EXHIBIT 10.2
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
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THIS AGREEMENT, dated as of February 25, 2000 (this "Agreement"), is by and
among INTERNATIONAL FUEL TECHNOLOGY, INC., a Nevada corporation with its
principal place of business at 0000 Xxxxxxxx, Xxxxx 0000, Xx. Xxxxx, XX 00000
(the "Company"), and the purchasers listed on Schedule 1 hereof (each
individually, the "Purchaser" and collectively, the "Purchasers").
WHEREAS, the Company desires to issue and sell to the Purchasers and the
Purchasers desire to acquire the Company's 2% Convertible Debentures, due June
2005 (the "Debentures").
IN CONSIDERATION of the mutual covenants, promises and agreements set forth
herein, and for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
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Section 1.1. Certain Definitions. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"Affiliate" means, with respect to any Person, any Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with") shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities by contract or otherwise.
"Business Day" means any day except Saturday, Sunday and any day which
is a legal holiday or a day on which banking institutions in the State of New
York are authorized or required by law or other government actions to close,
between the hours of 9:30 a.m. and 6:00 p.m. New York Time.
"Closing" shall have the meaning set forth in Section 2.2(b).
"Closing Date" shall mean the date of Closing, as set forth in Section
2.2(b).
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations thereunder as in effect on the date hereof.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means shares now or hereafter authorized of the class
of Common Stock, $.01 par value, of the Company and stock of any other class
into which such shares may hereafter have been reclassified or changed.
"Debentures" means the 2% Convertible Debentures of the Company, due
June 2005, which are annexed hereto as Exhibit A and made a part hereof.
"Disclosure Documents" means the disclosure package, including but not
limited to the Company's _____________________________________________________
______________________________________________________________________________
_____________________________________________________________________________,
delivered to the Purchasers in connection with the offering by the Company of
the Debentures and the Schedules to this Agreement furnished by or on behalf of
the Company pursuant to Section 3.1.
"Escrow Agent" means Xxxxxx, Xxxxxxxxxx & Xxxxxxxx, LLP, 000 Xxxxx
Xxxxxx, 0xx Xxxxx, Xxx Xxxx, XX 00000; Tel: 000-000-0000; Fax, 000-000-0000.
"Event of Default" shall have the meaning set forth in the Debentures.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Price" shall mean the price to be paid to the Company for
each share of Common Stock to be purchased upon exercise of the Warrant in
accordance with the terms of the Warrant, which Exercise Price shall be $.01 per
share of Common Stock.
"GEM" means GEM Advisors, Inc., with its registered address at 000 0xx
Xxxxxx, 0xx Xxxxx, Xxx Xxxx, XX 00000; Phone: 000-000-0000; Fax: 000-000-0000.
"GEM Global" means GEM Global Yield Fund Limited, with it address at
Xxxxxxxx & Co., 00 Xxxxxxxx Xxxxxx, Xxxxxx X0X 0XX, Xxxxxxx.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
encumbrance, charge or security interest of any kind in or on such asset or the
revenues or income thereon or therefrom.
"Material" shall mean having a financial consequence in excess of
$100,000.
"Material Adverse Effect" shall have the meaning set forth in Section
3.1(a).
"NASD" means the National Association of Securities Dealers, Inc.
"Per Debenture Consideration" shall have the meaning set forth in
Section 2.1(a).
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"Per Share Market Value" means on any particular date (a) the closing
bid price per share of the Common Stock on such date on the OTC Bulletin
Board(R) ("OTCBB") or other stock exchange on which the Common Stock has been
listed or if there is no such price on such date, then the last bid price on
such exchange on the date nearest preceding such date, or (b) if the Common
Stock is not listed on OTCBB or any stock exchange, the closing bid price for a
share of Common Stock in the over-the-counter market, as reported by the NASD at
the close of business on such date, or (c) if the Common Stock is not quoted by
the NASD, the closing bid price for a share of Common Stock in the over-the-
counter market as reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices),
or (d) if the Common Stock is no longer publicly traded the fair market value of
a share of Common Stock as determined by an Appraiser (as defined in Section
4(c)(iv) of the Debenture selected in good faith by the holders of a majority of
principal amount of outstanding Debentures; provided, however, that the Company,
after receipt of the determination by such Appraiser, shall have the right to
select an additional Appraiser, in which case, the fair market value shall be
equal to the average of the determinations by each such Appraiser.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Purchase Price" shall have the meaning set forth in Section 2.1(a).
"Required Approvals" shall have the meaning set forth in Section
3.1(f).
"Restricted Warrant Shares" means the shares of Common Stock for which
the Warrants can be exercised in accordance with the terms hereof and the
Warrant, which are restricted on transfer and resale under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiaries" shall have the meaning set forth in Section 3.1(a).
"Underlying Shares" means the shares of Common Stock into which the
Debentures are convertible in accordance with the terms hereof and the
Debenture.
"Warrant" means the Common Stock purchase warrant issued to the
Purchasers and/or their assigns, which are annexed hereto as Exhibit B and made
a part hereof.
"Warrant Shares" means the shares of Common Stock for which the
Warrants can be exercised in accordance with the terms hereof and the Warrant.
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ARTICLE II
PURCHASE OF DEBENTURES AND WARRANTS
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Section 2.1. Execution of Documents; Delivery of Warrants
(a) Upon the execution by all parties (the "Execution Date") of this
Agreement, the Registration Rights Agreement annexed hereto as Exhibit C, the
Escrow Agreement annexed hereto as Exhibit E and the Warrants annexed hereto as
Exhibit B, all other documents, instruments and writings required to have been
delivered by the Company pursuant to this Agreement (collectively referred to as
the "Transaction Documents"), the Company shall deliver to the Escrow Agent the
following:
(i) Originally executed Warrants registered in the names of GEM
Global or its assigns in the amounts listed opposite each of
the Purchasers' names on Schedule 1, which shall have the
respective rights, preferences and privileges set forth in the
Warrant;
(ii) Three Hundred Ninety Thousand (390,000) Restricted Warrant
Shares registered in the name of GEM Global or its assigns; and
(iii) One Hundred Ninety-Five Thousand (195,000) restricted shares of
Common Stock (the "Extra Shares"). The Extra Shares shall be
held in escrow pursuant to the provisions of Section 4.26 of
this Agreement, (the documents listed in subparagraphs
(i)-(iii) above are collectively referred to as the "Initial
Securities").
(b) Upon the Escrow Agent's receipt of all duly executed Transaction
Documents and the Initial Securities, Escrow Agent shall notify each of the
Purchasers of such receipt and each of the Purchasers shall deliver thereupon to
the Escrow Agent the following:
(i) the Exercise Price for the Warrant in United States dollars;
(ii) an executed notice of exercise of the Warrant in the form
annexed hereto as Exhibit I; and
(iii) all documents, instruments and writings required to have been
delivered prior to the execution of this Agreement by each of
the Purchasers pursuant to this Agreement (the documents and
funds listed in subparagraphs (i) - (iii) above are
collectively referred to as the "Initial Consideration").
(c) Within two (2) Business Days of the Escrow Agent's receipt of the
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Initial Securities and the Initial Consideration, the Escrow Agent shall deliver
the Initial Securities and the Initial Consideration as follows:
(i) A copy of a fully executed set of the Transaction Documents, the
Exercise Price by wire transfer to an account designated in
writing by the Company and the executed notice of exercise to the
Company; and
(ii) A copy of a fully executed set of the Transaction Documents and
the Restricted Warrant Shares to each of the Purchasers.
