Exhibit 10.3
SECURITIES PURCHASE AGREEMENT
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THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
September 7, 2005, by and among IN VERITAS MEDICAL DIAGNOSTICS, INC., a Colorado
corporation (the "Company"), and the Buyers listed on Schedule I attached hereto
(individually, a "Buyer" or collectively "Buyers").
WITNESSETH
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WHEREAS, the Company and the Buyer(s) are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("Regulation D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act");
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Buyer(s),
as provided herein, and the Buyer(s) shall purchase up to Seven Hundred Fifty
Thousand Dollars ($750,000) of secured convertible debentures (the "Convertible
Debentures"), which shall be convertible into shares of the Company's common
stock, par value $0.001 (the "Common Stock") (as converted, the "Conversion
Shares") of which Three Hundred Thousand Dollars ($300,000) shall be funded on
the fifth (5th) business day following the date hereof (the "First Closing"),
Two Hundred Thousand Dollars ($200,000) shall be funded two (2) business days
prior to the Company's completion of its audited financial statements for the
fiscal year ended July 31, 2005 (the "Second Closing"), and Two Hundred Fifty
Thousand Dollars ($250,000) shall be funded within five business days of the
date the Registration Statement is declared effective by the SEC (the "Third
Closing") (individually referred to as a "Closing" collectively referred to as
the "Closings"), for a total purchase price of up to Seven Hundred Fifty
Thousand Dollars ($750,000), (the "Purchase Price") in the respective amounts
set forth opposite each Buyer(s) name on Schedule I (the "Subscription Amount");
and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit A (the "Investor
Registration Rights Agreement") pursuant to which the Company has agreed to
provide certain registration rights under the Securities Act and the rules and
regulations promulgated there under, and applicable state securities laws; and
WHEREAS, the aggregate proceeds of the sale of the Convertible Debentures
contemplated hereby shall be held in escrow pursuant to the terms of an escrow
agreement substantially in the form of the Escrow Agreement attached hereto as
Exhibit B.
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Security Agreement
substantially in the form attached hereto as Exhibit C (the "Security
Agreement") pursuant to which the Company has agreed to provide the Buyer a
security interest in Pledged Collateral (as this term is defined in the Security
Agreement) to secure the Company's obligations under this Agreement, the
Convertible Debenture, the Investor Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions, the Security Agreement, the Pledge and
Escrow Agreement or any other obligations of the Company to the Buyer;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Pledge and Escrow
Agreement substantially in the form attached hereto as Exhibit D (the "Pledge
and Escrow Agreement") pursuant to which the Company has agreed to provide the
Buyer a security interest in the Pledged Shares (as this term is defined in the
Pledge and Escrow Agreement) to secure the Company's obligations under this
Agreement, the Convertible Debenture, the Investor Registration Rights
Agreement, the Irrevocable Transfer Agent Instructions, the Security Agreement,
the Pledge and Escrow Agreement or any other obligations of the Company to the
Buyer; and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering Irrevocable Transfer
Agent Instructions substantially in the form attached hereto as Exhibit E (the
"Irrevocable Transfer Agent Instructions").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Buyer(s) hereby agree
as follows:
1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.
(a) Purchase of Convertible Debentures. Subject to the satisfaction (or
waiver) of the terms and conditions of this Agreement, each Buyer agrees,
severally and not jointly, to purchase at each Closing and the Company agrees to
sell and issue to each Buyer, severally and not jointly, at each Closing,
Convertible Debentures in amounts corresponding with the Subscription Amount set
forth opposite each Buyer's name on Schedule I hereto. Upon execution hereof by
a Buyer, the Buyer shall wire transfer the Subscription Amount set forth
opposite his name on Schedule I in same-day funds or a check payable to "Xxxxx
Xxxxxxxx, Esq., as Escrow Agent for In Veritas Medical Diagnostics, Inc./Cornell
Capital Partners, LP", which Subscription Amount shall be held in escrow
pursuant to the terms of the Escrow Agreement (as hereinafter defined) and
disbursed in accordance therewith. Notwithstanding the foregoing, a Buyer may
withdraw his Subscription Amount and terminate this Agreement as to such Buyer
at any time after the execution hereof and prior to Closing (as hereinafter
defined).
(b) Closing Date. The First Closing of the purchase and sale of the
Convertible Debentures shall take place at 10:00 a.m. Eastern Standard Time on
the fifth (5th) business day following the date hereof, subject to notification
of satisfaction of the conditions to the First Closing set forth herein and in
Sections 6 and 7 below (or such other date as is mutually agreed to by the
Company and the Buyer(s)) (the "First Closing Date"), the Second Closing of the
purchase and sale of the Convertible Debentures shall take place at 10:00 a.m.
Eastern Standard Time two (2) business days prior to the Company's completion of
its audited financial statements for the fiscal year ended July 31, 2005,
subject to notification of satisfaction of the conditions to the Second Closing
set forth herein and in Sections 6 and 7 below (or such later date as is
mutually agreed to by the Company and the Buyer(s)) (the "Second Closing Date"),
and the Third Closing of the purchase and sale of the Convertible Debentures
shall take place within five (5) business days of the date the Registration
Statement is declared effective by the SEC, subject to notification of
satisfaction of the conditions to the Third Closing set forth herein and in
Sections 6 and 7 below (or such earlier date as is mutually agreed to by the
Company and the Buyer(s)) (the "Third Closing Date") (collectively referred to a
the "Closing Dates"). The Closing shall occur on the respective Closing Dates at
the offices of Yorkville Advisors, LLC, 0000 Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx
Xxxx, Xxx Xxxxxx 00000 (or such other place as is mutually agreed to by the
Company and the Buyer(s)).
