SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
November __, 2002, among Thinkpath Inc., a corporation organized and existing
under the corporate law of the Province of Ontario, Canada (the "Company"), and
the purchasers identified on the signature pages hereto (each a "Purchaser" and
collectively the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to the provisions of Regulation S ("Regulation S") and
the other rules and regulations promulgated under the United States Securities
Act of 1933 (the "Securities Act"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments in securities to be made hereunder, the Company
desires to issue and sell to the Purchasers, and the Purchasers, severally and
not jointly, desire to purchase from the Company, securities of the Company as
more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debenture (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act. With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser
will be deemed to be an Affiliate of such Purchaser.
"Capital Shares" shall mean the Common Stock and any shares of
any other class of common stock whether now or hereafter authorized,
having the right to participate in the distribution of earnings and
assets of the Company.
"Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for or
give any right to subscribe for any Capital Shares of the Company or
any warrants, options or other rights to subscribe for or purchase
Capital Shares or any such convertible or exchangeable securities.
"Closing(s)" means the closings of the purchase and sale of
the Debentures and Warrants.
"Closing Date" means the dates of the applicable Closing.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, no par
value per share, and any securities into which such common stock shall
hereinafter be reclassified into.
"Company Counsel" means outside counsel to the Company.
"Debentures" means the 12% Senior Secured Convertible
Debentures due 12 months from their date of issuance, except as
otherwise set forth therein, issued by the Company to the Purchasers
hereunder, in the form of Exhibit A.
"Disclosure Schedules" shall have the meaning ascribed to such
term in Section 3.1.
"Effective Date" means the date that the Registration
Statement is first declared effective by the Commission.
"Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
"Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit F hereto executed and delivered
contemporaneously with this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Intraday Trading Price" means, for any date, the actual
trading prices for such date determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted
on a Principal Market, the trading prices for such date (or the nearest
preceding date) on the primary Principal Market on which the Common
Stock is then listed or quoted as reported by Bloomberg Financial L.P.
(based on a trading day from 9:30 a.m. ET to 4:02 p.m. Eastern Time);
(b) if the Common Stock is not then listed or quoted on a Principal
Market and if prices for the Common Stock are then quoted on the OTC
Bulletin Board, the trading prices of the Common Stock for such date
(or the nearest preceding date) on the OTC Bulletin Board as reported
by Bloomberg Financial L.P. (based on a trading day from 9:30 a.m. ET
to 4:02 p.m. Eastern Time); (c) if the Common Stock is not then listed
or quoted on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the "pink sheets" published by the National
Quotation Bureau Incorporated (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent
trading price of the Common Stock so reported; or (d) in all other
cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by a majority in
interest of the Purchasers.
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"Liens" shall have the meaning ascribed to such term in
Section 3.1(a).
"Losses" means any and all losses, claims, damages,
liabilities, settlement costs and expenses, including without
limitation costs of preparation and reasonable attorneys' fees.
"Material Adverse Effect" shall have the meaning assigned to
such term in Section 3.1(b).
"Person" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"Pledge and Security Agreement" means the Pledge and Security
Agreement, dated the date hereof, of the Company in favor of the
Purchasers, in the form of Exhibit F.
"Principal Market" shall initially mean the NASDAQ Small-Cap
Market and shall also include the American Stock Exchange, the New York
Stock Exchange or the NASDAQ National Market, whichever is at the time
the principal trading exchange or market for the Common Stock, based
upon share volume.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Purchaser Counsel" means Xxxxxxx Xxxxxxxxx LLP with offices
at 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000-0000.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers,
in the form of Exhibit B.
"Required Approvals" shall have the meaning ascribed to such
term in Section 3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"SEC Reports" shall have the meaning set forth in Section
3.1(h).
"Securities" means the Debentures, the Warrants and the
Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended.
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"Security Agreement(s)" means the Security and Guarantee
Agreements, dated the date hereof, executed by each Subsidiary of the
Company in favor of the Purchasers, in the form of Exhibit G.
"Subsidiary" means any subsidiary of the Company that is
required to be listed in Schedule 3.1(a).
"Trading Day" shall mean any day during which the Principal
Market shall be open for business.
"Transaction Documents" means this Agreement, the Debentures,
the Warrants, the Transfer Agent Instructions, the Escrow Agreement,
the Registration Rights Agreement, the Pledge and Security Agreement,
the Security Agreement(s), the Lock-Up Agreement, the Subordination
Agreement, the Transaction Fee Agreement and any other documents or
agreements executed in connection with the transactions contemplated
hereunder.
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of the Debentures and upon exercise of the Warrants.
"Underlying Shares Registration Statement" or "Registration
Statement" means a registration statement meeting the requirements set
forth in the Registration Rights Agreement and covering the resale of
the Underlying Shares by the Purchasers.
"Warrants" means collectively the Common Stock purchase
warrants, in the form of Exhibit C delivered to the Purchasers at the
Closing(s) in accordance with Section 2.2.
ARTICLE II
PURCHASE AND SALE
2.1 Investment.
(a) Upon the terms and subject to the conditions set forth
herein, the Company agrees to sell, and the Purchasers agree to
purchase, severally and not jointly, the Debentures together with the
Warrants at the purchase price of up to $3,000,000.00 ("Purchase
Price") as follows:
(i) First Closing. Within four (4) Trading Days of
the date hereof, the Purchasers shall purchase, severally and
not jointly, in the aggregate, up to $800,000 principal amount
of Debentures, together with the Warrants. On the first
Closing Date, each Purchaser shall deliver to the Escrow Agent
via wire transfer or a certified check immediately available
funds their amount of the Purchase Price as set forth on the
signature pages hereto and labeled as the subscription amount,
and the Company shall deliver to the Escrow Agent the
Debentures evidencing said principal amount and the Warrants
issuable at the Closing.
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(ii) Subsequent Closings. Within four (4) Trading
Days of written notice to the Company from Bristol (as
hereinafter defined) of its intent to purchase additional
Debentures and Warrants pursuant to Section 4.15 hereof,
Bristol shall purchase, and the Company shall sell such
principal amount of Debentures and Warrants as it determines.