(d) As soon as practicable after the Execution Date, the Company
shall file a duly completed registration statement on the appropriate form with
the Commission to register the Underlying Shares and Restricted Warrant Shares
under the Securities Act. In the event such registration statement is not been
granted effectiveness AND the Company has not notified Escrow Agent of said
effectiveness within one hundred and twenty (120) days following the Execution
Date, the Purchasers may terminate this Agreement, the Escrow Agreement, the
Registration Rights Agreement (or any of them) on one (1) day notice, in which
case Purchasers shall retain, the Warrants if unexercised or the Restricted
Warrant Shares if the Warrant has been exercised and exercise any and all rights
and privileges thereunder without condition or obligation to the Company.
(e) The Company is issuing the Warrants to the Purchasers in
consideration of the Purchasers entering into this Agreement.
Section 2.2. Purchase of Debentures, Closing
(a) Subject to the terms and conditions set forth in this Agreement, the
Company hereby agrees to issue and sell to the Purchasers, and the Purchasers
hereby agree to purchase from the Company on the Closing Date the amount of
Debentures listed opposite each of the Purchasers' names on Schedule 1, which
shall have the respective rights, preferences and privileges set forth in the
Debenture annexed as Exhibit A, at a price per Debenture of One Thousand Dollars
(US$1,000) (the "Per Debenture Consideration"). The Per Debenture Consideration
multiplied by the number of Debentures to be purchased by the Purchasers
hereunder is hereinafter referred to as the "Purchase Price". The total
principal amount of Debentures to be purchased by the Purchasers and the total
Purchase Price shall be Three Million Dollars ($3,000,000).
(b) The closing of the purchase and sale of the Debentures (the
"Closing") shall take place at the offices of the Escrow Agent no later than
five (5) Business Days after the registration statement, which is the subject of
the Registration Rights Agreement, annexed as Exhibit C, is granted
effectiveness by the SEC, time being of the essence unless the Purchasers agree
in writing to extend such date. The effective date of the
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Registration Statement (the "Effective Date") shall occur no later than 120 days
after the Execution Date, unless all of the Purchasers agree in advance in
writing to extend such 120 period and set forth the new effective date deadline.
The date of the Closing is hereinafter referred to as the "Closing Date".
(c) At the Closing, the Company shall deliver to the Escrow Agent
the following:
(i) originally and duly executed Debentures registered in the
names of the Purchasers in the amounts set forth in
Schedule 1;
(ii) Three million nine hundred thousand (3,900,000) shares of
duly issued Common Stock of the Company in share
denominations of ten thousand (10,000) shares registered
in the name of each of the Purchasers in the amounts set
forth in Schedule 1 for use in the conversion of the
Debentures (the "Debenture Escrow Shares");
(iii) Three hundred ninety thousand (390,000) shares of duly
issued Common Stock of the Company in share denominations
of ten thousand (10,000) shares registered in the name of
each of the Purchasers in the amounts set forth in
Schedule 1 for use in the exercise of the Warrants (the
"Warrant Escrow Shares");
(iv) all other documents, instruments and writings required to
have been delivered or necessary at or prior to Closing by
the Company pursuant to this Agreement.
(d) Upon receipt by the Escrow Agent of those items set forth above,
the Purchasers shall deliver the following to the Escrow Agent:
(i) the Purchase Price as determined pursuant to this Section
2 in United States dollars in immediately available funds
by wire transfer to an account designated in writing by
the Company prior to the Closing and;
(ii) all documents, instruments, Restricted Warrant Shares and
writings required to have been delivered or necessary at
or prior to Closing by the Purchasers pursuant to this
Agreement.
(e) Upon receipt of all of the items set forth in subparagraphs (c)
and (d) of this Section, the Escrow Agent shall deliver the Purchase Price less
the fees set forth
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in Section 4.28, the Restricted Warrant Shares and the Extra Shares (assuming
there has been no default by the Company as to the Extra Shares) to the Company
in accordance with its written instructions, and shall deliver the items set
forth in subparagraph (c), with the exception of the Debenture Escrow Shares and
Warrant Escrow Shares which shall be held in accordance with the terms of this
Agreement, the Debenture and the Escrow Agreement, to Purchasers. If the
Purchasers have previously exercised any or part of the Warrants, the Escrow
Agent shall hold the Warrant Shares in escrow in accordance with Section 4.16
and release the appropriate number of Warrant Escrow Shares to the Purchasers in
accordance with Section 4.16. The Escrow Agent shall distribute the fees set
forth in Section 4.28 to the respective parties.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
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3.1. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchasers as follows, all of which survive
Closing:
(a) Organization and Qualification. The Company is a corporation,
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. The Company has no subsidiaries other than as set forth
in Schedule 3.1(a) (collectively, the "Subsidiaries"). Each of the Subsidiaries
is a corporation, duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, with the full corporate power
and authority to own and use its properties and assets and to carry on its
business as currently conducted. Each of the Company and the Subsidiaries is
duly qualified to do business and is in good standing as a foreign corporation
in each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not reasonably be
expected to have, individually or in the aggregate, a material adverse effect on
(a) the results of operations, assets, prospects, or financial condition of the
Company and the Subsidiaries, or (b) the Purchasers' rights under this
Agreement, the Escrow Agreement, the Debenture and the Warrants (a "Material
Adverse Effect").
(b) Authorization; Enforement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated hereby and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action on the part of the Company. This
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent transfer,
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reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(c) Capitalization. The authorized, issued and outstanding capital
stock of the Company and each of the Subsidiaries is set forth in Schedule
3.1(c). No shares of Common Stock are entitled to preemptive or similar rights.
Except as specifically set forth in Schedule 3.1(c), there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or, except as a result of the purchase and
sale of the Debentures hereunder, securities, rights or obligations convertible
into or exchangeable for, or giving any person any right to subscribe for or
acquire any shares of Common Stock, or contracts, commitments, understandings,
or arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. Neither the Company nor any Subsidiary
is in violation of any of the provisions of its respective certificates of
incorporation, bylaws or other charter documents or resolutions.
(d) Issuance of Debentures and Warrants. The Debentures and Warrants
have been duly and validly authorized for issuance, offer and sale pursuant to
this Agreement and, when issued and delivered as provided hereunder against
payment in accordance with the terms hereof, shall be valid and binding
obligations of the Company enforceable in accordance with their terms. The
Company has and at all times while the Debentures and Warrants are outstanding
has and will continue to maintain an adequate reserve of shares of Common Stock
to enable it to perform its obligations under this Agreement, the Debentures
and Warrants. When issued in accordance with the terms hereof and the Debentures
and the Warrants, the Underlying Shares will be duly authorized, validly
issued, fully paid and nonassessable.
(e) No Conflicts. Except as set forth in Schedule 3.1(e) the
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not and will not (i) conflict with or violate any provision of its or its
Subsidiaries certificates/articles of incorporation, resolutions or bylaws or
(ii) be subject to obtaining the consents referred to in Section 3.1(f),
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company is
subject (including Federal and State securities laws and regulations), or by
which any property or asset of the Company is bound or affected, except in the
case of each of clauses (ii) and (iii), such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect. The business
of the Company is not being
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conducted in violation of any law, ordinance or regulation of any governmental
authority.
(f) Consents and Approvals. Except as specifically set forth in
Schedule 3.1(f), neither the Company nor any Subsidiary is required to obtain
any consent, permit, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, State, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of this Agreement, other than the
applicable filings under State and federal securities laws (collectively, the
"Required Approvals").
