CONVERTIBLE NOTE PURCHASE AGREEMENT by and among Netsol Technologies, Inc., as Issuer and Seller and the Purchasers named herein, as Purchasers with respect to Seller’s Convertible Notes Due July 31, 2011 July 23, 2008
by
and
among
Netsol
Technologies, Inc., as Issuer and Seller
and
the
Purchasers named herein, as Purchasers
with
respect to Seller’s
Convertible
Notes Due July 31, 2011
July
23,
2008
Table
of Exhibits and Schedules
|
Exhibit
A
|
Form
of Convertible Note Due July 31, 2011
|
|
Exhibit
B
|
Form
of Investor Rights Agreement
|
|
Exhibit
C
|
Form
of Opinion of Seller’s Counsel
|
|
Schedule
3.10
|
Litigation
|
|
Schedule
3.11
|
Absence
of Certain Changes
|
|
Schedule
3.15
|
Intellectual
Property
|
|
Schedule
3.17
|
Preemptive
Rights
|
|
Schedule
3.19
|
Subsidiaries
and Investments
|
|
Schedule
3.20
|
Capitalization
|
|
Schedule
3.21
|
Options,
Warrants, Rights
|
|
Schedule
3.22
|
Employees,
Employment Agreements and Employee Benefit
Plans
|
2
This
CONVERTIBLE NOTE PURCHASE AGREEMENT (“Agreement”) is dated as of July 23, 2008,
by and among NetSol Technologies, Inc., a Nevada corporation (the “Seller”), and
each of the persons signatory hereto (each is individually referred to as a
“Purchaser” and collectively, the “Purchasers”).
W
I T N E
S S E T H:
WHEREAS,
each of the Purchasers is willing to purchase from the Seller, and the Seller
desires to sell to the Purchasers, up to an aggregate of between $5,000,000
and
$6,000,000 in principal amount of the Seller’s Convertible Notes Due July 31,
2011 (“Notes”), which Notes entitle the holders thereof to covert such Notes
into shares of the Seller’s common stock, $0.001 par value (the “Common Stock”),
for an aggregate purchase price equal to the aggregate principal amount of
Notes
purchased, as more fully set forth herein; and
NOW
THEREFORE, in consideration of the mutual promises and representations,
warranties, covenants and agreements set forth herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE
I
- PURCHASE AND SALE
1.1 Purchase
and Sale.
(a) Closing.
Subject
to the terms and conditions set forth in this Agreement, at the closing of
the
transactions contemplated under this Agreement (the “Closing”), each Purchaser
shall purchase, severally and not jointly, and the Seller shall issue and sell
to each Purchaser, such principal amount of Notes set forth on such Purchaser’s
signature page hereto for the Purchase Price set forth thereon. The Closing
shall occur as promptly as practicable, but no later than five (5) business
days, following satisfaction or waiver of the conditions set forth in Sections
6.1 and 6.2, at the offices of Xxxxx X. Xxxxxxx, P.C., 000 Xxxx 00xx
Xxxxxx,
00xx
Xxxxx,
Xxx Xxxx, XX 00000, or on such other date and at such other location as the
Seller and Purchasers shall mutually agree. The “Closing Date” means the date on
which the Closing occurs.
(b) Purchase
Price.
The
purchase price (the “Purchase Price”) to be paid by each Purchaser to the Seller
to acquire the Notes at Closing shall be equal to the amount set forth on such
Purchaser’s signature page hereto.
(c) Definitions.
The
shares of Common Stock issuable upon conversion of the Notes (including without
limitation in payment upon purchase or redemption thereof) or upon payment
of
interest on the Notes are referred to herein as the “Conversion Shares”. The
date on which the Closing occurs is the “Closing Date”.
1.2 Terms
of the Notes. The terms and provisions of the Notes are more fully set forth
in the form of Note, attached hereto as Exhibit A.
1
ARTICLE
II – TRANSFERS AND LEGENDS
2.1 Transfers.
Except
as required by federal securities laws and the securities law of any state
or
other jurisdiction within the United States, the Notes and Conversion Shares
(collectively, the “Securities”) may be transferred, in whole or in part, by any
of the Purchasers at any time. In the case of Notes, such transfer may be
effected by delivering written transfer instructions to the Seller, and the
Seller shall reflect such transfer on its books and records and reissue Notes
upon surrender of such Notes being transferred. Any such transfer shall be
made
by a Purchaser in accordance with applicable law. In connection with any
transfer of Securities other than pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the “Securities Act”),
or to the Seller, the Seller may require the transferor thereof to furnish
to
the Seller an opinion of counsel selected by the transferor, such counsel and
the form and substance of which opinion shall be reasonably satisfactory to
the
Seller and Seller’s counsel, to the effect that such transfer does not require
registration under the Securities Act; provided, that in the case of a transfer
of Conversion Shares pursuant to Rule 144 under the Securities Act, no opinion
shall be required if the transferor provides the Seller with a customary
seller’s representation letter.
Notwithstanding the foregoing, the Seller hereby consents to and agrees to
register on the books of the Seller and with any transfer agent for the
securities of the Seller, without any such legal opinion, any transfer of
Securities by a Purchaser to an Affiliate of such Purchaser, provided that
the
transferee certifies to the Seller that it is an “accredited investor” as
defined in Rule 501(a) under the Securities Act and that it is acquiring the
Securities solely for investment purposes (subject to the qualifications hereof)
and not with a view to, or for, resale, distribution or fractionalization
thereof in whole or in part in violation of the Securities Act. The Seller
shall
reissue certificates evidencing the Securities upon surrender of certificates
evidencing the Securities being transferred in accordance with this Section
2.1.
An “Affiliate” means any Person (as such term is defined below) 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. A “Person” means any individual or corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an agency or
subdivision of any thereof) or other entity of any kind.
2.2 Legends.
The
certificates representing the Securities, unless such Securities are registered
under the Securities Act or eligible for resale without registration pursuant
to
Rule 144(k) under the Securities Act, shall bear the following
legends:
“THE
SHARES REPRESENTED BY, OR ACQUIRABLE UPON CONVERSION OF SECURITIES EVIDENCED
BY,
THIS [NOTE] [CERTIFICATE] HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF
1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT UNLESS, IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY, SUCH REGISTRATION IS NOT REQUIRED.”
