SECURITIES PURCHASE AGREEMENT
Exhibit
10.1
SECURITIES
PURCHASE AGREEMENT
(the
"Agreement"),
dated
as of May ___, 2007, by and among nCoat, Inc., formerly Tylerstone Ventures
Corporation, a Delaware corporation (the "Company")
and
the investors listed on the Schedule of Buyers attached hereto (individually,
a
"Buyer"
and
collectively, the "Buyers").
WHEREAS:
A. The
Company and each Buyer is executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2) of
the
Securities Act of 1933, as amended (the "1933
Act"),
and
Rule 506 of Regulation D ("Regulation D")
as
promulgated by the United States Securities and Exchange Commission (the
"SEC")
under
the 1933 Act.
B. The
Company has authorized two new series of convertible notes of the Company,
in
the forms attached hereto as Exhibit
A
(the
"Series
A Notes")
and
Exhibit B (the “Series
B Notes”),
(collectively the “Notes”)
which
Notes shall be convertible into the Company's common stock, par value $0.0001
per share (the "Common
Stock")
(as
converted, the “Series A Conversion
Shares”
or
“Series
B Conversion Shares”),
in
accordance with the terms of the Notes (the Series A Conversion Shares and
the
Series B Conversion Shares shall collectively be referred to herein as the
“Conversion
Shares”).
C. Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate principal amount of
the Notes set forth opposite such Buyer's name in column (3) on the Schedule
of
Buyers attached hereto (which aggregate amount for all Buyers shall be
$17,750,000 (“Aggregate
Principal Amount of Series A Notes and Series B Notes”)
in
amounts as subscribed by the Buyers), (ii) that number of shares of Common
Stock
(“Shares”)
set
forth opposite such Buyer's name in column (4) on the Schedule of Buyers
attached hereto (which aggregate amount for all Buyers shall be up to 14,250,000
Shares (“Aggregate
Number of Shares”),
in
amounts as subscribed by the Buyers) (each such Share being sold at a price
of
$0.40) and (iii) warrants, in substantially the form attached hereto as
Exhibit
C
(the
"Series
A Warrants")
and
Exhibit
D
(the
“Series
B Warrants”),
(collectively the “Warrants”)
to
acquire up to that number of additional shares of Common Stock set forth
opposite such Buyer's name in column (5) of the Schedule of Buyers (as
exercised, the “Series
A Warrant Shares”
and
“Series
B Warrant Shares”,
collectively referred to herein as the "Warrant
Shares").
Of
the $17,750,000 principal amount of Notes being issued in connection with this
transaction, not more than $9,000,000 principal amount of Notes shall be
designated as Series A Notes.
D. In
the
event that a Buyer elects to subscribe directly for Shares, rather than Notes,
the Aggregate Principal Amount of Notes being offered shall automatically be
reduced by one (1) dollar for every two and one-half (2.5) shares subscribed
for
by Buyers up to an aggregate of $5,700,000, or 14,250,000 Shares.
E. Contemporaneously
with the execution and delivery of this Agreement, the Company and the
purchasers of the Series A Notes, Shares and Series A Warrants are executing
and
delivering a Registration Rights Agreement, substantially in the form attached
hereto as Exhibit
E
(the
"Registration
Rights Agreement"),
pursuant to which the Company will agree to provide certain registration rights
with respect to the Registrable Securities (as defined in the Registration
Rights Agreement) under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
F. The
Notes, the Conversion Shares, the Shares, the Warrants and the Warrant Shares
collectively are referred to herein as the "Securities."
NOW,
THEREFORE,
the
Company and each Buyer hereby agree as follows:
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1.
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PURCHASE
AND SALE OF NOTES, SHARES AND WARRANTS.
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(a)
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Purchase
of Notes, Shares and Warrants.
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(i) Notes,
Shares and Warrants. Subject
to the satisfaction (or waiver) of the conditions set forth in Sections 6 and
7
below, the Company shall issue and sell to each Buyer, and each Buyer severally,
but not jointly, agrees to purchase from the Company on either the Initial
Closing Date (as defined below) or the Final Closing Date (as defined below),
(x) a principal amount of Notes as is set forth opposite such Buyer's name
in column (3) on the Schedule of Buyers, (y) the number of Shares as is set
forth opposite such Buyer’s name in column (4) on the Schedule of Buyers each at
a purchase price of $0.40 per share, and (z) Warrants to acquire up to that
number of Warrant Shares as is set forth opposite such Buyer's name in column
(5) on the Schedule of Buyers, (the "Closing").
Buyer
will receive one Warrant for each Share purchased or each Conversion Share
underlying the Notes purchased pursuant to this Agreement.
(ii) Closing.
The
date and time of the initial Closing (the "Initial
Closing")
shall
be no later than 10:00 a.m., New York City time on May 25, 2007 (or such later
date as is mutually agreed to by the Company and each Buyer) (the “Initial
Closing Date”)
after
notification of satisfaction (or waiver) of the conditions to the Closing set
forth in Sections 6 and 7 below, with any additional closings (the “Additional
Closing Dates”) to take place on or before June 18, 2007 (“Termination
Date”)
with
the date of the final Closing (the “Final
Closing”)
occurring on before the Termination Date (the “Final
Closing Date”),
each
to occur at the offices of Xxxxxxxxxx & Xxxxx LLP, 000 Xxxxxxxxx Xxxxxx,
00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 unless the Company and the Buyers (as
defined below) agree otherwise. The Initial Closing and the Final Closing may
be
referred to herein collectively as a “Closing.”
(iii) Purchase
Price.
The
aggregate purchase price for the Notes, Shares and Warrants to be purchased
by
each such Buyer at each Closing (the "Purchase
Price")
shall
be the amount set forth opposite each Buyer's name in column (6) of the Schedule
of Buyers. The aggregate Purchase Price amount for all Buyers in the Initial
Closing shall be no less than $1,000,000. The aggregate Purchase Price for
all
Buyers in the Additional Closings shall be $17,750,000 less the aggregate
Purchase Price of Securities in the Initial Closing.
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(b) Form
of Payment.
On the
Initial Closing Date, each of the Additional Closings and the Final Closing
Date, (i) each Buyer, shall deliver its Purchase Price, to the Escrow Agent
(as
defined below) pursuant to Section 2 of the Escrow Agreement, dated as of March
22, 2007 and subsequently amended as of May 15, 2007, by and among the Company,
the Agent (as defined in Section 3(g)) and American Stock Transfer and Trust
Company ("Escrow
Agent"),
a
financial institution chartered under the laws of the State of New York,
attached hereto as Exhibit
F
(the
"Escrow
Agreement"),
or to
the Company directly as directed by the Agent (as defined below), and
(ii) the Company shall deliver to each Buyer the Notes (allocated in the
principal amounts as such Buyer shall request) which such Buyer is then
purchasing hereunder along with the Shares, if so purchased, and the Warrants
(allocated in the amounts as such Buyer shall request) which such Buyer is
purchasing, in each case duly executed on behalf of the Company and registered
in the name of such Buyer or its designee.
2. BUYER'S
REPRESENTATIONS AND WARRANTIES.
Each
Buyer, severally and not jointly, represents and warrants with respect to only
itself that:
(a) No
Sale or Distribution.
Such
Buyer is acquiring the Shares, Notes and Warrants, and upon conversion of the
Notes and exercise of the Warrants will acquire the Conversion Shares issuable
upon conversion of the Notes and the Warrant Shares issuable upon exercise
of
the Warrants, as principal for its own account 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 1933 Act; provided, however,
that by making the representations herein, such Buyer does not agree to hold
any
of the Securities for any minimum or other specific term and reserves the right
to dispose of the Securities at any time in accordance with or pursuant to
a
registration statement or an exemption under the 1933 Act and pursuant to the
applicable terms of the Transaction Documents (as defined in Section 3(b)).
Such
Buyer is acquiring the Securities hereunder in the ordinary course of its
business. Such Buyer does not presently have any agreement or understanding,
directly or indirectly, with any Person (as defined in Section 3(t)) to
distribute any of the Securities.
(b) Accredited
Investor Status.
At the
time such Buyer was offered the Securities, it was, and at the date hereof
it
is, and on each date on which it exercises any Warrants, it will be either:
(i)
an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or
(a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as
defined in Rule 144A(a) under the Securities Act. Such Buyer is not required
to
be registered as a broker-dealer under Section 15 of the Exchange
Act.
(c) Reliance
on Exemptions.
Such
Buyer understands that the Securities are being offered and sold to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying in
part
upon the truth and accuracy of, and such Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings
of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the
Securities.
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(d) Information.
Such
Buyer and its advisors, if any, have been furnished with all materials relating
to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities that have been requested by such Buyer.
Such Buyer and its advisors, if any, have been afforded the opportunity to
ask
questions of the Company. Neither such inquiries nor any other due diligence
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 herein. Such Buyer
understands that its investment in the Securities involves a high degree of
risk
and is able to afford a complete loss of such investment. Such Buyer has sought
such accounting, legal and tax advice as it has considered necessary to make
an
informed investment decision with respect to its acquisition of the
Securities.
(e) No
Governmental Review.
Such
Buyer understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation
or
endorsement of the Securities or the fairness or suitability of the investment
in the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.
(f) Transfer
or Resale.
Such
Buyer understands that except as provided in the Registration Rights Agreement
(which relates solely to the Series A Conversion Shares, the Shares and the
Series A Warrant Shares): (i) the Securities have not been and are not being
registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a form reasonably acceptable to the Company, 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, or
(C)
such Buyer provides the Company with reasonable assurance that such Securities
can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A
promulgated under the 1933 Act, as amended (or a successor rule thereto)
(collectively, "Rule
144"),
notwithstanding the foregoing, the requirement to deliver a legal opinion as
set
out in clause (B) above shall not apply to transfers to an affiliate of the
Buyer; (ii) any sale of the Securities made in reliance on Rule 144 may be
made
only in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 0000 Xxx) may require compliance with some
other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other Person is under any obligation
to
register the Securities under the 1933 Act or any state securities laws or
to
comply with the terms and conditions of any exemption thereunder. The Securities
may be pledged in connection with a bona fide margin account or other loan
or
financing arrangement secured by the Securities and such pledge of Securities
shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Buyer effecting a pledge of Securities shall be required
to
provide the Company with any notice thereof or otherwise make any delivery
to
the Company pursuant to this Agreement or any other Transaction Document (as
defined in Section 3(b)), including, without limitation, this Section
2(f).
(g) Legends.