(g) Litigation; Proceedings. Except as specifically set forth in
Schedule 3.1(g), there is no action, suit, notice of violation, proceeding,
inquiry or investigation pending or threatened against or affecting the Company
or any of its Subsidiaries or any of their respective properties before or by
any court, governmental or administrative agency or regulatory authority
(Federal, State, county, local or foreign) which (i) relates to or challenges
the legality, validity or timely enforceability of this Agreement or the
Debentures and Warrants (ii) could, individually or in the aggregate, have a
Material Adverse Effect or (iii) could, individually or in the aggregate,
materially impair the ability of the Company to perform fully on a timely basis
its obligations under this Agreement.
(h) No Default or Violation. Neither the Company nor any Subsidiary
(i) is in default under or in violation of any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound, except such conflicts or defaults
as do not have a Material Adverse Effect, (ii) is in violation of any order of
any court, arbitrator or governmental body, except for such violations as do not
have a Material Adverse Effect. or (iii) is in violation of any statute, rule or
regulation of any governmental authority which could (individually or in the
aggregate) (x) adversely affect the legality, validity or enforceability of this
Agreement, (y) have a Material Adverse Effect or (z) adversely impair the
Company's ability or obligation to perform fully on a timely basis its
obligations under this Agreement.
(i) Certain Fees. No fees or commission will be payable by the Company
to any investment banker, broker, placement agent or bank with respect to the
consummation of the transactions contemplated hereby except that at Closing
eight percent (8%) of the Purchase Price shall be paid to GEM as a commission.
(j) Disclosure Documents. The Disclosure Documents are complete and
accurate and do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
(k) Reporting Company. The Company is subject to the reporting
requirements of Section 13 or Section 15(d) of the Exchange Act and is current
in its reporting requirements.
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Each of the Purchasers acknowledge and agree that the Company makes no
representation or warranty with respect to the transactions contemplated hereby
other than those specifically set forth in Article III herein.
Section 3.2. Representations and Warranties of the Purchasers. The
Purchasers hereby represent and warrant to the Company as follows:
(a) Organization and Qualification. Each of the Purchasers is a
corporation duly incorporated and validly existing and in good standing under
the laws of the jurisdiction of its incorporation, with the corporate requisite
power and authority to own and use its properties and assets and to carry on
its business as currently conducted.
(b) Authorization; Enforcement. Each of the Purchasers have the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated hereby and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement and the
purchase of the Debentures and the Warrants by the Purchasers hereunder has been
duly authorized by all necessary action on the part of each of the Purchasers.
This Agreement has been duly executed and delivered by each of the Purchasers or
on its behalf and constitutes the valid and legally binding obligation of the
Purchasers, enforceable against each of the Purchasers in accordance with its
terms; except as such enforceability may be limited by applicable bankruptcy,
insolvency, liquidation, fraudulent transfer, reorganization, moratorium and
remedies or by other equitable principles of general application or similar laws
relating to or affecting generally the enforcement of creditors' rights.
(c) Investment Intent. The Purchaser is acquiring the Debentures,
Warrants, Underlying Shares and the Warrant Shares for its own account for
investment purposes only and not with a view to or for distributing or reselling
such Debentures, Warrants, Underlying Shares or Warrant Shares or any part
thereof or interest therein, without prejudice, however, to the Purchasers'
right, subject to the provisions of this Agreement, at all times to sell or
otherwise dispose of all or any part of such Debentures, Warrants, Underlying
Shares or Warrant Shares in compliance with applicable federal and State
securities laws.
(d) Purchasers' Status. At the time each of the Purchasers was offered
the Debentures and/or the Warrants, it was, and at the date hereof, it is, and
at the Closing Date, it will be, an "accredited investor" as defined in Rule 501
(a) under the Securities Act.
(e) Experience of Purchasers. Each of the Purchasers, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Debentures, and has so
evaluated the merits and risks of such investment.
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(f) Ability of Purchaser to Bear Risk of Investment. Each of the
Purchasers is able to bear the economic risk of an investment in the Debentures
and, at the present time, is able to afford a complete loss of such investment.
(g) Prohibited Transactions. The Debentures to be purchased by each of the
Purchasers are not being acquired, directly or indirectly, with the assets of
any "employee benefit plan", within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended.
(h) Access to Information. Each of the Purchasers acknowledges receipt of
the Disclosure Documents and further acknowledges that it has been afforded (i)
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 Debentures and the Warrants and the merits
and risks of investing in the Debentures and the Warrants; (ii) access to
information about the Company and the Company's financial condition, results of
operations, business, properties, management and prospects sufficient to enable
it to evaluate its investment in the Debentures and the Warrants; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire which is necessary to make an informed investment decision with
respect to the Debentures and the Warrants.
(i) Reliance. Each of the Purchasers understands and acknowledges that (i)
the Debentures and the Warrants are being offered and sold, and the Underlying
Shares and Warrant Shares are being offered, to it without registration under
the Securities Act in a transaction that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and that the Company will rely upon the accuracy and
truthfulness of, the foregoing representations and each of the Purchasers hereby
consents to such reliance.
(j) Start-Up Business. Each of the Purchasers acknowledges that the
Company is a start-up business with no history of earnings or profits, or
assurance of earnings or profits in the future, and that the investment in the
Company through the purchase of Debentures and Warrants is highly speculative
and risky.
(k) Corporate Domicile. Each of the Purchasers is a foreign corporation
and has its residence or corporate domicile outside the United States.
(l) Current Funds. Purchasers have, and will have at Closing, readily
available the current funds required to purchase the Debentures.
The Company acknowledges and agrees that each of the Purchasers makes no
representation or warranty with respect to the transactions contemplated hereby
other than those specifically set forth in Article III herein.
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ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
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Section 4.1. Manner of Offering. The Debentures and Warrants are being
issued pursuant to Rule 506 of Regulation D of the Securities Act. The
Debentures, Warrants, Underlying Shares and the Warrant Shares will bear
restrictions on transfer, and will carry a restrictive legend with respect to
the exemption from registration under the Securities Act. The transfer and
resale of the Debentures, the Warrants and the Underlying Shares may be made
only pursuant to registration under the Securities Act or an exemption from such
registration.
Section 4.2. Furnishing of Information. As long as each of the Purchasers
owns Debentures, the Warrants, Underlying Shares or the Warrant Shares, the
Company will furnish to it, promptly after they have been prepared all annual,
quarterly reports and other reports and filings required by Section 13(a) or
15(d) of the Exchange Act.
Section 4.3. Notice of Certain Events. The Company shall on a continuing
basis (i) advise each of the Purchasers promptly after obtaining knowledge
thereof, and, if requested by any of the Purchasers, confirm such advice in
writing, of (A) the issuance by any State securities commission of any stop
order suspending the qualification or exemption from qualification of the
Debentures, the Warrants or the Common Stock for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purpose by any State
securities commission or other regulatory authority, or (B) any event that makes
any statement of a material fact made in the Disclosure Documents untrue or that
requires the making of any additions to or changes in the Disclosure Documents
in order to make the statements therein in the light of the circumstances under
which they are made, not misleading, (ii) use its best efforts to prevent the
issuance of any stop order or order suspending the qualification or exemption
from qualification of the Debentures, the Warrants or the Common Stock under any
State securities or Blue Sky laws, and (iii) if at any time any State securities
commission or other regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Debentures, the Warrants or
the Common Stock under any such laws, use its best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
Section 4.4. Copies and Use of Disclosure Documents. The Company shall
furnish each of the Purchasers, without charge, as many copies of the Disclosure
Documents, and any amendments or supplements thereto, as each of the Purchasers
may reasonably request. The Company consents to the use of the Disclosure
Documents, and any amendments and supplements thereto, by each of the Purchasers
in connection with resales of the Debentures, the Warrants, Underlying Shares or
the Warrant Shares other than pursuant to an effective registration statement.