“THE
SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED BY THIS [NOTE]
[CERTIFICATE] IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN INVESTOR
RIGHTS AGREEMENT DATED AS OF JULY ___, 2008, AS AMENDED FROM TIME TO TIME,
AMONG
THE COMPANY AND CERTAIN HOLDERS OF ITS OUTSTANDING SECURITIES. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER
OF
RECORD OF THIS [NOTE] [CERTIFICATE] TO THE SECRETARY OF THE
COMPANY.”
2
ARTICLE
III - REPRESENTATIONS AND WARRANTIES OF THE SELLER
The
Seller represents and warrants to the Purchasers as follows:
3.1 Corporate
Existence and Power; Subsidiaries.
The
Seller and its Subsidiaries are corporations duly incorporated, validly existing
and in good standing under the laws of the state in which they are incorporated,
and have all corporate powers required to carry on their business as now
conducted. The Seller and its Subsidiaries are duly qualified to do business
as
a foreign corporation and are in good standing in each jurisdiction where the
character of the property owned or leased by them or the nature of their
activities makes such qualification necessary, except for those jurisdictions
where the failure to be so qualified would not have a Material Adverse Effect
on
the Seller or any of its Subsidiaries. For purposes of this Agreement, the
term
“Material Adverse Effect” means, with respect to any person or entity, a
material adverse effect on its and its Subsidiaries’ condition (financial or
otherwise), business, properties, assets, liabilities (including contingent
liabilities), results of operations or current prospects, taken as a whole,
on
the transactions contemplated hereby or by the agreements and instruments to
be
entered into in connection herewith or therewith, or on the authority or ability
of the Seller to perform its obligations hereunder or under the Related
Documents. True and complete copies of the Seller’s Articles of Incorporation,
as amended, and Bylaws, as amended, as currently in effect and as will be in
effect on the Closing Date (collectively, the “Articles and Bylaws”), have
previously been provided to the Purchasers. For purposes of this Agreement,
the
term “Subsidiary” or “Subsidiaries” means, with respect to any entity, any
corporation or other organization of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are directly or
indirectly owned by such entity or of which such entity is a partner or is,
directly or indirectly, the beneficial owner of 50% or more of any class of
equity securities or equivalent profit participation interests, or is considered
a “significant subsidiary” as defined in Rule 1-02(w) of Regulation S-X
promulgated by the Commission under the Exchange Act. The Seller has no
Subsidiaries other than those listed on Schedule 3.1 hereto, each of which,
unless otherwise indicated, is wholly-owned by the Seller.
3.2 Corporate
Authorization.
The
execution, delivery and performance by the Seller of this Agreement, the Notes,
the Investor Rights Agreement and each of the other documents executed pursuant
to and in connection with this Agreement (collectively, the “Related
Documents”), and the consummation of the transactions contemplated hereby and
thereby (including, but not limited to, the sale and delivery of the Notes,
and
the subsequent issuance of the Conversion Shares upon conversion of the Notes,
have been duly authorized, and no additional corporate or stockholder action
is
required for the approval of this Agreement. The Conversion Shares have been
duly reserved for issuance by the Seller (without regard to any limitations
on
issuance or beneficial ownership). This Agreement and the Related Documents
have
been or, to the extent contemplated hereby or by the Related Documents, will
be
duly executed and delivered and constitute the legal, valid and binding
agreement of the Seller, enforceable against the Seller in accordance with
their
terms, except as may be limited by bankruptcy, reorganization, insolvency,
moratorium and similar laws of general application relating to or affecting
the
enforcement of rights of creditors, and except as enforceability of its
obligations hereunder are subject to general principles of equity (regardless
of
whether such enforceability is considered in a proceeding in equity or at
law).
3
3.3 Charter,
Bylaws and Corporate Records.
The
minute books of the Seller and its Subsidiaries contain complete and accurate
records of all meetings and other corporate actions of the board of directors,
committees of the board of directors, incorporators and stockholders of the
Seller and its Subsidiaries. All material corporate decisions and actions have
been validly made or taken. All corporate books, including without limitation
the share transfer register, comply with applicable laws and regulations and
have been regularly updated. Such books fully and correctly reflect all the
decisions of the stockholders.
3.4 Governmental
Authorization.
Except
as otherwise specifically contemplated in this Agreement and the Related
Documents, and except for: (i) the filings referenced in Sections 5.10 and
5.11;
(ii) the filing of a Form D with respect to the Notes under Regulation D under
the Securities Act; (iii) the application(s) to each trading market for the
listing of the Conversion Shares for trading thereon; and (iv) any filings
required under state securities laws that are permitted to be made after the
date hereof, the execution, delivery and performance by the Seller of this
Agreement and the Related Documents, and the consummation of the transactions
contemplated hereby and thereby (including, but not limited to, the sale and
delivery of the Notes and the subsequent issuance of the Conversion Shares
upon
conversion of the Notes) by the Seller require no action by or in respect of,
or
filing with, any governmental body, agency, official or authority.
3.5 Non-Contravention.
The
execution, delivery and performance by the Seller of this Agreement and the
Related Documents, and the consummation by the Seller of the transactions
contemplated hereby and thereby (including the issuance of the Conversion
Shares) do not and will not (a) contravene or conflict with the Articles (as
amended by any certificate of designation) and Bylaws of the Seller and its
Subsidiaries or any material agreement to which the Seller is a party or by
which it is bound; (b) contravene or conflict with or constitute a violation
of
any provision of any law, regulation, judgment, injunction, order or decree
binding upon or applicable to the Seller or its Subsidiaries; (c) constitute
a
default (or would constitute a default with notice or lapse of time or both)
under or give rise to a right of termination, cancellation or acceleration
or
loss of any benefit under any material agreement, contract or other instrument
binding upon the Seller or its Subsidiaries or under any material license,
franchise, permit or other similar authorization held by the Seller or its
Subsidiaries; or (d) result in the creation or imposition of any Lien (as
defined below) on any asset of the Seller or its Subsidiaries. For purposes
of
this Agreement, the term “Lien” means, with respect to any asset, any mortgage,
lien, pledge, charge, security interest, claim or encumbrance of any kind in
respect of such asset.
3.6 SEC
Documents.