Such
Buyer understands that the certificates or other instruments representing
the
Notes, Shares and Warrants and, solely with respect to the Series A Conversion
Shares, the Shares and the Series A Warrant Shares until such time as the
resale
of the Series A Conversion Shares, the Shares and the Series A Warrant Shares
have been registered under the 1933 Act as contemplated by the Registration
Rights Agreement, the stock certificates representing the Conversion Shares,
the
Shares and the Warrant Shares, except as set forth below, shall bear any
legend
as required by the "blue sky" laws of any state and 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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NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE
SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE]
HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR
(B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY,
THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO
RULE
144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which
it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection
with
a sale, assignment or other transfer, such holder provides the Company with
an
opinion of a law firm reasonably acceptable to the Company (with Xxxxxxxxxx
& Xxxxx LLP being deemed acceptable), in a form reasonably acceptable to the
Company, to the effect that such sale, assignment or transfer of the Securities
may be made without registration under the applicable requirements of the 1933
Act, or (iii) such holder provides the Company with reasonable assurance that
the Securities can be sold, assigned or transferred pursuant to Rule 144 or
Rule
144A.
(h) Validity;
Enforcement.
This
Agreement and the Registration Rights Agreement to which such Buyer of Series
A
Notes, Shares and Series A Warrants is a party have been duly and validly
authorized, executed and delivered on behalf of such Buyer and shall constitute
the legal, valid and binding obligations of such Buyer enforceable against
such
Buyer in accordance with their respective terms, except as such enforceability
may be limited by general principles of equity or to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable creditors'
rights and remedies.
(i) No
Conflicts.
The
execution, delivery and performance by such Buyer of this Agreement and the
Registration Rights Agreement (solely with respect to the Buyers of Series
A
Notes, Series A Warrants and Shares) and the consummation by such Buyer of
the
transactions contemplated hereby and thereby will not (i) result in a violation
of the organizational documents of such Buyer 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 such Buyer is a party, or (iii) result in a violation of
any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws) applicable to such Buyer, except in the case of clauses (ii)
and (iii) above, for such conflicts, defaults, rights or violations which would
not, individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of such Buyer to perform its obligations
hereunder.
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(j) Residency.
Such
Buyer is a resident of that jurisdiction specified below its address on the
Schedule of Buyers.
(k) Buyer's
Broker Fees.
Each
Buyer shall be responsible for the payment of any placement agent's fees,
financial advisory fees, or brokers' commissions for placement agents, financial
advisors and/or brokers engaged by such Buyer relating to or arising out of
the
transactions contemplated hereby.
(l) Certain
Trading Activities.
Other
than the transactions contemplated herein, since the time that such Buyer was
first contacted by the Company, the Agent or any other Person regarding this
investment in the Company, neither the Buyer nor any Affiliate of such Buyer
which (x) had knowledge of the transactions contemplated hereby, (y) has or
shares discretion relating to such Buyer's investments or trading or information
concerning such Buyer's investments and (z) is subject to such Buyer's review
or
input concerning such Affiliate's investments or trading (collectively,
"Trading
Affiliates")
has
directly or indirectly, nor has any Person acting on behalf of or pursuant
to
any understanding with such Buyer or Trading Affiliate, effected or agreed
to
effect any transactions in the securities of the Company. Such Buyer hereby
covenants and agrees not to, and shall cause its Trading Affiliates not to,
engage, directly or indirectly, in any transactions in the securities of the
Company or involving the Company's securities during the period from the date
hereof until the earlier to occur of (i) such time as the transactions
contemplated by this Agreement are first publicly announced as described in
Section 4(i) hereof or (ii) such time as this Agreement is terminated in full
pursuant to Section 8 hereof. Other than to other Persons party to this
Agreement and those expressly acknowledged by the Company, such Buyer has
maintained the confidentiality of the existence and terms of this transaction.
"Short
Sales"
include, without limitation, all “short sales” as defined in Rule 200
promulgated under Regulation SHO under the Exchange Act and all types of direct
and indirect stock pledges, forward sale contracts, options, puts, calls, short
sales, swaps and similar arrangements (including on a total return basis),
and
sales and other transactions through non-U.S. broker-dealers or foreign
regulated brokers. Such Buyer acknowledges the SEC's position set forth in
Item
65, Section 5 under Section A, of the Manual of Publicly Available Telephone
Interpretations, dated July 1997, compiled by the Office of Chief Counsel,
Division of Corporation Finance, and such Buyer will adhere to such
position.
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3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
Except
as
set forth in the Disclosure Schedules, which Disclosure Schedules shall be
deemed a part hereof and shall qualify any representation made herein to the
extent of the disclosure contained in the corresponding section of the
Disclosure Schedules, the Company hereby represents and warrants to each of
the
Buyers that, as of the date hereof and as of each of the Initial Closing Date,
Additional Closing Dates and the Final Closing Date:
(a) Organization
and Qualification.
The
Company and its "Subsidiaries"
(which
for purposes of this Agreement means any joint venture or any entity in which
the Company, directly or indirectly, owns any of the capital stock or holds
an
equity or similar interest) are entities validly existing and in good standing
under the laws of the jurisdiction in which they are formed, and have the
requisite power and authorization 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 entity to do business and, is in good standing
in
every jurisdiction in which its ownership of property or 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
reasonably be expected to have a Material Adverse Effect. As used in this
Agreement, "Material
Adverse Effect"
means
any material adverse effect on the business, properties, assets, operations,
results of operations, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries, individually or taken as a whole, or on the
transactions contemplated hereby or in the other Transaction Documents or by
the
agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform in any
material respect its obligations under the Transaction Documents (as defined
below). The Company has no Subsidiaries except as set forth on Schedule
3(a).
(b) Authorization;
Enforcement; Validity.
The
Company has the requisite corporate power and authority to enter into and
perform its obligations under this Agreement, the Notes, the Warrants, the
Registration Rights Agreement, the Transfer Agent Instructions (as defined
in
Section 5(b)), and each of the other agreements entered into by the parties
hereto in connection with the transactions contemplated by this Agreement
(collectively, the "Transaction
Documents")
and to
issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Notes, the Shares and the
Warrants, the reservation for issuance and the issuance of the Conversion
Shares issuable
upon conversion of the Notes and the reservation for issuance and issuance
of
Warrant Shares issuable upon exercise of the Warrants have been duly authorized
by the Company's Board of Directors and, except as set forth in Section 3(e),
no
further filing, consent, or authorization is required by the Company, its Board
of Directors or its stockholders. This Agreement and the other Transaction
Documents of even date herewith have been duly executed and delivered by the
Company, and constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective 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 applicable
creditors' rights and remedies.
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(c) Issuance
of Securities.
The
issuance of the Notes, Shares and Warrants are duly authorized and are free
from
all taxes, liens and charges with respect to the issue thereof. At Closing,
the
Company shall have reserved from its duly authorized capital stock not less
than
the sum of 120% of the maximum number of shares of Common Stock issuable (x)
upon conversion of the Notes (without taking into account any limitations on
the
conversion of the Notes set forth in the Notes), and (y) upon exercise of the
Warrants (without taking into account any limitations on the exercise of the
Warrants set forth in the Warrants). Upon conversion or exercise in accordance
with the Notes or the Warrants, as the case may be, the Conversion Shares and
the Warrant Shares, respectively, will be validly issued, fully paid and
nonassessable and free from all preemptive or similar rights, taxes, liens
and
charges with respect to the issue thereof, with the holders being entitled
to
all rights accorded to a holder of Common Stock. Upon the issuance of the Shares
in accordance with this Agreement, the Shares will be validly issued, fully
paid
and nonassessable and free from all preemptive or similar rights, taxes, liens
and charges with respect to the issue thereof. Assuming the accuracy of each
of
the representations and warranties set forth in Section 2 of this Agreement,
the
offer and issuance by the Company of the Securities is exempt from registration
under the 1933 Act.
(d) No
Conflicts.
Except
as set forth on Schedule
3(d),
the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby
and
thereby (including, without limitation, the issuance of the Notes, Shares and
Warrants and reservation for issuance and issuance of the Conversion Shares
and
the Warrant Shares) will not (i) result in a violation of any articles of
incorporation, articles of formation, any articles of designations or other
constituent documents of the Company or any of its Subsidiaries, any capital
stock of the Company or any of its Subsidiaries or bylaws of the Company or
any
of its Subsidiaries or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) in any
respect under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to
which
the Company or any of its Subsidiaries is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
foreign, federal and state securities laws and regulations and the rules and
regulations of the NASD’s OTC Bulletin Board (the "Principal
Market"))
applicable to the Company or any of its Subsidiaries or by which any property
or
asset of the Company or any of its Subsidiaries is bound or affected, except
in
the case of each of clauses (ii) and (iii), such as could not have or reasonably
be expected to result in a Material Adverse Effect.
(e) Consents.
Neither
the Company nor any of its Subsidiaries is required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case in accordance
with the terms hereof or thereof, except for the following consents,
authorizations, orders, filings and registrations (none of which is required
to
be filed or obtained before the Closing): (i) the filing with the SEC of one
or
more registration statements (“Registration
Statement”)
in
accordance with the requirements of the Registration Rights Agreement and (ii)
the filing of a listing application for the Shares, the Conversion Shares and
the Warrant Shares with the Principal Market, if applicable, which shall be
done
pursuant to the rules of the Principal Market. The Company and its Subsidiaries
are unaware of any facts or circumstances that might prevent the Company from
obtaining or effecting any of the registration, application or filings pursuant
to the preceding sentence. The Company is not in violation of the listing
requirements of the Principal Market and has no knowledge of any facts that
would reasonably lead to delisting or suspension of the Common Stock on the
Principal Market in the foreseeable future.
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(f) Acknowledgement
Regarding Buyer’s Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding
(except as set forth in Section 2(l)), it is understood and acknowledged by
the
Company (i) that none of the Buyers have been asked by the Company to agree,
nor
has any Buyer agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or “derivative” securities based on securities issued
by the Company or to hold the Securities for any specified term; (ii) that
past
or future open market or other transactions by any Buyer, including Short Sales,
and specifically including, without limitation, Short Sales or “derivative”
transactions, before or after the Closing of this or future private placement
transactions, may negatively impact the market price of the Company’s
publicly-traded securities; (iii) that any Buyer, and counter-parties in
“derivative” transactions to which any such Buyer is a party, directly or
indirectly, presently may have a “short” position in the Common Stock, and (iv)
that each Buyer shall not be deemed to have any affiliation with or control
over
any arm’s length counter-party in any “derivative” transaction. The
Company further understands and acknowledges that (a) one or more Buyers may
engage in hedging activities at various times during the period that the
Securities are outstanding, including, without limitation, during the periods
that the value of the Warrant Shares deliverable with respect to Securities
are
being determined and (b) such hedging activities (if any) could reduce the
value
of the existing stockholders' equity interests in the Company at and after
the
time that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not constitute
a
breach of any of the Transaction Documents.
(g) Acknowledgment
Regarding Buyer's Purchase of Securities.
The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm's length purchaser with respect to the Transaction Documents and
the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company, (ii) an "affiliate" of the Company or any of its
Subsidiaries (as defined in Rule 144 of the 0000 Xxx) or (iii) to the knowledge
of the Company, a "beneficial owner" of more than 10% of the shares of Common
Stock (as defined for purposes of Rule 13d-3 of the Securities Exchange Act
of
1934, as amended (the "1934
Act")).