Bristol shall deliver to the Escrow Agent immediately
available funds in the amount of the Purchase Price, and the
Company shall deliver the Debentures and Warrants evidencing
said principal sum to the Escrow Agent, to be held and
distributed by the Escrow Agent pursuant to the Escrow
Agreement.
(iii) Each Closing. Upon satisfaction of the
conditions set forth in Section 2.2, each Closing shall occur
at the offices of the Escrow Agent, or such other location as
the parties shall mutually agree.
2.2 Conditions to Closing. Each Closing is subject to the satisfaction
or waiver by the party to be benefited thereby of the following conditions:
(a) At each Closing, the Company shall have delivered or
caused to be delivered to the Escrow Agent on behalf of each Purchaser
the following:
(i) This Agreement duly executed by the Company (as
to the first Closing only).
(ii) a certificate evidencing the principal amount of
Debentures equal to the subscription amount as to the
applicable Closing indicated below such Purchaser's name on
the signature page of this Agreement, registered in the name
of such Purchaser;
(iii) a Warrant, registered in the name of such
Purchaser, pursuant to which such Purchaser shall have the
right to acquire up to a number of shares of Common Stock
equal to 100% of the principal amount of Debentures to be
purchased at the Closing, as indicated below such Purchaser's
name on the signature page of this Agreement divided by the
Conversion Price (as defined in the Debentures) in effect
immediately prior to the Closing Date. The Warrant shall have
a term of exercise of 7 years and an exercise price equal to
100% of the Conversion Price on the Trading Day immediately
prior to the Closing Date;
(iv) a legal opinion of Company Counsel, in the form
of Exhibit D attached hereto, addressed to the Purchasers;
(v) the Registration Rights Agreement duly executed
by the Company (as to the first Closing only);
(vi) the Escrow Agreement duly executed by the
Company (as to the first Closing only);
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(vii) the Pledge and Security Agreement and General
Security Agreement each duly executed by the Company (as to
the first Closing only);
(viii) the Security Agreement duly executed by each
Subsidiary of the Company (as to the first Closing only);
(vii) the Transfer Agent Instructions executed by the
Company and delivered to and acknowledged by the Company's
transfer agent in the form annexed hereto as Exhibit E;
(viii) the Lock-Up Agreements duly executed by the
Company and each officer and director;
(ix) the Subordination Agreement duly executed by the
Company and each of Xxxxx Xxxxx and Xxxxxx Xxxxx; and
(x) the Transaction Fee Agreement duly executed by
the Company and a warrant or warrants registered in the name
of the Broker (as defined in the Transaction Fee Agreement) or
as otherwise designated by Bristol to purchase up to 10% of
the number of shares purchasable under the Warrants registered
to the Purchasers, with the same terms and conditions as the
Warrants registered to the Purchasers.
(b) At each Closing, each Purchaser shall have delivered or
caused to be delivered to the Escrow Agent the following:
(i) this Agreement duly executed by such Purchaser
(as to the first Closing);
(ii) the subscription amount indicated below such
Purchaser's name on the signature page of this Agreement, in
United States dollars and in immediately available funds, by
wire transfer to the account of the Escrow Agent;
(iii) a Registration Rights Agreement duly executed
by such Purchaser (as to the first Closing only); and
(iv) an Escrow Agreement duly executed by such
Purchaser (as to the first Closing);
(c) All representations and warranties of the other party
contained herein shall remain true and correct as of each Closing Date;
(d) There shall have been no Material Adverse Effect (as
defined in Section 3.1(b)) with respect to the Company since the date
hereof;
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(e) Trading in the Common Stock shall not have been suspended
by the Commission (except for any suspension of trading of limited
duration agreed to by the Company, which suspension shall be terminated
prior to the applicable Closing), and, at any time prior to each
Closing Date, trading in securities generally as reported by Bloomberg
Financial Markets shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades are
reported by such service, or on the Principal Market, nor shall a
banking moratorium have been declared either by the United States or
New York State authorities, nor shall there have occurred any material
outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case,
in the reasonable judgment of the Purchasers, makes it impracticable or
inadvisable to purchase the Debentures; and
(f) All necessary UCC-1 financing statements and Personal
Property Security Act filings necessary to perfect the security
interests granted pursuant to the Security Agreement and the Pledge and
Security Agreement shall have been filed in appropriate jurisdictions
against the Company and its Subsidiaries.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the disclosure schedules attached hereto (the
"Disclosure Schedules"), the Company hereby makes the following representations
and warranties to the Purchasers:
(a) Subsidiaries. The Company has no direct or indirect
subsidiaries. The Company owns, directly or indirectly, all of the
capital stock of each Subsidiary free and clear of any lien, charge,
security interest, encumbrance, right of first refusal or other
restriction (collectively, "Liens"), and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are
fully paid, non-assessable and free of preemptive and similar rights.
Schedule 3.1(a) lists each Subsidiary by name, place of organization,
and indicates the entity or entities which own the capital stock of
such Subsidiary. The Company hereby represents and warrants that its
four Subsidiaries listed on Schedule 3.1(a) are its only active
subsidiaries. The Company hereby agrees that it will not have any
additional active subsidiaries other than those listed as such on
Schedule 3.1(a) without the prior written consent of a majority in
interest of the Purchasers.
(b) Organization and Qualification. Each of the Company and
the Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary is in violation of any of the provisions of
its respective certificate or articles or memorandum of incorporation,
bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to do business and is in
good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate: (i) adversely affect the
legality, validity or enforceability of any Transaction Document, (ii)
have or result in a material adverse effect on the results of
operations, assets, prospects, business or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or
(iii) adversely impair the Company's ability to perform fully on a
timely basis its obligations under any of the Transaction Documents
(any of (i), (ii) or (iii), a "Material Adverse Effect"). More than 50%
of the Company's Common Stock is held of record by persons who are not
residents of the United States, a majority of the Company's directors
and executive officers are not United States citizens or residents and
more than 50% of the Company's assets are located in Canada or another
non-United States jurisdiction and the business of the Company is
administered primarily from Xxxxxxx, Xxxxxxx.
