Closing Date and the Purchasers shall have performed and complied in
all material respects with all agreements required by this Agreement
to be performed or complied with by the Purchasers at or prior to
the Closing Date;
(b) The issue and sale of the Securities by the Company shall not
be prohibited by any applicable law, court order or governmental
regulation;
(c) Receipt by the Company of duly executed counterparts of this
Agreement and the Registration Rights Agreement signed by the
Purchasers; and
(d) The Escrow Agent shall have received payment of the Purchase
Price in cleared funds.
ARTICLE VII
AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date
hereof for so long as any Convertible Notes remain outstanding
(except for Sections 7.1, 7.9, 7.10 and 7.11, which shall apply for
so long as any Convertible Notes or Warrants remain outstanding) and
for the benefit of the Purchasers:
SECTION 7.1. Information. The Company will deliver to each
holder of the Convertible Notes:
(a) promptly upon the filing thereof, copies of (i) all
registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent), and (ii)
when the Company becomes a "reporting company" under the Exchange
Act all reports on Forms 10-K, 10-Q and 8-K (or their equivalents)
which the Company has filed with the Commission; and
(b) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and
proxy statements so mailed and any other document generally
distributed to shareholders.
SECTION 7.2. Payment of Obligations. The Company will, pay
and discharge, at or before maturity, all its liabilities, except
where the same may be contested in good faith by appropriate
proceedings and will maintain, in accordance with GAAP, appropriate
reserves for the accrual of any of the same.
SECTION 7.3. Maintenance of Property; Insurance. The
Company will keep all property useful and necessary in its business
in good working order and condition, ordinary wear and tear
excepted. In addition, the Company will maintain insurance in at
least such amounts and against such risks as it has insured against
as of the Closing Date.
SECTION 7.4. Maintenance of Existence. The Company will
continue to engage in business of the same general type as now
conducted by it, and will preserve, renew and keep in full force and
effect its corporate existence and its material rights, privileges
and franchises necessary or desirable in the normal conduct of
business.
SECTION 7.5. Compliance with Laws. The Company will
comply, in all material respects, with all federal, state,
municipal, local or foreign applicable laws, ordinances, rules,
regulations, municipal by-laws, codes and requirements of
governmental authorities (including, without limitation,
Environmental Laws and ERISA and the rules and regulations
thereunder) except (i) where compliance therewith is contested in
good faith by appropriate proceedings or (ii) where non-compliance
therewith could not reasonably be expected, in the aggregate, to
have a material adverse effect on the business, condition (financial
or otherwise), operations, properties or prospects of the Company.
SECTION 7.6. Inspection of Property, Books and Records.
The Company will keep proper books of record and account in which
full, true and correct entries shall be made of all dealings and
transactions in relation to its business and activities; and will
permit, during normal business hours, a representative of the
Purchasers to visit and inspect any of its properties, upon
reasonable prior notice, to examine and make abstracts from any of
its books and records and to discuss its affairs, finances and
accounts with its executive officers and independent public
accountants (and by this provision the Company authorizes its
independent public accountants to disclose and discuss with the
Purchasers the affairs, finances and accounts of the Company), all
at such reasonable times.
SECTION 7.7. Investment Company Act. The Company will not
be or become an open-end investment trust, unit investment trust or
face-amount certificate company that is or is required to be
registered under Section 8 of the Investment Company Act of 1940, as
amended.
SECTION 7.8. Use of Proceeds. The proceeds from the
issuance and sale of the Convertible Notes by the Company shall be
used for working capital purposes. None of the proceeds from the
issuance and sale of the Convertible Notes by the Company pursuant
to this Agreement will be used directly or indirectly for the
purpose, whether immediate, incidental or ultimate, of purchasing or
carrying any "margin stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System.
SECTION 7.9. Reserved Shares. The Company shall at all
times have authorized, and reserved for the purpose of issuance, a
sufficient number of shares of Common Stock to provide for the full
conversion of the outstanding Convertible Notes and issuance of the
Conversion Shares and the exercise in full of the Warrants and the
issuance of the Warrant Shares.