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Section 4.5. Modification to Disclosure Documents. If any event shall occur
as a result of which, in the reasonable judgment of the Company or any of the
Purchasers, it becomes necessary or advisable to amend or supplement the
Disclosure Documents in order to make the statements therein, in the light of
the circumstances at the time the Disclosure Documents were delivered to any of
the Purchasers, not misleading, or if it is necessary to amend or supplement the
Disclosure Documents to comply with applicable law, the Company shall promptly
prepare an appropriate amendment or supplement to the Disclosure Documents (in
form and substance reasonably satisfactory to both the Purchasers and Company)
so that (i) as so amended or supplemented the Disclosure Documents will not
include an untrue statement of material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances existing at the time it is delivered to any of the Purchasers, not
misleading and (ii) the Disclosure Documents will comply with applicable law.
Section 4.6. Blue Sky Laws. The Company shall cooperate with the Purchasers
in connection with the exemption from registration of the Debentures, the
Warrants, Underlying Shares, and the Warrant Shares for sale to the Purchaser
under the securities or Blue Sky laws of all applicable jurisdictions; provided,
however, that neither the Company nor its Subsidiaries shall be required in
connection therewith to qualify as a foreign corporation where they are not now
so qualified. The Company agrees that it will execute all necessary documents
and pay all necessary State filing or notice fees to enable the Company to sell
the Debentures and/or Warrants to the Purchasers.
Section 4.7. Integration. The Company shall not and shall use its best
efforts to ensure that no Affiliate shall sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in Section
2 of the Securities Act) that would be integrated with the offer or sale of the
Debentures, the Warrants, Underlying Shares, or the Warrant Shares in a manner
that would require the registration under the Securities Act of the sale of the
Debentures and the Warrants to the Purchasers.
Section 4.8. Furnishing of Rule 144A Materials. The Company shall, for so
long as any of the Debentures, the Warrants, Underlying Shares or Warrant Shares
remain outstanding and during any period in which it is not subject to Section
13 or 15(d) of the Exchange Act, make available to any registered holder of
Debentures, the Warrants, Underlying Shares or Warrant Shares in connection with
any sale thereof and any prospective purchaser of such Debentures, Warrants,
Underlying Shares or Warrant Shares from such Person, the following information
in accordance with Rule 144A(d)(4) under the Securities Act: a brief statement
of the nature of the business of the Company and the products and services it
offers and the Company's most recent audited balance sheet and profit and loss
and retained earnings statements, and similar audited financial statements for
such part of the two preceding fiscal years as the Company has been in
operation.
Section 4.9. Solicitation Materials. The Company shall not (i) distribute
any offering materials in connection with the offering and sale of the
Debentures, the Warrants,
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Underlying Shares or Warrant Shares other than the Disclosure Documents and any
amendments and supplements thereto prepared in compliance herewith or (ii)
solicit any offer to buy or sell the Debentures, the Warrants, Underlying Shares
or Warrant Shares by means of any form of general solicitation or advertising,
Section 4.10. Subsequent Financial Statements. The Company shall furnish to
the Purchasers, promptly after they are filed with the Commission, a copy of all
financial statements for any period subsequent to the period covered by the
financial statements included in the Disclosure Documents until the earlier of
the full conversion of the Debentures or the Maturity Date of the Debentures.
Section 4.11. Prohibition on Certain Actions. From the date hereof through
the Closing Date, the Company shall not and shall cause the Subsidiaries not to,
without the prior written consent of the Purchasers, (i) amend its Articles of
Incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Purchasers; (ii) split, combine or reclassify its outstanding
capital stock; (iii) declare, authorize, set aside or pay any dividend or other
distribution with respect to the Common Stock; (iv) redeem, repurchase or offer
to repurchase or otherwise acquire shares of its Common Stock; or (v) enter into
any agreement with respect to any of the foregoing.
Section 4.12. Listing of Common Stock. The Company shall use its best
efforts to maintain the quote for its Common Stock on the OTC Bulletin Board/R/
(or listing on a national securities exchange or market on which the Common
Stock is listed) during the period that the Debentures may be converted
hereunder by the Purchasers or the Warrants may be exercised, and shall provide
to the Purchasers evidence of such listing.
Section 4.13. Escrow. The Company and the Purchasers agree to enter into
the escrow agreement attached hereto and made part hereof as Exhibit E (the
"Escrow Agreement").
Section 4.14. Conversion and Exercise Procedures and Maintenance of
Escrowed Shares for Conversions and Exercises. Exhibit D attached hereto and
made a part hereof sets forth the procedures with respect to the conversion of
the Debentures and the exercise of the Warrants, including the forms of Notice
of Conversion and Notice of Exercise to be provided upon conversion or exercise,
instructions as to the procedures for conversion or exercise, the form of legal
opinion, if necessary, that shall be rendered to the Company and such other
information and instructions as may be reasonably necessary to enable any of the
Purchasers to exercise its right of conversion smoothly and expeditiously. The
Company agrees that, at any time the conversion price of the Debentures is such
that the number of Debenture Escrow Shares is less than 200% of the number of
shares of Common Stock that would be needed to satisfy full conversion of all of
the Debentures given the then current conversion price (the "Full Conversion
Shares"), upon five (5) days written notice of such circumstance to the Company
by the Purchasers and/or Escrow Agent, it will issue additional share
certificates in the names of each of the Purchasers in denominations of 10,000
shares, and deliver same to the Escrow Agent,
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such that the new number of Debenture Escrow Shares is equal to 200% of the Full
Conversion Shares.
Section 4.15. Attorney-in-Fact. To effectuate the terms and provisions of
this Agreement, the Escrow Agreement, the Debenture and the Warrants, the
Company hereby agrees to give a power of attorney as is evidenced by Exhibit F
attached hereto. All acts done under such power of attorney are hereby ratified
and approved and neither the Attorney-in-Fact nor any designee or agent thereof
shall be liable for any acts of commission or omission, for any error of
judgment or for any mistake of fact or law, as long as the Attorney-in-Fact is
operating within the scope of the power of attorney and this Agreement and its
exhibits. The power of attorney being coupled with an interest shall be
irrevocable while any amount of the Debenture remains unpaid, any amount of the
Warrants remain unexercised or any portion of this Agreement or the Escrow
Agreement remains unsatisfied. In addition, the Company shall give the Attorney-
in-Fact a corporate resolution executed by the Board of Directors of the Company
which authorizes future issuances of the Underlying Shares for the Debentures,
and which resolution states that it is irrevocable while any amount of the
Debenture remains unpaid, any amount of the Warrants remain unexercised or any
portion of this Agreement or the Escrow Agreement remains unsatisfied.
4.16. Sale of Warrant Shares. Each of the Purchasers agrees that upon the
exercise of the Warrants it will not sell any of the Warrant Shares for a period
of six (6) months from the Closing Date and thereafter only in accordance with
the applicable federal and State securities laws. In the event there is no
Closing, the Warrant Shares may only be sold in accordance with the applicable
federal and State securities laws.
4.17. Transfer Restrictions. (a) If any of the Purchasers should decide to
dispose of any portion of the Warrants to be purchased by it hereunder (and upon
exercise thereof, of any Warrant Shares), such Purchaser understands and agrees
that it may do so only (i) pursuant to an effective registration statement under
the Securities Act, (ii) to the Company or (iii) pursuant to an available
exemption or exclusion from the registration requirements of the Securities Act.