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(c) Escrow Arrangements; Form of Payment. Upon execution hereof by Buyer(s)
and pending the Closings, the aggregate proceeds of the sale of the Convertible
Debentures to Buyer(s) pursuant hereto shall be deposited in a non-interest
bearing escrow account with Xxxxx Xxxxxxxx, Esq., as escrow agent (the "Escrow
Agent"), pursuant to the terms of an escrow agreement between the Company, the
Buyer(s) and the Escrow Agent in the form attached hereto as Exhibit B (the
"Escrow Agreement"). Subject to the satisfaction of the terms and conditions of
this Agreement, on the Closing Dates, (i) the Escrow Agent shall deliver to the
Company in accordance with the terms of the Escrow Agreement such aggregate
proceeds for the Convertible Debentures to be issued and sold to such Buyer(s),
minus the unpaid structuring fees and expenses of Yorkville Advisors Management,
LLC of Ten Thousand Dollars ($10,000) and the due diligence fee of Five Thousand
Dollars ($5,000), which shall be paid directly from the gross proceeds held in
escrow of the First Closing and (ii) the Company shall deliver to each Buyer,
Convertible Debentures which such Buyer(s) is purchasing in amounts indicated
opposite such Buyer's name on Schedule I, duly executed on behalf of the
Company.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants, severally and not jointly, that:
(a) Investment Purpose. Each Buyer is acquiring the Convertible Debentures
and, upon conversion of Convertible Debentures, the Buyer will acquire the
Conversion Shares then issuable, for its own account for investment only and not
with a view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
such Buyer reserves the right to dispose of the Conversion Shares at any time in
accordance with or pursuant to an effective registration statement covering such
Conversion Shares or an available exemption under the Securities Act.
(b) Accredited Investor Status. Each Buyer is an "Accredited Investor" as
that term is defined in Rule 501(a)(3) of Regulation D.
(c) Reliance on Exemptions. Each Buyer understands that the Convertible
Debentures are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such securities.
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(d) Information. Each Buyer and its advisors (and his or, its counsel), if
any, have been furnished with all materials relating to the business, finances
and operations of the Company and information he deemed material to making an
informed investment decision regarding his purchase of the Convertible
Debentures and the Conversion Shares, which have been requested by such Buyer.
Each Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and its management. Neither such inquiries nor any
other due diligence investigations conducted by such Buyer or its advisors, if
any, or its representatives shall modify, amend or affect such Buyer's right to
rely on the Company's representations and warranties contained in Section 3
below. Each Buyer understands that its investment in the Convertible Debentures
and the Conversion Shares involves a high degree of risk. Each Buyer is in a
position regarding the Company, which, based upon employment, family
relationship or economic bargaining power, enabled and enables such Buyer to
obtain information from the Company in order to evaluate the merits and risks of
this investment. Each Buyer has sought such accounting, legal and tax advice, as
it has considered necessary to make an informed investment decision with respect
to its acquisition of the Convertible Debentures and the Conversion Shares.
(e) No Governmental Review. Each Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Convertible
Debentures or the Conversion Shares, or the fairness or suitability of the
investment in the Convertible Debentures or the Conversion Shares, nor have such
authorities passed upon or endorsed the merits of the offering of the
Convertible Debentures or the Conversion Shares.
(f) Transfer or Resale. Each Buyer understands that except as provided in
the Investor Registration Rights Agreement: (i) the Convertible Debentures have
not been and are not being registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (A) subsequently registered thereunder, or (B) such Buyer shall have
delivered to the Company an opinion of counsel, in a generally acceptable form,
to the effect that such securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration
requirements; (ii) any sale of such securities made in reliance on Rule 144
under the Securities Act (or a successor rule thereto) ("Rule 144") may be made
only in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of such securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder. The Company reserves the right to place stop transfer
instructions against the shares and certificates for the Conversion Shares.
(g) Legends. Each Buyer understands that the certificates or other
instruments representing the Convertible Debentures and or the Conversion Shares
shall bear a restrictive legend in substantially the following form (and a stop
transfer order may be placed against transfer of such stock certificates):
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED SOLELY FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS.
The legend set forth above shall be removed and the Company, within two (2)
business days, shall issue a certificate without such legend to the holder of
the Conversion Shares upon which it is stamped, if, unless otherwise required by
state securities laws, (i) in connection with a sale transaction, provided the
Conversion Shares are registered under the Securities Act or (ii) in connection
with a sale transaction, after such holder provides the Company with an opinion
of counsel, which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public
sale, assignment or transfer of the Conversion Shares may be made without
registration under the Securities Act.
(h) Authorization, Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of such Buyer and is a valid and
binding agreement of such Buyer enforceable in accordance with its terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
(i) Receipt of Documents. Each Buyer and his or its counsel has received
and read in their entirety: (i) this Agreement and each representation, warranty
and covenant set forth herein, the Security Agreement, the Investor Registration
Rights Agreement, the Escrow Agreement, the Irrevocable Transfer Agent
Agreement, and the Pledge and Escrow Agreement; (ii) all due diligence and other
information necessary to verify the accuracy and completeness of such
representations, warranties and covenants; (iii) the Company's Form 10-KSB for
the fiscal year ended July 31, 2004; (iv) the Company's Form 10-QSB for the
fiscal quarter ended April 30, 2005 and (v) answers to all questions each Buyer
submitted to the Company regarding an investment in the Company; and each Buyer
has relied on the information contained therein and has not been furnished any
other documents, literature, memorandum or prospectus.
(j) Due Formation of Corporate and Other Buyers. If the Buyer(s) is a
corporation, trust, partnership or other entity that is not an individual
person, it has been formed and validly exists and has not been organized for the
specific purpose of purchasing the Convertible Debentures and is not prohibited
from doing so.