The
Seller is obligated under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) to file reports pursuant to Sections 13 or 15(d) thereof (all
such reports filed or required to be filed by the Seller, including all exhibits
thereto or incorporated therein by reference, and all documents filed by the
Seller under the Securities Act hereinafter called the “SEC Documents”). The
Seller has filed all reports or other documents required to be filed under
the
Exchange Act. All SEC Documents filed by the Seller as of or for any period
beginning on or after June 30, 2006, (i) were prepared in all material respects
in accordance with the requirements of the Exchange Act and (ii) did not at
the
time they were filed (or, if amended or superseded by a filing prior to the
date
hereof, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Seller has previously delivered
to the Purchaser a correct and complete copy of each report (including, without
limitation, the most recent Proxy Statement) which the Seller filed with the
Securities and Exchange Commission (the “SEC” or the “Commission”) under the
Exchange Act for any period ending on or after June 30, 2007 (the “Recent
Reports”) to the extent not available via XXXXX. None of the information about
the Seller or any of its Subsidiaries which has been disclosed to the Purchasers
herein or in the course of discussions and negotiations with respect hereto
which is not disclosed in the Recent Reports is or was required to be so
disclosed, and no material non-public information has been disclosed to the
Purchasers. To the extent that the Seller fails to so publicly disclose any
such
material non-public information prior to such date, any Purchaser in possession
of such information shall be permitted to publicly disclose such material
non-public information. The Seller agrees that it shall not furnish any
Purchaser any material non-public information concerning the Seller which it
does not intend to disclose on or prior to such date.
4
3.7 Financial
Statements.
The
financial statements of the Seller included in the SEC Documents 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 except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly present
in
all material respects the financial position of the Seller 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. All material
agreements to which the Seller and its Subsidiaries are a party or to which
any
of their respective property or assets are subject that are required to be
filed
as Exhibits to the SEC Documents under Item 601 of Regulation S K are included
as a part of, or specifically identified in, the SEC Documents.
3.8 Compliance
with Law.
The
Seller and its Subsidiaries are in compliance and have conducted their business
so as to comply with all laws, rules and regulations, judgments, decrees or
orders of any court, administrative agency, commission, regulatory authority
or
other governmental authority or instrumentality, domestic or foreign, applicable
to their operations, the violation of which would cause a Material Adverse
Affect. There are no judgments or orders, injunctions, decrees, stipulations
or
awards (whether rendered by a court or administrative agency or by arbitration),
including any such actions relating to affirmative action claims or claims
of
discrimination, against the Seller or its Subsidiaries or against any of their
properties or businesses.
3.9 No
Defaults.
To the
Seller and its Subsidiaries’ knowledge, Seller and its Subsidiaries are not, nor
have they received notice that they would be with the passage of time, giving
of
notice, or both, (i) in violation of any provision of their Articles and Bylaws
(ii) in default or violation of any term, condition or provision of (A) any
judgment, decree, order, injunction or stipulation applicable to the Seller
or
its Subsidiaries or (B) any agreement, note, mortgage, indenture, contract,
lease or instrument, permit, concession, franchise or license to which the
Seller or its Subsidiaries are a party or by which the Seller or its
Subsidiaries or their properties or assets may be bound, and no circumstances
exist which would entitle any party to any agreement, note, mortgage, indenture,
contract, lease or instrument to which such Seller or its Subsidiaries are
a
party, to terminate such as a result of such Seller or its Subsidiaries, having
failed to meet any provision thereof including, but not limited to, meeting
any
applicable milestone under any agreement or contract which would reasonably
be
expected to have a Material Adverse Effect on the Seller or its
subsidiaries.
5
3.10 Litigation.
Except
as disclosed in the Recent Reports or on Schedule
3.10,
there
is no action, suit, proceeding, judgment, claim or investigation pending or,
to
the best knowledge of the Seller, threatened against the Seller and its
Subsidiaries which could, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Seller or its Subsidiaries
or
which in any manner challenges or seeks to prevent, enjoin, alter or materially
delay any of the transactions contemplated hereby, and Seller is not aware
of
any basis for the assertion of any of the foregoing.
There
are
no claims or complaints existing or, to the knowledge of the Seller or its
Subsidiaries, threatened for product liability in respect of any product of
the
Seller or its Subsidiaries, and the Seller and its Subsidiaries are not aware
of
any basis for the assertion of any such claim.
3.11 Absence
of Certain Changes.
Since
June 30, 2007, the Seller has conducted its business only in the ordinary course
and there has not occurred, except as set forth in the Recent Reports or any
exhibit thereto or incorporated by reference therein:
(a) Any
event
that could reasonably be expected to have a Material Adverse Effect on the
Seller or any of its Subsidiaries;
(b) Except
as
set forth in Schedule
3.11(b),
any
amendments or changes in the Articles or Bylaws of the Seller and its
Subsidiaries;
(c) Any
damage, destruction or loss, whether or not covered by insurance, that would,
individually or in the aggregate, have or would be reasonably likely to have,
a
Material Adverse Effect on the Seller and its Subsidiaries;
(d) Except
as
set forth in its Recent Reports or on Schedule
3.11(d),
any
(i) incurrence,
assumption or guarantee by the Seller or its Subsidiaries of any debt for
borrowed money other than for equipment leases;
(ii) issuance
or sale of any securities convertible into or exchangeable for securities of
the
Seller other than to directors, employees and consultants pursuant to existing
equity compensation or stock purchase plans of the Seller;
(iii) issuance
or sale of options or other rights to acquire from the Seller or its
Subsidiaries, directly or indirectly, securities of the Seller or any securities
convertible into or exchangeable for any such securities, other than options
issued to directors, employees and consultants in the ordinary course of
business in accordance with past practice;
6
(iv) issuance
or sale of any stock, bond or other corporate security;
(v) discharge
or satisfaction of any material Lien, other than current liabilities incurred
since June 30, 2007 in the ordinary course of business;
(vi) declaration
or making any payment or distribution to stockholders or purchase or redemption
of any share of its capital stock or other security;
(vii) sale,
assignment or transfer of any of its intangible assets except in the ordinary
course of business, or cancellation of any debt or claim except in the ordinary
course of business;
(viii) waiver
of
any right of substantial value whether or not in the ordinary course of
business;
(ix) material
change in officer compensation except in the ordinary course of business and
consistent with past practices; or
(x) other
commitment (contingent or otherwise) to do any of the foregoing.
