INVESTMENT AGREEMENT
THIS
INVESTMENT AGREEMENT
(the
“Agreement”)
is
dated as of February 28, 2006, by and between CORNELL
CAPITAL PARTNERS, LP,
a
Delaware limited partnership and XXXXXXXXXX
EQUITY PARTNERS, LTD.,
a
Cayman Islands exempted Company (individually referred to as “Cornell”
and
“Xxxxxxxxxx”
collectively referred to as the “Buyers”),
and
ARIEL
WAY, INC.,
a
corporation organized and existing under the laws of the State of Florida
(the
“Company”).
Recitals:
WHEREAS,
the
Company and the Buyers are executing and delivering this Agreement in reliance
upon an exemption from securities registration pursuant to Section 4(2) and/or
Rule 506 of Regulation D (“Regulation
D”)
as
promulgated by the U.S. Securities and Exchange Commission (the “SEC”)
under
the Securities Act of 1933, as amended (the “1933
Act”);
WHEREAS,
Cornell
has purchased from the Company the following securities: (i) a 12% promissory
note dated February 2, 2005 in the original principal amount of Four Hundred
Thousand Dollars ($400,000) plus Fifty Two Thousand Dollars ($52,000) of
outstanding and accrued interest for a total amount due of Four Hundred Fifty
Two Thousand Dollars ($452,000) and (ii) 5% Secured Convertible Debenture
originally dated September 30, 2004 and amended and restated on July 21,
2005 in
the original principal amount of Five Hundred Thousand Dollars ($500,000)
plus
Ten Thousand Five Hundred Fifty Six Dollars ($10,556) of outstanding and
accrued
interest for a total amount due of Five Hundred Ten Thousand Five Hundred
Fifty
Six Dollars ($510,556) (collectively referred to as the “Cornell
Prior Securities”).
WHEREAS,
Xxxxxxxxxx has purchased from the Company the following securities: a 12%
promissory note dated July 28, 2005 in the original principal amount of Six
Hundred Thousand Dollars ($600,000) plus Forty Two Thousand Four Hundred
Ten
Dollars and Ninetty Six Cents ($42,410.96) amount of outstanding and accrued
interest for a total amount due of Six Hundred Forty Two Thousand Four Hundred
Ten Dollars and Ninetty Six Cents ($642,410.96) (referred to as the “Xxxxxxxxxx
Prior
Securities”). (collectively
the “Cornell
Prior Securities”
and
as
the “Xxxxxxxxxx Prior
Securities”
are
referred to as the “Prior
Securities”).
WHEREAS,
as of
the date hereof, the Buyers are the beneficial owners of the Prior
Securities. On the date hereof the Buyers shall surrender to the Company
the Prior Securities plus accrued and unpaid interest through the date hereof,
for a consideration consisting solely of the surrender of the Prior Securities
and the Company shall issue for consideration of such surrender one hundred
sixty (160) Series A Preferred Shares (the “Series
A Preferred Shares”),
which
shall be convertible into shares of the Company’s common stock, par value $0.001
(the “Common
Stock”)
(as
converted, the “Conversion
Shares”)
(the
“Closing”);
WHEREAS,
the
Company has authorized the following series of its Preferred Stock, par value
$0.001 per share (the "Series
A Preferred Shares"),
which
shall be convertible into shares of the Company’s Common Stock, par value $0.001
per share (the "Common
Stock")
(as
converted, the "Conversion
Shares"),
in
accordance with the terms of the Company Certificate of Designations,
Preferences, and Rights of the Series A Preferred Shares attached hereto
as
Exhibit
A (the
"Certificate
of Designations");
and
WHEREAS,
contemporaneously with the execution and delivery of this Agreement, the
parties
hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit
B
(the
“Investor
Registration Rights Agreement”)
pursuant to which the Company has agreed to provide certain registration
rights
under the Securities Act and the rules and regulations promulgated there
under,
and applicable state securities laws; and
WHEREAS,
contemporaneously with the execution and delivery of this Agreement, the
parties
hereto are executing and delivering Irrevocable Transfer Agent Instructions
substantially in the form attached hereto as Exhibit
C
(the
“Irrevocable
Transfer Agent Instructions”);
and
NOW,
THEREFORE,
in
consideration of the mutual premises herein set forth and certain other good
and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. ISSUANCE
OF SHARES AND RELATED TRANSACTIONS.
1.1
Closings.
The
parties to this Agreement shall consummate the transactions contemplated
by this
Agreement and on the date hereof the Buyers shall surrender the Prior Securities
plus accrued and unpaid interest through the date hereof to the Company and
for
consideration solely consisting of surrendering the Prior Securities, as
provided herein, the Company shall issue and the Buyers shall receive one
hundred sixty (160) of Series A Preferred Shares, which shall have the right
and
designations set forth on Exhibit
A
hereto,
provided, in no event shall the Closing Dates occur prior to the satisfaction
of
the conditions precedent set forth in Sections
9, 10 and 11
hereof
(the “Closing
Date”),
The
Closing Date shall take place at the offices of the Buyers or at such other
place as may be mutually agreed upon by the Buyers and the Company. On the
Closing Date, the Company shall deliver to the Buyers certificates representing
the Series A Preferred Shares.
1.2 Issuance
of Shares.
At the
Closing, subject to the terms, restrictions and conditions of this Agreement,
the Buyers shall acquire, and the Company shall and issue and deliver to
the
Buyers one hundred sixty (160) shares of Series A Preferred Shares, which
shall
have the right and designations set forth on Exhibit
A
hereto.
All of the Series A Preferred Shares and the Conversion Shares into which
such
the Series A Preferred Shares are convertible shall be free and clear of
all
liens, claims, pledges, mortgages, restrictions, obligations, security interests
and encumbrances of any kind, nature and description (collectively,
“Encumbrances”).
2. ADDITIONAL
AGREEMENTS.
2.1 Investor
Registration Rights Agreement..
Contemporaneously with the execution and delivery of this Agreement the parties
hereto are executing and delivering a Investor Registration Rights Agreement,
substantially in the form attached hereto as Exhibit
B,
pursuant to which the Company shall register the Conversion Shares underlying
the Series A Preferred Shares with the SEC.
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2.2 Irrevocable
Transfer Agent Agreement. Contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering an Irrevocable Transfer Agent Instructions,
substantially in the form attached hereto as Exhibit
C.
Collectively
the Investor Registration Rights Agreement, and the Irrevocable Transfer
Agent
Instructions, shall be referred to as the “Transaction
Documents”.
3. COVENANTS.
3.1 Access
and Inspection, Etc.
The
Company shall allow the Buyers and its authorized representatives full access
during normal business hours from and after the date hereof and prior to
the
Closing Dates to all of the properties, books, contracts, commitments and
records of the Company for the purpose of making such investigations as the
Buyers may reasonably request in connection with the transactions contemplated
hereby, and shall cause the Company to furnish the Buyers such information
concerning its affairs as the Buyers may reasonably request. The Company
has
caused and shall cause its personnel to assist the Buyers in making such
investigation and shall use their best efforts to cause the counsel,
accountants, engineers and other non-employee representatives of the Company
to
be reasonably available to Buyers for such purposes.
3.2 Public
Announcements.
The
parties will consult with each other before issuing any press releases or
otherwise making any public statement with respect to this Agreement or any
of
the transactions contemplated hereby and no party will issue any such press
release or make any such public statement without the prior written consent
of
the other parties, except as may be required by law or by the rules and
regulations of any governmental authority or securities exchange.
3.3 Best
Efforts.
Subject
to the terms and conditions provided in this Agreement, each of the parties
shall use its best efforts in good faith to take or cause to be taken as
promptly as practicable all reasonable actions that are within its power
to
cause to be fulfilled those conditions precedent to its obligations or the
obligations of the other parties to consummate the transactions contemplated
by
this Agreement and the Transaction Documents that are dependent upon its
actions.
3.4 Further
Assurances.