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(k) No Legal Advice From the Company. Each Buyer acknowledges, that it had
the opportunity to review this Agreement and the transactions contemplated by
this Agreement with his or its own legal counsel and investment and tax
advisors. Each Buyer is relying solely on such counsel and advisors and not on
any statements or representations of the Company or any of its representatives
or agents for legal, tax or investment advice with respect to this investment,
the transactions contemplated by this Agreement or the securities laws of any
jurisdiction.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that, except as
set forth in the SEC Documents (as defined in Section 3(f) hereof) or in the
Disclosure Schedule:
(a) Organization and Qualification. The Company and its subsidiaries are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(b) Authorization, Enforcement, Compliance with Other Instruments. (i) The
Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Security Agreement, the Investor Registration Rights
Agreement, the Irrevocable Transfer Agent Agreement, the Escrow Agreement, the
Pledge and Escrow Agreement, and any related agreements (collectively the
"Transaction Documents") and to issue the Convertible Debentures and the
Conversion Shares in accordance with the terms hereof and thereof, (ii) the
execution and delivery of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Convertible Debentures the
Conversion Shares and the reservation for issuance and the issuance of the
Conversion Shares issuable upon conversion or exercise thereof, have been duly
authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders, (iii) the Transaction Documents have been duly executed and
delivered by the Company, (iv) the Transaction Documents constitute the valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies. The
authorized officer of the Company executing the Transaction Documents knows of
no reason why the Company cannot file the registration statement as required
under the Investor Registration Rights Agreement or perform any of the Company's
other obligations under such documents.
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(c) Capitalization. As of the date hereof, the authorized capital stock of
the Company consists of 500,000,000 shares of Common Stock and 50,000,000 shares
of Preferred Stock, $0.01 par value per share ("Preferred Stock"), of which
52,978,517 shares of Common Stock and 34,343,662 and 23,067 shares of Series A
and Series B Preferred Stock, respectively, were issued and outstanding. All of
such outstanding shares have been validly issued and are fully paid and
nonassessable. No shares of Common Stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the
Company. As of the date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities and (iii) except as set forth in Schedule 3(c) of this Agreement,
there are no agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of their securities under
the Securities Act (except pursuant to the Registration Rights Agreement) and
(iv) there are no outstanding registration statements and there are no
outstanding comment letters from the SEC or any other regulatory agency, with
the exception of an SEC comment letter dated as of June 30, 2005. except as set
forth in Schedule 3(c) of this Agreement, there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Convertible Debentures as described in this Agreement. The
Company has furnished to the Buyer true and correct copies of the Company's
Articles of Incorporation, as amended and as in effect on the date hereof (the
"Articles of Incorporation"), and the Company's By-laws, as in effect on the
date hereof (the "By-laws"), and the terms of all securities convertible into or
exercisable for Common Stock and the material rights of the holders thereof in
respect thereto other than stock options issued to employees and consultants.
(d) Issuance of Securities. The Convertible Debentures are duly authorized
and, upon issuance in accordance with the terms hereof, shall be duly issued,
fully paid and nonassessable, are free from all taxes, liens and charges with
respect to the issue thereof. The Conversion Shares issuable upon conversion of
the Convertible Debentures have been duly authorized and reserved for issuance.
Upon conversion or exercise in accordance with the Convertible Debentures the
Conversion Shares will be duly issued, fully paid and nonassessable.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby will not (i) result in a violation of the
Certificate of Incorporation, any certificate of designations of any outstanding
series of preferred stock of the Company or the By-laws or (ii) conflict with or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of The National Association of Securities Dealers Inc.'s OTC
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Bulletin Board on which the Common Stock is quoted) applicable to the Company or
any of its subsidiaries or by which any property or asset of the Company or any
of its subsidiaries is bound or affected. Neither the Company nor its
subsidiaries is in violation of any term of or in default under its Articles of
Incorporation or By-laws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries. The business of the
Company and its subsidiaries is not being conducted, and shall not be conducted
in violation of any material law, ordinance, or regulation of any governmental
entity. Except as specifically contemplated by this Agreement and as required
under the Securities Act and any applicable state securities laws, the Company
is not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under or contemplated by this
Agreement or the Registration Rights Agreement in accordance with the terms
hereof or thereof. All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company and its subsidiaries are unaware of any facts or circumstance, which
might give rise to any of the foregoing.
(f) SEC Documents: Financial Statements. Since January 1, 2003, the Company
has filed all reports, schedules, forms, statements and other documents required
to be filed by it with the SEC under of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (all of the foregoing filed prior to the date
hereof or amended after the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein, being hereinafter referred to as the "SEC Documents"). The
Company has delivered to the Buyers or their representatives, or made available
through the SEC's website at xxxx://xxx.xxx.xxx., true and complete copies of
the SEC Documents. As of their respective dates, the financial statements of the
Company disclosed in the SEC Documents (the "Financial Statements") complied as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such Financial Statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and, fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyer which is not included in the SEC Documents, including, without
limitation, information referred to in this Agreement, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(g) 10(b)-5. The SEC Documents do not include any untrue statements of
material fact, nor do they omit to state any material fact required to be stated
therein necessary to make the statements made, in light of the circumstances
under which they were made, not misleading.
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(h) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending against or affecting the Company,
the Common Stock or any of the Company's subsidiaries, wherein an unfavorable
decision, ruling or finding would (i) have a material adverse effect on the
transactions contemplated hereby (ii) adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of the documents contemplated herein,
or (iii) have a material adverse effect on the business, operations, properties,
financial condition or results of operations of the Company and its subsidiaries
taken as a whole.
(i) Acknowledgment Regarding Buyer's Purchase of the Convertible
Debentures. The Company acknowledges and agrees that the Buyer(s) is acting
solely in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that the Buyer(s) is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by the Buyer(s) or any
of their respective representatives or agents in connection with this Agreement
and the transactions contemplated hereby is merely incidental to such Buyer's
purchase of the Convertible Debentures or the Conversion Shares. The Company
further represents to the Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation by the Company and
its representatives.
(j) No General Solicitation. Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of the Convertible
Debentures or the Conversion Shares.