(e) Any
creation, sufferance or assumption by the Seller or any of its Subsidiaries
of
any Lien on any asset (other than Liens existing on the date hereof or in
connection with equipment leases and working capital lines of credit set forth
on Schedule
3.11(e))
or any
making of any loan, advance or capital contribution to or investment in any
Person in an aggregate amount which exceeds $25,000 outstanding at any
time;
(f) Any
entry
into, amendment of, relinquishment, termination or non-renewal by the Seller
or
its Subsidiaries of any material contract, license, lease, transaction,
commitment or other right or obligation, other than in the ordinary course
of
business; or
(g) Any
transfer or grant of a right with respect to the trademarks, trade names,
service marks, trade secrets, copyrights or other intellectual property rights
owned or licensed by the Seller or its Subsidiaries, except as among the Seller
and its Subsidiaries.
3.12 No
Undisclosed Liabilities.
Except
as set forth in the Recent Reports, and except for liabilities and obligations
incurred in the ordinary course of business since June 30, 2007, as of the
date
hereof, (i) the Seller and its Subsidiaries do not have any material liabilities
or obligations (absolute, accrued, contingent or otherwise) which, and (ii)
there has not been any aspect of the prior or current conduct of the business
of
the Seller or its Subsidiaries which may form the basis for any material claim
by any third party which if asserted could result in any such material
liabilities or obligations which, are not fully reflected, reserved against
or
disclosed in the balance sheet of the Seller as at June 30, 2007.
3.13 Taxes.
All tax
returns and tax reports required to be filed with respect to the income,
operations, business or assets of the Seller and its Subsidiaries have been
timely filed (or appropriate extensions have been obtained) with the appropriate
governmental agencies in all jurisdictions in which such returns and reports
are
required to be filed, and all of the foregoing as filed are correct and complete
and, in all material respects, reflect accurately all liability for taxes of
the
Seller and its Subsidiaries for the periods to which such returns relate, and
all amounts shown as owing thereon have been paid. All income, profits,
franchise, sales, use, value added, occupancy, property, excise, payroll,
withholding, FICA, FUTA and other taxes (including interest and penalties),
if
any, collectible or payable by the Seller and its Subsidiaries or relating
to or
chargeable against any of its material assets, revenues or income or relating
to
any employee, independent contractor, creditor, stockholder or other third
party
through the Closing Date, will have been fully collected and paid by such date
if due by such date or provided for by adequate reserves in the Financial
Statements as of and for the periods ended June 30, 2007 (other than taxes
accruing after such date) and all similar items due through the Closing Date
will have been fully paid by that date or provided for by adequate reserves,
whether or not any such taxes were reported or reflected in any tax returns
or
filings. No taxation authority has sought to audit the records of the Seller
or
any of its Subsidiaries for the purpose of verifying or disputing any tax
returns, reports or related information and disclosures provided to such
taxation authority, or for the Seller’s or any of its Subsidiaries’ alleged
failure to provide any such tax returns, reports or related information and
disclosure. No material claims or deficiencies have been asserted against or
inquiries raised with the Seller or any of its Subsidiaries with respect to
any
taxes or other governmental charges or levies which have not been paid or
otherwise satisfied, including claims that, or inquiries whether, the Seller
or
any of its Subsidiaries has not filed a tax return that it was required to
file,
and, to the best of the Seller’s knowledge, there exists no reasonable basis for
the making of any such claims or inquiries. Neither the Seller nor any of its
Subsidiaries has waived any restrictions on assessment or collection of taxes
or
consented to the extension of any statute of limitations relating to
taxation.
7
3.14 Interests
of Officers, Directors and Other Affiliates.
The
description of any interest held, directly or indirectly, by any officer,
director or other Affiliate of Seller (other than the interests of the Seller
and its Subsidiaries in such assets) in any property, real or personal, tangible
or intangible, used in or pertaining to Seller’s business, including any
interest in the Intellectual Property (as defined in Section 3.15 hereof),
as
set forth in the Recent Reports, is true and complete, and no officer, director
or other Affiliate of the Seller has any interest in any property, real or
personal, tangible or intangible, used in or pertaining to the Seller’s
business, including the Seller’s Intellectual Property, other than as set forth
in the Recent Reports.
3.15 Intellectual
Property.
Other
than as set forth in the Recent Reports:
(a) the
Seller or a Subsidiary thereof has the right to use or is the sole and exclusive
owner of all right, title and interest in and to all foreign and domestic
patents, patent rights, trademarks, service marks, trade names, brands and
copyrights (whether or not registered and, if applicable, including pending
applications for registration) owned, used or controlled by the Seller and
its
Subsidiaries (collectively, the “Rights”) and in and to each material invention,
software, trade secret, technology, product, composition, formula, method of
process used by the Seller or its Subsidiaries (the Rights and such other items,
the “Intellectual Property”), and, to the Seller’s knowledge, has the right to
use the same, free and clear of any claim or conflict with the rights of others;
(b) no
royalties or fees (license or otherwise) are payable by the Seller or its
Subsidiaries to any Person by reason of the ownership or use of any of the
Intellectual Property except as set forth on Schedule
3.15;
8
(c) there
have been no claims made against the Seller or its Subsidiaries asserting the
invalidity, abuse, misuse, or unenforceability of any of the Intellectual
Property, and, to its knowledge, there are no reasonable grounds for any such
claims;
(d) neither
the Seller nor its Subsidiaries have made any claim of any violation or
infringement by others of its rights in the Intellectual Property, and to the
best of the Seller’s knowledge, no reasonable grounds for such claims exist; and
(e) neither
the Seller nor its Subsidiaries have received notice that it is in conflict
with
or infringing upon the asserted rights of others in connection with the
Intellectual Property.
3.16 Restrictions
on Business Activities.
Other
than as set forth in the Recent Reports, there is no agreement, judgment,
injunction, order or decree binding upon the Seller or its Subsidiaries which
has or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of the Seller or its Subsidiaries,
any acquisition of property by the Seller or its Subsidiaries or the conduct
of
business by the Seller or its Subsidiaries as currently conducted or as
currently proposed to be conducted by the Seller.
3.17 Preemptive
Rights.
Except
as set forth in Schedule
3.17,
none of
the stockholders of the Seller possess any preemptive rights in respect of
the
Notes or Conversion Shares to be issued to the Purchasers in connection herewith
or upon conversion of the Notes.