The
parties shall deliver any and all other instruments or documents required
to be
delivered pursuant to, or necessary or proper in order to give effect to,
the
provisions of this Agreement, including, without limitation, to issue the
Series
A Preferred Shares and to consummate the transactions contemplated by this
Agreement and the Transaction Documents.
4. NEGATIVE
COVENANTS.
The
following covenants shall remain in effect for so long as the Series A Preferred
Shares are outstanding:
4.1 No
Merger or Sale of Business.
The
Company hereby agrees that it will not merge or consolidate with any person
or
entity, or sell, lease or otherwise dispose of its assets or the assets of
Target other than in the ordinary course of business involving an aggregate
consideration of more than ten percent (10%) of the book value of its or
the
Target’s assets on a consolidated basis in any twelve (12) month period, or
liquidate, dissolve, recapitalize or reorganize.
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4.2 No
Indebtedness.
The
Company shall not incur any indebtedness for borrowed money or become a
guarantor or otherwise contingently liable for any such indebtedness except
for
trade payables or purchase money obligations incurred in the ordinary course
of
business.
4.3 No
Other Registration Statements.
The
Company shall not file any other registration statements on any form (including
but not limited to forms X-0, XX-0, X-0 and S-8) without the prior written
consent of the Buyers.
4.4 Restriction
on Issuance of the Capital Stock.
The
Company covenants and agrees that, so
long
as any of the principal amount or interest on the Convertible Debentures
remain
unpaid and unconverted, the Company shall not, without the prior consent
of the
Buyers, (i) issue or sell any common stock or preferred stock with or
without consideration, (ii) issue or sell any preferred stock, warrant,
option, right, contract, call, or other security or instrument granting the
holder thereof the right to acquire common stock with or without consideration,
(iii)
enter into any security instrument granting the holder a security interest
in
any of the assets of the Company or any subsidiary now existing or later
created
or acquired, or
(iv)
file any
registration statements on Form S-8.
.
5. REPRESENTATIONS,
COVENANTS AND WARRANTIES OF THE COMPANY.
To
induce
Buyers to enter into this Agreement and to consummate the transactions
contemplated hereby, the Company represents and warrants to and covenants
with
the Buyers as follows:
5.1 Organization;
Compliance.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Florida. The Company is: (a) entitled to own
or
lease its properties and to carry on its business as and in the places where
such business is now conducted, and (b) duly licensed and qualified in all
jurisdictions where the character of the property owned by it or the nature
of
the business transacted by it makes such license or qualification necessary,
except where the failure to do so would not result in a material adverse
effect
on the Company.
5.2 Capitalization
and Related Matters.
(a) As
of the
date hereof, the authorized capital stock of the Company consists of two
hundred
forty five million (245,000,000) shares of common stock, par value $0.001
per
share and five million (5,000,000) shares of Preferred Shares, par value
$0.001.
As of the date hereof, the Company had thirty eight million three hundred
eighty
six thousand nine hundred forty three (38,386,943) shares of common stock
and
nil (0) shares of Preferred Shares issued and outstanding. No Common Stock
(i)
was issued in violation of the preemptive rights of any shareholder, or (ii)
is
held as treasury stock.
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(b) Except
as
set forth in the Company’s the Company’s Form 10-KSB for the fiscal year ended
September 30, 2005 and Form 10-QSB for the fiscal quarter ended December
31,
2005 (the “SEC
Documents”)
there
are no outstanding any securities convertible into Common Stock or any other
capital stock of the Company nor any rights to subscribe for or to purchase,
or
any options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, such capital stock or securities convertible into
such
capital stock (collectively, “Securities
Rights”).
The
Company: (i) is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any of its capital stock; or (ii)
has
no liability for dividends or other distributions declared or accrued, but
unpaid, with respect to any capital stock.
(c) The
Company is not a party to any agreement, understanding or arrangement, direct
or
indirect, relating to any class or series of the Company’s capital stock,
including, without limitation, any voting agreement, restriction on resale,
shareholder agreement or registration rights agreement, other than the Permitted
Registration Rights Agreements.
5.3 Subsidiaries
and Investments.
(a) The
SEC
Documents disclose with respect to each Subsidiary (as defined below)
(i) its name, (ii) the jurisdiction of its organization,
(iii) the number of its authorized shares or other equity interests,
(iv) the number of its outstanding shares or other equity interests of each
class or series, and (v) the name of the owner and the number and
percentage of outstanding shares or other equity interests of each class
or
series of such Subsidiary owned of record and, if different, owned beneficially
by the Company and any other person. All of the outstanding capital stock
and
other equity interests of each of the Subsidiaries is validly issued, fully
paid
and nonassessable and was issued in compliance with all applicable federal
and
state securities or “blue sky” laws and regulations. There are no securities
rights relating to any shares of capital stock, other equity interests or
other
securities of any of the Subsidiaries. The Company and the Subsidiaries have
good, marketable and exclusive title to the shares or other equity interests
disclosed in the SEC Documents as being owned by each of them, free and clear
of
all Encumbrances. All rights and powers to vote such shares or other equity
interests are held exclusively by the Company, directly or indirectly through
one or more of the Subsidiaries, as the case may be. Each Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws
of its jurisdiction of organization, and has the corporate power and authority
to own or lease its properties and to carry on its business as now conducted.
For the purposes hereof, a “Subsidiary”
means
any corporation, limited liability company, partnership, joint venture or
other
entity in which the Company owns, directly or indirectly, more than 20% of
the
outstanding voting securities or equity interests.
(b) Except
as
disclosed in SEC Documents, the Company does not own, nor has it ever owned,
any
equity interest in any corporation, limited liability company, partnership,
joint venture or other entity.
5.4 Execution;
No Inconsistent Agreements; Etc.
(a) This
Agreement is a valid and binding agreement of the Company, enforceable in
accordance with its terms, except as such enforcement may be limited by
bankruptcy or similar laws affecting the enforcement of creditors' rights
generally, and the availability of equitable remedies.
5
(b) The
execution and delivery of this Agreement by the Company does not, and the
consummation of the transactions contemplated hereby will not, constitute
a
breach or violation of the charter or bylaws of the Company, or a default
under
any of the terms, conditions or provisions of (or an act or omission that
would
give rise to any right of termination, cancellation or acceleration under)
any
note, bond, mortgage, lease, indenture, agreement or obligation to which
the
Company is a party, pursuant to which the Company otherwise receives benefits,
or to which any of the properties of the Company is subject.
5.5 Corporate
Records.
The
statutory records, including the stock register and minute books of the Company,
fully reflect all issuances, transfers and redemptions of its capital stock,
correctly show and will correctly show the total number of shares of its
capital
stock issued and outstanding on the date hereof and on the Closing Date,
the
charter or other organizational documents and all amendments thereto, and
bylaws
as amended and currently in force.
5.6 Financial
Statements.
(a) All
the
foregoing financial statements, and any financial statements delivered pursuant
to subsection (c) below, are referred to herein collectively as the
“Company
Financial Statements.”
(b) The
Company Financial Statements have been and will be prepared in accordance
with
U.S. GAAP, applied on a consistent basis (except that the unaudited statements
do not contain all the disclosures required by GAAP), and fairly reflect
and
will reflect in all material respects the financial condition of the Company
as
at the dates thereof and the results of the operations of the Company for
the
periods then ended.
5.7 Liabilities.
The
Company has no material debt, liability or obligation of any kind, whether
accrued, absolute, contingent or otherwise, except: (a) those reflected in
the
SEC Documents, including the notes thereto, and (b) liabilities incurred
in the
ordinary course of business, none of which have had or will have a material
adverse effect on the financial condition of the Company.
5.8 Absence
of Changes.
Except
as described in the SEC Documents and in the other Schedules to this
Agreement:
(a) there
has
not been any adverse change in the business, assets, liabilities, results
of
operations or financial condition of the Company or in its relationships
with
suppliers, customers, employees, lessors or others other than changes in
the
ordinary course of business, none of which, singularly or in the aggregate,
have
had or will have a material adverse effect on the business, properties or
financial condition of the Company; and
(b) the
Company has complied with the covenants and restrictions set forth in this
Agreement.