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(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been
duly authorized by all necessary action on the part of the Company and
no further action is required by the Company. Each of the Transaction
Documents has been (or upon delivery will be) duly executed by the
Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally and general principles of equity. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, by-laws or other
organizational or charter documents.
(d) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated thereby do not and will not:
(i) conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) subject to obtaining the
Required Approvals (as defined below), conflict with, or constitute a
default (or an event that 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 (with or without notice, lapse
of time or both) of, any agreement, credit facility, preferred stock,
debt or other instrument (evidencing a Company or Subsidiary debt or
otherwise) or other understanding to which the Company or any
Subsidiary is a party or by which any property or asset of the Company
or any Subsidiary is bound or affected, or (iii) result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset of
the Company or a Subsidiary is bound or affected; except in the case of
each of clauses (ii) and (iii), such as could not, individually or in
the aggregate, have or result in a Material Adverse Effect.
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(e) Filings, Consents and Approvals. Neither the Company nor
any Subsidiary is required to obtain any consent, waiver, authorization
or order of, give any notice to, or make any filing or registration
with, any court or other federal, state, local or other governmental
authority or other Person in connection with the execution, delivery
and performance by the Company of the Transaction Documents, other than
(i) the filings required under Section 4.9, (ii) the filing with the
Commission of the Underlying Shares Registration Statement (if
required) and (iii) the application(s) to each applicable Principal
Market for the listing of the Underlying Shares for trading thereon in
the time and manner required thereby (collectively, the "Required
Approvals").
(f) Issuance of the Securities. The Securities are duly
authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens. The Company
has reserved from its duly authorized capital stock a number of shares
of Common Stock for issuance of the all of the Underlying Shares.
(g) Acknowledgment of Dilution. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon
the issuance of the Underlying Shares. The Company further acknowledges
that its obligation to issue the Underlying Shares upon conversion of
the Debentures or exercise of the Warrants in accordance with this
Agreement, the Debentures and the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may
have on the ownership interests of other stockholders of the Company.
(h) Capitalization. The number of shares and type of all
authorized, issued and outstanding capital stock and Capital Share
Equivalents of the Company, together with the holders of all non-freely
trading securities, is set forth in the Disclosure Schedules attached
hereto. No securities of the Company are entitled to preemptive or
similar rights, and no Person has any right of first refusal,
preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction
Documents. Except as a result of the purchase and sale of the
Securities, there are no outstanding options, warrants, script rights
to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or
acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary
is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common
Stock. The issuance and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any
Person (other than the Purchasers) and will not result in a right of
any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities.
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(i) SEC Reports; Financial Statements. The Company has filed
all reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing
materials being collectively referred to herein as the "SEC Reports")
on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the expiration of
any such extension. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of
the Commission promulgated thereunder, and none of the SEC Reports,
when filed, 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 light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules
and regulations of the Commission with respect thereto as in effect at
the time of filing. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved ("GAAP"), except as may be
otherwise specified in such financial statements or the notes thereto,
and fairly present in all material respects the financial position of
the Company and its consolidated subsidiaries as of and for the dates
thereof and the results of operations and cash flows for the periods
then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
(j) Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports: (i) there has been no event,
occurrence or development that has had or that could result in a
Material Adverse Effect (except as disclosed on Schedule 3.1(j)) (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 required to be disclosed in filings made
with the Commission, (iii) the Company has not altered its method of
accounting or the identity of its auditors, (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 or similar
plans.
(k) Indebtedness. The Commission Documents or Schedule 3.1(k)
hereto set forth as of the date hereof all outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary, or for which
the Company or any Subsidiary has commitments. For the purposes of this
Agreement, "Indebtedness" shall mean (a) any liabilities for borrowed
money or amounts owed in excess of $25,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all
guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;
and (c) the present value of any lease payments in excess of $25,000
due under leases required to be capitalized in accordance with GAAP.
Except as disclosed on Schedule 3.1(k), neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.
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(l) Litigation. Except as disclosed in the SEC Reports or on
Schedule 3.1(j) hereto, there is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an
"Action") which: (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, if there were an unfavorable decision,
individually or in the aggregate, have or result in a Material Adverse
Effect. Neither the Company nor any Subsidiary, nor any director or
officer thereof, is or has been the subject of any Action involving a
claim of violation of or liability under federal or state securities
laws or a claim of breach of fiduciary duty. The Company does not have
pending before the Commission any request for confidential treatment of
information. There has not been, and to the knowledge of the Company,
there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or
officer of the Company. The Commission has not issued any stop order or
other order suspending the effectiveness of any registration statement
filed by the Company or any Subsidiary under the Exchange Act or the
Securities Act.
(m) Compliance. Neither the Company nor any Subsidiary: (i) is
in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has
the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or
credit agreement, certificate of designations, or any other agreement
or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute,
rule or regulation of any governmental authority, except in each case
as could not, individually or in the aggregate, have or result in a
Material Adverse Effect.
(n) Labor Relations. No material labor problem exists or, to
the knowledge of the Company, is imminent with respect to any of the
employees of the Company.
(o) Regulatory Permits. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in the
SEC Reports, except where the failure to possess such permits could
not, individually or in the aggregate, have or result in a Material
Adverse Effect ("Material Permits"), and neither the Company nor any
Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
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(p) Title to Assets. The Company and the Subsidiaries have
good and marketable title in fee simple to all real property owned by
them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property
owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for
Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries. Any real property and
facilities held under lease by the Company and the Subsidiaries are
held by them under valid, subsisting and enforceable leases of which
the Company and the Subsidiaries are in compliance.
(q) Patents and Trademarks. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights that are necessary or
material for use in connection with their respective businesses as
described in the SEC Reports and which the failure to so have could
have a Material Adverse Effect (collectively, the "Intellectual
Property Rights"). Neither the Company nor any Subsidiary has received
a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any
Person. To the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights.