3.18 Insurance.
The
insurance policies providing insurance coverage to the Seller or its
Subsidiaries including for product liability are adequate for the business
conducted by the Seller and its Subsidiaries (currently limited to the testing
phase) and are sufficient for compliance by the Seller and its Subsidiaries
with
all requirements of law and all material agreements to which the Seller or
its
Subsidiaries are a party or by which any of their assets are bound. All of
such
policies are in full force and effect and are valid and enforceable in
accordance with their terms, and the Seller and its Subsidiaries have complied
with all material terms and conditions of such policies, including premium
payments. None of the insurance carriers has indicated to the Seller or its
Subsidiaries an intention to cancel any such policy.
3.19 Subsidiaries
and Investments.
Except
as set forth in the Recent Reports or on Schedule
3.19,
the
Seller has no Subsidiaries or Investments. For purposes of this Agreement,
the
term “Investments” shall mean, with respect to any Person, all advances, loans
or extensions of credit to any other Person, all purchases or commitments to
purchase any stock, bonds, notes, debentures or other securities of any other
Person, and any other investment in any other Person, including partnerships
or
joint ventures (whether by capital contribution or otherwise) or other similar
arrangement (whether written or oral) with any Person, including but not limited
to arrangements in which (i) the Person shares profits and losses, (ii) any
such
other Person has the right to obligate or bind the Person to any third party,
or
(iii) the Person may be wholly or partially liable for the debts or obligations
of such partnership, joint venture or other arrangement.
3.20 Capitalization.
The
authorized capital stock of the Seller consists of 95,000,000 shares of common
stock, $0.001 par value per share, of which 26,285,761
shares
are issued and outstanding as of July 23, 2008, and 5,000,000 shares of
preferred stock, issuable in one or more classes or series, with such relative
rights and preferences as the Board of Directors may determine, none of which
has been authorized for issuance other than the shares of the Seller’s Series A
7% Cumulative Convertible Preferred Stock, of which 1,920 shares are outstanding
as of the date hereof. All shares of the Seller’s issued and outstanding capital
stock have been duly authorized, are validly issued and outstanding, and are
fully paid and nonassessable. No securities issued by the Seller from the date
of its incorporation to the date hereof were issued in violation of any
statutory or common law preemptive rights. There are no dividends which have
accrued or been declared but are unpaid on the capital stock of the Seller.
All
taxes required to be paid by Seller in connection with the issuance and any
transfers of the Seller’s capital stock have been paid. Except as set forth on
Schedule
3.20,
all
permits or authorizations required to be obtained from or registrations required
to be effected with any Person in connection with any and all issuances of
securities of the Seller from the date of the Seller’s incorporation to the date
hereof have been obtained or effected, and all securities of the Seller have
been issued and are held in accordance with the provisions of all applicable
securities or other laws. This issuance of the Notes hereunder and/or the
issuance of the Conversion Shares upon conversion of the Notes will not cause
any adjustment to the current conversion price or exercise under any outstanding
securities.
9
3.21 Options,
Warrants, Rights.
Except
as set forth in the Recent Reports or on Schedule
3.21,
there
are no outstanding (a) securities, notes or instruments convertible into or
exercisable for any of the capital stock or other equity interests of the Seller
or its Subsidiaries; (b) options, warrants, subscriptions or other rights to
acquire capital stock or other equity interests of the Seller or its
Subsidiaries; or (c) commitments, agreements or understandings of any kind,
including employee benefit arrangements, relating to the issuance or repurchase
by the Seller or its Subsidiaries of any capital stock or other equity interests
of the Seller or its Subsidiaries, any such securities or instruments
convertible or exercisable for securities or any such options, warrants or
rights. Other than the rights of the Purchasers hereunder and the holders of
Series A 7% Cumulative Convertible Preferred Stock and warrants issued in
connection therewith and the warrants issued to some of the Purchasers in June
2007 and except
as
set forth on Schedule
3.21,
neither
the Seller nor the Subsidiaries have granted anti-dilution rights to any person
or entity in connection with any outstanding option, warrant, subscription
or
any other instrument convertible or exercisable for the securities of the Seller
or any of its Subsidiaries. Other than the rights granted to the Purchasers
under the Investor Rights Agreement and the holders of Series A 7% Cumulative
Convertible Preferred Stock and warrants issued in connection therewith and
some
of the Purchasers in connection with the shares of Common Stock and warrants
issued to in June 2007 and except as set forth on Schedule
3.21,
there
are no outstanding rights which permit the holder thereof to cause the Seller
or
the Subsidiaries to file a registration statement under the Securities Act
or
which permit the holder thereof to include securities of the Seller or any
of
its Subsidiaries in a registration statement filed by the Seller or any of
its
Subsidiaries under the Securities Act, and there are no outstanding agreements
or other commitments which otherwise relate to the registration of any
securities of the Seller or any of its Subsidiaries for sale or distribution
in
any jurisdiction.
3.22 Employees,
Employment Agreements and Employee Benefit Plans.
Except
as set forth in the Recent Reports or on Schedule
3.22,
there
are no employment, consulting, severance or indemnification arrangements,
agreements, or understandings between the Seller and any officer, director,
consultant or employee of the Seller or its Subsidiaries (the “Employment
Agreements”). Except as set forth in the Recent Reports or on Schedule
3.22,
no
Employment Agreement provides for the acceleration or change in the award,
grant, vesting or determination of options, warrants, rights, severance
payments, or other contingent obligations of any nature whatsoever of the Seller
or its Subsidiaries in favor of any such parties in connection with the
transactions contemplated by this Agreement. Except as disclosed in the Recent
Reports or on Schedule
3.22,
the
terms of employment or engagement of all directors, officers, employees, agents,
consultants and professional advisors of the Seller and its Subsidiaries are
such that their employment or engagement may be terminated upon not more than
two weeks’ notice given at any time without liability for payment of
compensation or damages and the Seller and its Subsidiaries have not entered
into any agreement or arrangement for the management of their business or any
part thereof other than with their directors or employees.
10
3.23 Absence
of Certain Business Practices.