6
5.9 Title
to Properties.
The
Company has good and marketable title to all of its properties and assets,
real
and personal, including, but not limited to, those reflected in the SEC
Documents (except as since sold or otherwise disposed of in the ordinary
course
of business, or as expressly provided for in this Agreement), free and clear
of
all Encumbrances of any kind or character except: (a) those securing liabilities
of the Company incurred in the ordinary course (with respect to which no
material default exists); (b) liens of real estate and personal property
taxes;
and (c) imperfections of title and Encumbrances, if any, which, in the aggregate
(i) are not substantial in amount; (ii) do not detract from the value of
the
property subject thereto or impair the operations of the Company or; and
(iii)
do not have a material adverse effect on the business, properties or assets
of
the Company.
5.10 Compliance
With Law.
The
business and activities of the Company has at all times been conducted in
accordance with its articles of incorporation and bylaws and any applicable
law,
regulation, ordinance, order, License (defined below), permit, rule, injunction
or other restriction or ruling of any court or administrative or governmental
agency, ministry, or body, except where the failure to do so would not result
in
a material adverse effect on the Company.
5.11 Taxes.
The
Company has duly filed all material federal, state, local and foreign tax
returns and reports, and all returns and reports of all other governmental
units
having jurisdiction with respect to taxes imposed on it or on its income,
properties, sales, franchises, operations or employee benefit plans or trusts,
all such returns were complete and accurate when filed, and all taxes and
assessments payable by the Company have been paid to the extent that such
taxes
have become due. All taxes accrued or payable by the Company for all periods
have been accrued or paid in full, whether or not due and payable and whether
or
not disputed. The Company has withheld proper and accurate amounts from its
employees for all periods in full compliance with the tax withholding provisions
of applicable foreign, federal, state and local tax laws. There are no waivers
or agreements by the Company for the extension of time for the assessment
of any
taxes. The tax returns of the Company have never been examined by any authority
or other administrative body or court of any state or country. There are
not now
any examinations of the income tax returns of the Company pending, or any
proposed deficiencies or assessments against the Company of additional taxes
of
any kind. The Company shall duly and timely prepare and file all material
federal, state, local and foreign tax returns and reports necessary and all
returns and reports of all other governmental units having jurisdiction with
respect to taxes imposed on the Company or on its income, properties, sales,
franchises, operations or employee benefit plans or trusts, and all such
returns
will be complete and accurate when filed.
5.12 Real
Properties.
The
Company does not have an interest in any real property, except for the Leases
(as defined below).
5.13 Leases
of Real Property.
All
leases pursuant to which the Company is lessee or lessor of any real property
(the “Leases”)
are
listed in the SEC Documents and are valid and enforceable in accordance with
their terms. There is not under any of such leases (a) any material default
or
any claimed material default by the Company or any event of default or event
which with notice or lapse of time, or both, would constitute a material
default
by the Company and in respect to which the Company has not taken adequate
steps
to prevent a default on its part from occurring, or (b) to the knowledge
of the
Company, any material default by any lessee of the Company or any event of
default or event which with notice or lapse of time, or both, would constitute
a
material default by any lessee. The copies of the Leases heretofore furnished
to
Buyers are true, correct and complete, and such Leases have not been modified
in
any respect since the date they were so furnished, and are in full force
and
effect in accordance with their terms. The Company is lawfully in possession
of
all real properties of which they are a lessee (the “Leased
Properties”).
7
5.14 Contingencies.
Except
as disclosed in the SEC Documents, there are no actions, suits, claims or
proceedings pending, or to the knowledge of the Company threatened against,
by
or affecting, the Company in any court or before any arbitrator or governmental
agency that may have a material adverse effect on the Company or which could
materially and adversely affect the right or ability of the Company to
consummate the transactions contemplated hereby. To the knowledge of the
Company, there is no valid basis upon which any such action, suit, claim,
or
proceeding may be commenced or asserted against it. There are no unsatisfied
judgments against the Company and no consent decrees or similar agreements
to
which the Company is subject and which could have a material adverse effect
on
the Company.
5.15 Products
Liability; Warranties; Insurance.
The
Company will have not loss, damage, liability, fine, penalty, cost and expense
(each, a “Liability”)
that
is not fully covered by insurance relating to any product manufactured,
distributed or sold by the Company prior to the Closing, whether or not such
Liability is related to products that are defective or improperly designed
or
manufactured or are in breach of any express or implied product warranty.
5.16 Intellectual
Property Rights.
(a) The
Company owns and possesses all right, title and interest in and to, or has
a
valid license to use, all of the Proprietary Rights (as defined below) necessary
for the operation of its business as presently conducted and none of such
Proprietary Rights have been abandoned;
(b) no
claim
by any third party contesting the validity, enforceability, use or ownership
of
any such Proprietary Rights has been made, is currently outstanding or, to
the
knowledge of the Company, is threatened, and to the knowledge of the Company
there is no reasonable basis for any such claim;
(c) neither
the Company nor any registered agent of any of the foregoing has received
any
notice of, nor is the Company aware of any reasonable basis for an allegation
of, any infringement or misappropriation by, or conflict with, any third
party
with respect to such Proprietary Rights, nor has the Company, or any registered
agent of any of them received any claim of infringement or misappropriation
of
or other conflict with any Proprietary Rights of any third party;
(d) the
Company has not infringed, misappropriated or otherwise violated any Proprietary
Rights of any third parties, and the Company is not aware of any infringement,
misappropriation or conflict which will occur as a result of the continued
operation of the Company as presently operated and as contemplated to be
operated or as a result of the consummation of the transactions contemplated
hereby; and
8
(e) all
employees who have contributed to or participated in the conception and/or
development of all or any part of the Proprietary Rights which are not licensed
to the Company from a third party either (i) have been party to a
"work-for-hire" arrangement or agreement with the Company, in accordance
with
applicable federal and state law, that has accorded the Company full, effective,
exclusive, and original ownership of all tangible and intangible property
thereby arising, or (ii) have executed appropriate instruments of assignment
in
favor of the Company as assignee that have conveyed to the Company full,
effective and exclusive ownership of all tangible and intangible property
thereby arising.
(f) As
used
herein, the term “Proprietary
Rights”
means
all proprietary information of the Company, as the case may be, including
all
patents, patent applications, patent disclosures and inventions (whether
or not
patentable and whether or not reduced to practice), all trademarks, service
marks, trade dress, trade names, corporate names, domain names, copyrights,
all
trade secrets, confidential information, ideas, formulae, compositions,
know-how, processes and techniques, drawings, specifications, designs, logos,
plans, improvements, proposals, technical and computer data, documentation
and
software, financial, business and marketing plans, and related information
and
all other proprietary, industrial or intellectual property rights relating
to
the business of the Company, including those proprietary, industrial or
intellectual property rights found at the Company’s websites listed in the SEC
Documents.
(g) The
consummation of the transactions contemplated by this Agreement will not
adversely affect the right of the Company to continue to use the Proprietary
Rights. To the extent that the registration of any Proprietary Right is required
by law, such Proprietary Right has been duly and validly registered or filed,
and any fees that are necessary to maintain in force any Proprietary Rights
or
registrations thereof have been paid. The SEC Documents sets forth a list
and
description of the copyrights, trademarks, service marks, trade dress, trade
names and domain names used or held by the Company and, where appropriate,
the
date, serial or registration number, and place of any registration
thereof.
5.17 Material
Contracts.
The SEC
Documents contain a complete list of all contracts of the Company that involve
consideration in excess of the equivalent of Twenty Five Thousand Dollars
($25,000) or have a term of one year or more (the “Material
Contracts”).
Except as disclosed in the SEC Documents: (a) the Company has performed all
material obligations to be performed by them under all such contracts, and
is
not in material default thereof, and (b) no condition exists or has occurred
which with the giving of notice or the lapse of time, or both, would constitute
a material default by the Company or accelerate the maturity of, or otherwise
modify, any such contract, and (c) all such contracts are in full force and
effect. No material default by any other party to any of such contracts is
known
or claimed by the Company to exist.