(r) Tax Status. The Company and each of its Subsidiaries has
made or filed all federal, state and foreign income and all other tax
returns, reports and declarations required by any jurisdiction to which
it is subject (unless and only to the extent that the Company and each
of its Subsidiaries has set aside on its books provisions reasonably
adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith
and has set aside on its books provisions 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. The Company has not executed a waiver with respect to the
statute of limitations relating to the assessment or collection of any
foreign, federal, statue or local tax. None of the Company's tax
returns is presently being audited by any taxing authority.
(s) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which the Company and the Subsidiaries are engaged.
Neither the Company nor any 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 without a
significant increase in cost. Schedule 3.1(s) contains a list of all
policies currently in effect, together with complete copies of all such
policies and any endorsements.
-12-
(t) Transactions With Affiliates and Employees. Except as
disclosed in the SEC Reports or as set forth in Schedule 3.1(t), none
of the officers or directors of the Company and, to the knowledge of
the Company, none of the employees of the Company is presently a party
to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services
to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any entity in which
any officer, director, or any such employee has a substantial interest
or is an officer, director, trustee or partner. None of the proceeds
from the sale of the Securities will be used to make any loan to any
Affiliate or to repay any loan from any Affiliate.
(u) Internal Accounting Controls. The Company and the
Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(v) Solvency. Based on the financial condition of the Company
as of each Closing Date: (i) the Company's fair saleable value of its
assets exceeds the amount that will be required to be paid on or in
respect of the Company's existing debts and other liabilities
(including known contingent liabilities) as they mature; (ii) the
Company's assets do not constitute unreasonably small capital to carry
on its business for the current fiscal year as now conducted and as
proposed to be conducted including its capital needs taking into
account the particular capital requirements of the business conducted
by the Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated
uses of the cash, would be sufficient to pay all amounts on or in
respect of its debt when such amounts are required to be paid. The
Company does not intend to incur debts beyond its ability to pay such
debts as they mature (taking into account the timing and amounts of
cash to be payable on or in respect of its debt). The Company has no
knowledge of any facts and circumstances which lead it to believe that
it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the first
Closing Date.
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(w) Certain Fees. No brokerage or finder's fees or commissions
are or will be payable by the Company to any broker, financial advisor
or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by this
Agreement, and the Company has not taken any action that would cause
any Purchaser to be liable for any such fees or commissions. The
Company agrees that the Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf
of any Person for fees of the type contemplated by this Section with
the transactions contemplated by this Agreement.
(x) Private Placement. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections
3.2(b)-(f), the offer, issuance and sale of the Securities to the
Purchasers as contemplated hereby are exempt from the registration
requirements of the Securities Act. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of
the Principal Market and no shareholder approval is required for the
Company to fulfill its obligations under the Transaction Documents.
(y) Listing and Maintenance Requirements. Except as disclosed
on Schedule 3.1(y), the Company has not, in the 12 months preceding the
date hereof, received notice from any Principal Market on which the
Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance
requirements of such Principal Market. The Company is, and has no
reason to believe that it will not in the foreseeable future continue
to be, in compliance with all such listing and maintenance
requirements.
(z) Registration Rights. Except as disclosed on Schedule
3.1(z), the Company has not granted or agreed to grant to any Person
any rights (including "piggy-back" registration rights) to have any
securities of the Company registered with the Commission or any other
governmental authority that have not been satisfied.
(aa) Application of Takeover Protections. 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 Company's
Certificate of Incorporation (or similar charter documents) or the laws
of its state of incorporation that is or could become applicable to the
Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction
Documents, including without limitation as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the
Securities.
(bb) Disclosure. The Company confirms that neither it nor any
other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that constitutes or might
constitute material, nonpublic information. The Company understands and
confirms that the Purchasers will rely on the foregoing representations
in effecting transactions in securities of the Company. All disclosure
provided to the Purchasers regarding the Company, its business and the
transactions contemplated hereby, including the Schedules to this
Agreement, furnished by or on behalf of the Company with respect to the
representations and warranties made herein are true and correct with
respect to such representations and warranties and do not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section
3.2.
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(cc) Acknowledgment Regarding Purchasers' Purchase of
Securities. The Company acknowledges and agrees that the Purchasers are
acting solely in the capacity of arm's length purchasers with respect
to this Agreement and the transactions contemplated hereby. The Company
further acknowledges that no Purchaser is acting as a financial advisor
or fiduciary of the Company (or in any similar capacity) with respect
to this Agreement and the transactions contemplated hereby and any
statement made by any Purchaser or any of their respective
representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and
is merely incidental to the Purchasers' purchase of the Securities. The
Company further represents to each Purchaser that the Company's
decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.
(dd) Seniority. As of the date of this Agreement, no
indebtedness of the Company is senior to the Debentures in right of
payment, whether with respect to interest or upon liquidation or
dissolution, or otherwise, other than indebtedness secured by purchase
money security interests (which is senior only as to underlying assets
covered thereby) and capital lease obligations (which is senior only as
to the property covered thereby).
(ee) No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor, to the knowledge of the Company,
any of its directors or officers (i) has conducted or will conduct any
general solicitation (as that term is used in Rule 502(c) of Regulation
D) or general advertising with respect to the sale of the Debentures or
the Warrants, or (ii) made any offers or sales of any security or
solicited any offers to buy any security under any circumstances that
would require registration of the Debentures, the Underlying Shares or
the Warrants under the Securities Act or made any "directed selling
efforts" as defined in Rule 902 of Regulation S.
(ff) Use of Proceeds. The proceeds from the sale of the
Debentures and the Warrants will be used by the Company for working
capital purposes and shall not be used to repay any outstanding
Indebtedness or any loans to officer, director, affiliate or insider of
the Company.
(gg) Bankruptcy. The Company has no knowledge of or reason to
believe that it will file for bankruptcy within one year of the Initial
Closing Date.
-15-
(hh) Management and Employee Information. At the Closing, the
Company shall provide to the Purchasers contact information including
the phone number, fax number, address and e-mail address for the
following people: (i) all executives at the Company including but not
limited to the Chief Executive Officer, Chief Financial Officer and
in-house counsel, if any; (ii) corporate counsel, securities counsel
(if different from corporate counsel), accountants for the Company and
transfer agent for the Company; and (iii) all employees of the Company.