(k) No Integrated Offering. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any security,
under circumstances that would require registration of the Convertible
Debentures or the Conversion Shares under the Securities Act or cause this
offering of the Convertible Debentures or the Conversion Shares to be integrated
with prior offerings by the Company for purposes of the Securities Act.
(l) Employee Relations. Neither the Company nor any of its subsidiaries is
involved in any labor dispute nor, to the knowledge of the Company or any of its
subsidiaries, is any such dispute threatened. None of the Company's or its
subsidiaries' employees is a member of a union and the Company and its
subsidiaries believe that their relations with their employees are good.
(m) Intellectual Property Rights. The Company and its subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service xxxx registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and rights necessary to conduct their respective businesses as now
conducted. The Company and its subsidiaries do not have any knowledge of any
infringement by the Company or its subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service
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marks, service xxxx registrations, trade secret or other similar rights of
others, and, to the knowledge of the Company there is no claim, action or
proceeding being made or brought against, or to the Company's knowledge, being
threatened against, the Company or its subsidiaries regarding trademark, trade
name, patents, patent rights, invention, copyright, license, service names,
service marks, service xxxx registrations, trade secret or other infringement;
and the Company and its subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing.
(n) Environmental Laws. To the best of the Company's knowledge the Company
and its subsidiaries are (i) in compliance with any and all applicable foreign,
federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or
approval.
(o) Title. Any real property and facilities held under lease by the Company
and its subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
and its subsidiaries.
(p) Insurance. The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its subsidiaries are
engaged. Neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
(q) Regulatory Permits. The Company and its subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(r) Internal Accounting Controls. The Company and each of its subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
and (iii) the recorded amounts for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.
10
(s) No Material Adverse Breaches, etc. Neither the Company nor any of its
subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation which in the judgment of the
Company's officers has or is expected in the future to have a material adverse
effect on the business, properties, operations, financial condition, results of
operations or prospects of the Company or its subsidiaries. Neither the Company
nor any of its subsidiaries is in breach of any contract or agreement which
breach, in the judgment of the Company's officers, has or is expected to have a
material adverse effect on the business, properties, operations, financial
condition, results of operations or prospects of the Company or its
subsidiaries.
(t) Tax Status. The Company and each of its subsidiaries has made and filed
all federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject and (unless and only to the
extent that the Company and each of its subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) has paid all taxes and other governmental assessments and charges that
are material in amount, shown or determined to be due on such returns, reports
and declarations, except those being contested in good faith and has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim.
(u) Certain Transactions. Except for arm's length transactions pursuant to
which the Company makes payments in the ordinary course of business upon terms
no less favorable than the Company could obtain from third parties and other
than the grant of stock options disclosed in the SEC Documents, none of the
officers, directors, or employees of the Company is presently a party to any
transaction with the Company (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
(v) Fees and Rights of First Refusal. The Company is not obligated to offer
the securities offered hereunder on a right of first refusal basis or otherwise
to any third parties including, but not limited to, current or former
shareholders of the Company, underwriters, brokers, agents or other third
parties.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts to timely satisfy
each of the conditions to be satisfied by it as provided in Sections 6 and 7 of
this Agreement.
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(b) Form D. The Company agrees to file a Form D with respect to the
Conversion Shares as required under Regulation D and to provide a copy thereof
to each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Conversion Shares, or obtain an exemption for the
Conversion Shares for sale to the Buyers at the Closing pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States, and shall provide evidence of any such action so taken to the
Buyers on or prior to the Closing Date.
(c) Reporting Status. Until the earlier of (i) the date as of which the
Buyer(s) may sell all of the Conversion Shares without restriction pursuant to
Rule 144(k) promulgated under the Securities Act (or successor thereto), or (ii)
the date on which (A) the Buyer(s) shall have sold all the Conversion Shares and
(B) none of the Convertible Debentures are outstanding (the "Registration
Period"), the Company shall file in a timely manner all reports required to be
filed with the SEC pursuant to the Exchange Act and the regulations of the SEC
thereunder, and the Company shall not terminate its status as an issuer required
to file reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would otherwise permit such termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale of the
Convertible Debentures for general corporate and working capital purposes.
(e) Reservation of Shares. The Company shall take all action reasonably
necessary to at all times have authorized, and reserved for the purpose of
issuance, such number of shares of Common Stock as shall be necessary to effect
the issuance of the Conversion Shares. If at any time the Company does not have
available such shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all of the Conversion Shares, the Company shall call
and hold a special meeting of the shareholders within thirty (30) days of such
occurrence, for the sole purpose of increasing the number of shares authorized.
The Company's management shall recommend to the shareholders to vote in favor of
increasing the number of shares of Common Stock authorized. Management shall
also vote all of its shares in favor of increasing the number of authorized
shares of Common Stock.
(f) Listings or Quotation. The Company shall promptly secure the listing or
quotation of the Conversion Shares upon each national securities exchange,
automated quotation system or The National Association of Securities Dealers
Inc.'s Over-The-Counter Bulletin Board ("OTCBB") or other market, if any, upon
which shares of Common Stock are then listed or quoted (subject to official
notice of issuance) and shall use its best efforts to maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Conversion
Shares from time to time issuable under the terms of this Agreement. The Company
shall maintain the Common Stock's authorization for quotation on the OTCBB.
(g) Fees and Expenses.
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(i) Each of the Company and the Buyer(s) shall pay all costs and
expenses incurred by such party in connection with the negotiation,
investigation, preparation, execution and delivery of the Transaction
Documents. The Company shall pay Yorkville Advisors Management LLC a fee
equal to ten percent (10%) of the Purchase Price.
(ii) The Company shall pay a structuring fee to Yorkville Advisors
Management, LLC of Ten Thousand Dollars ($10,000) which shall be paid
directly from the proceeds of the First Closing.