In connection with any transfer of any Warrants or Warrant Shares other than
pursuant (i) to an effective registration statement, (ii) to the Company, (iii)
to an affiliate of any of the Purchasers 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 (iv)
in reliance on Rule 144 under the Securities Act, the Company may require that
the transferor provide to the Company an opinion in form and substance
reasonably satisfactory to the Company of counsel experienced in the area of
United States securities laws selected by the transferor to the effect that such
transfer does not require registration of such Warrants or Warrant Shares, as
the case may be, under the Securities Act.
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(b) The Purchasers agree to the imprinting, so long as appropriate,
of the following legend on certificates representing the Warrants and Warrant
Shares, to be modified as applicable:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER RULE 506 OF REGULATION D PROMULGATED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION OR EXCLUSION FROM THE REGISTRATION REQUIREMENTS
THEREUNDER AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.
The legend set forth above shall be removed in connection with any resale
of Warrants Shares pursuant to an effective registration statement under the
Securities Act or sooner if, in the opinion of counsel to the Company
experienced in the area of United States securities laws, such legend is no
longer required under applicable requirements of the Securities Act (including
judicial interpretation and pronouncements issued by the staff of the
Commission). The certificates representing the Warrants shall also bear any
other legends required by applicable federal or State securities laws, which
legends shall be removed when, in the opinion of counsel to the Company
experienced in the applicable securities laws, such legends are no longer
required under the applicable requirements of such securities laws. In
connection therewith, the Company may request, and the Purchasers or other
transferor shall provide, such information as the Company or its counsel may
reasonably request to evaluate the propriety of removing any legends (which
shall not include any opinions of counsel). The Company agrees that it will
provide each of the Purchasers, upon request, with a substitute certificate or
certificates, free from such legend at such time as such legend is no longer
applicable. Each of the Purchasers agrees that, in connection with any transfer
of Underlying Shares or Warrant Shares by it pursuant to an effective
registration statement under the Securities Act, the Purchasers will comply with
all applicable prospectus delivery requirements of the Securities Act. The
Company makes no representation, warranty or agreement as to the availability of
any exemption from registration under the Securities Act with respect to any
resale of Convertible Debentures, Underlying Shares. Warrants, or Warrant
Shares.
(c) Each of the Purchasers agrees that the Company shall be entitled
to make a notation on its records and give instructions to any transfer agent of
the Company in order to implement the restrictions on transfer set forth in this
Section 4.17; provided, however, that for so long as a Registration Statement is
effective, the Company may not issue any stop transfer instruction or make any
notation on its records with respect thereto to any transfer agent of the
Company in connection with the issuance of shares and shall
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issue shares of Common Stock upon a conversion of Convertible Debentures or
exercise of Warrants in accordance with this Section 4.17.
4.18 Qualification of Common Stock and Related Matters. (a) The Company
shall (i) advise each of the Purchasers promptly after obtaining knowledge
thereof, and, if requested by any of the Purchasers, confirm such advice in
writing, of the issuance by any State securities commission of any stop order
suspending the qualification or exemption from qualification of the Debentures,
the Warrants, the Underlying Shares or the Warrant Shares for offering or sale
in any jurisdiction, or the initiation of any proceeding for such purpose by any
State securities commission or other regulatory authority, or (ii) use its best
efforts to prevent the issuance of any stop order or order suspending the
qualification or exemption from qualification of the Debentures, the Warrants,
the Underlying Shares or Warrant Shares under any State securities or Blue Sky
laws, and (iii) if at any time any State securities commission or other
regulatory authority S hall issue an order suspending the qualification or
exemption from qualification of the Debentures, the Warrants, the Underlying
Shares, or Warrant Shares under any such laws, use its best efforts to obtain
the withdrawal or lifting of such order at the earliest possible time.
(b) The Company shall furnish each of the Purchasers, without charge,
as many copies of the prospectus underlying the registration statement
contemplated by the Registration Rights Agreement, and any amendments or
supplements thereto, as such Purchaser may reasonably request. The Company
consents to the use of such prospectus, and any amendments and supplements
thereto, by any of the Purchasers in connection with resales of the Debentures,
the Warrants, the Underlying Shares or Warrant Shares.
(c) In accordance with the Registration Rights Agreement annexed
hereto as Exhibit C, the Company shall qualify the Underlying Shares and the
Warrant Shares under the securities or Blue Sky laws of such jurisdictions as
any of the Purchasers may reasonably request and shall continue such
qualification at all times through the second anniversary of the last Closing
Date; provided, however, that neither the Company nor its Subsidiaries shall be
required in connection therewith to qualify as a foreign corporation where they
are not now so qualified or to take any action that would subject the Company to
general service of process in any such jurisdiction where it is not then so
subject or subject the Company to any material tax in any such jurisdiction
where it is not then so subject.
(d) The Company shall not and shall use its best efforts to ensure
that no Affiliate of the Company shall sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in Section 2
of the Securities Act) that would be integrated with the offer or sale of the
Convertible Debentures, the Warrants, the Underlying Shares or the Warrant
Shares in a manner that would require the registration under the Securities Act
of the sale of the Debentures, the Warrants, the Underlying Shares or the
Warrant Shares to any of the Purchasers.
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4.19. Purchasers' Ownership of Common Stock. In addition to and not in
lieu of the limitations on conversion set forth in the Debentures, the
conversion and exercise rights of each of the Purchasers set forth in the
Debentures and the Warrants, as applicable, shall be limited, solely to the
extent required, from time to time, such that, unless each of the Purchasers
give written notice 75 days in advance to the Company of their intention to
exceed the Limitations of Conversions as defined herein, with respect to all or
a specified amount of the Debentures and the corresponding number of the
Underlying Shares, in no instance shall the maximum number of shares of Common
Stock which the Purchasers (singularly, together with any Persons who in the
determination of such Purchasers, together with such Purchasers, constitute a
group as defined in Rule 13d-5 of the Exchange Act) may receive in respect of
any conversion of the Debentures, or exercise of the Warrants, exceed, at any
one time, an amount equal to the remainder of (i) 4,99% of the then issued and
outstanding shares of Common Stock of the Company following such conversion or
exercise minus (ii) the number of shares of Common Stock of the Company then
owned by any of the Purchasers (including any shares of Common Stock deemed
beneficially owned due to ownership of the Debentures and Warrants) (the
foregoing being herein referred to as the "Limitation on Conversion"); provided,
however, that the Limitation on Conversion shall not apply to any forced or
automatic conversion by the Company pursuant to Section 4(i) and Section 5 of
the Debentures and, provided, further, that if 10 Business Days have elapsed
since any of the Purchasers shall have declared an Event of Default (as that
term is defined in the Convertible Debenture) and the Company shall not have
cured such Event of Default, the provisions of this Section 4.19 shall be null
and void from and after such date. The Company shall, promptly upon its' receipt
of a notice of conversion tendered by any of the Purchasers (or its sole
designee) under the Debentures, as applicable, and upon its receipt of a notice
of exercise under the terms of the Warrants, notify such Purchaser by telephone
and by facsimile of the number of shares of Common Stock outstanding on such
date and the number of Underlying Shares which would be issuable to such
Purchaser (or its sole designee, as the case may be) if the conversion requested
in such notice of conversion or exercise requested in such notice of exercise
were effected in full, whereupon, notwithstanding anything to the contrary set
forth in the Debentures or the Warrants, such Purchaser may within one Trading
Day of its receipt of the Company notice required by this Section 4.19 by
facsimile revoke such conversion or exercise to the extent (in whole or in part)
that it determines that such conversion or exercise would result in such
Purchaser owning shares of Common Stock in excess of the Limitation on
Conversion.