The Company shall further provide a organizational chart of employees
to the Purchasers.
(ii) No Disagreements with Accountants and Lawyers. There are
no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the accountants and
lawyers formerly or presently employed by the Company.
(jj) Breach of Representations and Warranties by the Company.
If the Company breaches any of the representations or warranties set
forth in this Section 3.1, and in addition to any other remedies
available to the Purchasers pursuant to this Agreement, the Company
shall pay to the Purchasers liquidated damages of three percent (3%) of
the outstanding amount of the Debentures per month plus accrued and
unpaid interest on the Debentures, prorated for partial months, in cash
or shares at the option of the Purchasers ("Standard Liquidated Damages
Amount"), until such breach is cured. If the Purchasers elect to be
paid the Standard Liquidated Damages Amount in shares of Common Stock,
such shares shall be issued at the Conversion Price at the time of
payment.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants to the
Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations thereunder. The purchase by such Purchaser of
the Securities hereunder has been duly authorized by all necessary
action on the part of such Purchaser. Each of this Agreement, and the
Registration Rights Agreement has been duly executed by such Purchaser,
and when delivered by such Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding obligation of
such Purchaser, enforceable against it in accordance with its terms.
Such Purchaser is organized under the laws of the jurisdiction listed
on the signature page hereto and does not maintain any place of
business in the United States.
(b) Investment Intent. Such Purchaser is acquiring the
Securities as principal for its own account for investment purposes
only and not with a view to or for distributing or reselling such
Securities or any part thereof, without prejudice, however, to such
Purchaser's right, subject to the provisions of this Agreement, at all
times to sell or otherwise dispose of all or any part of such
Securities pursuant to an effective registration statement under the
Securities Act or under an exemption from such registration and in
compliance with applicable federal and state securities laws,
including, without limitation, Regulation S. Nothing contained herein
shall be deemed a representation or warranty by such Purchaser to hold
Securities for any period of time. Such Purchaser is acquiring the
Securities hereunder in the ordinary course of its business. Such
Purchaser does not have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Securities.
-16-
(c) Purchaser Status. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is, and on each date
on which it exercises any Warrants or converts any Debentures, it will
be an "accredited investor" as defined in Rule 501(a) under the
Securities Act. Such Purchaser has not been formed solely for the
purpose of acquiring the Securities. Such Purchaser is a non-United
States Person (as defined in Regulation S) and, if a partnership or
corporation, either has no United States Person as beneficial owners or
was not formed principally for the purpose of investing in securities
not registered under the Securities Act; or all beneficial owners are
partnerships or corporations which are accredited investors. Such
Purchaser is not a broker-dealer requiring registration under Section
15 of the Exchange Act.
(d) Experience of such Purchaser. Such Purchaser, either alone
or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks
of such investment. Such Purchaser is able to bear the economic risk of
an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e) Access to Information. Such Purchaser has been afforded:
(i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the Securities
and the merits and risks of investing in the Securities; (ii) access to
information about the Company and the Subsidiaries and their respective
financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional
information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed
investment decision with respect to the investment. Neither such
inquiries nor any other investigation conducted by or on behalf of such
Purchaser or its representatives or counsel shall modify, amend or
affect such Purchaser's right to rely on the truth, accuracy and
completeness of the Company's representations and warranties contained
in the Transaction Documents.
(f) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement. At no time was any Purchaser presented with or solicited
by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising,
or any solicitation in the United States.
-17-
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement,
to the Company, to an Affiliate of a Purchaser, to an entity managed by
a Purchaser or in connection with a pledge as contemplated in Section
4.1(b), or on or after the 41st calendar day after the applicable
Closing Date but in no event later than the 45th day after the
applicable Closing Date, the Company may require the transferor thereof
to provide to the Company an opinion of counsel selected by the
transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Securities under the
Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall
have the rights of a Purchaser under this Agreement and the
Registration Rights Agreement. For clarity, no such opinion shall be
required for any sale or transfer of any (i) Debenture, (ii) Warrant,
(iii) conversion of any Debenture or exercise of any Warrant or (iv)
sale or transfer of any Underlying Shares, after the 41st calendar day
after issuance of the applicable Debenture or Warrant.
(b) Legends. Each certificate representing the Debentures or
Warrants, or, if the Debentures are converted before 41 days after the
applicable Closing or the Warrants are exercised before 41 days after
the Closing, the Underlying Shares, shall not contain any restrictive
legend, except that each such certificate will have a legend or stapled
attachment bearing the following legend or equivalent:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT PROVIDED BY REGULATION
S THEREUNDER AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED, OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION
THAT IS EXEMPT FROM SUCH REGISTRATION.
-18-
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement or grant a
security interest in some or all of the Securities and, if required
under the terms of such arrangement, such Purchaser may transfer
pledged or secured Securities to the pledgees or secured parties. Such
a pledge or transfer would not be subject to approval of the Company
and no legal opinion of the pledgee, secured party or pledgor shall be
required in connection therewith. Further, no notice shall be required
of such pledge. At the appropriate Purchaser's expense, the Company
will execute and deliver such reasonable documentation as a pledgee or
secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including the preparation and
filing of any required prospectus supplement under Rule 424(b)(3) of
the Securities Act or other applicable provision of the Securities Act
to appropriately amend the list of Selling Stockholders thereunder.