(iii) The Company shall pay the Buyers a non-refundable due diligence
fee of Five Thousand Dollars ($5,000) which shall be paid directly from the
proceeds of the First Closing.
(iv) The Company shall issue to the Buyer a warrant to purchase Three
Hundred Fifty Thousand (350,000) shares of the Company's Common Stock (the
"Warrant Shares") for a period of three (3) years at an exercise price of
$0.001 per share. The Warrant Shares shall have "piggy-back" and demand
registration rights.
(h) Corporate Existence. So long as any of the Convertible Debentures
remain outstanding, the Company shall not directly or indirectly consummate any
merger, reorganization, restructuring, reverse stock split consolidation, sale
of all or substantially all of the Company's assets or any similar transaction
or related transactions (each such transaction, an "Organizational Change")
unless, prior to the consummation an Organizational Change, the Company obtains
the written consent of each Buyer. In any such case, the Company will make
appropriate provision with respect to such holders' rights and interests to
insure that the provisions of this Section 4(h) will thereafter be applicable to
the Convertible Debentures.
(i) Transactions With Affiliates. So long as any Convertible Debentures are
outstanding, the Company shall not, and shall cause each of its subsidiaries not
to, enter into, amend, modify or supplement, or permit any subsidiary to enter
into, amend, modify or supplement any agreement, transaction, commitment, or
arrangement with any of its or any subsidiary's officers, directors, person who
were officers or directors at any time during the previous two (2) years,
stockholders who beneficially own five percent (5%) or more of the Common Stock,
or Affiliates (as defined below) or with any individual related by blood,
marriage, or adoption to any such individual or with any entity in which any
such entity or individual owns a five percent (5%) or more beneficial interest
(each a "Related Party"), except for (a) customary employment arrangements and
benefit programs on reasonable terms, (b) any investment in an Affiliate of the
Company, (c) any agreement, transaction, commitment, or arrangement on an
arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, (d) shares of Common
Stock or options to employees, officers, directors or consultants of the Company
pursuant to any stock or option plan, or (e) any agreement, transaction,
commitment, or arrangement which is approved by a majority of the disinterested
directors of the Company; for purposes hereof, any director who is also an
officer of the Company or any subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment, or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a ten percent (10%) or more equity interest in that person or entity,
(ii) has ten percent (10%) or more common ownership with that person or entity,
(iii) controls that person or entity, or (iv) shares common control with that
person or entity. "Control" or "controls" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
13
(j) Transfer Agent. The Company covenants and agrees that, in the event
that the Company's agency relationship with the transfer agent should be
terminated for any reason prior to a date which is two (2) years after the
Closing Date, the Company shall immediately appoint a new transfer agent and
shall require that the new transfer agent execute and agree to be bound by the
terms of the Irrevocable Transfer Agent Instructions (as defined herein).
(k) Restriction on Issuance of the Capital Stock. Except as set forth in
Schedule 4(k) to this Agreement, so long as any Convertible Debentures are
outstanding, the Company shall not, without the prior written consent of the
Buyer(s), (i) issue or sell shares of Common Stock or Preferred Stock without
consideration or for a consideration per share less than the bid price of the
Common Stock determined immediately prior to its issuance, (ii) issue any
warrant, option, right, contract, call, or other security instrument granting
the holder thereof, the right to acquire Common Stock without consideration or
for a consideration less than such Common Stock's Bid Price value determined
immediately prior to it's issuance, (iii) enter into any security instrument
granting the holder a security interest in any and all assets of the Company, or
(iv) file any registration statement on Form S-8.
(l) Neither the Buyer(s) nor any of its affiliates have an open short
position in the Common Stock of the Company, and the Buyer(s) agrees that it
shall not, and that it will cause its affiliates not to, engage in any short
sales of or hedging transactions with respect to the Common Stock as long as any
Convertible Debenture or warrants to purchase the Warrant Shares shall remain
outstanding.
5. TRANSFER AGENT INSTRUCTIONS.
(a) The Company shall issue the Irrevocable Transfer Agent Instructions to
its transfer agent irrevocably appointing Xxxxx Xxxxxxxx, Esq. as the Company's
agent for purpose of having certificates issued, registered in the name of the
Buyer(s) or its respective nominee(s), for the Conversion Shares representing
such amounts of Convertible Debentures as specified from time to time by the
Buyer(s) to the Company upon conversion of the Convertible Debentures, for
interest owed pursuant to the Convertible Debenture, and for any and all
Liquidated Damages (as this term is defined in the Investor Registration Rights
Agreement). Xxxxx Xxxxxxxx, Esq. shall be paid a cash fee of Fifty Dollars ($50)
for every occasion they act pursuant to the Irrevocable Transfer Agent
Instructions. The Company shall not change its transfer agent without the
express written consent of the Buyer(s), which may be withheld by the Buyer(s)
14
in its sole discretion. Prior to registration of the Conversion Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(g)
hereof (in the case of the Conversion Shares prior to registration of such
shares under the Securities Act) will be given by the Company to its transfer
agent and that the Conversion Shares shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Investor Registration Rights Agreement. Nothing in this
Section 5 shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of Conversion Shares. If
the Buyer(s) provides the Company with an opinion of counsel, in form, scope and
substance customary for opinions of counsel in comparable transactions to the
effect that registration of a resale by the Buyer(s) of any of the Conversion
Shares is not required under the Securities Act, the Company shall within two
(2) business days instruct its transfer agent to issue one or more certificates
in such name and in such denominations as specified by the Buyer. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyer by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyer(s) shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Convertible
Debentures to the Buyer(s) at the Closings is subject to the satisfaction, at or
before the Closing Dates, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
(a) Each Buyer shall have executed the Transaction Documents and delivered
them to the Company.
(b) The Buyer(s) shall have delivered to the Escrow Agent the Purchase
Price for Convertible Debentures in respective amounts as set forth next to each
Buyer as outlined on Schedule I attached hereto and the Escrow Agent shall have
delivered the net proceeds to the Company by wire transfer of immediately
available U.S. funds pursuant to the wire instructions provided by the Company.