The
Company further acknowledges that no Buyer is acting as a financial advisor
or
fiduciary of the Company or any of its Subsidiaries (or in any similar capacity)
with respect to the Transaction Documents and the transactions contemplated
hereby and thereby, and any advice given by a Buyer or any of its
representatives or agents in connection with the Transaction Documents and
the
transactions contemplated hereby and thereby is merely incidental to such
Buyer's purchase of the Securities. The Company further represents to each
Buyer
that the Company's decision to enter into the Transaction Documents has been
based solely on the independent evaluation by the Company and its
representatives.
(h) No
General Solicitation; Placement Agent's Fees.
Neither
the Company, nor any of its Subsidiaries or 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) in connection with the offer
or
sale of the Securities. The Company shall be responsible for the payment of
any
placement agent's fees, financial advisory fees, or brokers' commissions (other
than for persons engaged by any Buyer or its investment advisor) relating to
or
arising out of the transactions contemplated hereby. The Company acknowledges
that it has engaged Knight Capital Markets, LLC as placement agent (the
"Agent")
in
connection with the sale of the Securities. The fees and expenses payable to
the
Agent are set forth on Schedule
3(h)
attached
hereto. Other than the Agent, neither the Company nor any of its Subsidiaries
has engaged any placement agent or other agent in connection with the sale
of
the Securities.
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- - 9 - -
-
(i) No
Integrated Offering.
None of
the Company, its Subsidiaries, any of their affiliates, and any Person acting
on
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 any of the Securities under the 1933 Act or cause
this offering of the Securities to be integrated with prior offerings by the
Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations
of
any exchange or automated quotation system on which any of the securities of
the
Company are listed or designated. None of the Company, its Subsidiaries, their
affiliates and any Person acting on their behalf will take any action or steps
referred to in the preceding sentence that would require registration of any
of
the Securities under the 1933 Act or cause the offering of the Securities to
be
integrated with other offerings.
(j) Dilutive
Effect.
The
Company understands and acknowledges that the number of Conversion Shares
issuable upon conversion of the Notes and the Warrant Shares issuable upon
exercise of the Warrants will increase in certain circumstances. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Notes in accordance with this Agreement and the
Notes and
its
obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrants is, in each case, absolute
and
unconditional, regardless of the dilutive effect that such issuance may have
on
the ownership interests of other stockholders of the Company.
(k) Application
of Takeover Protections; Rights Agreement.
Except
as set forth on Schedule
3(k),
the
Company and its board of directors have taken all necessary action, if any,
in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Articles of Incorporation
(as
defined in Section 3(r)) or the laws of the state of its incorporation which
is
or could become applicable to any Buyer as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company's
issuance of the Securities and any Buyer's ownership of the Securities.
-
- - 10 - -
-
(l) SEC
Documents; Financial Statements.
Except
as set forth on Schedule
3(l),
during
the two (2) years prior to the date hereof, the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the 1934 Act (all
of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements, notes and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the
"SEC
Documents"),
or
has received a valid extension of such time of filing and has filed all SEC
Documents prior to the expiration of any such extension. The Company has
delivered to the Buyers or their respective representatives true, correct and
complete copies of the SEC Documents not available on the XXXXX system. As
of
their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and regulations
of
the SEC promulgated thereunder applicable to the SEC Documents, and none of
the
SEC Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to
be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As of
their respective filing dates, the financial statements of the Company included
in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations
of
the SEC with respect thereto. Such financial statements have been prepared
in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case
of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyers which is
not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement or in any disclosure schedules,
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made not misleading.
(m) Absence
of Certain Changes.
Since
the date of the latest audited financial statements included in the Tylerstone
Ventures Corporation 10-KSB filed on October 3, 2006, the financial statements
for the year ended December 31, 2006 (reflecting the operations of the
acquisition company completed February 14, 2007) included in the Form 8-K filed
May 18, 2007 and the financial statements for the three-month period ended
March
31, 2007 included in the Form 10-QSB filed by the Company (as a consolidated
post-merger combination of the two companies) on May 22, 2007, except as
specifically disclosed in a subsequent SEC Report filed prior to the date hereof
or as set forth on Schedule
3(m),
(i)
there has been no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect, or be required
to
be disclosed by the Company under applicable securities laws on a registration
statement filed with the SEC relating to an issuance and sale by the Company
of
its Common Stock and which has not been publicly announced, (ii) the Company
has
not incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected
in the Company’s financial statements pursuant to GAAP or disclosed in filings
made with the SEC, (iii) the Company has not altered its method of accounting,
(iv) the Company has not declared or made any dividend or distribution of cash
or other property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock and (v) the
Company has not issued any equity securities to any officer, director or
Affiliate, except pursuant to existing Company stock option plans or pursuant
to
conversion of outstanding debt. The Company does not have pending before the
SEC
any request for confidential treatment of information. Except for the issuance
of the Securities contemplated by this Agreement or as set forth on Schedule
3(m),
no
event, liability or development has occurred or exists with respect to the
Company or its Subsidiaries or their respective business, properties, operations
or financial condition, that would be required to be disclosed by the Company
under applicable securities laws at the time this representation is made or
deemed made that has not been publicly disclosed at least 1 Trading Day prior
to
the date that this representation is made.
-
- - 11 - -
-
(n) Intentionally
left blank.
(o) Conduct
of Business; Regulatory Permits.
Neither
the Company nor any of its Subsidiaries is in violation of any term of or in
default under its respective Certificates or Articles of Incorporation or its
Bylaws or their organizational charter or bylaws, respectively. To the best
of
the Company’s knowledge, neither the Company nor any of its Subsidiaries is in
violation of any judgment, decree or order or any statute, ordinance, rule
or
regulation applicable to the Company or its Subsidiaries, and neither the
Company nor any of its Subsidiaries will conduct its business in violation
of
any of the foregoing, except for possible violations which could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Without limiting the generality of the foregoing, the Company
is
not in violation of any of the rules, regulations or requirements of the
Approved Market and has no knowledge of any facts or circumstances that would
reasonably lead to delisting or suspension of the Common Stock by its Approved
Market in the foreseeable future. Since February 20, 2007, (i) the Common Stock
has been designated for quotation on the Principal Market, (ii) trading in
the
Common Stock has not been suspended by the SEC or the Principal Market and
(iii)
the Company has received no communication, written or oral, from the SEC or
the
Principal Market regarding the suspension or delisting of the Common Stock
from
the Principal Market. Except as set forth on Schedule
3(o),
the
Company and its Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate regulatory authorities necessary to conduct
their respective businesses, except where the failure to possess such
certificates, authorizations or permits would not have, individually or in
the
aggregate, a Material Adverse Effect, 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.
(p) Foreign
Corrupt Practices.
Neither
the Company nor any of its Subsidiaries nor any director, officer, agent,
employee or other Person acting on behalf of the Company or any of its
Subsidiaries has, in the course of its actions for, or on behalf of, the Company
or any of its Subsidiaries (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign
or
domestic government official or employee.
(q) Xxxxxxxx-Xxxxx
Act.
To the
knowledge of the Company, except as set forth on Schedule
3(q),
the
Company is in compliance with any and all applicable requirements of the
Xxxxxxxx-Xxxxx Act of 2002 that are effective as of the date hereof, and any
and
all applicable rules and regulations promulgated by the SEC thereunder that
are
effective as of the date hereof.
(r) Transactions
With Affiliates.
Except
as set forth in the SEC Documents filed at least ten (10) days prior to the
date
hereof and other than the grant of stock options disclosed on Schedule
3(r),
none of
the officers, directors or employees of the Company or any of its Subsidiaries
is presently a party to any transaction with the Company or any of its
Subsidiaries (other than for ordinary course services as employees, officers
or
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 such
officer, director or employee or, to the knowledge of the Company or any of
its
Subsidiaries, any corporation, partnership, trust or other entity in which
any
such officer, director, or employee has a substantial interest or is an officer,
director, trustee or partner, in each case in excess of $60,000 other than
for
(i) payment of salary or consulting fees for services rendered, (ii)
reimbursement for expenses incurred on behalf of the Company and (iii) other
employee benefits, including stock option agreements under any stock option
plan
of the Company.
-
- - 12 - -
-
(s) Equity
Capitalization.
As of
the date hereof, the capitalization of the Company is as set forth on
Schedule
3(s).
Except
as disclosed in Schedule
3(s):
(i)
none of the Company's capital stock is subject to preemptive rights or any
other
similar rights or any liens or encumbrances suffered or permitted by the
Company; (ii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or
securities or rights convertible into, or exercisable or exchangeable for,
any
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of
its
Subsidiaries is or may become bound to issue additional capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or
securities or rights convertible into, or exercisable or exchangeable for,
any
capital stock of the Company or any of its Subsidiaries; (iii) other than the
Notes being issued pursuant to this Agreement there are no outstanding debt
securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing Indebtedness of the Company or any of its
Subsidiaries or by which the Company or any of its Subsidiaries is or may become
bound; (iv) there are no financing statements securing obligations in any
material amounts, either singly or in the aggregate, filed in connection with
the Company or any of its Subsidiaries; (v) there are no 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 1933 Act (except pursuant
to the Registration Rights Agreement); (vi) there are no outstanding securities
or instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance
of
the Securities; (viii) the Company does not have any stock appreciation rights
or "phantom stock" plans or agreements or any similar plan or agreement; and
(ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company's
or
its Subsidiaries' respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect. The Company
has
furnished to the Buyers true, correct and complete copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate
of Incorporation"),
and
the Company's Bylaws, as amended and as in effect on the date hereof (the
"Bylaws"),
and
the terms of all securities convertible into, or exercisable or exchangeable
for, shares of Common Stock and the material rights of the holders thereof
in
respect thereto.
-
- - 13 - -
-
(t) Indebtedness
and Other Contracts.
Since
the date of the latest audited financial statements included in the Tylerstone
Ventures Corporation 10-KSB filed on October 3, 2006 and the financial
statements for the year ended December 31, 2006 included in the Form 8-K filed
by the Company on May 18, 2007 and except as disclosed in Schedule
3(t),
neither
the Company nor any of its Subsidiaries (i) has any additional outstanding
Indebtedness (as defined below), (ii) is a party to any contract, agreement
or
instrument, the violation of which, or default under which, by the other
party(ies) to such contract, agreement or instrument could reasonably be
expected to result in a Material Adverse Effect, (iii) is in violation of any
term of or in default under any contract, agreement or instrument relating
to
any Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is
a
party to any contract, agreement or instrument relating to any Indebtedness,
the
performance of which, in the judgment of the Company's officers, has or is
expected to have a Material Adverse Effect. Schedule
3(t)
provides
a detailed description of the material terms of any such outstanding
Indebtedness. For purposes of this Agreement: (x) "Indebtedness"
of any
Person means, ,without duplication (A) all indebtedness for borrowed money,
(B)
all obligations issued, undertaken or assumed as the deferred purchase price
of
property or services, including (without limitation) "capital leases" in
accordance with generally accepted accounting principles (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and
other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect
to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in
the
event of default are limited to repossession or sale of such property), (F)
all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment
of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; (y) "Contingent
Obligation"
means,
as to any Person, any direct or indirect liability, contingent or otherwise,
of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) "Person"
means
an individual or legal entity, including but not limited to a corporation,
a
limited liability company, a partnership, a joint venture, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(u) Absence
of Litigation.