4.20. Purchasers' Rights if Trading in Common Stock is Suspended. In the
event that at any time within the period commencing when the Registration
Statement is declared effective under the Securities Act by the Commission and
ending two years after the Closing Date, trading in the shares of the Common
Stock is suspended on such other stock exchange upon which the Common Stock
shall then be listed for trading (other than as a result of the suspension of
trading in securities on such market generally or temporary suspensions pending
the release of material information), or the Common Stock is deleted from the
OTC Bulletin Board, then, at any of the Purchasers' option exercisable by
written notice to the Company, the Company shall redeem, as applicable, all of
the Debentures,
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Warrants, Underlying Shares and Warrant Shares owned by such Purchaser at an
aggregate purchase price equal to the sum of (i) (A) the product of (1) the
average Per Share Market Value for the five (5) Trading Days immediately
preceding (a) the day of such notice or (b) the date of payment in full of the
repurchase price calculated under this Section 4.20, whichever is greater,
multiplied by (2) the Conversion Ratio on the date of the repurchase notice,
(ii) the purchase price of the Warrant, (iii) the number of Underlying Shares
and Warrant Shares then held by any of the Purchasers multiplied by the average
Per Share Market Value for the five (5) Trading Days immediately preceding (A)
the date of the notice or (B) the date of payment in full by the Company of the
repurchase price calculated under this Section 4.20, whichever is greater, and
(iv) interest on such amounts set forth in (i) - (iii) above accruing from the
7th day after such notice until the repurchase price under this Section 4.20 is
paid in full at the rate of 15% per annum.
4.21. No Violation of Applicable Law. Notwithstanding any provision of
this Agreement to the contrary, if the redemption of Underlying Shares and
Warrant Shares otherwise required under this Agreement or the Registration
Rights Agreement would be prohibited by the relevant provisions of the Nevada
General Corporation Law, such redemption shall be effected as soon as it is
permitted under such law; provided, however, that interest payable by the
Company with respect to any such redemption shall continue to accrue in
accordance with Section 4.20.
4.22. Redemption Restrictions. Notwithstanding any provision of this
Agreement to the contrary, if any redemption of Debentures, the Warrants,
Underlying Shares or the Warrant Shares otherwise required under this Agreement
or the Registration Rights Agreement would be prohibited in the absence of
consent from any lender of the Company or any of the Subsidiaries, or by the
holders of any class of securities of the Company, the Company shall use its
best efforts to obtain such consent as promptly as practicable after the
redemption is required. Interest payable by the Company with respect to any such
redemption shall continue to accrue in accordance with Section 4.20 until such
consent is obtained. Nothing contained in this Section 4.22 shall be construed
as a waiver by any of the Purchasers of any rights it may have by virtue of any
breach of any representation or warranty of the Company herein as to the absence
of any requirement to obtain any such consent.
4.23. Piggyback Registration Rights. During the period commencing the date
hereof and ending on the earlier to occur of (i) the one year anniversary of the
Closing and (ii) the date the Registration Statement required to be filed by the
Company in accordance with the Registration Rights Agreement is declared
effective under the Securities Act by the Commission, the Company may not file
any registration statement that provides for the registration of shares of
Common Stock to be sold by other shareholders of the Company unless the Company
provides each of the Purchasers with not less than seven (7) Trading Days'
notice of its intention to file such registration statement and provides each of
the Purchasers the option to include any or all of the Underlying Shares and
Warrant Shares then owned by it therein as to which there is not at that time an
effective Registration Statement. Such registration rights shall not apply to
registration statements relating solely
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to (i) employee benefit plans notwithstanding the inclusion of a resale
prospectus for securities received under such employee benefit plan, or (ii)
business combinations.
4,24. Merger or Consolidation. Until the earlier of the full conversion
of the Debentures or the Maturity Date of the Debentures (as that term is
defined in the Convertible Debenture), the Company and each Subsidiary will not,
in a single transaction or a series of related transactions, (i) consolidate
with or merge with or into any other Person, or (ii) permit any other Person to
consolidate with or merge into it, unless (w) either (A) the Company shall be
the survivor of such merger or consolidation or (B) the surviving Person shall
expressly assume by supplemental agreement all of the obligations of the Company
under the Debentures and the Warrants and this Agreement; (x) immediately before
and immediately after giving effect to such transaction (including any
indebtedness incurred or anticipated to be incurred in connection with the
transaction), no Default or Event of Default shall have occurred and be
continuing; (y) if the Company is not the surviving entity, such surviving
entity's common shares shall be listed on either The New York Stock Exchange,
American Stock Exchange, or Nasdaq National Market or Nasdaq SmallCap Market and
(z) the Company has delivered to the Purchasers an officers' certificate and
opinion of counsel, each stating that such consolidation, merger or transfer
complies with this Agreement, that the surviving Person agrees to be bound
thereby and that all conditions precedent in this Agreement relating to such
transactions have been satisfied.
Section 4.25. Registration of Underlying Shares and Warrant Shares.
Pursuant to the terms of the Registration Rights Agreement between the Company
and the Purchasers, the Company shall cause the Underlying Shares and Warrant
Shares to be registered under the Securities Act. and so long as any Debentures
remain outstanding or any Warrants remain unexercised, the Company agrees to
keep such registration current with the Commission and with such states of the
United States as the Holders (as that term is defined in the Debenture) of the
Debenture or Warrants shall reasonably request in writing. All costs and
expenses of registration shall be borne by the Company.
Section 4.26. Liquidated Damages. The Company understands and agrees that
an Event of Default as contained in this Agreement, the Transaction Documents
and/or the Debenture will result in substantial economic loss to the
Purchasers which will be extremely difficult to calculate with precision.
Therefore, after the Closing, if for any reason the Company fails to cure any
Event of Default within the time given to cure such Event of Default, if any, as
compensation and liquidated damages for such default, and not as a penalty, the
Company agrees to pay liquidated damages to the Purchasers in an amount equal to
the two times (2x) the Purchase Price, The Company shall upon demand pay the
Purchasers, such liquidated damages by wire transfer in immediately available
funds to an account designated by the Purchasers. Nothing herein shall limit the
right of any of the Purchasers to pursue actual damages (less the amount of any
liquidated damages received pursuant to the foregoing) for the Company's failure
to cure an Event of Default, consistent with the terms of this Agreement.
However, if the Event of Default occurs prior to the Closing and the Company
does not cure such Event of Default within the time given
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to cure such Event of Default, if any, as compensation and damages for such
default, and not as a penalty, the Escrow Agent shall deliver the Extra Shares
to the Purchasers pro rata as between them. NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED IN THIS AGREEMENT, THE COMPANY'S OBLIGATIONS UNDER THIS
SECTION SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT.
4.27 Redemption of Debentures The Company may redeem the unconverted
principal amount of the Debentures in accordance with the following:
(a) If the closing bid price of the Company's Common Stock falls
below $1.00, the Company may, upon no less that seven (7) Business
Days written notice to each of the Purchasers. with a copy to the
Escrow Agent, redeem the Debentures at one hundred twenty percent
(120%) of the par value per debenture (the "Redemption Price").
(b) Within five (5) Business Days of sending the notice of
redemption, the Company shall deposit by wire transfer to the XXXX
account of the Escrow Agent the Redemption Price, Upon receipt of the
Redemption Price, the Escrow Agent shall release the Redemption Price
to the Purchasers and return the remaining Debentures and Underlying
Shares to the Company.
(c) In the event that the Company fails to deposit the Redemption
Price in the Escrow Agent's XXXX within the time allocated in section
4.27, then the redemption shall be declared null and void.