5.18 Employee
Benefit Matters.
(a) Except
as
disclosed in the SEC Documents, the Company does not provide, nor is it
obligated to provide, directly or indirectly, any benefits for employees
other
than salaries, sales commissions and bonuses, including, but not limited
to, any
pension, profit sharing, stock option, retirement, bonus, hospitalization,
insurance, severance, vacation or other employee benefits (including any
housing
or social fund contributions) under any practice, agreement or
understanding.
9
(b) Each
employee benefit plan maintained by or on behalf of the Company or any other
party (including any terminated pension plans) which covers or covered any
employees or former employees of the Company (collectively, the “Employee
Benefit Plan”)
is
listed in the SEC Documents. The Company has delivered to Buyers true and
complete copies of all such plans and any related documents. With respect
to
each such plan: (a) no litigation, administrative or other proceeding or
claim
is pending, or to the knowledge of the Company, threatened or anticipated
involving such plan; (b) there are no outstanding requests for information
by
participants or beneficiaries of such plan; and (c) such plan has been
administered in compliance in all material respects with all applicable laws
and
regulations.
(c) The
Company has timely made payment in full of all contributions to all of the
Employee Benefit Plans which the Company was obligated to make prior to the
date
hereof; and there are no contributions declared or payable by the Company
to any
Employee Benefit Plan which, as of the date hereof, has not been paid in
full.
5.19 Possession
of Franchises, Licences, Etc.
The
Company: (a) possesses all material franchises, certificates, licenses, permits
and other authorizations (collectively, the “Licences”)
from
governmental authorities, political subdivisions or regulatory authorities
that
are necessary for the ownership, maintenance and operation of its business
in
the manner presently conducted; (b) are not in violation of any provisions
thereof; and (c) have maintained and amended, as necessary, all Licenses
and
duly completed all filings and notifications in connection
therewith.
5.20 Environmental
Matters.
Except
as disclosed in the SEC Documents: (i) the Company is not in violation, in
any
material respect, of any Environmental Law (as defined below); (ii) the
Company has received all permits and approvals with respect to emissions
into
the environment and the proper collection, storage, transport, distribution
or
disposal of Wastes (as defined below) and other materials required for the
operation of its business at present operating levels; and (iii) the Company
is
not liable or responsible for any material clean up, fines, liability or
expense
arising under any Environmental Law, as a result of the disposal of Wastes
or
other materials in or on the property of the Company (whether owned or leased),
or in or on any other property, including property no longer owned, leased
or
used by the Company. As used herein, (a) “Environmental
Laws”
means,
collectively, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization
Act of 1986, the Resource Conservation and Recovery Act, the Toxic Substances
Control Act, as amended, the Clean Air Act, as amended, the Clean Water Act,
as
amended, any other “Superfund” or “Superlien” law or any other federal, or
applicable state or local statute, law, ordinance, code, rule, regulation,
order
or decree (foreign or domestic) regulating, relating to, or imposing liability
or standards of conduct concerning, Wastes, or the environment; and (b)
“Wastes”
means
and includes any hazardous, toxic or dangerous waste, liquid, substance or
material (including petroleum products and derivatives), the generation,
handling, storage, disposal, treatment or emission of which is subject to
any
Environmental Law.
10
5.21 Agreements
and Transactions with Related Parties.
Except
as disclosed on the SEC Documents the Company is not, a party to any contract,
agreement, lease or transaction with, or any other commitment to, (a) a
shareholder, (b) any person related by blood, adoption or marriage to
shareholder, (c) any director or officer of the Company, (d) any corporation
or
other entity in which any of the foregoing parties has, directly or indirectly,
at least five percent (5.0%) beneficial interest in the capital stock or
other
type of equity interest in such corporation or other entity, or (e) any
partnership in which any such party is a general partner or a limited partner
having a five percent (5%) or more interest therein (any or all of the foregoing
being herein referred to as a “Related
Party”
and
collectively as the “Related
Parties”).
Without limiting the generality of the foregoing, except as set forth in
the SEC
Documents, (a) no Related Party, directly or indirectly, owns or controls
any
assets or properties which are or have been used in the business of the Company,
and (b) no Related Party, directly or indirectly, engages in or has any
significant interest in or connection with any business: (i) which is or
which
within the last two (2) years has been a competitor, customer or supplier
of, or
has done business with, the Company, or (ii) which as of the date hereof
sells or distributes products or provides services which are similar or related
to the products or services of the Company.
5.22 Business
Practices.
Except
as disclosed in the SEC Documents, the Company has not, at any time, directly
or
indirectly, made any contributions or payment, or provided any compensation
or
benefit of any kind, to any municipal, county, state, federal or foreign
governmental officer or official, or any other person charged with similar
public or quasi-public duties, or any candidate for political office. The
Company’s books, accounts and records (including, without limitation, customer
files, product packaging and invoices) accurately describe and reflect, in
all
material respects, the nature and amount of the Company’s products, purchases,
sales and other transactions. Without limiting the generality of the foregoing,
the Company has not engaged, directly or indirectly, in: (a) the practice
known
as “double-invoicing” or the use or issuance of pro-forma or dummy invoices; or
(b) the incorrect or misleading labeling, marketing or sale of refurbished
goods
as new goods.
5.23 Shareholder
Matters.
None of
the matters set forth in this Agreement require the approval of the Company’s
shareholders.
5.24 Full
Disclosure.
No
representation or warranty of the Company contained in this Agreement, and
none
of the statements or information concerning the Company contained in this
Agreement and the Schedules, contains or will contain any untrue statement
of a
material fact nor will such representations, warranties, covenants or statements
taken as a whole omit a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
6. REPRESENTATIONS
AND WARRANTIES OF BUYERS.
To
induce
the Company to enter into this Agreement and to consummate the transactions
contemplated hereby, the Buyers represent and warrant to and covenant with
the
Company as follows:
6.1 Organization.
Each
Buyers is a limited partnership duly organized, validly existing and in good
standing under the laws of Delaware. The Buyers have all requisite power
and
authority to execute, deliver and carry out the terms of this Agreement and
the
consummation of the transactions contemplated herein.
11
6.2 Execution;
No Inconsistent Agreements; Etc.
(a) The
execution and delivery of this Agreement and the performance of the transactions
contemplated hereby have been duly and validly authorized and approved by
the
Buyers and this Agreement is a valid and binding agreement of the Buyers,
enforceable against the Buyers in accordance with its terms, except as such
enforcement may be limited by bankruptcy or similar laws affecting the
enforcement of creditors' rights generally, and the availability of equitable
remedies.
(b) The
execution and delivery of this Agreement by the Buyers does not, and the
consummation of the transactions contemplated hereby will not, constitute
a
breach or violation of the charter or bylaws of the Buyers, or a default
under
any of the terms, conditions or provisions of (or an act or omission that
would
give rise to any right of termination, cancellation or acceleration under)
any
material note, bond, mortgage, lease, indenture, agreement or obligation
to
which the Buyers are a party, pursuant to which any of them otherwise receive
benefits, or by which any of their properties may be bound.
6.3 Securities
Laws.
(a) The
Buyers are acquiring the Series A Preferred Shares in exchange for the Prior
Securities and for investment purposes.
(b) Investment
Representations.
The
Buyers have been offered the opportunity to ask questions of, and receive
answers from the Company’s management, and the Buyers have been given full and
complete access to all available information and data relating to the business
and assets of the Company and has obtained such additional information about
the
Company as the Buyers have deemed necessary in order to evaluate the
opportunities, both financial and otherwise, with respect to the Company
and,
except as set forth herein, has not relied on any representation, warranty
or
other statement concerning the Company and its evaluation of the decision
to
consummate the transactions contemplated herein. In its judgment, the Buyers
are
sufficiently familiar with the Company to enable the Buyers to proceed with
the
transactions contemplated hereby.
(c) The
Buyers are “accredited investors” as such term is defined in Rule 501 of
Regulation D promulgated under the Securities Act of 1933, as amended (the
“Securities
Act”).