To the
knowledge of the Company, except as set forth in Schedule
3(u),
there
is no action, suit, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, government agency, self-regulatory
organization or body pending or, threatened against or affecting the Company
or
any of its Subsidiaries, the Common Stock or any of the Company's Subsidiaries
or any of the Company's or its Subsidiaries' officers or directors that, if
adversely decided against the Company, would have a Material Adverse Effect
on
the Company.
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- - 14 - -
-
(v) Insurance.
Except
as set forth on Schedule
3(v),
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 have a Material
Adverse Effect.
(w) Employee
Relations.
Neither
the Company nor any of its Subsidiaries is a party to any collective bargaining
agreement or employs any member of a union. The Company and its Subsidiaries
believe that their relations with their employees are good. No executive officer
of the Company or any of its Subsidiaries (as defined in Rule 501(f) of the
0000
Xxx) has notified the Company or any such Subsidiary that such officer intends
to leave the Company or any such Subsidiary or otherwise terminate such
officer's employment with the Company or any such Subsidiary. To the knowledge
of the Company, no executive officer of the Company or any of its Subsidiaries,
is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract or agreement or
any
restrictive covenant, and the continued employment of each such executive
officer does not subject the Company or any of its Subsidiaries to any liability
with respect to any of the foregoing matters. The Company and its Subsidiaries,
to their knowledge, are in compliance with all federal, state, local and foreign
laws and regulations respecting labor, employment and employment practices
and
benefits, terms and conditions of employment and wages and hours, except where
failure to be in compliance would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(x) Title.
Except
as set forth on Schedule
3(x),
the
Company and its Subsidiaries have good and marketable title in fee simple to
all
real property and good and marketable title to all personal property owned
by
them which is material to the business of the Company and its Subsidiaries,
in
each case free and clear of all liens, encumbrances and defects except such
as
are described in Schedule
3(x)
or such
as do not materially affect the value of such property and do not interfere
with
the use made and proposed to be made of such property by the Company and any
of
its Subsidiaries. Any real property and facilities held under lease by the
Company and any of 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.
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- - 15 - -
-
(y) Intellectual
Property Rights.
The
Company and its Subsidiaries own or possess adequate rights or licenses to
use
all trademarks, service marks and all applications and registrations therefor,
trade names, patents, patent rights, copyrights, original works of authorship,
inventions, trade secrets and other intellectual property rights ("Intellectual
Property Rights")
necessary to conduct their respective businesses as now conducted. None of
the
Company's registered, or applied for, Intellectual Property Rights, to the
extent the Company has such Intellectual Property Rights, have expired or
terminated or have been abandoned, or are expected to expire or terminate or
expected to be abandoned, within three years from the date of this Agreement.
The Company does not have any knowledge of any infringement by the Company
or
its Subsidiaries of Intellectual Property Rights of others. There is no claim,
action or proceeding being made or brought, or to the knowledge of the Company,
being threatened, against the Company or its Subsidiaries regarding its
Intellectual Property Rights. Neither the Company nor any of its Subsidiaries
is
aware of any facts or circumstances which might give rise to any of the
foregoing infringements or claims, actions or proceedings. The Company and
its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property Rights, except
where failure to do so would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.
(z) Environmental
Laws.
Except
as set forth on Schedule
3(z),
the
Company and its Subsidiaries, to their knowledge, (i) are in compliance with
any
and all Environmental Laws (as hereinafter defined), (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses, (iii) are in
compliance with all terms and conditions of any such permit, license or
approval, (iv) do not own or operate any real property contaminated with any
substance that is in violation of Environmental Laws, and (v) is liable for
any
off-site disposal or contamination pursuant to any Environmental Laws where,
in
each of the foregoing clauses (i), (ii), (iii), (iv) and (v) the failure to
so
comply could be reasonably expected to have, individually or in the aggregate,
a
Material Adverse Effect. There is no civil, criminal or administrative action,
suit, investigation, inquiry or proceeding pending or, to the knowledge of
the
Company, threatened by or before any court or governmental authority against
the
Company or any of its Subsidiaries relating to or arising from the Company's
nor
any Subsidiary's non-compliance with any Environmental Laws, nor has the Company
received written notice of any alleged violations of Environmental Laws. The
term "Environmental
Laws"
means
all federal, state, local or foreign laws relating to pollution or protection
of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "Hazardous
Materials") into
the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved
thereunder.
(aa) Subsidiary
Rights.
The
Company or one of its Subsidiaries has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by the
Company or such Subsidiary.
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- - 16 - -
-
(bb) Tax
Status.
Except
as set forth on Schedule
3(bb),
the
Company and each of its Subsidiaries (i) has made or filed all foreign, federal
and state income and all other tax returns, reports and declarations required
by
any jurisdiction to which it is subject, (ii) 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 (iii) 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.
(cc) Internal
Accounting and Disclosure 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 and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities
at
reasonable intervals and appropriate action is taken with respect to any
difference. The Company maintains disclosure controls and procedures (as such
term is defined in Rule 13a-14 under the 0000 Xxx) that are effective in
ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is recorded, processed, summarized
and reported, within the time periods specified in the rules and forms of the
SEC, including, without limitation, controls and procedures designed in to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is accumulated and communicated
to
the Company's management, including its principal executive officer or officers
and its principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure. During the twelve months prior to
the
date hereof neither the Company nor any of its Subsidiaries have received any
notice or correspondence from any accountant relating to any potential material
weakness in any part of the system of internal accounting controls of the
Company or any of its Subsidiaries.
(dd) Ranking
of Notes.
The
Notes shall be issued as general obligations of the Company and on a similar
standing of priority with other unsecured Indebtedness of the Company incurred
prior to the date hereof and senior to any unsecured Indebtedness incurred
on or
after the date hereof.
(ee) Off
Balance Sheet Arrangements.
There
is no transaction, arrangement, or other relationship between the Company and
an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its 1934 Act filings and is not so disclosed or
that
otherwise would be reasonably likely to have a Material Adverse
Effect.
(ff) Investment
Company Status.
The
Company is not, and upon consummation of the sale of the Securities will not
be,
an "investment company," a company controlled by an "investment company" or
an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company" as such terms are defined in the Investment Company Act
of
1940, as amended.
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(gg) Transfer
Taxes.
On each
of the Initial Closing Date and the Final Closing Date, all stock transfer
or
other taxes (other than income or similar taxes) which are required to be paid
in connection with the sale and transfer of the Securities to be sold to each
Buyer hereunder will be, or will have been, fully paid or provided for by the
Company, and all laws imposing such taxes will be or will have been complied
with.
(hh) Manipulation
of Price.
The
Company has not, and to its knowledge no one acting on its behalf has, (i)
taken, directly or indirectly, any action designed to cause or to result in
the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Securities, (ii) other than the
Agent, sold, bid for, purchased, or paid any compensation for soliciting
purchases of, any of the Securities, or (iii) other than the Agent, paid or
agreed to pay to any person any compensation for soliciting another to purchase
any other securities of the Company.
(ii) Disclosure.
To the
best of the Company’s knowledge, all disclosure provided by the Company to the
Buyers regarding the Company or any of its Subsidiaries, their business and
the
transactions contemplated hereby in the Transaction Documents and the Schedules
to this Agreement is true and correct and does 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 the light of the circumstances under which
they
were made, not misleading. Each press release issued by the Company or any
of
its Subsidiaries during the period of time from October 21, 2006 to the date
of
this Agreement did not at the time of release contain any untrue statement
of a
material fact or omit to state a material fact required to be stated therein
or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. No event or
circumstance has occurred or information exists with respect to the Company
or
any of its Subsidiaries or its or their business, properties, prospects,
operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed.
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4.
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COVENANTS.
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(a) Best
Efforts.
Each
party shall use its best efforts to timely satisfy each of the conditions to
be
satisfied by it as provided in Sections 6 and 7 of this Agreement.
(b) Form
D
and Blue Sky.
The
Company agrees to file a Form D with respect to the Securities as required
under
Regulation D and to provide a copy thereof to each Buyer promptly after such
filing. The Company shall, on or before the Initial Closing Date, take such
action as the Company shall reasonably determine is necessary in order to obtain
an exemption for or to qualify the Securities for sale to the Buyers at the
Closing pursuant to this Agreement under applicable securities or "Blue Sky"
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to the
Buyers on or prior to each of the Initial Closing Date and the Final Closing
Date. The Company shall make all filings and reports relating to the offer
and
sale of the Securities required under applicable securities or "Blue Sky" laws
of the states of the United States following the Initial Closing Date or the
Final Closing Date, as the case may be.
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(c) Reporting
Status.
Until
the date on which the Investors (as defined in the Registration Rights
Agreement) shall have sold all the Conversion Shares, Shares and Warrant
Shares and
none
of the Notes or
Warrants is outstanding, (the "Reporting
Period"),
the
Company shall file, in a timely manner, all reports required to be filed with
the SEC pursuant to the 1934 Act, and the Company shall not terminate its status
as an issuer required to file reports under the 1934 Act even if the 1934 Act
or
the rules and regulations thereunder would permit such termination.
(d) Use
of
Proceeds.
The
Company will use the proceeds from the sale of the Securities for general
corporate purposes, and not for (A) the repayment of any outstanding
Indebtedness of the Company or any of its Subsidiaries, except for the repayment
of outstanding indebtedness as set forth on Schedule
4(d),
or (B)
redemption or repurchase of any of its or its Subsidiaries' equity
securities.
(e) Financial
Information.
The
Company agrees to send the following to each Buyer during the Reporting Period
(i) unless the following are filed with the SEC through XXXXX and are available
to the public through the XXXXX system, within one (1) Business Day after the
filing thereof with the SEC, a copy of its Annual Reports and Quarterly Reports
on Form 10-K, 10-KSB, 10-Q or 10-QSB, any interim reports or any consolidated
balance sheets, income statements, stockholders' equity statements and/or cash
flow statements for any period other than annual, any Current Reports on Form
8-K and any registration statements (other than on Form S-8) or amendments
filed
pursuant to the 1933 Act, (ii) on the same day as the release thereof, facsimile
or e-mailed copies of all press releases issued by the Company or any of its
Subsidiaries, and (iii) copies of any notices and other information made
available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders. As used herein, "Business
Day"
means
any day other than Saturday, Sunday or other day on which commercial banks
in
the City of New York are authorized or required by law to remain
closed.