(c) The representations and warranties of the Buyer(s) shall be true and
correct in all material respects as of the date when made and as of the Closing
Dates as though made at that time (except for representations and warranties
that speak as of a specific date), and the Buyer(s) shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Buyer(s) at or prior to the Closing Dates.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
(a) The obligation of the Buyer(s) hereunder to Purchase the Convertible
Debentures at the First Closing is subject to the satisfaction, at or before the
First Closing Date, of each of the following conditions:
15
(i) The Company shall have executed the Transaction Documents and
delivered the same to the Buyer(s).
(ii) The Common Stock shall be authorized for quotation on the OTCBB,
trading in the Common Stock shall not have been suspended for any reason,
and all the Conversion Shares issuable upon the conversion of the
Convertible Debentures shall be approved by the OTCBB.
(iii) The representations and warranties of the Company shall be true
and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in
Section 3 above, in which case, such representations and warranties shall
be true and correct without further qualification) as of the date when made
and as of the First Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or
prior to the First Closing Date. If requested by the Buyer, the Buyer shall
have received a certificate, executed by the President of the Company,
dated as of the First Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by the Buyer including,
without limitation an update as of the First Closing Date regarding the
representation contained in Section 3(c) above.
(iv) The Company shall have executed and delivered to the Buyer(s) the
Convertible Debentures in the respective amounts set forth opposite each
Buyer(s) name on Schedule I attached hereto.
(v) The Buyer(s) shall have received an opinion of counsel from
Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP in a form satisfactory to the Buyer(s).
(vi) The Company shall have provided to the Buyer(s) a certificate of
good standing from the secretary of state from the state in which the
company is incorporated.
(vii) The Company shall have filed a form as may be required to
perfect the Buyer's interest in the Pledged Property in accordance with
English law as detailed in the Security Agreement dated the date hereof and
provided proof of such filing to the Buyer(s).
(viii) The Company shall have delivered to the Escrow Agent the
Pledged Shares as well executed and medallion guaranteed stock bond powers
as required pursuant to the Pledge and Escrow Agreement.
(ix) The Company shall have provided to the Buyer an acknowledgement,
to the satisfaction of the Buyer, from the Company's independent certified
public accountants as to its ability to provide all consents required in
order to file a registration statement in connection with this transaction.
16
(x) The Company shall have reserved out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the
Convertible Debentures, shares of Common Stock to effect the conversion of
all of the Conversion Shares then outstanding.
(xi) The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to the Buyer, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(b) The obligation of the Buyer(s) hereunder to accept the Convertible
Debentures at the Second Closing is subject to the satisfaction, at or before
the Second Closing Date, of each of the following conditions:
(i) The Common Stock shall be authorized for quotation on the OTCBB,
trading in the Common Stock shall not have been suspended for any reason,
and all the Conversion Shares issuable upon the conversion of the
Convertible Debentures shall be approved by the OTCBB.
(ii) The representations and warranties of the Company shall be true
and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in
Section 3 above, in which case, such representations and warranties shall
be true and correct without further qualification) as of the date when made
and as of the Second Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or
prior to the Second Closing Date. If requested by the Buyer, the Buyer
shall have received a certificate, executed by two officers of the Company,
dated as of the Second Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by the Buyer including,
without limitation an update as of the Second Closing Date regarding the
representation contained in Section 3(c) above.
(iii) The Company shall have executed and delivered to the Buyer(s)
the Convertible Debentures in the respective amounts set forth opposite
each Buyer(s) name on Schedule I attached hereto.
(iv) The Company shall have certified that all conditions to the
Second Closing have been satisfied and that the Company will file the
Registration Statement with the SEC in compliance with the rules and
regulations promulgated by the SEC for filing thereof two (2) business days
after the Second Closing. If requested by the Buyer, the Buyer shall have
received a certificate, executed by the two officers of the Company, dated
as of the Second Closing Date, to the foregoing effect.
(v) The Company and its auditors shall have completed the Company's
audited financial statements for the fiscal year ended July 31, 2005.
17
(c) The obligation of the Buyer(s) hereunder to accept the Convertible
Debentures at the Third Closing is subject to the satisfaction, at or before the
Third Closing Date, of each of the following conditions:
(i) The Common Stock shall be authorized for quotation on the OTCBB,
trading in the Common Stock shall not have been suspended for any reason,
and all the Conversion Shares issuable upon the conversion of the
Convertible Debentures shall be approved by the OTCBB.
(ii) The Company's Registration Statement with respect to the resale
of the Conversion Shares in accordance with the terms of the Investor
Registration Rights Agreement shall have been declared effective by the SEC
and remain effective on the Third Closing Date.
(iii) The Company shall have no knowledge of any event which would
more likely than not have the effect of causing the Registration Statement
to be suspended or otherwise ineffective.
(iv) The Company shall have filed with the SEC in a timely manner all
reports, notices and other documents required of it under the Exchange Act
and applicable SEC regulations.
(v) The Company shall have executed and delivered to the Buyer(s) the
Convertible Debentures in the respective amounts set forth opposite each
Buyer(s) name on Schedule I attached hereto.
(vi) The Company shall have certified that all conditions to the Third
Closing have been satisfied and shall provide the Buyer with a certificate,
executed by the two officers of the Company, dated as of the Third Closing
Date, to the foregoing effect.