(d) The
Buyers are sophisticated investors familiar with the type of risks inherent
in
the acquisition of securities such as the Series A Preferred Shares.
7. CONDUCT
OF BUSINESS OF THE COMPANY PENDING CLOSING.
The
Company covenants and agrees that between the date hereof and the Closing
Date:
12
7.1 Business
in the Ordinary Course.
Except
as set forth in the SEC Documents, the business of the Company shall be
conducted only in the ordinary course, and consistent with past practice.
Without limiting the generality of the foregoing, and except as set forth
in the
SEC Documents or as otherwise approved by the Buyers:
(a) Except
for the transaction contemplated hereby, the Company shall not enter into
any
contract, agreement or other arrangement which would constitute a Material
Contract, except for contracts to sell or supply goods or services to customers
in the ordinary course of business at prices and on terms substantially
consistent with the prior operating practices of the Company;
(b) except
for sales of personal property in the ordinary course of its business, the
Company shall not sell, assign, transfer, mortgage, convey, encumber or
otherwise dispose of, or cause the sale, assignment, transfer, mortgage,
conveyance, encumbrance or other disposition of any of the assets or properties
of the Company or any interest therein;
(c) the
Company shall not acquire any material assets, except expenditures made in
the
ordinary course of business as reasonably necessary to enable the Company
to
conduct its normal business operations and to maintain its normal inventory
of
goods and materials, at prices and on terms substantially consistent with
current market conditions and prior operating practices;
(d) the
books, records and accounts of the Company shall be maintained in the usual,
regular and ordinary course of business on a basis consistent with prior
practices and in accordance with GAAP;
(e) the
Company shall use its best efforts to preserve its business organization,
to
preserve the good will of its suppliers, customers and others having business
relations with the Company, and to retain the services of key employees and
agents of the Company;
(f) except
as
it may terminate in accordance with the terms of this Agreement, the Company
shall keep in full force and effect, and not cause a default of any of its
obligations under, each of their contracts and commitments;
(g) the
Company shall duly comply in all material respects with all laws applicable
to
it and to the conduct of its business;
(h) the
Company shall not create, incur or assume any liability or indebtedness,
except
in the ordinary course of business consistent with past practices;
(i) other
than as contemplated in this Agreement, the Company shall not apply any of
its
assets to the direct or indirect payment, discharge, satisfaction or reduction
of any amount payable directly or indirectly to or for the benefit of any
shareholder or any Related Party; and
13
(j) the
Company shall not take or omit to take any action which would render any
of the
representations or warranties untrue or misleading, or which would be a breach
of any of the covenants.
7.2 No
Material Changes.
Except
as contemplated in this Agreement, the Company shall not materially alter
its
organization, capitalization, or financial structure, practices or operations.
Without limiting the generality of the foregoing:
(a) no
change
shall be made in the articles of incorporation and bylaws of the
Company;
(b) no
change
shall be made in the authorized or issued capital stock of the
Company;
(c) the
Company shall not issue or grant any right or option to purchase or otherwise
acquire any of its capital stock or other securities;
(d) no
dividend or other distribution or payment shall be declared or made with
respect
to any of the capital stock of the Company; and
(e) no
change
shall be made affecting the banking arrangements of the Company.
7.3 Notification.
Each
party to this Agreement shall promptly notify the other parties in writing
of
the occurrence, or threatened occurrence, of any event that would constitute
a
breach or violation of this Agreement by any party or that would cause any
representation or warranty made by the notifying party in this Agreement
to be
false or misleading in any respect. The Company will promptly notify the
Buyers
of any event that could have a material adverse effect on the business, assets,
financial condition or prospects of the Company. The Company shall have the
right to update the Schedules to this Agreement immediately prior to Closing;
provided, if such update discloses any breach of a representation, warranty,
covenant or obligation of the Company, the Buyers shall have the rights to
then
exercise its available rights and remedies hereunder.
8. CONDITIONS
TO OBLIGATIONS OF ALL PARTIES.
The
obligation of the Buyers and the Company to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, on or before
the
Closing, of each of the following conditions; any or all of which may be
waived
in whole or in part by the joint agreement of the Buyers and the
Company:
8.1 Absence
of Actions.
No
action or proceeding shall have been brought or threatened before any court
or
administrative agency to prevent the consummation or to seek damages in a
material amount by reason of the transactions contemplated hereby, and no
governmental authority shall have asserted that the within transactions (or
any
other pending transaction involving the Buyers or the Company when considered
in
light of the effect of the within transactions) shall constitute a violation
of
law or give rise to material liability on the part of the Company or the
Buyers.
14
8.2 Consents.
The
parties shall have received from any suppliers, lessors, lenders, lien holders
or governmental authorities, bodies or agencies having jurisdiction over
the
transactions contemplated by this Agreement, or any part hereof, such consents,
authorizations and approvals as are necessary for the consummation
hereof.
9. CONDITIONS
TO OBLIGATIONS OF THE BUYERS.
All
obligations of the Buyers to consummate the transactions contemplated by
this
Agreement are subject to the fulfillment and satisfaction of each and every
of
the following conditions on or prior to the Closing, any or all of which
may be
waived in whole or in part by the Buyers:
9.1
The
Company shall have issued and delivered to the Buyers the Series A Preferred
Shares.
9.2 Representations
and Warranties.
The
representations and warranties contained in Section
6 of
this
Agreement and in any certificate, instrument, schedule, agreement or other
writing delivered by or on behalf of the Company in connection with the
transactions contemplated by this Agreement shall be true, correct and complete
in all material respects (except for representations and warranties which
are by
their terms qualified by materiality, which shall be true, correct and complete
in all respects) as of the date when made and shall be deemed to be made
again
at and as of the Closing Date and shall be true, correct and complete at
and as
of such time in all material respects (except for representations and warranties
which are by their terms qualified by materiality, which shall be true, correct
and complete in all respects).
9.3 The
Common Stock shall be authorized for quotation on the OTCBB, trading in the
Common Stock shall not have been suspended for any reason, and all the
Conversion Shares issuable upon the conversion of the Series A Preferred
Shares
shall be approved by the OTCBB.
9.4 Certificate
of Designations, Preferences and Rights.
The
Company shall have filed the Certificate of Designations, Preferences and
Rights
for the Series A Preferred Shares with the Florida Secretary of State and
provided the Buyers a stamped filed copy.
9.5 Compliance
with Agreements and Conditions.
The
Company shall have performed and complied with all material agreements and
conditions required by this Agreement to be performed or complied with by
it
prior to or on the Closing Date.
9.6 Absence
of Material Adverse Changes.
No
material adverse change in the business, assets, financial condition, or
prospects of the Company shall have occurred, no substantial part of the
assets
of the Company not substantially covered by insurance shall have been destroyed
due to fire or other casualty, and no event shall have occurred which has
had or
will have a material adverse effect on the business, assets, financial condition
or prospects of the Company.
9.7 Board
Approval.
The
Company’s Board of Directors shall have taken the action required by them
pursuant to this Agreement, including an amendment to the Company’s articles of
incorporation to adopt the rights and preferences of the Series A Preferred
Shares, authorize issuance of the Series A Preferred Shares and the Conversion
Shares to be issued upon conversion of the Series A Preferred Shares and
the
reservation of the shares of Conversion Shares to be issued upon conversion
of
the Series A Preferred Shares.
15
9.8 Other
Agreements.
The
Company shall have executed and delivered to the Buyers the Transaction
Documents all in a form acceptable to the Buyers.
9.9 Other
Documents.
The
Company shall have delivered to the Buyers such other documents and instruments
as the Buyers deems reasonably necessary or desirable to consummate the
transactions contemplated hereby.
9.10 The
Buyers(s) shall have received an opinion of counsel from Counsel to the Company
in a form satisfactory to the Buyers.
9.11 The
Company shall have provided to the Buyers a certificate of good standing
from
the secretary of state from the state in which the company is
incorporated.