Neither
the Seller, nor any Affiliate of the Seller, nor to the knowledge of the Seller,
any agent or employee of the Seller, any other Person acting on behalf of or
associated with the Seller, or any individual related to any of the foregoing
Persons, acting alone or together, has: (a) received, directly or indirectly,
any rebates, payments, commissions, promotional allowances or any other economic
benefits, regardless of their nature or type, from any customer, supplier,
trading company, shipping company, governmental employee or other Person with
whom the Seller has done business directly or indirectly; or (b) directly or
indirectly, given or agreed to give any gift or similar benefit to any customer,
supplier, trading company, shipping company, governmental employee or other
Person who is or may be in a position to help or hinder the business of the
Seller (or assist the Seller in connection with any actual or proposed
transaction) which (i) may subject the Seller to any damage or penalty in any
civil, criminal or governmental litigation or proceeding, (ii) if not given
in
the past, may have had an adverse effect on the Seller or (iii) if not continued
in the future, may adversely affect the assets, business, operations or
prospects of the Seller or subject the Seller to suit or penalty in any private
or governmental litigation or proceeding.
3.24 Products
and Services.
To the
knowledge of the Seller and except as disclosed in the Recent Reports, there
exists no set of facts (i) which could furnish a basis for the withdrawal,
suspension or cancellation of any registration, license, permit or other
governmental approval or consent of any governmental or regulatory agency with
respect to any product or service developed or provided by the Seller or its
Subsidiaries, (ii) which could furnish a basis for the withdrawal, suspension
or
cancellation by order of any state, federal or foreign court of law of any
product or service, or (iii) which could have a Material Adverse Effect on
the
continued operation of any facility of the Seller or its Subsidiaries or which
could otherwise cause the Seller or its Subsidiaries to withdraw, suspend or
cancel any such product or service from the market or to change the marketing
classification of any such product or service. Each product or service provided
by Seller or its Subsidiaries has been provided in accordance in all material
respects with the specifications under which such product or service normally
is
and has been provided and the provisions of all applicable laws or regulations.
3.25 Environmental
Matters.
None of
the premises or any properties owned, occupied or leased by the Seller or its
Subsidiaries (the “Premises”) has been used by the Seller or the Subsidiaries
or, to the Seller’s knowledge, by any other Person, to manufacture, treat,
store, or dispose of any substance that has been designated to be a “hazardous
substance” under applicable Environmental Laws (hereinafter defined) (“Hazardous
Substances”) in violation of any applicable Environmental Laws. To its
knowledge, the Seller has not disposed of, discharged, emitted or released
any
Hazardous Substances which would require, under applicable Environmental Laws,
remediation, investigation or similar response activity. No Hazardous Substances
are present as a result of the actions of the Seller or, to the Seller’s
knowledge, any other Person, in, on or under the Premises which would give
rise
to any liability or clean-up obligations of the Seller under applicable
Environmental Laws. The Seller and, to the Seller’s knowledge, any other Person
for whose conduct it may be responsible pursuant to an agreement or by operation
of law, are in compliance with all laws, regulations and other federal, state
or
local governmental requirements, and all applicable judgments, orders, writs,
notices, decrees, permits, licenses, approvals, consents or injunctions in
effect on the date of this Agreement relating to the generation, management,
handling, transportation, treatment, disposal, storage, delivery, discharge,
release or emission of any Hazardous Substance (the “Environmental Laws”).
Neither the Seller nor, to the Seller’s knowledge, any other Person for whose
conduct it may be responsible pursuant to an agreement or by operation of law
has received any written complaint, notice, order, or citation of any actual,
threatened or alleged noncompliance with any of the Environmental Laws, and
there is no proceeding, suit or investigation pending or, to the Seller’s
knowledge, threatened against the Seller or, to the Seller’s knowledge, any such
Person with respect to any violation or alleged violation of the Environmental
Laws, and, to the knowledge of the Seller, there is no basis for the institution
of any such proceeding, suit or investigation.
11
3.26 Licenses;
Compliance Regulatory Requirements.
Except
as disclosed in the Recent Reports, the Seller holds all material
authorizations, consents, approvals, franchises, licenses and permits required
under applicable law or regulation for the operation of the business of the
Seller and its Subsidiaries as presently operated (the “Governmental
Authorizations”). All the Governmental Authorizations have been duly issued or
obtained and are in full force and effect, and the Seller and its Subsidiaries
are in material compliance with the terms of all the Governmental
Authorizations. The Seller and its Subsidiaries have not engaged in any activity
that, to their knowledge, would cause revocation or suspension of any such
Governmental Authorizations. The Seller has no knowledge of any facts which
could reasonably be expected to cause the Seller to believe that the
Governmental Authorizations will not be renewed by the appropriate governmental
authorities in the ordinary course. Neither the execution, delivery nor
performance of this Agreement shall adversely affect the status of any of the
Governmental Authorizations.
3.27 Brokers.
No
broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or commission in connection with the transactions contemplated by
this
Agreement, based upon any arrangement made by or on behalf of the Seller. No
broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or commission in connection with the transactions contemplated by
this
Agreement, based upon any arrangement made by or on behalf of the Seller, which
would make any Purchaser liable for any fees or commissions.
3.28 Securities
Laws.
Neither
the Seller nor its Subsidiaries nor any agent acting on behalf of the Seller
or
its Subsidiaries has taken or will take any action which might cause this
Agreement or the Notes to violate the Securities Act or the Exchange Act or
any
rules or regulations promulgated thereunder, as in effect on the Closing Date.
Assuming that all of the representations and warranties of the Purchasers set
forth in Article IV are true, all offers and sales of capital stock, securities
and notes of the Seller were conducted and completed in compliance with the
Securities Act. All shares of capital stock and other securities issued by
the
Seller and its Subsidiaries prior to the date hereof have been issued in
transactions that were either registered offerings or were exempt from the
registration requirements under the Securities Act and all applicable state
securities or “blue sky” laws and in compliance with all applicable corporate
laws.
12
3.29 Disclosure.
No
representation or warranty made by the Seller in this Agreement, nor in any
document, written information, financial statement, certificate, schedule or
exhibit prepared and furnished by the Seller or the representatives of the
Seller pursuant hereto or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact, or
to
Seller’s knowledge omits to state a material fact necessary to make the
statements or facts contained herein or therein not misleading in light of
the
circumstances under which they were furnished.
3.30 Off-Balance
Sheet Arrangements.
There
is no transaction, arrangement or other relationship between the Seller and
an
unconsolidated or other off-balance sheet entity that is required to be
disclosed by the Seller in its Exchange Act filings and is not so disclosed
or
that otherwise would be reasonably expected to result in a Material Adverse
Effect. There are no such transactions, arrangements or other relationships
with
the Seller that may create contingencies or liabilities that are not otherwise
disclosed by the Seller in its SEC filings.
3.31 Application
of Takeover Protections.