SECTION 7.10. Irrevocable Instructions. Upon receipt of a
Notice of Conversion or Notice of Exercise, as applicable, the
Company shall immediately issue irrevocable instructions to its
transfer agent to issue certificates, registered in the name of each
Purchaser or its nominee, for the Conversion Shares or Warrant
Shares, as applicable, in such amounts as specified from time to
time by each Purchaser to the Company upon proper conversion of the
Convertible Notes or exercise of the Warrants. Upon conversion of
any Convertible Notes in accordance with their terms and/or exercise
of any Warrants in accordance with their terms, the Company will,
and will use its best lawful efforts to cause its transfer agent to,
issue one or more certificates representing shares of Common Stock
in such name or names and in such denominations specified by a
Purchaser in a Notice of Conversion or Notice of Exercise, as the
case may be. As long as the Registration Statement contemplated by
the Registration Rights Agreement shall remain effective, the shares
of Common Stock issuable upon conversion of any Convertible Notes or
exercise of any Warrants shall be issued to any transferee of such
shares from a Purchaser without any restrictive legend. The Company
further warrants and agrees that no instructions other than these
instructions have been or will be given to its transfer agent.
Nothing in this Section 7.10 shall affect in any way a Purchaser's
obligation to comply with all securities laws applicable to such
Purchaser upon resale of such shares of Common Stock, including any
prospectus delivery requirements.
SECTION 7.11. Maintenance of Reporting Status; Supplemental
Information. So long as any of the Securities are outstanding, when
the Company becomes a "reporting company" under the Exchange Act,
the Company shall timely file all reports required to be filed with
the Commission pursuant to the Exchange Act. The Company shall not
terminate its status as an issuer required to file reports under the
Exchange Act, even if the Exchange Act or the rules and regulations
thereunder would permit such termination. If at anytime the Company
is not subject to the requirements of Section 13 or 15(d) of the
Exchange Act, the Company will promptly furnish at its expense, upon
request, for the benefit of the holders from time to time of
Securities, and prospective purchasers of Securities, information
satisfying the information requirements of Rule 144 under the
Securities Act.
SECTION 7.12. Form D; Blue Sky Laws. The Company agrees to
file a "Form D" with respect to the Securities as required under
Regulation D of the Securities Act and to provide a copy thereof to
each Purchaser 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 Purchasers 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 each Purchaser
on or prior to the Closing Date.
SECTION 7.13. Capital Reorganization. If and whenever there
shall occur:
(i) a reclassification or redesignation of the shares of Common
Stock or any change of the share of Common Stock into other shares, or,
(ii) a Sale Event.
(any such event being herein called a "Capital Reorganization"),
then in each such case the holder who exercises the right to convert
Convertible Notes or exercise the Warrants after the effective date
of such Capital Reorganization shall be entitled to receive and
shall accept, upon the exercise of such right, in lieu of the number
of shares of Common Stock to which such holder was theretofore
entitled upon the exercise of the conversion privilege, the
aggregate number of shares or other securities or property of the
Company or of the body corporate resulting from such Capital
Reorganization that such holder would have been entitled to receive
as a result of such Capital Reorganization if, on the effective date
thereof, such holders had been the holder of the number of shares of
Common Stock to which such holder was theretofore entitled upon
conversion; provided, however, that no such Capital Reorganization
shall be consummated in effect unless all necessary steps shall have
been taken so that such holders shall thereafter be entitled to
receive such number of shares or other securities of the Company or
of the body corporate resulting from such Capital Reorganization,
subject to adjustment thereafter in accordance with provisions the
same, as nearly as may be possible, as those contained above.
SECTION 7.14. Notice to Noteholders.
The Company shall give the registered holders of the
Convertible Notes and Warrants written notice of any record, not
less than 10 Business Days prior to such record date or, if no
record date is fixed, not less than 10 Business Days prior to the
effective date of such event, which notice shall set forth the
particulars of the proposed event or the extent that such
particulars have been determined at the time of giving the notice.