9.12 The
Company shall have provided to the Investor an acknowledgement, to the
satisfaction of the Investor, from Xxxxxx Xxxxxxx & Co. as to its ability to
provide all consents required in order to file a registration statement in
connection with this transaction.
All
documents delivered to the Buyers shall be in form and substance reasonably
satisfactory to the Buyers.
10. CONDITIONS
TO OBLIGATIONS OF THE COMPANY.
All
of
the obligations of the Company to consummate the transactions contemplated
by
this Agreement are subject to the fulfillment and satisfaction of each and
every
of the following conditions on or prior to the Closing, any or all of which
may
be waived in whole or in part by the Company:
10.1 Representations
and Warranties.
The
representations and warranties contained in Section
7 of
this
Agreement and in any certificate, instrument, schedule, agreement or other
writing delivered by or on behalf of the Buyers in connection with the
transactions contemplated by this Agreement shall be true and correct in
all
material respects (except for representations and warranties which are by
their
terms qualified by materiality, which shall be true, correct and complete
in all
respects) when made and shall be deemed to be made again at and as of the
Closing Date and shall be true at and as of such time in all material respects
(except for representations and warranties which are by their terms qualified
by
materiality, which shall be true, correct and complete in all
respects).
10.2 Compliance
with Agreements and Conditions.
The
Buyers shall have performed and complied with all material agreements and
conditions required by this Agreement to be performed or complied with by
the
Buyers prior to or on the Closing Date.
11. EVENTS
OF DEAULT.
16
11.1 An
“Event
of Default”,
wherever used herein, means any one of the following events (whatever the
reason
and whether it shall be voluntary or involuntary or effected by operation
of law
or pursuant to any judgment, decree or order of any court, or any order,
rule or
regulation of any administrative or governmental body):
11.2 The
Company shall fail to observe or perform any covenant, agreement or warranty
contained in, or otherwise commit any breach or default of any provision
contained herein or in any Transaction Document (as defined in the Investment
Agreement of even date herewith) which is not cured within any applicable
cure
period;
11.3 The
Company or any subsidiary of the Company shall commence, or there shall be
commenced against the Company or any subsidiary of the Company under any
applicable bankruptcy or insolvency laws as now or hereafter in effect or
any
successor thereto, or the Company or any subsidiary of the Company commences
any
other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law
of any
jurisdiction whether now or hereafter in effect relating to the Company or
any
subsidiary of the Company or there is commenced against the Company or any
subsidiary of the Company any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of sixty one (61) days; or the Company
or
any subsidiary of the Company is adjudicated insolvent or bankrupt; or any
order
of relief or other order approving any such case or proceeding is entered;
or
the Company or any subsidiary of the Company suffers any appointment of any
custodian, private or court appointed receiver or the like for it or any
substantial part of its property which continues undischarged or unstayed
for a
period of sixty one (61) days; or the Company or any subsidiary of the Company
makes a general assignment for the benefit of creditors; or the Company or
any
subsidiary of the Company shall fail to pay, or shall state that it is unable
to
pay, or shall be unable to pay, its debts generally as they become due; or
the
Company or any subsidiary of the Company shall call a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of its
debts; or the Company or any subsidiary of the Company shall by any act or
failure to act expressly indicate its consent to, approval of or acquiescence
in
any of the foregoing; or any corporate or other action is taken by the Company
or any subsidiary of the Company for the purpose of effecting any of the
foregoing;
11.4 The
Company or any subsidiary of the Company shall default in any of its obligations
under any other obligation or any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under which
there
may be issued, or by which there may be secured or evidenced any indebtedness
for borrowed money or money due under any long term leasing or factoring
arrangement of the Company or any subsidiary of the Company in an amount
exceeding One Hundred Thousand Dollars ($100,000), whether such indebtedness
now
exists or shall hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior to the date
on
which it would otherwise become due and payable;
11.5 The
Common Stock shall cease to be quoted for trading or listed for trading on
the
Nasdaq OTC Bulletin Board (“OTC”),
Nasdaq SmallCap Market, New York Stock Exchange or the Nasdaq National Market
(each, a “Subsequent
Market”)
and
shall not again be quoted or listed for trading thereon within five (5) Trading
Days of such delisting; or
17
11.6
The
Company shall fail for any reason to deliver Common Stock certificates to
a
Holder prior to the fifth (5th)
Trading
Day after a conversion or the Company shall provide notice to the Holder,
including by way of public announcement, at any time, of its intention not
to
comply with requests for conversions of the Series A Preferred Stock in
accordance with the terms hereof.
11.7 During
the time that any portion of the Series A Preferred Stock is outstanding,
if any
Event of Default has occurred, all of the outstanding principal and interest
under the Series A Preferred Shares shall be immediately due and payable
notwithstanding any limitations contained in the Certificate of Designations
or
the Transaction Documents, as this term is defined in the Investment Agreement.
Upon an event of default the Holders shall have the right (but not the
obligation) to convert the entire amount of the Series A Preferred Shares
outstanding as provided for herein. Upon an Event of Default, notwithstanding
any other provision contained herein or any Transaction Document, the Holder
shall have no obligation to comply with or adhere to any limitations, if
any, on
the conversion or sale of the Series A Preferred Stock.
12. INDEMNITY.
12.1 Indemnification
by the Company.
The
Company (hereinafter collectively called the “Company
Indemnitor”)
shall
defend, indemnify and hold harmless the Buyers, their respective general
partners, direct and indirect parent corporations, subsidiaries and affiliates,
their officers, members, directors, employees, attorneys and agents (hereinafter
collectively called the “Buyers
Indemnitees”)
against and in respect of any and all loss, damage, liability, fine, penalty,
cost and expense, including reasonable attorneys' fees and amounts paid in
settlement (collectively, the “Buyers
Losses”),
suffered or incurred by any Buyers Indemnitee by reason of, or arising out
of:
(a) any
misrepresentation, breach of warranty or breach or nonfulfillment of any
covenant, obligation or agreement of the Company contained in this Agreement
or
in any certificate, schedule, instrument or document delivered to the Buyers
by
or on behalf of the Company pursuant to the provisions of this Agreement
(without regard to materiality thresholds contained therein); and
(b) any
liabilities of the Company of any nature whatsoever (including tax liability,
penalties and interest), whether accrued, absolute, contingent or otherwise,
(i)
existing as of the date hereofon the Company’a Balance Sheet, and required to be
shown therein in accordance with GAAP, to the extent not reflected or reserved
against in full in; or (ii) arising or occurring between January 31, 2005
and
the date of this Agreement, except for liabilities arising in the ordinary
course of business, none of which shall have a material adverse effect on
the
Company.
(c) Indemnification
by the Buyers.
The
Buyers (hereinafter called the “Buyers
Indemnitors”)
shall
defend, indemnify and hold harmless the Company, its direct and indirect
parent
corporations, subsidiaries and affiliates, their officers, members, directors,
employees, attorneys and agents (hereinafter called “Company
Indemnitee”)
against and in respect of any and all loss, damage, liability, cost and expense,
including reasonable attorneys' fees and amounts paid in settlement
(collectively, “Company
Losses”),
suffered or incurred by Company Indemnitee by reason of or arising out of
any
misrepresentation, breach of warranty or breach or non-fulfillment of any
material covenant, obligation or agreement of the Buyers contained in this
Agreement or in any other certificate, schedule, instrument or document
delivered to the Company by or on behalf of the Buyers pursuant to the
provisions of this Agreement (without regard to materiality thresholds contained
therein).
18
12.2 Defense
of Claims.