(f) Listing.
The
Company shall promptly secure the listing of all of the Registrable Securities
(as defined in the Registration Rights Agreement), all of the Series B
Conversion Shares and all of the Series B Warrant Shares upon each national
securities exchange and automated quotation system, if any, upon which the
Common Stock is then listed (subject to official notice of issuance) and shall
maintain, in accordance with the Notes and Warrants, such listing of all
Registrable Securities, Series B Conversion Shares and Series B Warrant Shares
from time to time issuable under the terms of the Transaction Documents. The
Company shall maintain the Common Stocks' authorization for quotation on the
Principal Market or an Approved Market (as defined below). Neither the Company
nor any of its Subsidiaries shall take any action which would be reasonably
expected to result in the delisting or suspension of the Common Stock on the
Principal Market or an Approved Market. As used herein, "Approved
Market"
shall
mean any of the following: The New York Stock Exchange, The NASDAQ Global Select
Market, The NASDAQ Global Market, The NASDAQ Capital Market, the American Stock
Exchange or the NASD’s OTC Bulletin Board. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section
4(f).
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(g) Fees.
Subject
to Section 8 below, at Closing, the Company shall pay all of the legal fees
of
the Agent’s counsel and up to $15,000 in legal fees for Buyer’s counsel incurred
in connection with the transactions contemplated by the Transaction Documents.
The Company shall be responsible for the payment of any placement agent's fees
(including the placement agent fees of the Agent as set forth on Schedule 3(h),
financial advisory fees, or broker's commissions relating to or arising out
of
the transactions contemplated hereby, including, without limitation, any fees
payable to the Agent. The Company shall pay, and hold each Buyer harmless
against, any liability, loss or expense (including, without limitation,
reasonable attorney's fees and out-of-pocket expenses) arising in connection
with any claim relating to any such payment.
(h) Pledge
of Securities.
The
Company acknowledges and agrees that the Securities may be pledged by a Buyer
in
connection with a bona fide margin agreement or other loan or financing
arrangement that is secured by the Securities. The pledge of Securities shall
not be deemed to be a transfer, sale or assignment of the Securities hereunder,
and no Investor effecting a pledge of Securities shall be required to provide
the Company with any notice thereof or otherwise make any delivery to the
Company pursuant to this Agreement or any other Transaction Document, including,
without limitation, Section 2(f) hereof; provided that an Investor and its
pledgee shall be required to comply with the provisions of Section 2(f) hereof
in order to effect a sale, transfer or assignment of Securities to such pledgee.
The Company hereby agrees to execute and deliver such documentation as a pledgee
of the Securities may reasonably request in connection with a pledge of the
Securities to such pledgee by an Investor.
(i) Disclosure
of Transactions and Other Material Information.
The
Company shall (i) by 8:30 a.m., New York City time, on the first Business Day
following the date of this Agreement issue a press release describing the
material terms of the transactions contemplated hereby, and (ii) by 8:30 a.m.,
New York City time on or before the fourth Business Day immediately following
the date of this Agreement, file a Current Report on Form 8-K describing the
terms of the transactions contemplated by the Transaction Documents in the
form
required by the 1934 Act and attaching the material Transaction Documents
(including, without limitation, this Agreement, the form of the Notes, the
form
of the Warrants and the form of the Registration Rights Agreement) as exhibits
to such filing (including all attachments, the "8-K
Filing").
The
Company shall not, and shall cause each of its Subsidiaries and its and each
of
their respective officers, directors, employees and agents, not to, provide
any
Buyer with any material, nonpublic information regarding the Company or any
of
its Subsidiaries from and after the filing of the 8-K Filing with the SEC
without the express written consent of such Buyer. From and after the deadline
specified above, if a Buyer has, or believes it has, received any such material,
nonpublic information regarding the Company or any of its Subsidiaries, it
shall
provide the Company with written notice thereof. The Company shall, within
five
(5) Trading Days (as defined in the Notes) of receipt of such notice, make
public disclosure of such material, nonpublic information. In the event of
a
breach of the foregoing covenant by the Company, any of its Subsidiaries, or
any
of its or their respective officers, directors, employees and agents, in
addition to any other remedy provided herein or in the Transaction Documents,
a
Buyer shall have the right to make a public disclosure, in the form of a press
release, public advertisement or otherwise, of such material, nonpublic
information without the prior approval by the Company, its Subsidiaries, or
any
of its or their respective officers, directors, employees or agents. No Buyer
shall have any liability to the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees, stockholders or agents for
any
such disclosure. Subject to the foregoing, neither the Company, its Subsidiaries
nor any Buyer shall issue any press releases or any other public statements
with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Buyer, to make
any
press release or other public disclosure with respect to such transactions
(i)
in substantial conformity with the 8-K Filing and contemporaneously therewith
and (ii) as is required by applicable law and regulations. Without the prior
written consent of any applicable Buyer, neither the Company nor any of its
Subsidiaries or affiliates shall disclose the name of such Buyer in any filing,
announcement, release or otherwise; provided, however, that such consent shall
be deemed to be given for any disclosure required by law in the reasonable
opinion of the Company or its counsel.
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(j) Restriction
on Redemption and Cash Dividends.
So long
as fifteen percent (15%) or more of the total dollar amount of Notes originally
issued remain outstanding, the Company shall not, directly or indirectly,
redeem, or declare or pay any cash dividend or distribution on, the Common
Stock
without the prior express written consent of the holders of Notes representing
not less than 75% of the aggregate principal amount of the then outstanding
Notes.
(k) Additional
Notes; Variable Securities; Dilutive Issuances.
So long
as fifteen percent (15%) or more of the total dollar amount of Notes originally
issued remain outstanding, the Company will not issue any Notes other than
to
the Buyers as contemplated hereby and the Company shall not issue any other
securities that would cause a breach or default under the Notes. For so long
as
any Notes or Warrants originally issued remain outstanding, the Company shall
not, in any manner, enter into or affect any Dilutive Issuances (as defined
in
the Notes) if the effect of such Dilutive Issuance is to cause the Company
to be
required to issue upon conversion of any Note or exercise of any Warrant any
shares of Common Stock in excess of that number of shares of Common Stock which
the Company may issue upon conversion of the Notes and exercise of the Warrants
without breaching the Company's obligations under the rules or regulations
of
the Principal Market.
(l) Corporate
Existence.
So long
as any Buyer beneficially owns any Securities, the Company shall not be party
to
any Fundamental Transaction (as defined in the Notes) unless the Company is
in
compliance with the applicable provisions governing Fundamental Transactions
set
forth in the Notes and the Warrants.
(m) Reservation
of Shares.
The
Company shall take all action necessary to at all times have authorized and
reserved for the purpose of issuance no less than, from each of the Initial
Closing Date and the Final Closing Date, 120% of the sum of the number of shares
of Common Stock issuable (i) upon conversion of the Notes issued at the Closing
and (ii) upon exercise of the Warrants issued at the Closing (without taking
into account any limitations on the Conversion of the Notes or exercise of
the
Warrants set forth in the Notes and Warrants, respectively).
(n) Conduct
of Business.
The
business of the Company and its Subsidiaries shall not be conducted in violation
of any law, ordinance or regulation of any governmental entity, except where
such violations would not result, either individually or in the aggregate,
in a
Material Adverse Effect.
(o) Delivery
of Certificates.
Upon
conversion or exercise of the Notes and Warrants, respectively, and request
for
removal of restrictive legends on the shares of Common Stock issuable in
connection therewith, certificates for shares of Common Stock will be delivered
to the Investor within three (3) Trading Days. If such delivery is made more
than two (2) additional Trading Days after conversion or exercise or request
for
removal of legend, as the case may be, the Company will compensate the Investor
at a rate of $100 per day for each of the first ten (10) Trading Days and $200
per day thereafter for each $10,000 of securities. In such event, after the
first such ten (10) Trading Days noted above, the Investor will also have right
to rescind its conversion notice for the Notes and/or its exercise notice for
the Warrants. In addition, if the certificates have not been delivered by the
fifth (5th)
Trading
Day, then, if the Investor has sold shares of Common Stock after the conversion
or exercise date, as the case may be, the Company will compensate Investor
for
extra costs, if any, incurred to cover the sale, all as agreed upon and
reflected in the Transaction Documents.
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(p) Additional
Issuances of Securities.
(i) For
purposes of this Section 4(p) and Section 4(q) below, the following definitions
shall apply.
(1) "Convertible
Securities"
means
any stock or securities (other than Options) convertible into or exercisable
or
exchangeable for shares of Common
Stock.
(2) "Options"
means
any rights, warrants or options to subscribe for or purchase shares of
Common
Stock or
Convertible Securities.
(3) "Common
Stock Equivalents"
means,
collectively, Options and Convertible Securities.
(4) “Additional
Issuance Restrictions”
shall
mean the requirements set forth in Section 4(p)(ii) and 4(p)(iii)
below.
(ii) From
the
date hereof until 90 days after the Effective Date, neither the Company nor
any
Subsidiary shall issue shares of Common Stock or Common Stock Equivalents,
other
than pursuant to this Agreement or upon the conversion of Notes or exercise
of
Warrants issued in connection with this Agreement; provided,
however,
the 90
day period set forth in this Section 4(p) shall be extended for the number
of
Trading Days during such period in which (i) trading in the Common Stock is
suspended by any Trading Market, or (ii) following the Effective Date, the
Registration Statement is not effective or the prospectus included in the
Registration Statement may not be used by the Buyers for the resale of the
Conversion Shares, Shares or Warrant Shares.