ARTICLE VIII
NEGATIVE COVENANTS
The Company hereby agrees that, from and after the date
hereof for so long as any Convertible Notes, and in the case of
Section 8.1, the Warrants remain outstanding and for the benefit of
the Purchasers:
SECTION 8.1. No Reverse Stock Split. The Company will not
consolidate the outstanding shares of Common Stock into a smaller
number of shares.
SECTION 8.2. Limitation on Future Financing. The Company
agrees that it will not, without the consent of the registered
holders of the Convertible Notes, enter into any financing at a
discount to Market Price exceeding 25% until six months after the
effective date of the Registration Statement; provided, however,
anything to the contrary appearing herein notwithstanding, neither
this Section nor any other provision hereof shall be construed to
restrict or
prohibit the Company's right to restructure, amend or
modify any facility existing on the date hereof that does not
materially impair the rights of the holders of the Convertible Notes.
ARTICLE IX
RESTRICTIVE LEGENDS
SECTION 9.1 Restrictions on Transfer. From and after
their respective dates of issuance, none of the Securities shall be
transferable except upon the conditions specified in this Article
IX, which conditions are intended to ensure compliance with the
provisions of the Securities Act in respect of the Transfer of any
of such Securities or any interest therein. Each Purchaser will use
its best efforts to cause any proposed transferee of any Securities
held by it to agree to take and hold such Securities subject to the
provisions and upon the conditions specified in this Article IX.
SECTION 9.2. Restrictive legends.
(a) Each certificate for Securities issued to a Purchaser
or to a subsequent transferee shall (except as contemplated by
Section 7.10 and Section 9.1 hereof) include a legend in
substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR
THE BENEFIT OF THE CORPORATION THAT SUCH SECURITIES MAY BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, (B)
PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT.
SECTION 9.3. Notice of Proposed Transfers. Prior to any
proposed Transfer of the Securities (other than a Transfer (i)
registered or exempt from registration under the Securities Act,
(ii) to an affiliate of a Purchaser which is an "accredited
investor" within the meaning of Rule 501(a) under the Securities
Act, provided that any such transferee shall agree to be bound by
the terms of this Agreement and the Registration Rights Agreement,
or (iii) to be made in reliance on Rule 144 under the Securities
Act), the holder thereof shall give written notice to the Company of
such holder's intention to effect such Transfer, setting forth the
manner and circumstances of the proposed Transfer, which shall be
accompanied by (A) an opinion of counsel reasonably acceptable to
the Company, confirming that such transfer does not give rise to a
violation of the Securities Act, (B) representation letters in form
and substance reasonably satisfactory to the Company to ensure
compliance with the provisions of the Securities Act and (C) letters
in form and substance reasonably satisfactory to the Company from
each such transferee stating such transferee's agreement to be bound
by the terms of this Agreement and the Registration Rights
Agreement. Such proposed Transfer may be effected only if the
Company shall have received such notice of transfer, opinion of
counsel, representation letters and other letters referred to in the
immediately preceding sentence, whereupon the holder of such
Securities shall be entitled to Transfer such Securities in
accordance with the terms of the notice delivered by the holder to
the Company.
ARTICLE X
ADDITIONAL AGREEMENTS AMONG THE PARTIES
SECTION 10.1. Conversion Limit. Notwithstanding the
conversion rights under the Convertible Notes and exercise rights
under the Warrants, unless the Purchaser delivers a waiver in
accordance with the immediately following sentence, in no event
shall the Purchaser be entitled to convert any portion of the
Convertible Notes or exercise any portion of the Warrants, in excess
of that portion of the Convertible Notes or Warrants upon conversion
and exercise, as applicable, of which the sum of (i) the number of
shares of Common Stock beneficially owned by the Purchaser and its
Affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion
of the Convertible Note and unexercised portion of the Warrants, or
other Derivative Securities convertible into or exchangeable for
shares of Common Stock which contain a limitation similar to that
set forth in this Section 10.1), and (ii) the number of shares of
Common Stock issuable upon the conversion of the portion of the
Convertible Note or issuable upon exercise the portion of the
Warrants with respect to which this determination is being made,
would result in beneficial ownership by the Purchaser and its
Affiliates of more than 4.99% of the outstanding shares of Common
Stock. For purposes of this Section 10.1, beneficial ownership
shall be determined in accordance with Rule 13d-3 of the Exchange
Act and Regulations 13 D-G thereunder, except as otherwise provided
in this Section 10.1. The foregoing limitation shall not apply and
shall be of no further force or effect (i) immediately preceding and
upon the occurrence of any voluntary or mandatory redemption or
repayment transaction described herein or in the Convertible Notes,
(ii) on the Maturity Date or (iii) following the occurrence of any
Event of Default which is not cured within the greater of the
applicable time period specified in either (A) such written notice
of Purchaser or (B) Section 11.1 hereof.