(a) Each
party seeking indemnification hereunder (an “Indemnitee”):
(i)
shall provide the other party or parties (the “Indemnitor”)
written notice of any claim or action by a third party for which an Indemnitor
may be liable under the terms of this Agreement, within ten (10) days after
such
claim or action arises and is known to Indemnitee, and (ii) shall give the
Indemnitor a reasonable opportunity to participate in any proceedings and
to
settle or defend any such claim or action. The expenses of all proceedings,
contests or lawsuits with respect to such claims or actions shall be borne
by
the Indemnitor. If the Indemnitor wishes to assume the defense of such claim
or
action, the Indemnitor shall give written notice to the Indemnitee within
ten
(10) days after notice from the Indemnitee of such claim or action, and the
Indemnitor shall thereafter assume the defense of any such claim or liability,
through counsel reasonably satisfactory to the Indemnitee, provided that
Indemnitee may participate in such defense at their own expense, and the
Indemnitor shall, in any event, have the right to control the defense of
the
claim or action. The failure of an Indemnitee to give any notice required
by
this Section shall not affect any of such party’s rights under this Section or
otherwise, except and to the extent that such failure is actually prejudicial
to
the rights or obligations of the Indemnitor.
(b) If
the
Indemnitor shall not assume the defense of, or if after so assuming it shall
fail to defend, any such claim or action, the Indemnitee may defend against
any
such claim or action in such manner as they may deem appropriate and the
Indemnitees may settle such claim or litigation on such terms as they may
deem
appropriate but subject to the Indemnitor's approval, such approval not to
be
unreasonably withheld; provided, however, that any such settlement shall
be
deemed approved by the Indemnitor if the Indemnitor fails to object thereto,
by
written notice to the Indemnitee, within fifteen (15) days after the
Indemnitor's receipt of a written summary of such settlement. The Indemnitor
shall promptly reimburse the Indemnitee for the amount of all expenses, legal
and otherwise, incurred by the Indemnitee in connection with the defense
and
settlement of such claim or action.
(c) If
a
non-appealable judgment is rendered against any Indemnitee in any action
covered
by the indemnification hereunder, or any lien attaches to any of the assets
of
any of the Indemnitee, the Indemnitor shall immediately upon such entry or
attachment pay such judgment in full or discharge such lien unless, at the
expense and direction of the Indemnitor, an appeal is taken under which the
execution of the judgment or satisfaction of the lien is stayed. If and when
a
final judgment is rendered in any such action, the Indemnitor shall forthwith
pay such judgment or discharge such lien before any Indemnitee is compelled
to
do so.
12.3 Waiver.
The
failure of any Indemnitee to give any notice or to take any action hereunder
shall not be deemed a waiver of any of the rights of such Indemnitee hereunder,
except to the extent that Indemnitor is actually prejudiced by such
failure.
19
13. TERMINATION.
13.1 Termination.
This
Agreement may be terminated at any time on or prior to the Closing:
(a) By
mutual
consent of the Buyers and the Company; or
(b) At
the
election of the Buyers if: (i) a Company has breached or failed to perform
or
comply with any of its representations, warranties, covenants or obligations
under this Agreement; or (ii) any of the conditions precedent set forth in
Section
3, 4, 6, 9 or 10
is not
satisfied as and when required by this Agreement; or (iii) the Closing has
not
been consummated by within five (5) business days from the date hereof; or
(c) At
the
election of the Company if: (i) the Buyers have breached or failed to perform
or
comply with any of its representations, warranties, covenants or obligations
under this Agreement; or (ii) any of the conditions precedent set forth in
Section
7, 9, or 11
is not
satisfied as and when required by this Agreement; or (iii) the Closing has
not
been consummated by within five (5) business days from the date
hereof.
13.2 Manner
and Effect of Termination.
Written
notice of any termination (“Termination
Notice”)
pursuant to this Section
14
shall be
given by the party electing termination of this Agreement (“Terminating
Party”)
to the
other party or parties (collectively, the “Terminated
Party”),
and
such notice shall state the reason for termination. The party or parties
receiving Termination Notice shall have a period of ten (10) days after receipt
of Termination Notice to cure the matters giving rise to such termination
to the
reasonable satisfaction of the Terminating Party. If the matters giving rise
to
termination are not cured as required hereby, this Agreement shall be terminated
effective as of the close of business on the tenth (10th) day following the
Terminated Party's receipt of Termination Notice. Upon termination of this
Agreement prior to the consummation of the Closing and in accordance with
the
terms hereof, this Agreement shall become void and of no effect, and none
of the
parties shall have any liability to the others, except that nothing contained
herein shall relieve any party from: (a) its obligations under Sections
3.2 and 3.3;
or (b)
liability for its intentional breach of any representation, warranty or covenant
contained herein, or its intentional failure to comply with the terms and
conditions of this Agreement or to perform its obligations
hereunder.
14. MISCELLANEOUS.
14.1 Notices.
(a) All
notices, requests, demands, or other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given
upon
receipt if delivered in person, or upon the expiration of two (2) days after
the
date sent, if sent by federal express (or similar overnight courier service)
to
the parties at the following addresses:
20
If
to Cornell, to:
|
Cornell
Capital Partners, LP
|
000
Xxxxxx Xxxxxx - Xxxxx 0000
|
|
Xxxxxx
Xxxx, XX 00000
|
|
Attention:
Xxxx Xxxxxx
|
|
Telephone:
(000) 000-0000
|
|
Facsimile:
(000) 000-0000
|
|
With
a copy to:
|
Xxxxx
Xxxxxxxx, Esq.
|
000
Xxxxxx Xxxxxx - Xxxxx 0000
|
|
Xxxxxx
Xxxx, XX 00000
|
|
Telephone:
(000) 000-0000
|
|
Facsimile:
(000) 000-0000
|
|
If
to Xxxxxxxxxx, to:
|
Xxxxxxxxxx
Equity Partners, Ltd.
|
0000
Xxxxxxxxx 000xx
Xxxxxx - Xxxxxxxxx XX
|
|
Xxxxxxxx,
XX 00000
|
|
Attention: Xxxxxx
X. Press
|
|
Portfolio
Manager
|
|
Telephone: (000)
000-0000
|
|
Facsimile:
(000)
000-0000
|
|
With
a copy to:
|
Xxxxx
Xxxxxxxx, Esq.
|
000
Xxxxxx Xxxxxx - Xxxxx 0000
|
|
Xxxxxx
Xxxx, XX 00000
|
|
Telephone:
(000) 000-0000
|
|
Facsimile:
(000) 000-0000
|
|
If
to the Company, to:
|
Ariel
Way, Inc.
|
0000
Xxxxxx Xxxxxxxx Xxxxx, Xxxxx 0000
|
|
Xxxxxx,
XX 00000
|
|
Attention: Xxxx
Xxxxxx - Chief Executive Officer
|
|
Telephone: (000)
000-0000
|
|
Facsimile: (000)
000-0000
|
|
Xxxxxxxxxxx
& Xxxxxxxx Xxxxxxxxx Xxxxxx LLP
|
|
With
a copy to:
|
000
Xxxxx Xxxxxxxx Xxxxxxxxx - Xxxxx 0000
|
Xxxxx,
XX 00000-0000
|
|
Attention: Xxxxxxx
X. Xxxxxx, Esq.
|
|
Telephone: (000)
000-0000
|
|
Facsimile: (000)
000-0000
|
|
Xxxxxx
Xxxx & Xxxxxx, LLP
|
|
0000
Xxxxxx Xxxxxxxx Xxxxx, Xxxxx 0000
|
|
Xxxxxx,
XX 00000
|
|
Attention: Xxx
Xxxxxxxxxx, Esq.
|
|
Telephone: (000)
000-0000
|
|
Facsimile: (000)
000-0000
|
|
21
If
to the
Buyers, to their address and facsimile numbers on Schedule I, with copies
to
each Buyers’ counsel as set forth on Schedule I. Each party shall provide five
(5) days’ prior written notice to the other party of any change in address or
facsimile number.
(b) Notices
may also be given in any other manner permitted by law, effective upon actual
receipt. Any party may change the address to which notices, requests, demands
or
other communications to such party shall be delivered or mailed by giving
notice
thereof to the other parties hereto in the manner provided herein.
14.2 Survival.
The
representations, warranties, agreements and indemnifica-tions of the parties
contained in this Agreement or in any writing delivered pursuant to the
provisions of this Agreement shall survive any investigation heretofore or
hereafter made by the parties and the consummation of the transactions
contemplated herein and shall continue in full force and effect after the
Closing.