8. INDEMNIFICATION.
(a) In consideration of the Buyer's execution and delivery of this
Agreement and acquiring the Convertible Debentures and the Conversion Shares
hereunder, and in addition to all of the Company's other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless the
Buyer(s) and each other holder of the Convertible Debentures and the Conversion
Shares, and all of their officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Buyer Indemnitees") from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Buyer Indemnitee is a party to the action for
which indemnification hereunder is sought), and including reasonable attorneys'
fees and disbursements (the "Indemnified Liabilities"), incurred by the Buyer
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Convertible Debentures or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, or the Investor
18
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such Indemnitee and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the parties
hereto, any transaction financed or to be financed in whole or in part, directly
or indirectly, with the proceeds of the issuance of the Convertible Debentures
or the status of the Buyer or holder of the Convertible Debentures the
Conversion Shares, as a Buyer of Convertible Debentures in the Company. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities, which is permissible under
applicable law.
(b) In consideration of the Company's execution and delivery of this
Agreement, and in addition to all of the Buyer's other obligations under this
Agreement, the Buyer shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Company Indemnitees") from
and against any and all Indemnified Liabilities incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Buyer(s) in this Agreement, instrument or document contemplated hereby or
thereby executed by the Buyer, (b) any breach of any covenant, agreement or
obligation of the Buyer(s) contained in this Agreement, the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby executed by the Buyer, or (c) any cause of
action, suit or claim brought or made against such Company Indemnitee based on
material misrepresentations or due to a material breach and arising out of or
resulting from the execution, delivery, performance or enforcement of this
Agreement, the Investor Registration Rights Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the parties hereto. To
the extent that the foregoing undertaking by each Buyer may be unenforceable for
any reason, each Buyer shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities, which is permissible under
applicable law.
9. GOVERNING LAW: MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New Jersey without regard to the
principles of conflict of laws. The parties further agree that any action
between them shall be heard in Xxxxxx County, New Jersey, and expressly consent
to the jurisdiction and venue of the Superior Court of New Jersey, sitting in
Xxxxxx County and the United States District Court for the District of New
Jersey sitting in Newark, New Jersey for the adjudication of any civil action
asserted pursuant to this Paragraph.
19
(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event any signature page is delivered by
facsimile transmission, the party using such means of delivery shall cause four
(4) additional original executed signature pages to be physically delivered to
the other party within five (5) days of the execution and delivery hereof.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) Entire Agreement, Amendments. This Agreement supersedes all other prior
oral or written agreements between the Buyer(s), the Company, their affiliates
and persons acting on their behalf with respect to the matters discussed herein,
and this Agreement and the instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended other than by an instrument in writing signed by the party to
be charged with enforcement.
(f) Notices. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon confirmation of receipt, when sent by facsimile;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company, to: In Veritas Medical Diagnostics, Inc.
The Green House
Beechwood Business Park North
Inverness - Scotland L2 XX0 0XX
Telephone: x00 (0) 000-000-0000
Facsimile: x00 (0) 000-000-0000
With a copy to: Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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If to the Buyer(s), to its address and facsimile number on Schedule I, with
copies to the Buyer's counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.
(g) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party
hereto.
(h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
(i) Survival. Unless this Agreement is terminated under Section 9(l), the
representations and warranties of the Company and the Buyer(s) contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive the
Closing for a period of two (2) years following the date on which the
Convertible Debentures are converted in full. The Buyer(s) shall be responsible
only for its own representations, warranties, agreements and covenants
hereunder.
(j) Publicity. The Company and the Buyer(s) shall have the right to
approve, before issuance any press release or any other public statement with
respect to the transactions contemplated hereby made by any party; provided,
however, that the Company shall be entitled, without the prior approval of the
Buyer(s), to issue any press release or other public disclosure with respect to
such transactions required under applicable securities or other laws or
regulations (the Company shall use its best efforts to consult the Buyer(s) in
connection with any such press release or other public disclosure prior to its
release and Buyer(s) shall be provided with a copy thereof upon release
thereof).
(k) Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) Termination. In the event that the Closing shall not have occurred with
respect to the Buyers on or before five (5) business days from the date hereof
due to the Company's or the Buyer's failure to satisfy the conditions set forth
in Sections 6 and 7 above (and the non-breaching party's failure to waive such
unsatisfied condition(s)), the non-breaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, that if this Agreement is terminated by the Company pursuant
to this Section 9(l), the Company shall remain obligated to reimburse the
Buyer(s) for the fees and expenses of Yorkville Advisors Management, LLC
described in Section 4(g) above.
21
(m) No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
[REMAINDER PAGE INTENTIONALLY LEFT BLANK]
22
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY:
IN VERITAS MEDICAL DIAGNOSTICS, INC.
By: /s/ Xxxx Xxxxxx
---------------------------
Name: Xxxx Xxxxxx
Title: Chief Executive Officer
23
EXHIBIT A
FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT
24
EXHIBIT B
FORM OF ESCROW AGREEMENT
25
EXHIBIT C
SECURITY AGREEMENT
26
EXHIBIT D
PLEDGE AND ESCROW AGREEMENT
27
EXHIBIT E
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
28
DISCLOSURE SCHEDULE
3(c)
A. Agreements to resister the resale of securities under the Securities Act.
Form SB-2
---------
An aggregate of 1,162,791 shares of common stock issued to NITE Capital,
L.P. pursuant to a Registration Rights Agreement dated as of December 22,
2004.
An aggregate of (i) 61,769 shares upon conversion of 5% convertible
preferred stock of the Company issuable upon exercise of Unit Warrants (as
defined below), and (iii) 61,769 shares underlying Warrants issuable upon
exercise of the Unit Warrants. The 5% convertible preferred stock will be
adjusted such that it will be convertible into such number of shares of
common stock as may be determined by multiplying 61,769 shares by the
product of the stated value ($0.65) divided by the new issuance price.
Up to such number of shares of common stock for the following accredited
investors who, in connection with the private placement of units (the
"Units"), each Unit consisting of one share of 5% convertible preferred
stock of the Company, $.001 par value per share (the "Preferred Stock") and
one warrant to purchase one share of the Company's Common Stock (the
"Warrants"), purchased Units for the amounts listed below and who are
rolling over into this offering:
o Whalehaven Capital Fund Limited - $201,500;
o Longview Fund Ltd. - $200,000;
o Triumph Research Partners, LLC - $140,000; and
o The Xxxxx Family Irrevocable Stock Trust - $15,000.