SECTION 10.2 Registration Rights.
(a) The Company shall grant the Purchasers registration rights
covering the Conversion Shares and Warrant Shares (the "Registrable
Securities") on the terms set forth in the Registration Rights
Agreement and herein.
(b) The Company shall prepare and file as soon as practicable
following the Closing Date a registration statement (the
"Registration Statement") on Form SB-2 (or such other form as is
then available for registration) covering the sale of the
Registrable Securities. The Company shall use its best efforts to
cause the Registration Statement to be declared effective by the
Commission. The Company shall pay all expenses of registration,
other than underwriting fees and discounts, if any, in respect of
Registrable Securities offered and sold under such Registration
Statement by the Purchasers.
ARTICLE XI
EVENTS OF DEFAULT
SECTION 11.1. Events of Default. If one or more of the
following events (each an "Event of Default") shall have occurred
and be continuing:
(a) failure by the Company to pay or prepay when due, all or any
part of the principal on any of the Convertible Notes (whether by
virtue of the agreements specified in this Agreement or the
Convertible Notes);
(b) failure on the part of the Company to observe or perform in any
material respect any covenant contained in Sections 7.9, 7.10, 7.11
or 8.1 of this Agreement;
(c) trading in the Common Stock shall have been suspended by the
Commission or by the OTC Bulletin Board (except for any suspension
of trading of limited duration solely to permit dissemination of
material information regarding the Company and except if, at the
time there is any suspension on the OTC Bulletin Board, the Common
Stock is then listed and approved for trading on either the Nasdaq
Stock Market's SmallCap Market or the Nasdaq Stock Market's National
Market or a stock exchange within ten (10) Trading Days thereof);
(d) the Company shall have its Common Stock delisted from the OTC
Bulletin Board for at least ten (10) consecutive Trading Days and is
unable to obtain a listing on either the Nasdaq Stock Market's
SmallCap Market or the Nasdaq Stock Market's National Market or a
stock exchange within such ten (10) Trading Days thereof;
(e) the Company has commenced a voluntary case or other proceeding
seeking liquidation, winding-up, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency,
moratorium or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, or has consented to any such relief or to the
appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or has
made a general assignment for the benefit of creditors, or has
failed generally to pay its debts as they become due, or has taken
any corporate action to authorize any of the foregoing;
(f) an involuntary case or other proceeding has been commenced
against the Company seeking liquidation, winding-up, reorganization
or other relief with respect to it or its debts under any
bankruptcy, insolvency, moratorium or other similar law now or
hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or
any substantial part of its property, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a period
of 90 days, or an order for relief has been entered against the
Company under the federal bankruptcy laws as now or hereafter in
effect;
(g) default in any provision (including payment) of any agreement
governing the terms of any Debt of the Company in excess of
$100,000, which has not been cured within any applicable period of
grace associated therewith;
(h) judgments or orders for the payment of money which in the
aggregate at any one time exceed $200,000 and are not covered by
insurance have been rendered against the Company by a court of
competent jurisdiction and such judgments or orders shall continue
unsatisfied and unstayed for a period of 90 days.