14.3 Counterparts;
Interpretation.
This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed an original, and all of which shall constitute one and the same
instrument. This Agreement supersedes all prior discussions and agreements
between the parties with respect to the subject matter hereof, and this
Agreement contains the sole and entire agreement among the parties with respect
to the matters covered hereby. All Schedules hereto shall be deemed a part
of
this Agreement. This Agreement shall not be altered or amended except by
an
instrument in writing signed by or on behalf of all of the parties hereto.
No
ambiguity in any provision hereof shall be construed against a party by reason
of the fact it was drafted by such party or its counsel. For purposes of
this
Agreement: “herein”, “hereby”, “hereunder”, “herewith”, “hereafter” and
“hereinafter” refer to this Agreement in its entirety, and not to any particular
subsection or paragraph. References to “including” means including without
limiting the generality of any description preceding such term. Nothing
expressed or implied in this Agreement is intended, or shall be construed,
to
confer upon or give any person other than the parties hereto any rights or
remedies under or by reason of this Agreement.
14.4 Governing
Law.
This
Agreement shall be governed by and interpreted in accordance with the laws
of
the State of New Jersey without regard to the principles of conflict of laws.
The parties further agree that any action between them shall be heard
exclusively in Xxxxxx County, New Jersey, and expressly consent to the
jurisdiction and venue of the Superior Court of New Jersey, sitting in Xxxxxx
County, New Jersey and the United States District Court of New Jersey, sitting
in Newark, New Jersey, for the adjudication of any civil action asserted
pursuant to this paragraph. Each party hereby irrevocably waives, to the
fullest
extent it may effectively do so, the defense of an inconvenient forum to
the
maintenance of any such action in the forum selected hereby.
22
14.5 Successors
and Assigns; Assignment.
This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective heirs, executors, legal representatives, and
successors; provided, however, that the Company may not assign this Agreement
or
any rights hereunder, in whole or in part.
14.6 Partial
Invalidity and Severability.
All
rights and restrictions contained herein may be exercised and shall be
applicable and binding only to the extent that they do not violate any
applicable laws and are intended to be limited to the extent necessary to
render
this Agreement legal, valid and enforceable. If any terms of this Agreement
not
essential to the commercial purpose of this Agreement shall be held to be
illegal, invalid or unenforceable by a court of competent jurisdiction, it
is
the intention of the parties that the remaining terms hereof shall constitute
their agreement with respect to the subject matter hereof and all such remaining
terms shall remain in full force and effect. To the extent legally permissible,
any illegal, invalid or unenforceable provision of this Agreement shall be
replaced by a valid provision which will implement the commercial purpose
of the
illegal, invalid or unenforceable provision.
14.7 Waiver.
Any
term or condition of this Agreement may be waived at any time by the party
which
is entitled to the benefit thereof, but only if such waiver is evidenced
by a
writing signed by such party. No failure on the part of a party hereto to
exercise, and no delay in exercising, any right, power or remedy created
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or remedy by any such party preclude any other
future exercise thereof or the exercise of any other right, power or remedy.
No
waiver by any party hereto to any breach of or default in any term or condition
of this Agreement shall constitute a waiver of or assent to any succeeding
breach of or default in the same or any other term or condition
hereof.
14.8 Headings.
The
headings as to contents of particular paragraphs of this Agreement are inserted
for convenience only and shall not be construed as a part of this Agreement
or
as a limitation on the scope of any terms or provisions of this
Agreement.
14.9 Expenses.
(a)
Fees
and Expenses.
Each of
the Company and the Buyers shall pay all costs and expenses incurred by such
party in connection with the negotiation, investigation, preparation, execution
and delivery of this Agreement and all related documents to this transaction.
14.10 Finder’s
Fees.
The
Buyers represent to the Company that no broker, agent, finder or other party
has
been retained by it in connection with the transactions contemplated hereby
and
that no other fee or commission have been agreed to by the Buyers to be paid
for
or on account of the transactions contemplated hereby. The Company represents
to
the Buyers that no broker, agent, finder or other party has been retained
by the
Company in connection with the transactions contemplated hereby and that
no
other fee or commission has been agreed by the Company to be paid for or
on
account of the transactions contemplated hereby.
23
14.11 Gender.
Where
the context requires, the use of the singular form herein shall include the
plural, the use of the plural shall include the singular, and the use of
any
gender shall include any and all genders.
14.12 Currency.
All
foreign currency amounts required to be converted to U.S. Dollars for purposes
of this Agreement shall be converted in accordance with GAAP.
14.13 Acceptance
by Fax.
This
Agreement shall be accepted, effective and binding, for all purposes, when
the
parties shall have signed and transmitted to each other, by telecopier or
otherwise, copies of the signature pages hereto.
14.14 Attorneys
Fees.
If any
legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any provision of this Agreement, the
prevailing party shall be entitled to recover reasonable attorneys' fees,
court
costs and all expenses (including, without limitation, all such fees, costs
and
expenses incident to appellate, bankruptcy, post-judgment and alternative
dispute resolution proceedings), incurred in that action or proceeding, in
addition to any other relief to which such party may be entitled.
14.15. NO
JURY TRIAL.
THE
PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY
OF
THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON
OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY DOCUMENT
CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY
PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE
OF
THIS AGREEMENT.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
24
IN
WITNESS WHEREOF,
the
parties have executed this Investment Agreement or caused this Investment
Agreement to be duly executed by their duly authorized officers as of the
day
and year first above written.
COMPANY:
|
||
|
|
|
By: | ||
Name Xxxx
Xxxxxx
|
||
Title: Chief
Executive Officer
|
CORNELL
CAPITAL PARTNERS, LP
|
||
|
|
|
By: |
Yorkville
Advisors, LLC
|
|
Its: |
General
Partner
|
|
By: | ||
Name:
Xxxx X. Xxxxxx
|
||
Its:
President and Portfolio Manager
|
XXXXXXXXXX EQUITY PARTNERS, LTD. | ||
|
|
|
By: |
Yorkville
Advisors, LLC
|
|
Its: |
General
Partner
|
|
By: | ||
Name:
Xxxxxx X. Press
|
||
Its:
Portfolio Manager
|
25
EXHIBIT
A
CERTIFICATE
OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
THE SERIES A PREFERRED SHARES
26
EXHIBIT
B
FORM
OF INVESTOR REGISTRATION RIGHTS AGREEMENT
27
EXHIBIT
C
FORM
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
28
EXHIBIT
4.1
The
undersigned hereby agrees that for a period commencing on February 28, 2006
and
expiring on the later of (a) the date that all amounts owed to the Buyers
or any
successors or assigns, under the Series A Preferred Shares issued to the
Buyers
pursuant to the Investment Agreement between the Company and the Buyers dated
February 28, 2006 have been paid or converted (the “Lock-up
Period”),
he,
she or it will not, directly or indirectly, without the prior written consent
of
the Buyers, issue, offer, agree or offer to sell, sell, grant an option for
the
purchase or sale of, transfer, pledge, assign, hypothecate, distribute or
otherwise encumber or dispose of except pursuant to Rule 144 of the General
Rules and Regulations under the Securities Act of 1933, as amended, any
securities of the Company, including common stock or options, rights, warrants
or other securities underlying, convertible into, exchangeable or exercisable
for or evidencing any right to purchase or subscribe for any common stock
(whether or not beneficially owned by the undersigned), or any beneficial
interest therein (collectively, the “Securities”).
In
order
to enable the aforesaid covenants to be enforced, the undersigned hereby
consents to the placing of legends and/or stop-transfer orders with the transfer
agent of the Company’s securities with respect to any of the Securities
registered in the name of the undersigned or beneficially owned by the
undersigned, and the undersigned hereby confirms the undersigned’s investment in
the Company.
Dated:
_______________, 2006
Signature
|
|||
Name:
|
|||
Address:
|
|||
City, State, Zip Code: | |||
Print
Social Security Number
or
Taxpayer I.D. Number
|
29