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(iii) During
the period that any Note or Warrant remains outstanding, notwithstanding whether
or not an issuance of securities is deemed to be an issuance of Excluded
Securities (as defined in the Notes), the Company shall not issue or sell,
or
agree to issue or sell Variable Equity Securities (as defined below), or any
securities of the Company pursuant to an Equity Line (as defined below)
structure or format or any securities of the Company in exchange for goods
or
services, without obtaining the prior written approval of each of the Buyers,
with the exception of any such agreements, transactions or Equity Lines existing
as of the date hereof. For purposes hereof, an “Equity Line” shall mean a
transaction involving a written agreement between the Company and an investor
or
underwriter whereby the Company has the right to “put” its securities to the
investor or underwriter over an agreed period of time and at an agreed price
or
price formula. For purposes hereof, the following shall be collectively referred
to herein as, the “Variable Equity Securities”: (A) any debt or equity
securities which are convertible into, exercisable or exchangeable for, or
carry
the right to receive additional shares of Common Stock either (1) at any
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for Common Stock at any time
after the initial issuance of such debt or equity security, or (2) with a fixed
conversion, exercise or exchange price that is subject to being reset at some
future date at any time after the initial issuance of such debt or equity
security due to a change in the market price of the Company’s Common Stock since
the date of initial issuance, or (B) any amortizing convertible security which
amortizes prior to its maturity date, where the Company is required to or has
the option to (or the investor in such transaction has the option to require
the
Company to) make such amortization payments in shares of Common Stock (whether
or not such payments in stock are subject to certain equity conditions), or
(C)
any debenture, note or preferred stock that is accompanied by a number of
warrants greater than 100% of the original principal amount, divided by the
Weighted Average Price at the time of closing of such debenture, note or
preferred stock, or (D) any Common Stock that is sold at a discount to the
Market Price at the time of closing that is greater than 10%, or (E) any
adjustable warrant where the number of shares issuable thereunder is subject
to
increase, or (F) any common stock that is accompanied by a number of warrants
greater than 100% of the number of shares of common stock sold by the Company
in
such transaction, or (G) any warrant, convertible security or other Common
Stock
Equivalent with a conversion, exercise or exchange price that is set at a price
that is less than 70% of the initial Conversion Price of the Note, or (H) any
note, debenture or other debt obligation that is accompanied by shares of Common
Stock for which the additional consideration paid per share of Common Stock
is
less than 90% of the Weighted Average Price at the time of closing. For purposes
of the above, the “Weighted Average Price” at time of closing shall mean the
Weighted Average Price, as defined in the Notes. Any Buyer shall be entitled
to
obtain injunctive relief against the Company to preclude any such issuance,
which remedy shall be in addition to any right to collect damages.
(iv) Notwithstanding
the foregoing, this Section 4(p) shall not apply in respect of any Excluded
Securities (as defined in the Notes), except that no Variable Equity Securities
or Equity Line transaction shall be deemed to be included in the definition
of
Excluded Securities (as defined in the Notes).
(v) The
Company recognizes that in the event that it breaches any of the requirements
of
this Section 4(p) or of Section 4(w) below, that irreparable harm will result
and any remedy at law would be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.
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(q) Participation
in Future Financing.
(i) From
the
date hereof until the date that is the 12 month anniversary of the Effective
Date, upon any issuance by the Company or any of its Subsidiaries of Common
Stock or Common Stock Equivalents for cash consideration (a “Subsequent
Financing”),
each
Buyer shall have the right to participate in the Subsequent Financing, on a
pro
rata basis, up to an amount up to 50% of the Subsequent Financing (the
“Participation
Maximum”)
on the
same terms, conditions and price provided for in the Subsequent
Financing.
(ii) At
least
5 Trading Days prior to the closing of the Subsequent Financing, the Company
shall deliver to each Buyer a written notice of its intention to effect a
Subsequent Financing (“Pre-Notice”),
which
Pre-Notice shall ask such Buyer if it wants to review the details of such
financing (such additional notice, a “Subsequent
Financing Notice”).
Upon the request of a Buyer, which shall be delivered to the Company within
one
(1) Trading Day of the Company’s delivery of a Pre-Notice, and only upon a
request by such Buyer, for a Subsequent Financing Notice, the Company shall
promptly, but no later than one (1) Trading Day after such request, deliver
a
Subsequent Financing Notice to such Buyer. The Subsequent Financing Notice
shall describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder and the
Person or Persons through or with whom such Subsequent Financing is proposed
to
be effected and shall include a term sheet or similar document relating thereto
as an attachment.
(iii) Any
Buyer
desiring to participate in such Subsequent Financing must provide written notice
to the Company by not later than 5:30 p.m. (New York City time) on the
5th
Trading
Day after all of the Buyers have received the Pre-Notice that the Buyer is
willing to participate in the Subsequent Financing, the amount of the Buyer’s
participation, and that the Buyer has such funds ready, willing, and available
for investment on the terms set forth in the Subsequent Financing Notice. If
the
Company receives no notice from a Buyer as of such 5th
Trading
Day, such Buyer shall be deemed to have notified the Company that it does not
elect to participate.
(iv) If
by
5:30 p.m. (New York City time) on the 5th
Trading
Day after all of the Buyers have received the Pre-Notice, notifications by
the
Buyers of their willingness to participate in the Subsequent Financing (or
to
cause their designees to participate) is, in the aggregate, less than the total
amount of the Subsequent Financing, then the Company may effect the remaining
portion of such Subsequent Financing on the terms and with the Persons set
forth
in the Subsequent Financing Notice.
(v) If
by
5:30 p.m. (New York City time) on the 5th
Trading
Day after all of the Buyers have received the Pre-Notice, the Company receives
responses to a Subsequent Financing Notice from Buyers seeking to purchase
more
than the aggregate amount of the Participation Maximum, each such Buyer shall
have the right to purchase its Pro Rata Portion (as defined below) of the
Participation Maximum. “Pro
Rata Portion”
means
the ratio of (x) the Subscription Amount of Securities purchased on the Closing
Date by a Buyer participating under this Section 4(q) and (y) the sum of the
aggregate Subscription Amounts of Securities purchased on the Closing Date
by
all Buyers participating under this Section 4(q).
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(vi) The
Company must provide the Buyers with a second Subsequent Financing Notice,
and
the Buyers will again have the right of participation set forth above in this
Section 4(q), if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in
such Subsequent Financing Notice within 60 Trading Days after the date of the
initial Subsequent Financing Notice.
(vii) Notwithstanding
the foregoing, this Section 4(q) shall not apply in respect of (i) any
Excluded Securities (as defined in the Notes), or
(ii)
an underwritten public offering of Common Stock.
(r) Most
Favored Nation Provision.
From the date hereof until the date that is the 18 month anniversary of the
Final Closing Date, upon any Subsequent Financing, each Buyer may elect, in
its
sole discretion, to exchange all or some of the Notes and/or Shares (but not
the
Warrants) then held by such Buyer for additional securities (including any
additional securities issued as part of a unit with such security) of the same
type issued in such Subsequent Financing (such
exchange to be made at the same time as the closing of such Subsequent
Financing), on the same terms and conditions as the Subsequent Financing, based
on the Per Share Purchase Price multiplied by the number of Shares being
exchanged.
By way of example, if the Company undertakes a Subsequent Financing of
convertible debentures and warrants, each Buyer shall have the right to
participate in such Subsequent Financing and use the exchange of its Notes
and/or its Shares as consideration, on a $1 for $1 basis, in lieu of cash
consideration. The Company shall provide prior written notice of any such
Subsequent Financing in the manner set forth in Section 4(q). Notwithstanding
the foregoing, this Section 4(r) shall not apply in respect of any Excluded
Securities (as defined in the Notes). With respect to the exchange of Shares,
this Section 4(r) shall only apply if such Buyer exchanges the original Common
Stock certificate issued in connection with the transactions
(s) Company’s
Disclosure of Material, Non-Public Information.
Notwithstanding anything to the contrary stated herein, if the Company, in
connection with this financing, discloses material, non-public information
to
the Buyers, including without limitation the items set forth on Schedule 4(s)
(collectively, the “Information”),
in
addition to the existence and terms of the financing, the Company covenants
that
the Information will be disclosed in the ordinary course of its business, either
by Form 8-K or press release, or both, on or before the first Business Day
after
the Initial Closing, or on or before the first Business Day after any Additional
Closing if additional material non-public information is disclosed to the Buyers
after the Initial Closing, but in any event the Company shall make public
disclosure of all material non-public information that has been disclosed to
the
Buyers by not later than June 30, 2007, at which point the Buyers will no longer
be in possession of any material, non-public information. The Company covenants
and agrees that thereafter, neither it nor any other Person acting on its behalf
will provide any Buyer or its agents or counsel with any information that the
Company believes constitutes material non-public information, unless prior
thereto such Buyer shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that each Buyer shall be relying on the foregoing representations
in
effecting transactions in securities of the Company. In the event of a breach
of
the foregoing covenant by the Company, or any of its Subsidiaries, or any of
its
or their respective officers, directors, employees and agents, in addition
to
any other remedy provided herein or in the Transaction Documents, the Company
shall publicly disclose any material, non-public information in a Form 8-K
within five (5) Business Days of the date that it discloses such information
to
the Buyer. In
the
event of a breach of any of the foregoing covenant by the Company, any of its
Subsidiaries, or any of its or their respective officers, directors, employees
and agents, in addition to any other remedy provided herein or in the
Transaction Documents, a Buyer shall have the right to make a public disclosure,
in the form of a press release, public advertisement or otherwise, of such
material, nonpublic information without the prior approval by the Company.
No
Buyer shall have any liability to the Company, its Subsidiaries, or any of
its
or their respective officers, directors, employees, stockholders or agents
for
any such disclosure.
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(t) Retention
of Investor Relations Firm.
From
the
date hereof until the date that is the 12 month anniversary of the Final Closing
Date, the Company shall continue to retain and use the services of Bakerview
Investor Relations Inc. in at least such capacity and scope as is in effect
immediately prior to the date hereof. The Company shall use commercially
reasonable efforts to undertake any such measures as the Agent shall recommend
that are acceptable to the board of directors of the Company in its good faith
judgment.
(u) Retention
of Transfer Agent.
The
Company will engage the services of a transfer agent for its Common Stock that
is a participant in the Depository Trust Company’s Full Fast Program prior to
the date on which the Registration Statement is declared effective by the
SEC.
(v) Shareholder
Issuance Vote Upon National Listing.
If the
Company, at any time while any of the Notes or Warrants are outstanding, becomes
listed on a National Exchange (as defined below)(a “National
Listing”),
and
the rules or regulations of such National Exchange limit the number of shares
of
Common Stock which the Company may issue upon conversion or exercise, as
applicable, of the Notes and Warrants (the amount of such limit is referred
to
herein as the “Exchange
Cap Amount”),
then,
within thirty (30) days of the date of such National Listing, the Company shall
(i) prepare a proxy statement, (ii) file a preliminary and definitive proxy
statement with the SEC and (iii) mail the definitive proxy statement to its
shareholders, requesting and recommending that they vote affirmatively (a
“Shareholder
Issuance Vote”)
on a
proposal to approve the issuance, under the applicable rules of such National
Exchange, of all of the Conversion Shares and Warrant Shares and other shares
of
Common Stock issuable pursuant to the Transaction Documents without regard
to
the Exchange Cap Amount and to eliminate any prohibitions under applicable
law
or the rules or regulations of any stock exchange, interdealer quotation system
or other self-regulatory organization with jurisdiction over the Company or
any
of its securities on the Company’s ability to issue shares of Common Stock in
excess of the Exchange Cap Amount (the shareholder approval of such proposal
is
referred to herein as the “Shareholder
Issuance Approval”).
The
Shareholder Issuance Approval, if required hereunder, shall occur before the
date that is ninety (90) days after the date of the National Listing (the
“Shareholder
Issuance Voting Deadline”).
For
purposes hereof, “National Exchange” shall mean an Approved Market other than
NASD’s OTC Bulletin Board.