Section 4.28. Fees. The Company will pay the following fees and expenses in
connection with this transaction: (a) $8,000 to Xxxxxx Xxxxxxxxxx & Xxxxxxxx,
LLP ("KGL") for document production fees, (b) $5,000 to KGL for escrow fees, (c)
S 1,000 to KGL for its expenses, and (d) eight percent (8%) of the Purchase
Price to GEM as a commission. All fees and expenses will be paid at Closing and
the Escrow Agent shall deduct such fees and expenses directly from escrow. In
the event that the transactions contemplated under this Agreement and the
Transaction Documents do not close, the Company will pay to KGL the document
production fee of $8,000 within five (5) Business Days after the termination of
this Agreement.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
-------------------------------
Section 5.1. Conditions Precedent to Obligations of the Purchasers. The
obligations of the Purchasers to close on the purchase of the Debentures are
subject to the satisfaction or written waiver by the Purchasers, at or prior to
the Closing, of each of the following conditions:
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(a) Legal Opinion. The Purchasers shall have received the legal
opinion in the form annexed hereto as Exhibit G, addressed to it/them and dated
the Closing Date from the Counsel for the Company. Such legal opinion shall
address the Company's authority to enter into this Agreement, the availability
of Rule 506 for the offer and sale of the Debentures, the Warrants, Underlying
Shares and Warrant Shares and that the Underlying Shares issued upon conversion
of the Debentures and the Warrant Shares issued upon the exercise of the
Warrants are validly issued, fully paid for and nonassessable;
(b) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company contained herein shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except that representations and warranties
that are made as of a specific date need be true in all material respects only
as of such date);
(c) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing;
(d) No Material Adverse Effect. Since the date of the financial
statements included in the Company's Disclosure Documents, no event which had a
Material Adverse Effect shall have occurred which is not disclosed in the
Disclosure Documents;
(e) No Prohibitions. The purchase of and payment for the Debentures
and the Warrants (and upon conversion or exercise thereof, the Underlying Shares
and the Warrant Shares) hereunder (i) shall not be prohibited or enjoined
(temporarily or permanently) by any applicable law or governmental regulation
and (ii) shall not subject the Purchasers to any penalty, or in its reasonable
judgment, other onerous condition under or pursuant to any applicable law or
governmental regulation that would materially reduce the benefits to the
Purchaser of the purchase of the Debentures, the Warrants, Underlying Shares or
the Warrant Shares (provided, however, that such regulation, law or onerous
condition was not in effect in such form at the date of this Agreement);
(f) Company Certificates. The Purchasers shall have received a
certificate, dated the Closing Date, signed by the Secretary or an Assistant
Secretary of the Company and certifying (1) that attached thereto is a true,
correct and complete copy of (A) the Company's Articles of Incorporation, as
amended to the date thereof, (B) the Company's By-Laws, as amended to the date
thereof, (C) resolutions duly adopted by the Board of Directors of the Company
authorizing the execution and delivery of this Agreement, the issuance and sale
of the Debentures, Warrants and the Underlying Shares and the appointment of the
Attorney-in-Fact pursuant to Section 4.15 attached hereto as Exhibit F, and (D)
a certificate of good standing from the Secretary of State of Nevada and (ii)
the incumbency of officers executing this Agreement;
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(g) No Suspensions of Trading in Common Stock. Trading in the Common
Stock shall not have been suspended, delisted or otherwise ceased by the
Commission or the NASD or other exchange or market on which the Common Stock is
listed or quoted (except for any suspension of trading of limited duration
solely to permit dissemination of material information regarding the Company);
(h) Required Approvals. All Required Approvals shall have been
obtained;
(i) Delivery of Debentures. The Company shall have delivered to the
Escrow Agent the certificate(s) representing the Debentures and the Underlying
Shares, registered in the name of each of the Purchasers, each in form
satisfactory to the Purchaser; and
(j) Power of Attorney. The Escrow Agent shall have received a power
of attorney executed on behalf of the Company pursuant to Section 4.15, attached
hereto as Exhibit F, in addition to all items required under Article II.
Section 5.2. Conditions Precedent to Obligations of the Company. The
obligation of the Company to issue and sell the Debentures hereunder is subject
to the satisfaction or written waiver by the Company, at or to the Closing. of
each of the following conditions:
(a) Accuracy of the Purchasers' Representations and Warranties. The
representations and warranties of the Purchasers shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time (except that representations and warranties that are
made as of a specific date need be true in all material respects only as of such
date);
(b) Performance by the Purchasers. The Purchasers shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by it at or prior to the Closing; and
(c) No Prohibitions. The sale of the Debentures and Warrants (and
upon conversion or exercise thereof, the Underlying Shares or Warrant Shares)
hereunder (i) shall not be prohibited or enjoined (temporarily or permanently)
by any applicable law or governmental regulation and (ii) shall not subject the
Company to any penalty, or in its reasonable judgment, any other onerous
condition under or pursuant to any applicable law or governmental regulation
that would materially reduce the benefits to the Company of the sale of
Debentures Warrants, Underlying Shares or Warrant Shares to the Purchasers
(provided, however, that such regulation, law or onerous condition was not in
effect in such form at the date of this Agreement).
-23-
ARTICLE V)
TERMINATION
-----------
Section 6.1. Termination by the Company or the Purchasers. This Agreement
may be terminated prior to Closing by the Company or Purchasers, by giving
written notice of such termination to the other party as follows:
(a) by Purchasers if the Closing shall not have occurred by June 5,
2000.
(b) there shall be in effect any statute, rule, law or regulation
that prohibits the consummation of the Closing or if the consummation of the
Closing would violate any non-appealable final judgment, order, decree, ruling
or injunction of any court of or governmental authority having competent
jurisdiction; or
(c) there shall have been an amendment to Regulation D or an
interpretive release promulgated or issued thereunder, which, in the reasonable
judgment of the terminating party, would materially adversely affect the
transactions contemplated hereby.
Section 6.2. Termination by the Company. This Agreement may be terminated
prior to Closing by the Company, by giving written notice of such termination to
the Purchasers, if any of the Purchasers have materially breached any
representation, warranty, covenant or agreement contained in this Agreement and
such breach is not cured within ten (10) business days following receipt by such
Purchaser of notice of such breach and the other Purchasers decline to be
substituted for the breaching Purchaser's investment.
Section 6.3. Termination by the Purchasers. This Agreement may be
terminated prior to Closing by the Purchasers, by giving written notice of such
termination to the Company, if:
(a) the Company has breached any representation, warranty, covenant
or agreement contained in this Agreement and such breach is not cured within ten
days following receipt by the Company of notice of such breach;
(b) there has occurred an event since the date of the financial
statements included in the Company's disclosure documents which could reasonably
be expected to have a Material Adverse Effect and which is not disclosed in the
Disclosure Documents; or
(c) trading in the Common Stock has been suspended, delisted, or
otherwise ceased by the Commission or the NASD or other exchange or market on
which the Common Stock is listed or quoted (except for any suspension of trading
of limited duration solely to permit dissemination of material information
regarding the Company).
-24-
ARTICLE VII
LEGAL FEES AND DEFAULT INTEREST RATE
------------------------------------
In the event any Party commences legal action to enforce its rights under
this Agreement, the Debentures, the Warrants or the Escrow Agreement, the non-
prevailing party shall pay all reasonable costs and expenses (including but not
limited to reasonable attorney's fees, accountant's fees, appraiser's fees and
investigative fees) incurred in enforcing such rights. In the event of an
uncured Default by any party hereunder, interest shall accrue on all unpaid
amounts due the aggrieved party at the rate of 15% per annum, compounded
annually.