(c) Certificates evidencing Underlying Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)):
(i) while a registration statement (including the Underlying Shares
Registration Statement) covering the resale of such Underlying
Securities is effective under the Securities Act, or (ii) following any
sale of such Underlying Securities pursuant to Rule 144, or (iii) if
such Securities are eligible for sale under Rule 144(k), or (iv) if
such legend is not required under applicable requirements of the
Securities Act (including Regulation S, judicial interpretations and
pronouncements issued by the Staff of the Commission). In the event
that any certificate does not bear the legend set forth in Section
4.1(b), and, to the knowledge of the holder, none of the
above-referenced conditions exist, then the holder shall submit the
certificate to the Company for application of such legend to the
certificate. The Company shall cause its counsel to issue the legal
opinion included in the Transfer Agent Instructions to the Company's
transfer agent on the Effective Date. If all or any portion of a
Debenture or Warrant is converted or exercised (as applicable) at a
time when there is an effective registration statement to cover the
resale of the Underlying Shares, or if such Underlying Shares may be
sold under Rule 144(k) or if such legend is not otherwise required
under applicable requirements of the Securities Act (including judicial
interpretations thereof) then such Underlying Shares shall be issued
free of all legends. The Company agrees that following the Effective
Date or at such time as such legend is no longer required under this
Section 4.1(c), it will, no later than three Trading Days following the
delivery by a Purchaser to the Company or the Company's transfer agent
of a certificate representing Securities issued with a restrictive
legend, deliver or cause to be delivered to such Purchaser a
certificate representing such Underlying Shares that is free from all
restrictive and other legends. The Company may not make any notation on
its records or give instructions to any transfer agent of the Company
that enlarge the restrictions on transfer set forth in this Section.
(d) In addition to such Purchaser's other available remedies,
the Company shall pay to a Purchaser, in cash, as liquidated damages
and not as a penalty, $2,500 for each day after such third Trading Day
until such certificate is delivered.
4.3 Furnishing of Information. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. Upon the request of any Purchaser, the Company shall deliver to
such Purchaser a written certification of a duly authorized officer as to
whether it has complied with the preceding sentence. As long as any Purchaser
owns Securities, if the Company is not required to file reports pursuant to such
laws, it will prepare and furnish to the Purchasers and make publicly available
in accordance with Rule 144(c) such information as is required for the
Purchasers to sell the Securities under Rule 144.
-19-
4.4 Integration. The Company shall not, and shall use its best efforts
to ensure that no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers, or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Principal Market.
4.5 Reservation and Listing of Securities.
(a) At the Closing Date, the Company currently has enough
authorized shares of Common Stock to reserve ____% of the number of
shares required to fulfill the Company's obligations under the
Transaction Documents. The Company shall increase its authorized shares
within 60 days following the Closing Date by a sufficient amount to
enable the Company to reserve 200% of the number of shares required to
fulfill the Company's obligations under the Transaction Documents (the
"Reserved Amount"). In order to ensure that the Company has authorized
a sufficient amount of shares to meet the Reserved Amount at all times,
the Company must deliver to the Purchaser at the end of every month a
list detailing (1) the current amount of shares authorized by the
Company and reserved for the Purchaser; and (2) amount of shares
issuable upon conversion of the Debentures and upon exercise of the
Warrants and as payment of interest accrued on the Debentures for one
year. If the Company fails to provide such list within five (5)
business days of the end of each month, the Company shall pay the
Standard Liquidated Damages Amount, in cash or in shares of Common
Stock at the option of the Purchaser, until the list is delivered. If
the Purchaser elects to be paid the Standard Liquidated Damages Amount
in shares of Common Stock, such shares shall be issued at the
Conversion Price at the time of payment.
(b) The Company shall: (i) in the time and manner required by
each Principal Market, prepare and file with such Principal Market an
additional shares listing application covering the Underlying Shares,
(ii) take all steps necessary to cause such shares of Common Stock to
be approved for listing on each Principal Market as soon as possible
thereafter, (iii) provide to the Purchasers evidence of such listing,
and (iv) maintain the listing of such Common Stock on each such
Principal Market or another Principal Market.
(c) The Company shall not effectuate a reverse split of the
Common Stock without the prior written consent of the Purchasers. If
the Company breaches this Section 4.5(c), the Company shall be deemed
to be in default under the Debentures.
-20-
4.6 Conversion and Exercise Procedures. The form of Election to
Purchase included in the Warrants and the forms of Conversion Notice included in
the Debentures set forth the totality of the procedures required in order to
exercise the Warrants or convert the Debentures. No additional legal opinion or
other information or instructions shall be necessary to enable the Purchasers to
exercise their Warrants or convert their Debentures. The Company shall honor
exercises of the Warrants and conversions of the Debentures and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
4.7 Issuance of Shares and Warrant Shares. The sale of the Debentures
and the Warrants and the issuance of the Underlying Shares pursuant to
conversion of the Convertible Debentures or exercise of the Warrants shall be
made in accordance with the provisions and requirements of Regulation S and any
applicable state securities law. The Company shall make any necessary SEC and
"blue sky" filings required to be made by the Company in connection with the
sale of the Debentures and Warrants to the Purchasers as required by all
applicable laws, and shall provide a copy thereof to the Purchasers promptly
after such filing.
4.8 Securities Laws Disclosure; Publicity. The Company shall, within
one business day after each Closing Date, issue a press release or file a
Current Report on Form 8-K reasonably acceptable to the Purchasers disclosing
all material terms of the transactions contemplated hereby. The Company and the
Purchasers shall consult with each other in issuing any press releases with
respect to the transactions contemplated hereby. Notwithstanding the foregoing,
other than in any registration statement filed pursuant to the Registration
Rights Agreement and filings related thereto and as required by the rules and
regulations of the Commission, the Company shall not publicly disclose the name
of any Purchaser, or include the name of any Purchaser in any filing with the
Commission or any regulatory agency or Principal Market, without the prior
written consent of such Purchaser, except to the extent such disclosure is
required by law or Principal Market regulations, in which case the Company shall
provide the Purchasers with prior notice of such disclosure.
4.9 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.
4.10 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and, except for
the amounts owed to Xxxxxx Xxxxxx, not for the satisfaction of any portion of
the Company's debt (other than payment of trade payables, capital lease
obligations, and accrued expenses in the ordinary course of the Company's
business and prior practices), to redeem any Company equity or equity-equivalent
securities or to settle any outstanding litigation. The Company shall sign
Schedule 4.10 to this Agreement as certification of the use of proceeds set
forth in this Section 4.10.