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(w) Limitation
On Sale Or Disposition Of Intellectual Property to Related
Xxxxxxx.Xx
long
as any portion of the Notes remain outstanding, so long as the Company shall
have any obligation under the Notes or so long as any of the Warrants remain
outstanding, the Company shall not sell, convey, dispose of, spin off or assign
any or all of its Intellectual Property Rights (as defined in Section 3(y)
above), or the rights to receive proceeds from patent licensing agreements,
patent infringement litigation or other litigation related to such Intellectual
Property Rights, in each case without Buyer’s written consent, to any Related
Party (as defined below). For purposes hereof, “Related
Party”
shall
mean any of the Company’s or any Subsidiary’s officers, directors, persons 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 (ii) 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.
“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.
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5.
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REGISTER;
TRANSFER AGENT INSTRUCTIONS.
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(a) Register.
The
Company shall maintain at its principal executive offices (or such other office
or agency of the Company as it may designate by notice to each holder of
Securities), a register for the Notes and the Warrants in which the Company
shall record the name and address of the Person in whose name the Notes
and the
Warrants have been issued (including the name and address of each transferee),
the principal amount of Notes held by such Person, the number of Conversion
Shares issuable upon conversion of the Notes and the number of Warrant Shares
issuable upon exercise of the Warrants held by such Person. The Company shall
keep the register open and available at all times during business hours for
inspection of any Buyer or its legal representatives.
(b) Transfer
Agent Instructions.
The
Company shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates or credit shares to the
applicable balance accounts at The Depository Trust Company ("DTC"),
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares, Shares and the Warrant Shares issued at the Closing or upon
conversion of the Notes or exercise of the Warrants in such amounts as specified
from time to time by each Buyer to the Company upon conversion of the Notes
or
exercise of the Warrants in the form of Exhibit
E
attached
hereto (the "Transfer
Agent Instructions").
The
Company warrants that no instruction other than the Transfer Agent Instructions
referred to in this Section 5(b), and stop transfer instructions to give effect
to Section 2(g) hereof, will be given by the Company to its transfer agent,
and
that the Conversion Shares, the Shares and the Warrant 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 other Transaction Documents. If a Buyer
effects a sale, assignment or transfer of the Securities in accordance with
Section 2(f), the Company shall permit the transfer and shall promptly instruct
its transfer agent to issue one or more certificates or credit shares to the
applicable balance accounts at DTC in such name and in such denominations as
specified by such Buyer to effect such sale, transfer or assignment. In the
event that such sale, assignment or transfer involves Conversion Shares, Shares
or Warrant Shares sold, assigned or transferred pursuant to an effective
registration statement or pursuant to Rule 144, the transfer agent shall issue
such Securities to the Buyer, assignee or transferee, as the case may be,
without any restrictive legend. The Company acknowledges that a breach by it
of
its obligations hereunder will cause irreparable harm to a Buyer. Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5(b) will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 5(b),
that
a Buyer shall be entitled, in addition to all other available remedies, to
an
order and/or 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.
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(c) Additional
Relief.
If the
Company shall fail for any reason or for no reason to issue to such holder
unlegended certificates or to credit the holder's balance account with DTC
within two (2) Trading Days of (x) receipt of documents necessary for the
removal of legend set forth above or (y) the date of its obligation to deliver
the shares of Common Stock as contemplated pursuant to clause (ii) below (the
"Deadline
Date"),
then
the Company will compensate the holder at a rate of $100 per day for each of
the
first ten (10) Trading Days and $200 per day thereafter for each $10,000 of
securities. If the Company shall fail for any reason or for no reason to issue
to such holder unlegended certificates or to credit the holder's balance account
with DTC within five (5) Trading Days of the Deadline Date and if on or after
the Trading Day (as defined in the Warrants) immediately following such Deadline
Date, the holder purchases (in an open market transaction or otherwise) shares
of Common Stock to deliver in satisfaction of a sale by the holder of shares
of
Common Stock that the holder anticipated receiving from the Company (a
"Buy-In"),
then
the Company shall, within three (3) Trading Days after the holder's request
and
in the holder's discretion, either (i) pay cash to the holder in an amount
equal
to the holder's total purchase price (including brokerage commissions, if any)
for the shares of Common Stock so purchased (the "Buy-In
Price"),
at
which point the Company's obligation to deliver such certificate (and to issue
such shares of Common Stock) shall terminate, or (ii) promptly honor its
obligation to deliver to the holder a certificate or certificates representing
such shares of Common Stock and pay cash to the holder in an amount equal to
the
excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the Deadline Date.
"Closing
Bid Price"
means,
for any security as of any date, the last closing price for such security on
Principal Market, as reported by Bloomberg, or, if the Principal Market begins
to operate on an extended hours basis and does not designate the closing bid
price then the last bid price of such security prior to 4:00:00 p.m., New York
Time, as reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing price
of such security on the principal securities exchange or trading market where
such security is listed or traded as reported by Bloomberg, or if the foregoing
do not apply, the last closing price of such security in the over-the-counter
market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Closing Bid Price cannot be calculated for
a
security on a particular date on any of the foregoing bases, the Closing Bid
Price of such security on such date shall be the fair market value as mutually
determined by the Company and the holder. If the Company and the holder are
unable to agree upon the fair market value of such security, then such dispute
shall be resolved pursuant to Section 22 of the Series A Convertible Note
Agreement. All such determinations to be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction during
the
applicable calculation period.
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6.
|
CONDITIONS
TO THE COMPANY'S OBLIGATION TO
SELL.
|
The
obligation of the Company hereunder to issue and sell the Notes, the Shares
and
the related Warrants to each Buyer at the Closing is subject to the
satisfaction, at or before each of the Initial Closing Date, Additional Closing
Dates and the Final Closing Date, as the case may be, 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 by providing
each Buyer with prior written notice thereof:
(i) Such
Buyer shall have executed each of the Transaction Documents to which it is
a
party and delivered the same to the Company.
(ii) Such
Buyer and each other Buyer shall have delivered to the Company the Purchase
Price for the Notes, Shares and the related Warrants being purchased by such
Buyer at the Closing by wire transfer of immediately available funds pursuant
to
the wire instructions provided by the Company.
(iii) The
representations and warranties of such Buyer shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Initial Closing
Date, the Additional Closing Date or the Final Closing Date, as the case may
be,
as though made at that time (except for representations and warranties that
speak as of a specific date, which shall be true and correct as of such
specified date), and such Buyer shall have performed, satisfied and complied
in
all material respects with the covenants, agreements and conditions required
by
this Agreement to be performed, satisfied or complied with by such Buyer at
or
prior to the Initial Closing Date, Additional Closing Date or the Final Closing
Date, as the case may be.
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7.
|
CONDITIONS
TO EACH BUYER'S OBLIGATION TO
PURCHASE.
|
The
obligation of each Buyer hereunder to purchase the Notes, the Shares and
the
related Warrants at the Closing is subject to the satisfaction, at or before
each of the Initial Closing Date, Additional Closing Dates and the Final Closing
Date, as the case may be, of each of the following conditions, provided that
these conditions are for each Buyer's sole benefit and may be waived by such
Buyer at any time in its sole discretion by providing the Company with prior
written notice thereof:
(i) The
Company shall have duly executed and delivered (physically or by electronic
copy) to such Buyer (i) each of the Transaction Documents (not including the
Registration Rights Agreement or the Transfer Agent Instructions to each Buyer
of Series B Notes and Series B Warrants), (ii) the Notes (allocated
in such principal amounts as such Buyer shall request), being purchased by
such
Buyer at the Closing pursuant to this Agreement,
(iii)
the Shares (allocated in such amounts as such Buyer shall request), being
purchased by such Buyer at the Closing pursuant to this Agreement, and (iii)
the
related Warrants (allocated in such amounts as such Buyer shall request) being
issued to such Buyer at the Closing pursuant to this Agreement in an amount
equal to one Warrant for each Conversion Share underlying the Notes issued
to
Buyer, or in the case of the purchase of Shares in an amount equal to one
Warrant for each Shares purchased by Buyer, at an exercise price of $1.00 per
share.
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-
(ii) Such
Buyer shall have received the opinion of Durham Xxxxx & Xxxxxxx, P.C., the
Company's outside counsel (“Opinion
of Counsel”),
dated
as of the Closing Date each Additional Closing Date and the Final Closing Date,
in substantially the form of Exhibit H
attached
hereto.
(iii) The
Company shall have delivered to such Buyer of Notes, Shares and Warrants a
copy
of the Transfer Agent Instructions, in the form of Exhibit G
attached
hereto, which instructions shall have been delivered to the Company's transfer
agent.
(iv) The
Company shall have delivered to such Buyer a certificate evidencing the
formation and good standing of the Company and each of its Subsidiaries in
such
entity's jurisdiction of formation issued by the Secretary of State (or
comparable office) of such jurisdiction, as of a date within 10 days of the
Initial Closing Date.
(v) The
Company shall have delivered to such Buyer a certificate evidencing the
Company's qualification as a foreign corporation and good standing issued by
the
Secretary of State (or comparable office) of each jurisdiction in which the
Company conducts business, as of a date within 10 days of the Initial Closing
Date.
(vi)
The
Company shall have delivered to such Buyer a certified copy of the Certificate
of Incorporation as certified by the Secretary of State of the State of Delaware
within ten (10) days of the Initial Closing Date.
(vii)
The
Company shall have delivered to such Buyer a certificate, executed by the
Secretary of the Company and dated as of each of the Initial Closing Date,
Additional Closing Date(s) and the Final Closing Date, as the case may be,
as to
(i) the resolutions consistent with Section 3(b) as adopted by the Company's
Board of Directors in a form reasonably acceptable to such Buyer, (ii) the
Articles of Incorporation and (iii) the Bylaws, each as in effect at the
Closing, in the form attached hereto as Exhibit I.
(viii)
The
representations and warranties of the Company shall be true and correct in
all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of each of the Initial
Closing Date, Additional Closing Date(s) and the Final Closing Date as though
made at that time (except for representations and warranties that speak as
of a
specific date, which shall be true and correct as of such specified date) and
the Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the Company
at or prior to the Initial Closing Date, the Additional Closing Date(s) and
the
Final Closing Date. Such Buyer shall have received a certificate, executed
by
the Chief Executive Officer of the Company, dated as of each of the Initial
Closing Date, the Additional Closing Date(s) and the Final Closing Date, to
the
foregoing effect and as to such other matters as may be reasonably requested
by
such Buyer in the form attached hereto as Exhibit
J.
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-
(ix) Each
of
the Company’s officers, directors, 5% or greater shareholders and such other
shareholders of the Company as determined by the Agent in its sole discretion,
shall have entered into a lock-up agreement with the Company, in the form
attached hereto as Exhibit
K.