(i) failure of the Company to have the Registration Statement
referred to in Section 10.2 of this Agreement declared effective
within 120 days from the date of this Agreement.
then, and in every such occurrence, any Purchaser may, with respect
to an Event of Default specified in paragraph (a), and the Majority
Holders may, with respect to any other Event of Default, by notice
to the Company, declare the Convertible Notes to be, and the
Convertible Notes shall thereon become immediately due and payable;
provided that in the case of any of the Events of Default specified
in paragraph (e) or (f) above with respect the Company, then,
without any notice to the Company or any other act by any Holder,
the entire amount of the Convertible Notes shall become immediately
due and payable, provided further, if any Event of Default has
occurred and is continuing, and irrespective of whether any
Convertible Note has been declared immediately due and payable
hereunder, any Holder of Convertible Notes may proceed to protect
and enforce the rights of such Holder by an action at law, suit in
equity or other appropriate proceeding, whether for the specific
performance of any agreement contained herein or in any Convertible
Note, or for an injunction against a violation of any of the terms
hereof or thereof, or in aid of the exercise of any power granted
hereby or thereby or by law or otherwise, and provided further, in
the case of any Event of Default other than those specified in
paragraphs (e) and (f), the amount declared due and payable on the
Convertible Notes shall be 130% of the principal amount thereof,
including accrued but unpaid interest through the date of payment,
except that any Holder may convert the unpaid principal amount of
any Convertible Note (including the amount of accrued but unpaid
interest) into shares of Common Stock at the Conversion Price.
SECTION 11.2. Powers and Remedies Cumulative. No right or
remedy herein conferred upon or reserved to the Purchasers is
intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion
or employment of any other appropriate right or remedy. Every power
and remedy given by the Convertible Notes or by law may be exercised
from time to time, and as often as shall be deemed expedient, by the
Purchasers.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. Notices. All notices, demands and other
communications to any party hereunder shall be in writing (including
telecopier or similar writing) and shall be given to such party at
its address set forth on the signature pages hereof, or such other
address as such party may hereafter specify for the purpose to the
other parties. Each such notice, demand or other communication shall
be effective (i) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified on the signature page
hereof, (ii) if given by mail, four days after such communication is
deposited in the mail with first class postage prepaid, addressed as
aforesaid or (iii) if given by any other means, when delivered at
the address specified in or pursuant to this Section.
SECTION 12.2. No Waivers; Amendments.
(a) No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the
exercise of any other right, power or remedy.
(b) Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such amendment, supplement or waiver is in
writing and is signed by the Company and the Majority Holders;
provided, that without the consent of each holder of any Convertible
Note affected thereby, an amendment or waiver may not (a) reduce the
aggregate principal amount of Convertible Notes whose holders must
consent to an amendment or waiver, (b) reduce the rate or extend the
time for payment of interest on any Convertible Note, (c) reduce the
principal amount of or extend the stated maturity of any Convertible
Note or (d) make any Convertible Note payable in money or property
other than as stated in such Convertible Note. In determining
whether the holders of the requisite principal amount of Convertible
Notes have concurred in any direction, consent, or waiver as
provided in any Transaction Agreement, Convertible Notes which are
owned by the Company or any other obligor on or guarantor of the
Convertible Notes, or by any Person Controlling, Controlled by, or
under common Control with any of the foregoing, shall be disregarded
and deemed not to be outstanding for the purpose of any such
determination; and provided further that no such amendment,
supplement or waiver which affects the rights of the Purchasers and
their affiliates otherwise than solely in their capacities as
holders of Convertible Notes shall be effective with respect to them
without their prior written consent.
SECTION 12.3. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Purchaser, its Affiliates, and each Person, if any, who controls
such Purchaser, or any of its Affiliates, within the meaning of the
Securities Act or the Exchange Act (each, a "Controlling Person"),
and the respective partners, agents, employees, officers and
Directors of each Purchaser, their Affiliates and any such
Controlling Person (each an "Indemnified Party" and collectively,
the "Indemnified Parties"), from and against any and all losses,
claims, damages, liabilities and expenses (including, without
limitation and as incurred, reasonable costs of investigating,
preparing or defending any such claim or action, whether or not such
Indemnified Party is a party thereto, provided that the Company
shall not be obligated to advance such costs to any Indemnified
Party other than the Purchasers unless it has received from such
Indemnified Party an undertaking to repay to the Company the costs
so advanced if it should be determined by final judgment of a court
of competent jurisdiction that such Indemnified Party was not
entitled to indemnification hereunder with respect to such costs)
which may be incurred by such Indemnified Party in connection with
any investigative, administrative or judicial proceeding brought or
threatened that relates to or arises out of, or is in connection
with any activities contemplated by any Transaction Agreement or any
other services rendered in connection herewith; provided that the
Company will not be responsible for any claims, liabilities losses,
damages or expenses that are determined by final judgment of a court
of competent jurisdiction to result from such Indemnified Party's
gross negligence, willful misconduct or bad faith.