ARTICLE VIII
MISCELLANEOUS
-------------
Section 8.1. Fees and Expenses. Except as set forth above, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay the fees of the Escrow Agent and all stamp and other taxes
and duties levied in connection with the issuance of the Debentures and Warrants
(and upon conversion or exercise thereof, the Underlying Shares and Warrant
Shares) pursuant hereto. Each of the Purchasers shall be responsible for its own
tax liability that may arise as a result of the investment hereunder or the
transactions contemplated by this Agreement. Whether or not the transactions
contemplated by this Agreement are consummated or this Agreement is terminated,
the Company shall pay (i) all costs, expenses, fees and all taxes incident to
and in connection with: (A) the preparation, printing and distribution of the
Disclosure Documents and all amendments and supplements thereto (including,
without limitation, financial statements and exhibits), and all preliminary and
final Blue Sky memoranda and all other agreements, memoranda, correspondence and
other documents prepared and delivered in connection herewith, (B) the issuance
and delivery of the Debentures and Warrants and, upon conversion or exercise
thereof, the Underlying Shares and the Warrant Shares, (C) the exemption from
registration of the Debentures and Warrants and, upon conversion or exercise
thereof, the Underlying Shares and Warrant Shares for offer and sale to the
Purchasers under the securities or Blue Sky laws of the applicable jurisdiction,
(D) furnishing such copies of the Disclosure Documents and all amendments and
supplements thereto, as may reasonably be requested for use in connection with
resales of the Debentures and Warrants and, upon conversion or exercise thereof,
the Underlying Shares and the Warrant Shares, and (E) the preparation of
certificates for the Debentures and Warrants and, upon conversion or exercise
thereof, the Underlying Shares and Warrant Shares (including, without
limitation, printing and engraving thereof), (ii) all fees and expenses of the
counsel and accountants of the Company and (iii) all expenses and listing fees
on securities exchanges, if any.
-25-
Section 8.2. Entire Agreement; Amendments. This Agreement, together with
the Exhibits, Annexes and Schedules hereto, contain the entire understanding of
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters.
This Agreement shall be deemed to have been drafted and negotiated by
both parties hereto and no presumptions as to interpretation, construction or
enforceability shall be made by or against either party in such regard.
Section 8.3. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been made upon facsimile transmission (with transmission confirmation report) at
the number designated below (if delivered on a Business Day during normal
business hours where such notice is to be received), or the first Business Day
following such delivery (if delivered other than on a Business Day during normal
business hours where such notice is to be received) whichever shall first occur.
The addresses for such communications shall be:
If to the Company: Xxxxxxxx Burst, CEO
International Fuel Technology, Inc.
0000 Xxxxxxxx, Xxxxx 0000
Xx. Xxxxx, XX 00000
Phone: (314)
Fax: (000) 000-0000
With copies to: Xxxxx Xxxxxxxx, Esq.
Xxxxxxxxx Xxxxxxxx, LLP
Xxx Xxxxxxxxxxxx Xxxxxx
Xx. Xxxxx, XX 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
If to the Purchasers:
See Schedule 1 - Schedule of Purchasers (attached hereto)
With copies to: Xxxx X. Xxxxxxxxxx
Xxxxxx Gottbetter & Xxxxxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
-26-
If to the Escrow Agent: Xxxx X. Xxxxxxxxxx
Xxxxxx Xxxxxxxxxx & Xxxxxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
Section 8.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchasers, or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
Section 8.5. Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
Section 8.6. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The assignment by a party of this Agreement or any rights hereunder
shall not affect the obligations of such party under this Agreement.
Section 8,7. No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 8.8. Governing Law: Service of Process. This Agreement shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York without regard to the principles of conflicts of law
thereof. Any action to enforce the terms of this Agreement or any of its
exhibits shall be exclusively brought in the State and/or federal courts in the
State and County of New York. Service of process in any action by Purchasers to
enforce the terms of this Agreement may be made by serving a copy of the summons
and complaint, in addition to any other relevant documents, by commercial
overnight courier to the Company at its principal address set forth in this
Agreement.
Section 8.9. Survival. The representations and warranties of the Company
and the Purchasers contained in Article III and the agreements and covenants of
the parties
-27-
contained in Article IV and this Article VIII shall survive the Closing (or any
earlier termination of this Agreement).
Section 8.10. Counterpart Signatures. This Agreement may be executed in two
or more counterparts, all of which when taken together shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party, it being understood that
both parties need not sign the same counterpart, In the event that any signature
is delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
Section 8.11. Publicity. The Company and the Purchasers shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and neither party shall
issue any such press release or otherwise make any such public statement without
the prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, unless counsel for the disclosing party deems such public
statement to be required by applicable federal and/or State securities laws.
Section 8.12. Severability. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affected or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
Section 8.13. Remedies. In addition to being entitled to exercise all
rights provided herein or granted by law, including the recovery of damages, all
parties shall be entitled to specific performance of the obligations under this
Agreement and its exhibits, as well as equitable relief, including but not
limited to preliminary, temporary and permanent injunctive relief, Each of the
Company and the Purchasers agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of any breach of its obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate. As to any equitable remedies pursued by Purchasers,
Purchasers shall not be obligated, and the Company hereby waives any
requirements, to post any bond or undertaking in connection with any application
for temporary, preliminary or permanent injunctive relief, Notwithstanding
anything herein to the contrary, in the event the liquidated damages provisions
of Section 4.26 is fully enforced and collected, specific performance shall not
be available to the Purchasers.
[ SIGNATURE PAGE FOLLOWS ]
-28-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first indicated above,
Company:
INTERNATIONAL FUEL TECHNOLOGY, INC.
By: /s/ Xxxxxxx X. Xxxxxxxxxxx
-------------------------------------
Name: Xxxxxxx X. Xxxxxxxxxxx
Title: President
Purchasers:
GEM GLOBAL YIELD FUND LIMITED
By:
-------------------------------------
Name:
Title:
TURBO INTERNATIONAL LTD.
By:
-------------------------------------
Name:
Title:
-29-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first indicated above.
Company:
INTERNATIONAL FUEL TECHNOLOGY, INC.
By: __________________________________
Name:
Title:
Purchasers:
GEM GLOBAL YIELD FUND LIMITED
By: /s/ Xxxxxx Xxxxxxxx
-----------------------------------
Name: Xxxxxx Xxxxxxxx
Title: Director
TURBO INTERNATIONAL LTD.
By: __________________________________
Name:
Title:
-30-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first indicated above.
Company:
INTERNATIONAL FUEL TECHNOLOGY, INC.
By: __________________________________
Name:
Title:
Purchasers:
GEM GLOBAL YIELD FUND LIMITED
By: __________________________________
Name:
Title:
TURBO INTERNATIONAL LTD.
By: /s/ Xxxxxx Charsten
----------------------------------
Name: Xxxxxx Charsten
Title: President
-31-
SCHEDULE 1
----------
-----------------------------------------------------------------------------------------
Name and Address of Full Amount Number of Number of Number of
Purchaser of Warrant Debenture Warrant
Debenture Shares Escrow Escrow
to be Exercisable Shares at Shares at
Purchased Closing Execution
Date
-----------------------------------------------------------------------------------------
GEM Global Yield Fund $2,800,000 390,000 3,640,000 390,000
Limited
x/x Xxxxxxxx & Xx.
00 Xxxxxxxx Xxxxxx
Xxxxxx W 1 Y 7TG
England
Tel: 00.000.000.0000
Fax: 00.000.000.0000
Turbo International Ltd. $ 200,000 0 260,000 0
Xxxxxxx House
00 Xxxxxxx Xxxxxx
X.X. Xxx X-0000
Nassau, Bahamas
Tel: (000) 000-0000
Fax: (000) 000-0000
-----------------------------------------------------------------------------------------
-32-