(x) The
Common Stock (I) shall be designated for quotation or listed on the Principal
Market and (II) shall not have been suspended, as of the Initial Closing Date,
Additional Closing Date or the Final Closing Date, by the SEC or the Principal
Market from trading on the Principal Market nor shall suspension by the SEC
or
the Principal Market have been threatened, as of the Initial Closing Date or
the
Final Closing Date, either (A) in writing by the SEC or the Principal Market
or
(B) by falling below the minimum listing maintenance requirements of the
Principal Market.
(xi) The
Company shall have delivered to such Buyer such other documents relating to
the
transactions contemplated by this Agreement as such Buyer or its counsel may
reasonably request.
8. TERMINATION.
This
Agreement may be terminated by any Buyer, as to such Buyer’s obligations
hereunder only and without any effect whatsoever on the obligations between
the
Company and the other buyers, by written notice to the other parties, if the
Initial Closing has not been consummated on or before May 25, 2007, or, after
the Initial Closing has been consummated if the Final Closing has not been
consummated on or before June 18, 2007; provided, however, that no such
termination will affect the right of any party to xxx for any breach by the
other party (or parties) and further provided that if this Agreement is
terminated pursuant to this Section 8, the Company shall remain obligated to
reimburse the non-breaching Buyers for the expenses described in Section 4(g)
above.
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9.
|
MISCELLANEOUS.
|
(a) Governing
Law; Jurisdiction; Jury Trial.
All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision
or
rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State
of
New York. Each party hereby irrevocably submits to the exclusive jurisdiction
of
the state and federal courts sitting in The City of New York, Borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction
of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process
and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it
under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH
PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
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(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;
provided that a facsimile signature shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if
the
signature were an original, not a facsimile signature.
(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 and the other Transaction Documents supersede all other prior oral
or
written agreements between the Buyers, the Company, their affiliates and Persons
acting on their behalf with respect to the matters discussed herein, and this
Agreement, the other Transaction Documents and the instruments referenced herein
and therein 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 amended other than by an instrument in writing signed
by
the Company and the holders of at least 85% of the aggregate number of
Conversion Shares, Shares and Warrant Shares issued and issuable hereunder,
and
any amendment to this Agreement made in conformity with the provisions of this
Section 9(e) shall be binding on all Buyers and holders of Securities as
applicable. No provision hereof may be waived other than by an instrument in
writing signed by the party against whom enforcement is sought. No such
amendment shall be effective to the extent that it applies to less than all
of
the holders of the applicable Securities then outstanding. No consideration
shall be offered or paid to any Person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents unless the
same consideration also is offered to all of the parties to the Transaction
Documents, holders of Notes or holders of the Warrants, as the case may be.
The
Company has not, directly or indirectly, made any agreements with any Buyers
relating to the terms or conditions of the transactions contemplated by the
Transaction Documents except as set forth in the Transaction Documents. Without
limiting the foregoing, the Company confirms that, except as set forth in this
Agreement, no Buyer has made any commitment or promise or has any other
obligation to provide any financing to the Company or otherwise.
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(f) Notices.
Any and
all notices or other communications or deliveries required or permitted to
be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number set forth on the signature
pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading
Day,
(b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth
on
the signature pages attached hereto on a day that is not a Trading Day or later
than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd
Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom
such
notice is required to be given. The address for such notices and communications
shall be as set forth on the signature pages attached hereto.
(g) Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including any purchasers of the Notes
or the Warrants. The Company shall not assign this Agreement or any rights
or
obligations hereunder without the prior written consent of the holders of at
least 75% of the aggregate number of Conversion Shares, Shares and Warrant
Shares issued and issuable hereunder, including by way of a Fundamental
Transaction. A Buyer may assign some or all of its rights hereunder without
the
consent of the Company, in which event such assignee shall be deemed to be
a
Buyer hereunder with respect to such assigned rights
(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 8, the representations and warranties
of the Company and the Buyers contained in Sections 2 and 3, and the agreements
and covenants set forth in Sections 4, 5 and 9 shall survive the Closing. Each
Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.
(j) 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 any 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.
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(k) Indemnification.
(1) By
the Company. In consideration of each Buyer's execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition
to
all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless each Buyer and each
other holder of the Securities and all of their stockholders, partners, members,
officers, directors, employees and direct or indirect investors and any of
the
foregoing Persons' agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated
by
this Agreement) (collectively, the "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 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 any Indemnitee 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 the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents
or
any other certificate, instrument or document contemplated hereby or thereby
or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought
on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status
of
such Buyer or holder of the Securities as an investor in the Company pursuant
to
the transactions contemplated by the Transaction Documents. The Company shall
not be obligated to indemnify an Indemnitee pursuant to this Section 9(k) for
Indemnified Liabilities to the extent such Indemnified Liabilities are caused
by
acts of gross negligence or willful misconduct on the part of such Indemnitee.
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 that is permissible
under applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 9(k)
shall be the same as those set forth in Section 6 of the Registration Rights
Agreement.
(l) 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.
(m)
Remedies.
The
Company, each Buyer, and each holder of the Securities shall have all rights
and
remedies set forth in the Transaction Documents and all rights and remedies
which such Company or holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall
be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.
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(n) Rescission
and
Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without limiting
any
similar provisions of) the Transaction Documents, whenever any Buyer exercises
a
right, election, demand or option under a Transaction Document and the Company
does not perform, in a timely manner, its related obligations within the periods
therein provided, then such Buyer may rescind or withdraw, in its sole
discretion from time to time upon written notice to the Company, any relevant
notice, demand or election in whole or in part without prejudice to its future
actions and rights.
(o) Payment
Set Aside.
To the
extent that the Company makes a payment or payments to the Buyers hereunder
or
pursuant to any of the other Transaction Documents or the Buyers enforce or
exercise their rights hereunder or thereunder, and such payment or payments
or
the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other Person under any
law
(including, without limitation, any bankruptcy law, foreign, state or federal
law, common law or equitable cause of action), then to the extent of any such
restoration the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment
had
not been made or such enforcement or setoff had not occurred.
(p) Independent
Nature of Buyers' Obligations and Rights.
The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under
any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall
be
deemed to constitute the Buyers as, and the Company acknowledges that the Buyers
do not so constitute, a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group, and the Company will not assert any such claim
with respect to such obligations or the transactions contemplated by the
Transaction Documents and the Company acknowledges that the Buyers are not
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
and each Buyer confirms that it has independently participated in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Each Buyer shall be entitled to independently protect
and
enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other Transaction Documents, and it shall not
be
necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose.
[Signature
Pages Follow]
-
- - 35 - -
-
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as
of
the date first indicated above.
|
nCOAT
INC.
|
Address
for Notice:
X.X.
Xxx 00
0000
Xxxx Xxxxx
Xxxxxxxx,
XX 00000
|
|
By:__________________________________________
Name:
Title:
|
Facsimile:
(000)
000-0000
Attention:
Xxxx Xxxxxxx
|
|
With
a copy to (which shall not constitute notice):
|
Durham
Xxxxx & Xxxxxxx, P.C.
000
Xxxx Xxxxxxxx Xxxxx 000
Xxxx
Xxxx Xxxx, XX 00000
Facsimile:
(000) 000-0000
Attention:
Xxxxxxx X. Xxxxx, Esq.
|
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOR BUYER FOLLOWS]
[BUYER
SIGNATURE PAGES TO nCOAT SECURITIES PURCHASE AGREEMENT]
IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.
Name
of
Buyer: ____________________________________________________
Signature
of Authorized Signatory of Buyer:
______________________________
Name
of
Authorized Signatory: ________________________________________
Title
of
Authorized Signatory: _________________________________________
Email
Address of Buyer:______________________________________________
Fax
Number of Buyer: _______________________________________________
Address
for Notice of Buyer:
Address
for Delivery of Securities for Buyer (if not same as address for
notice):
Principal
Amount of Series A Note: $________
Principal
Amount of Series B Note: $________
Number
of
Shares purchased multiplied by $0.40: $___________
Series
A
Warrant Shares: ________________
Series
B
Warrant Shares: ________________
EIN
Number: [PROVIDE
THIS UNDER SEPARATE COVER]
[SIGNATURE
PAGES CONTINUE]
-
- - 37
- - -
SCHEDULE
OF NOTES, SHARES AND WARRANT BUYERS
|
(1)
|
(2)
|
(3)
|
(4)
|
(5)
|
(6)
|
(7)
|
|
Buyer
|
Address
and
Facsimile
Number
|
Aggregate
Principal
Amount
of
Series
A
Notes
|
Number
of
Shares
purchased
|
Number
of
Series
A
Warrants
|
Aggregate
Purchase
Price
|
Legal
Representative's Address and Facsimile
Number
|
|
Buyer
|
Address
and
Facsimile
Number
|
Aggregate
Principal
Amount
of
Series
B
Notes
|
Number
of
Shares
purchased
|
Number
of
Series
B
Warrants
|
Aggregate
Purchase
Price
|
Legal
Representative's Address and Facsimile
Number
|
-
- - 38
- - -
EXHIBITS
|
Exhibit
A
|
Form
of Series A Note
|
|
Exhibit
B
|
Form
of Series B Note
|
|
Exhibit
C
|
Form
of Series A Warrant
|
|
Exhibit
D
|
Form
of Series B Warrant
|
|
Exhibit
E
|
Form
of Registration Rights Agreement
|
|
Exhibit
F
|
Form
of Escrow Agreement
|
|
Exhibit
G
|
Form
of Transfer Agent Instructions
|
|
Exhibit
H
|
Form
of Opinion of Company’s Counsel
|
|
Exhibit
I
|
Form
of Secretary's Certificate
|
|
Exhibit
J
|
Form
of Officer’s Certificate
|
|
Exhibit
K
|
Form
of Lockup Agreement
|
SCHEDULES
|
Schedule
3(a)
|
Subsidiaries
|
|
Schedule
3(c)
|
Reservation
of Shares
|
|
Schedule
3(d)
|
No
Conflicts
|
|
Schedule
3(h)
|
Placement
Agent's Fees
|
|
Schedule
3(i)
|
Integrated
offering
|
|
Schedule
3(k
|
Application
of Takeover Protections
|
|
Schedule
3(l)
|
SEC
Documents
|
|
Schedule
3(m)(i) &(ii)
|
Absence
of Certain Changes
|
|
Schedule
3(r)
|
Transactions
with Affiliates
|
|
Schedule
3(s)
|
Equity
Capitalization
|
|
Schedule
3(t)
|
Indebtedness
and Other Contracts
|
|
Schedule
3(u)
|
Absence
of Litigation
|
|
Schedule
3(v)
|
Insurance
|
| Schedule3(w) |
Employee
Relations
|
|
Schedule
3(bb)
|
Tax
Status
|
|
Schedule
3(ii)
|
Disclosures
|
|
Schedule
4(b)
|
Form
D and Blue Sky
|
|
Schedule
4(d)
|
Use
of Proceeds
|
|
Schedule
5(b)
|
Transfer
Agent
|
|
Schedule
7(xiii)
|
Piggyback
Waivers
|
-
- - 39
- - -