(b) If any action shall be brought against an Indemnified Party
with respect to which indemnity may be sought against the Company
under this Agreement, such Indemnified Party shall promptly notify
the Company in writing and the Company, at its option, may, assume
the defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Party and payment of all reasonable
fees and expenses. The failure to so notify the Company shall not
affect any obligations the Company may have to such Indemnified
Party under this Agreement or otherwise unless the Company is
materially adversely affected by such failure. Such Indemnified
Party shall have the right to employ separate counsel in such action
and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Party,
unless: (i) the Company has failed to assume the defense and employ
counsel or (ii) the named parties to any such action (including any
impleaded parties) include such Indemnified Party and the Company,
and such Indemnified Party shall have been advised by counsel that
there may be one or more legal defenses available to it which are
different from or additional to those available to the Company, in
which case, if such Indemnified Party notifies the Company in
writing that it elects to employ separate counsel at the expense of
the Company, the Company shall not have the right to assume the
defense of such action or proceeding on behalf of such Indemnified
Party, provided, however, that the Company shall not, in connection
with any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be
responsible hereunder for the reasonable fees and expenses of more
than one such firm of separate counsel, in addition to any local
counsel, which counsel shall be designated by the Purchasers. The
Company shall not be liable for any settlement of any such action
effected without the written consent of the Company (which shall not
be unreasonably withheld) and the Company agrees to indemnify and
hold harmless each Indemnified Party from and against any loss or
liability by reason of settlement of any action effected with the
consent of the Company. In addition, the Company will not, without
the prior written consent of the Purchasers, settle or compromise or
consent to the entry of any judgment in or otherwise seek to
terminate any pending or threatened action, claim, suit or
proceeding in respect to which indemnification or contribution may
be sought hereunder (whether or not any Indemnified Party is a party
thereto) unless such settlement, compromise, consent or termination
includes an express unconditional release of the Purchasers and the
other Indemnified Parties, satisfactory in form and substance to the
Purchasers, from all liability arising out of such action, claim,
suit or proceeding.
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to
an Indemnified Party or insufficient to hold an Indemnified Party
harmless, then in lieu of indemnifying such Indemnified Party, the
Company shall contribute to the amount paid or payable by such
Indemnified Party as a result of such claims, liabilities, losses,
damages, or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one
hand and by the Purchasers on the other from the transactions
contemplated by this Agreement or (ii) if the allocation provided by
clause (i) is not permitted under applicable law, in such proportion
as is appropriate to reflect not only the relative benefits received
by the Company on the one hand and the Purchasers on the other, but
also the relative fault of the Company and the Purchasers as well as
any other relevant equitable considerations. Notwithstanding the
provisions of this Section 12.3, the aggregate contribution of all
Indemnified Parties shall not exceed the amount of interest and fees
actually received by the Purchasers pursuant to this Agreement. It
is hereby further agreed that the relative benefits to the Company
on the one hand and the Purchasers on the other with respect to the
transactions contemplated hereby shall be determined by reference
to, among other things, whether any untrue or alleged untrue
statement of material fact or the omission or alleged omission to
state a material fact related to information supplied by the Company
or by the Purchasers and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation
(d) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 12.3 (i) shall be in addition
to any liability the Company may have to any Indemnified Party at
common law or otherwise, (ii) shall survive the termination of this
Agreement and the other Transaction Agreements and the payment in
full of the Convertible Notes and (iii) shall remain operative and
in full force and effect regardless of any investigation made by or
on behalf of the Purchasers or any other Indemnified Party.