Except
as is set forth in the Articles of Incorporation and amendments thereto of
Seller, the Seller 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 Seller’s Articles and By-Laws
(or similar charter documents) or the laws of its state of incorporation or
any
agreement to which the Seller is a party that is or could become applicable
to
the Purchasers as a result of the Purchasers and the Seller fulfilling their
obligations or exercising their rights under this Agreement and the Related
Documents, including without limitation the Seller’s issuance of the Securities
and the Purchasers’ ownership of the Securities.
3.32 No
Additional Agreements.
The
Seller does not have any agreement with any Purchaser with respect to the
transactions contemplated by this Agreement and the Related Documents other
than
as specified in this Agreement and the Related Documents.
3.33 Acknowledgment
Regarding Purchasers’ Purchase of Seller Securities.
The
Seller acknowledges and agrees that each of the Purchasers is acting solely
in
the capacity of an arm’s length purchaser with respect to this Agreement and the
transactions contemplated hereby. The Seller further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Seller or any
other Purchaser (or in any similar capacity) with respect to this Agreement
and
the Related Documents and the transactions contemplated hereby and thereby
and
any advice given by any Purchaser or any of their respective representatives
or
agents in connection with this Agreement or the Related Documents or the
transactions contemplated hereby and thereby is merely incidental to such
Purchaser’s purchase of the Securities. The Seller further represents to each
Purchaser that the Seller’s decision to enter into this Agreement and the
Related Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Seller and its
representatives.
13
3.34 Internal
Accounting Controls.
The
Seller and each of its subsidiaries maintains 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 GAAP 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.
The
Seller has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Seller and designed
such disclosure controls and procedures to ensure that material information
relating to the Seller, including its subsidiaries, is made known to the
certifying officers by others within those entities, particularly during the
period in which the Seller’s Form 10-K or 10-Q, as the case may be, is
being prepared. The Seller’s certifying officers have evaluated the
effectiveness of the Seller’s disclosure controls and procedures as of the end
of the period covered by the Seller’s most recently filed periodic report under
the Exchange Act (such date, the “Evaluation
Date”).
The
Seller presented in its most recently filed Form 10-K or Form 10-Q the
conclusions of the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation Date.
Since the Evaluation Date, there have been no changes in the Seller’s internal
control over financial reporting (as such term is defined in Rule 13a-15(f)
under the Exchange Act) that has materially affected, or is reasonably likely
to
materially affect, the Seller’s internal control over financial
reporting.
3.35 Solvency.
Based
on the financial condition of the Seller as of the Closing Date, (i) the
Seller’s fair saleable value of its assets exceeds the amount that will be
required to be paid on or in respect of the Seller’s existing debts and other
liabilities (including known contingent liabilities) as they mature; (ii) the
Seller’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 Seller, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Seller, together with the proceeds the Seller 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 Seller 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).
3.36 Title
to Assets.
The
Seller and the Subsidiaries have good and marketable title in fee simple to
all
real property owned by them that is material to their respective businesses
and
good and marketable title in all personal property owned by them that is
material to their respective businesses, in each case free and clear of all
Liens, except for (i) Liens as do not materially affect the value of such
property, do not materially interfere with the use made and proposed to be
made
of such property by the Seller and the Subsidiaries, (ii) Liens for taxes not
yet due and payable and (iii) Liens which would not, individually or in the
aggregate, reasonably be expected to have or result in a Material Adverse
Effect. To the Seller’s knowledge, any real property and facilities held under
lease by the Seller and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Seller and the Subsidiaries
are
in compliance except, in each case, as would not reasonably be expected to
result in a Material Adverse Effect.
14
ARTICLE
IV - REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each
Purchaser, for itself only, hereby severally and not jointly, represents and
warrants to the Seller as follows:
4.1 Existence
and Power.
The
Purchaser is duly organized, validly existing and in good standing under the
laws of the jurisdiction of such Purchaser’s organization. The Purchaser has all
powers required to carry on such Purchaser’s business as now
conducted.
4.2 Authorization.
The
execution, delivery and performance by the Purchaser of this Agreement, the
Related Documents to which such Purchaser is a party, and the consummation
by
the Purchaser of the transactions contemplated hereby and thereby have been
duly
authorized, and no additional action is required for the approval of this
Agreement or the Related Documents. This Agreement and the Related Documents
to
which the Purchaser is a party have been or, to the extent contemplated hereby,
will be duly executed and delivered and constitute valid and binding agreements
of the Purchaser, enforceable against such Purchaser in accordance with their
terms, except as may be limited by bankruptcy, reorganization, insolvency,
moratorium and similar laws of general application relating to or affecting
the
enforcement of rights of creditors and except that enforceability of their
obligations thereunder are subject to general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
4.3 Investment.
The
Purchaser is acquiring the securities described herein for its own account
and
not with a view to, or for sale in connection with, any distribution thereof,
nor with the intention of distributing or reselling the same, provided, however,
that by making the representation herein, the Purchaser does not agree to hold
any of the securities for any minimum or other specific term and reserves the
right to dispose of the securities at any time in accordance with or pursuant
to
a registration statement or an exemption under the Securities Act. The Purchaser
is aware that none of the securities has been registered under the Securities
Act or under applicable state securities or blue sky laws. The Purchaser is
an
“Accredited Investor” as such term is defined in Rule 501 of Regulation D, as
promulgated under the Securities Act (including without limitation, if the
Purchaser is an employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974 and a self-directed plan, then investment
decisions are made solely by persons that are “Accredited
Investors”).
4.4 Reliance
on Exemptions.
The
Purchaser understands that the Notes are being offered and sold to such
Purchaser in reliance upon specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Seller is relying upon the truth and accuracy of, and such Purchaser’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of such Purchaser set forth herein in order to determine
the
availability of such exemptions and the eligibility of such Purchaser to acquire
the securities.
4.5 Experience
of the Purchaser.
The
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.
The 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.
15
4.6 General
Solicitation.
The
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.
4.7 Receipt
of Purchaser Information.