-21-
4.11 Reimbursement. If any Purchaser becomes involved in any capacity
in any Proceeding by or against any Person who is a stockholder of the Company,
solely as a result of such Purchaser's acquisition of the Securities under this
Agreement and without causation by any other activity, obligation, condition or
liability pertaining to such Purchaser and not to the transactions contemplated
by this Agreement, the Company will reimburse such Purchaser for its reasonable
legal and other expenses (including the cost of any investigation preparation
and travel in connection therewith) incurred in connection therewith, as such
expenses are incurred. The reimbursement obligations of the Company under this
paragraph shall be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any Affiliates of the
Purchasers who are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and controlling persons (if any), as
the case may be, of the Purchasers and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.
4.12 Indemnification of Purchasers. The Company will indemnify and hold
the Purchasers and their directors, officers, shareholders, partners, employees
and agents (each, a "Purchaser Party") harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys' fees and costs of investigation that any such Purchaser Party may
suffer or incur as a result of or relating to: (a) any misrepresentation, breach
or inaccuracy, or any allegation by a third party that, if true, would
constitute a breach or inaccuracy, of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents; or (b) any cause of action, suit or claim brought or made
against such Purchaser Party and arising solely out of or solely resulting from
the execution, delivery, performance or enforcement of this Agreement or any of
the other Transaction Documents and without causation by any other activity,
obligation, condition or liability pertaining to such Purchaser and not to the
transactions contemplated by this Agreement. The Company will reimburse such
Purchaser for its reasonable legal and other expenses (including the cost of any
investigation, preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred.
4.13 Shareholders Rights Plan. In the event that a shareholders rights
plan is adopted by the Company, no claim will be made or enforced by the Company
or any other Person that any Purchaser is an "Acquiring Person" under the plan
or in any way could be deemed to trigger the provisions of such plan by virtue
of receiving Securities under the Transaction Documents.
-22-
4.14 Right to Future Financing. Subject to the exceptions described
below, the Company will not, without the prior written consent of the
Purchasers, not to be unreasonably withheld, negotiate or contract with any
party to obtain additional equity financing (including debt financing with an
equity component) that involves (A) the issuance of Common Stock at a discount
to the market price of the Common Stock on the date of issuance (taking into
account the value of any warrants or options to acquire Common Stock issued in
connection therewith) or (B) the issuance of convertible securities that are
convertible into an indeterminate number of shares of Common Stock or (C) the
issuance of warrants during the period (the "Lock-up Period") beginning on the
Closing Date and ending on the later of (i) two hundred seventy (270) days from
the Closing Date and (ii) one hundred eighty (180) days from the date the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective (plus any days in which sales cannot be made thereunder). In
addition, subject to the exceptions described below, the Company will not
conduct any equity financing (including debt with an equity component) ("Future
Offerings") during the period beginning on the Closing Date and ending two (2)
years after the end of the Lock-up Period unless it shall have first delivered
to each Purchaser, at least twenty (20) business days prior to the closing of
such Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof and proposed definitive documentation
to be entered into in connection therewith, and providing each Purchaser an
option during the fifteen (15) day period following delivery of such notice to
purchase its pro rata share (based on the ratio that the aggregate principal
amount of Debentures purchased by it hereunder bears to the aggregate principal
amount of Debentures purchased hereunder) of the securities being offered in the
Future Offering on the same terms as contemplated by such Future Offering (the
limitations referred to in this sentence and the preceding sentence are
collectively referred to as the "Capital Raising Limitations"). In the event the
terms and conditions of a proposed Future Offering are amended in any respect
after delivery of the notice to the Purchasers concerning the proposed Future
Offering, the Company shall deliver a new notice to each Purchaser describing
the amended terms and conditions of the proposed Future Offering and each
Purchaser thereafter shall have an option during the fifteen (15) day period
following delivery of such new notice to purchase its pro rata share of the
securities being offered on the same terms as contemplated by such proposed
Future Offering, as amended. The foregoing sentence shall apply to successive
amendments to the terms and conditions of any proposed Future Offering. The
Capital Raising Limitations shall not apply to any transaction involving (i)
issuances of securities in a firm commitment underwritten public offering
(excluding a continuous offering pursuant to Rule 415 under the 0000 Xxx) or
(ii) issuances of securities as consideration for a merger, consolidation or
purchase of assets, or in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital), or in
connection with the disposition or acquisition of a business, product or license
by the Company. The Capital Raising Limitations also shall not apply to the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof or to
the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan approved by
the Stockholders of the Company. In the event that the Company completes a
Future Offering on terms more favorable to another investor than the transaction
contemplated hereby, the terms of the Debentures and the Warrants will be
amended to reflect such more favorable terms.
4.15 Subsequent Investment. Provided that the Company has provided
Bristol with a "Regulation S" opinion of counsel in connection with the
transactions contemplated hereby, Bristol Investment Fund, Ltd. ("Bristol"), at
any time, on up to such number of occasions as Bristol may determine during the
two year period beginning on the date hereof and ending on November __, 2004,
shall have the exclusive right to purchase, in the aggregate, up to an
additional $2,200,000 principal amount of the Company's Debentures and Warrants,
with conversion and exercise prices determined at the time of any such
subsequent closings.
-23-
4.16 Insiders Lock-Up. The persons listed on Schedule 4.16 hereto
(constituting all officers and directors of the Company that beneficially own
shares of Common Stock) shall be subject to the terms and provisions of a
lock-up agreement in substantially the form as Exhibit __ hereto (the "Lock-Up
Agreement"), which shall provide the manner in which such persons will sell,
transfer or dispose of their shares of the Company's Common Stock.
4.17 Expenses. At the Closing and anytime thereafter when expenses are
incurred by the Purchaser in connection with the transactions contemplated by
the Transaction Documents, the Company shall reimburse Purchasers for expenses
incurred by it in connection with the negotiation, preparation, execution,
delivery and performance of Transaction Documents, including, without
limitation, attorneys' and consultants' fees and expenses, transfer agent fees,
fees for stock quotation services, fees relating to any amendments or
modifications of the Documents or any consents or waivers of provisions in the
Documents, fees for the preparation of opinions of counsel, escrow fees, and
costs of restructuring the transactions contemplated by the Transaction
Documents. When possible, the Company must pay these fees directly, otherwise
the Company must make immediate payment for reimbursement to the Purchasers for
all fees and expenses immediately upon written notice by the Purchaser or the
submission of an invoice by the Purchaser. If the Company fails to reimburse the
Purchaser in full within three (3) business days of the written notice or
submission of invoice by the Purchaser, the Company shall pay interest on the
total amount of fees to be reimbursed at a rate of 15% per annum.