SECTION 12.4. Expenses. The Company and each of the
Purchasers agrees to pay their own expenses in connection with the
negotiation and preparation of the Transaction Agreements.
SECTION 12.5. Successors and Assigns. This Agreement shall
be binding upon the Company and upon the Purchasers and their
respective successors and assigns; provided that the Company shall
not assign or otherwise transfer its rights or obligations under
this Agreement to any other Person without the prior written consent
of the Majority Holders. All provisions hereunder purporting to give
rights to Purchasers and their affiliates or to holders of
Securities are for the express benefit of such Persons and their
successors and assigns.
SECTION 12.6. Brokers. The Company agrees to pay any
brokerage, finder's or other fee or commission payable in connection
with the sale of the Securities.
SECTION 12.7. New York Law; Submission to Jurisdiction;
Waiver of Jury Trial. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
EACH PARTY HERETO HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM
THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN
THE FOREGOING, AT THE ELECTION OF A HOLDER, ANY DISPUTE BETWEEN THE
HOLDER AND THE COMPANY MAY BE ARBITRATED, RATHER THAN LITIGATED IN
THE COURTS, BEFORE AND IN ACCORDANCE WITH THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION IN NEW YORK CITY. THE COMPANY AGREES TO
SUBMIT TO AND PARTICIPATE IN ANY SUCH ARBITRATION.
SECTION 12.8. Severability. If any term, provision,
covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no
way be affected, impaired or invalidated unless a failure of
consideration would result thereby.
SECTION 12.9. Survival. All provisions contained in this
Agreement (unless specifically noted to the contrary) shall survive
the payment in full of the Convertible Notes and shall remain
operative and in full force and effect.
SECTION 12.10. Counterparts. This Agreement may be executed
by telecopy signature and in any number of counterparts each of
which shall be an original with the same effect as if the signatures
there to and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized
officers, as of the date first above written.
LAKOTA TECHNOLOGIES, INC.
By:/s/Xxx Honeyma
PURCHASER:
/s/Y.L. XXXXXX
/s/XXXXXX XXXXXXXXXX
/s/XXXXX XXXXXXX
/s/XXXXXX XXXXXXXX
/s/XXX X. XXXXXXXXXX
EXHIBITS
Exhibit A - Form of Convertible Note
Exhibit B - Form of Warrant
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Officer's Certificate
SCHEDULE I
Aggregate Principal Amount Number of
Name/Address of Notes Purchase Price Warrant Shares
Y.L Xxxxxx $150,000 $150,000 1,000,000
259 Batai Ungarin
Jerusalem, Israel
Xxxxxx Xxxxxxxxxx $150,000 $150,000 1,000,000
0 Xxxxxxx Xxxxxxxxxx
Xxxx Xxxxxxxxx, Xxxxxx
Xxxxx Xxxxxxx $150,000 $150,000 1,000,000
Rechov Xxxxxx 00
Xxxxxxxxx X., Xxxxxx
Xxxxxx Xxxxxxxx $150,000 $150,000 1,000,000
3 Rechov Xxxx Sha'arim
Jerusalem, Israel
Xxx X. Xxxxxxxxxx $150,000 $150,000 1,000,000
X.X. Xxx 00000
Xxxxxxxxx, Xxxxxx
Totals $750,000 $750,000 5,000,000
SCHEDULE 4.1
(SUBSIDIARIES)
1. Lakota Oil and Gas, Inc., a Texas corporation
2. Air Nexus, Inc., a Texas corporation
3. 0-Xxxxxxxx.xxx, Inc., a Texas corporation
4. West Bolt Energy, Inc., a Texas corporation
SCHEDULE 4.3
(OTHER SECURITIES)
1. Warrants for 8,127,800 shares of Rule 144 common stock at exercise
prices varying from $.30 to $3.00 with no registration rights.
2. Options to purchase 250,000 shares of common stock with "piggyback"
registration rights.
3. 75,000 shares of common stock having "piggyback" registration rights.
4. Options to purchase 9,000 shares of common stock with no registration
rights.
5. A Senior Subordinated Convertible Redeemable Debenture in the principal
sum of $74,000.