Up to 805,000 shares of common stock issuable to Sichenzia Xxxx Xxxxxxxx
Xxxxxxx LLP.
Form S-8
--------
An aggregate of 14,659,154 shares of common stock or stock options pursuant
to the Company's 2005 Stock Incentive Plan (the "Plan") issuable to
employees, directors, officers or consultants to the Company; including the
following shares of common stock and/or stock options which the Company has
issued or has agreed to issue:
o incentive stock options to purchase up to an aggregate of 9,659,154
shares of common stock to Xxxx Xxxxxx and Xxxxx Xxxxxxx;
o an aggregate of 55,000 shares of common stock pursuant to a Consulting
Agreement dated May 13, 2004, between the Company and Xxxxxx X. Xxxxx
& Company, Inc.;
o an aggregate of 750,000 shares of common stock pursuant to a
Consulting Agreement dated July 21, 2005, between the Company and CLX
& Associates, Inc.
29
o an aggregate of 1,000,000 shares of common stock underlying warrants
to be issued to CynDel & Company, Inc. pursuant to a Consulting
Agreement; and
o an aggregate of 810,810 shares of common stock pursuant to a
Consulting Agreement between the Company and UTEK-EKMS, Inc.
B. Securities containing anti-dilution or similar provisions.
1. In connection with the private placement the Units, Westor Capital
Group, Inc. was issued 61,769 warrants to purchase additional Units
(the "Unit Warrants"). The securities issued upon exercise of the Unit
Warrant contain anti-dilution or similar provisions.
2. Whalehaven Capital Fund Limited, Longview Fund Ltd, Triumph Research
Partners, LLC, and The Xxxxx Family Irrevocable Stock Trust purchased
Units in the amounts listed above. The securities issued as part of
such Units contained anti-dilution or similar provisions. As of the
date hereof, these investors are exchanging the securities issued in
connection with their purchase of the Units for Convertible
Debentures. As a result, such investors no longer have the
anti-dilution or similar rights that they had under securities issued
as part of the Units.
4(k) Restriction on Issuance of the Capital Stock
-------------------------------------------------
A. The Company shall be permitted to issue, in its discretion, the following
stock and stock options without the prior written consent of the Buyer:
1. An aggregate of up to 5,000,000 shares of common stock or stock
options pursuant to the Company's Plan issuable to employees,
directors, officers or consultants to the Company, including the
following common stock and/or stock options:
o an aggregate of 55,000 shares of common stock pursuant a Consulting
Agreement dated May 13, 2004, between the Company and Xxxxxx X. Xxxxx
& Company, Inc.;
o an aggregate of 750,000 shares of common stock pursuant a Consulting
Agreement dated July 21, 2005, between the Company and CLX &
Associates, Inc.;
o an aggregate of 1,000,000 shares of common stock underlying warrants
to be issued to CynDel & Company, Inc. pursuant to a Consulting
Agreement;
o an aggregate of 810,810 shares of common stock pursuant to a
Consulting Agreement between the Company and UTEK-EKMS, Inc.; and
o up to 805,000 shares of common stock issuable to Sichenzia Xxxx
Xxxxxxxx Xxxxxxx LLP.
2. Incentive stock options to purchase up to an aggregate of 9,659,154
shares of common stock to Xxxx Xxxxxx and Xxxxx Xxxxxxx, provided that
Xxxx Xxxxxx and Xxxxx Xxxxxxx agree to sell such shares in accordance
with the volume limitations set forth in Rule 144(e) of the General
Rules and Regulations under the Securities Act of 1933, as amended.
3. Common Stock issued in connection with the Standby Equity Distribution
Agreement dated the date hereof, between the Company and Cornell
Capital Partners, LP.
30
B. The Company shall be permitted to file registration statements, in its
discretion, on Form S-8 for the following stock and stock options without
the prior written consent of the Buyer:
1. An aggregate of up to 5,000,000 shares of common stock or stock
options pursuant to the Company's Plan issuable to employees,
directors, officers or consultants to the Company, including the
following common stock and/or stock options:
o an aggregate of 55,000 shares of common stock pursuant a Consulting
Agreement dated May 13, 2004, between the Company and Xxxxxx X. Xxxxx
& Company, Inc.;
o an aggregate of 750,000 shares of common stock pursuant a Consulting
Agreement dated July 21, 2005, between the Company and CLX &
Associates, Inc.;
o an aggregate of 1,000,000 shares of common stock underlying warrants
to be issued to CynDel & Company, Inc. pursuant to a Consulting
Agreement; and
o an aggregate of 810,810 shares of common stock pursuant to a
Consulting Agreement between the Company and UTEK-EKMS, Inc.
2. Incentive stock options to purchase up to an aggregate of 9,659,154
shares of common stock to Xxxx Xxxxxx and Xxxxx Xxxxxxx, provided that
Xxxx Xxxxxx and Xxxxx Xxxxxxx agree to sell such shares in accordance
with the volume limitations set forth in Rule 144(e) of the General
Rules and Regulations under the Securities Act of 1933, as amended.
31
SCHEDULE I
SCHEDULE OF BUYERS
Address/Facsimile Amount of
Name Signature Number of Buyer Subscription
-------------------------------- ----------------------------- ------------------------------- ------------
Xxxxxxxxxx Equity Partners, Ltd. By: Yorkville Advisors, LLC 000 Xxxxxx Xxxxxx - Xxxxx 0000 $750,000
Its: General Partner Xxxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
By: /s/ Xxxx Xxxxxx
----------------------
Name: Xxxx Xxxxxx
Its: Portfolio Manager
With a copy to: Xxxxx Xxxxxxxx, Esq. 000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
32