ARTICLE V
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by the Company or any
Purchaser, by written notice to the other parties, if the first Closing has not
been consummated by the fourth business day following the date of this
Agreement; provided that no such termination will affect the right of any party
to xxx for any breach by the other party (or parties).
5.2 Fees and Expenses. The Company agrees to pay $20,000 to Purchaser
Counsel as reimbursement for the Purchasers legal and other fees and expenses
incurred in connection with the investigation and negotiation of the transaction
and the preparation and negotiation of the Transaction Documents directly out of
the proceeds of this transaction. The Company also agrees to pay $3,500 for due
diligence and other expenses incurred by Bristol. The Company shall pay all
transfer agent fees, stamp taxes and other taxes and duties levied in connection
with the issuance of any Securities. In the event that Purchaser's counsel is
required to deliver a "Regulation S" legal opinion in connection with the
transactions contemplated hereby, the Company will pay an additional $25,000 to
Purchaser's counsel for the first Closing and $5,000 for each subsequent Closing
that such counsel is required to give such legal opinion.
5.3 Entire Agreement. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules. At or
after the Closing, and without further consideration, the Company and the
Purchasers will execute and deliver to each other such further documents as may
be reasonably requested in order to give practical effect to the intention of
the parties under the Transaction Documents.
-24-
5.4 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
specified in this Section 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 specified in
this Section 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 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 addresses for such notices and communications are those set forth on the
signature pages hereof, or such other address as may be designated in writing
hereafter, in the same manner, by such Person.
5.5 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each of the Purchasers or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
5.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. 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.
5.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Any Purchaser may assign
its rights under this Agreement and the Registration Rights Agreement to any
Person to whom such Purchaser assigns or transfers any Securities.
5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Sections 4.13.
-25-
5.9 Governing Law; Venue; Waiver of Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by and construed and enforced in accordance with the
internal laws of the Province of Ontario, without regard to the principles of
conflicts of law thereof. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of Toronto, for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), 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 improper or inconvenient venue for such
proceeding. 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 via overnight delivery (with evidence of delivery) to
such party at the address in effect for 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. The parties hereby
waive all rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of this Agreement, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for
its attorneys fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such action or proceeding.
5.10 Survival. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery, exercise
and/or conversion of the Securities, as applicable.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser 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.
-26-
5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights 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, 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.
5.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose.
-27-
5.17 Usury. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "Maximum Rate"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate of interest
applicable to the Transaction Documents from the effective date forward, unless
such application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.
***********************
-28-
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.
Wire Instructions: THINKPATH INC.
By: /s/ Declan French
----------------------------------------
Name: Declan French
Title: CEO
Address for Notice:
Thinkpath Inc.
00 Xxxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx, Xxxxxx X0X 0X0
Attn: Declan French
Tel: (000) 000-0000
Fax: (000) 000-0000
Additional Company Contacts:
Chief Financial Officer: Xxxxx Xxxxxxxxx
Name
000-000-0000
Telephone number
Inside Counsel: NA
---------------------
Name
---------------------
Telephone number
Outside Counsel: Xxxxxx Xxxxxx
Name
Xxxxxxx, Xxxxxx et al.
212-980-5192
Telephone number
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASERS FOLLOWS]
-29-
PURCHASERS' SIGNATURE PAGE
BRISTOL INVESTMENT FUND, LTD.
By:__________________________
Name:
Title:
Place of Organization: Cayman Islands
---------------------
Address for Notice:
Xxxxxxxx Fund Administration (Luxembourg) S.A.
00 Xxxxxx Xxxxxx Xxxx
X-0000 Xxxxxxxxxx
Grand Duchy of Luxembourg
Attn: Xxxxxxx Xxxxxxxxx
Fax: 000-000-000000
Subscription Amount: $ 200,000.00
-------------------
With a copy to: Bristol DLP, LLC
---------------
0000 Xxxxxx Xxxxxxxxx, Xxxxx Xxxxx
Xxxxxxxxx, XX 00000
Attn: Xxx Xxxx, Esq.
Phone: (000) 000-0000
Fax: (000) 000-0000
CAMDEN INTERNATIONAL, LTD. Address for Notice:
------------------
c/o Euro-Dutch (Bahamas) Limited
Xxxxxxxxx Xxxxx, Xxxxxxxxx Xxxxxx
X.X. Xxx X0000
Nassau, Bahamas
By: __________________________ Attn: Xx. Xxxxxxx Xxxxx Xxxxxx
Name: Tel: 000-000-0000
Title: Fax: 000-000-0000
Place of Organization: Bahamas
Subscription Amount: $200,000
-30-
PURCHASERS' SIGNATURE PAGE (CONTINUED)
ALPHA CAPITAL AG Address for Notice:
------------------
Xxxxxxxxxxx 00
Furstentum 9490
By: __________________________ Vaduz, Liechtenstein
Name: Fax: 000-000 000 0000
Title:
Place of Organization:
Subscription Amount: $250,000
With a copy to:
---------------
XXXXXXX XXXXXXXXX LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxx Xxxxx
ASPEN INTERNATIONAL, LTD. Address for Notice:
------------------
Xxxxxxxxx Xxxxx
Xxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxx
By: __________________________ Tel: 000-000-0000
Name: Fax: 000-000-0000
Title:
Place of Organization: Bahamas
Subscription Amount: $100,000
STANDARD RESOURCES LIMITED Address for Notice
------------------
Xxxx 0000, 00xx Xxxxx
Xxx Xxxx Xxxx Xxxxxxxx
By:_____________________________ 130-132 Des Voeux Road Central
Name: Hong Kong
Title: Tel: 000-0000-0000
Fax: 000-0000-0000
Place of Organization: Hong Kong
Subscription Amount: $50,000
-31-