The
Purchaser hereby acknowledges that it has been furnished with, or has had an
opportunity to acquire and carefully review the following documents filed by
the
Seller with the SEC: (a) Annual Report on Form 10-KSB for the year ended June
30, 2007 and amendments thereto (the “10-KSB”); (b) Quarterly Reports on Form
10-QSB for each of the quarters ended September 30, 2007, December 31, 2007
and
March 31, 2008 and any amendments thereto, respectively; (c) all Current Reports
on Form 8-K after the filing of the 10-KSB; (d) the Seller’s registration
statement number 333-140248 filed on Form S-3; and (e) the Seller’s most recent
definitive proxy materials. Purchaser further represents that the Purchaser
has
been furnished by the Seller during the course of this transaction with all
information regarding the Seller that it or its investment advisors, attorney
and/or accountant has requested or desired to know, has been afforded the
opportunity to ask questions of and receive answers from duly authorized
officers or other representatives of the Seller concerning the terms and
conditions of the transaction, and has received any additional information
that
the Purchaser has requested .
4.8 SEC
Policy on Short Sales.
The
Purchaser acknowledges that the Purchaser, directly or through related parties,
affiliates or otherwise, may be prohibited in certain circumstances from selling
“short or “shorting against the box” (as those terms are generally understood)
any equity security of the Seller as a result of the following Telephone
Interpretation in the SEC Manual of Publicly Available Telephone Interpretations
(July 1997) A. 65 Section 5:
“An
issuer filed a Form S-3 registration statement for a secondary offering of
common
stock which is not yet effective. One of the selling shareholders wanted
to
do a
short sale of common stock “against the box” and cover the short sale with
registered
shares after the effective date. The issuer was advised that the short sale
could not be made before the registration statement becomes effective, because
the shares underlying the short sale are deemed to be sold at the time such
sale
is made. There would, therefore, be a violation of Section 5 if the shares
were
effectively sold prior to the effective date.”
ARTICLE
V
- COVENANTS OF THE SELLER AND PURCHASERS
5.1 Insurance.
The
Seller and its Subsidiaries shall, from time to time upon the written request
of
the Purchasers, promptly furnish or cause to be furnished to the Purchasers
evidence, in form and substance reasonably satisfactory to the Purchasers,
of
the maintenance of all insurance maintained by it for loss or damage by fire
and
other hazards, damage or injury to persons and property, including from product
liability, and under workmen’s compensation laws.
5.2 Reporting
Obligations.
So long
as any of the Notes are outstanding, the Seller shall furnish to the Purchasers,
or any other persons who hold any of the Notes (provided that such subsequent
holders give notice to the Seller that they hold Notes and furnish their
addresses) promptly upon their becoming available one copy of (A) each report,
notice or proxy statement sent by the Seller to its stockholders generally,
and
of each regular or periodic report (pursuant to the Exchange Act) and (B) any
registration statement, prospectus or written communication pursuant to the
Securities Act relating to the issuance or registration of Conversion Shares
and
filed by the Seller with the Commission or any securities market or exchange
on
which shares of Common Stock are listed; provided, however, that the Seller
shall have no obligation to deliver reports or schedules under this Section
5.2
to the extent such reports are publicly available via XXXXX.
16
The
Purchasers are hereby authorized to deliver a copy of any financial statement
or
any other information relating to the business, operations or financial
condition of the Seller which may have been furnished to the Purchasers
hereunder, to any regulatory body or agency having jurisdiction over the
Purchasers or to any Person which shall, or shall have right or obligation
to
succeed to all or any part of the Purchasers’ interest in the Seller or this
Agreement.
5.3 Investigation.
The
representations, warranties, covenants and agreements set forth in this
Agreement shall not be affected or diminished in any way by any investigation
(or failure to investigate) at any time by or on behalf of the party for whose
benefit such representations, warranties, covenants and agreements were made.
Without limiting the generality of the foregoing, the inability or failure
of
the Purchasers to discover any breach, default or misrepresentation by the
Seller under this Agreement or the Related Documents (including under any
certificate furnished pursuant to this Agreement), notwithstanding the exercise
by the Purchasers or other holders of the Notes of their rights hereunder to
conduct an investigation shall not in any way diminish any liability
hereunder.
5.4 Further
Assurances.
The
Seller shall, at its cost and expense, upon written request of the Purchasers,
duly execute and deliver, or cause to be duly executed and delivered, to the
Purchasers such further instruments and do and cause to be done such further
acts as may be necessary, advisable or proper, at the reasonable request of
the
Purchasers, to carry out more effectually the provisions and purposes of this
Agreement. The parties shall use their best efforts to timely satisfy each
of
the conditions described in Article VI of this Agreement.
5.5 Use
of
Proceeds.
The
Seller covenants and agrees that the proceeds of the aggregate Purchase Price
shall be used by the Seller solely for working capital, general corporate
purposes and the expenses reasonably incurred by Seller in connection with
the
consummation of the transactions contemplated hereby; provided that under no
circumstances shall any portion of the proceeds be applied to:
(i)
accelerated
repayment of debt existing on the date hereof;
| (ii) |
the
payment of dividends or other distributions on any capital stock
of the
Seller;
|
| (iii) |
increased
executive compensation or loans to officers, employees, stockholders
or
directors, unless approved by a disinterested majority of the Board
of
Directors; or
|
| (iv) |
any
expenditure not directly related to the business of the
Seller.
|
17
5.6 Corporate
Existence.
So long
as a Purchaser owns Notes or Conversion Shares, the Seller shall preserve and
maintain and cause its Subsidiaries to preserve and maintain their corporate
existence and good standing in the jurisdiction of their incorporation and
the
rights, privileges and franchises of the Seller and its Subsidiaries (except,
in
each case, in the event of a merger or consolidation in which the Seller or
its
Subsidiaries, as applicable, is not the surviving entity) in each case where
failure to so preserve or maintain could have a Material Adverse Effect on
the
Seller.
5.7 Licenses.
The
Seller shall, and shall cause its Subsidiaries to, maintain at all times all
material licenses or permits necessary to the conduct of its business and as
required by any governmental agency or instrumentality thereof.
5.8 Taxes
and Claims.
The
Seller and its Subsidiaries shall duly pay and discharge (a) all material taxes,
assessments and governmental charges upon or against the Seller or its
properties or assets prior to the date on which penalties attach thereto, unless
and to the extent that such taxes are being diligently contested in good faith
and by appropriate proceedings, and appropriate reserves therefor have been
established, and (b) all material lawful claims, whether for labor, materials,
supplies, services or anything else which might or could, if unpaid, become
a
lien or charge upon the properties or assets of the Seller or its Subsidiaries
unless and to the extent only that the same are being diligently contested
in
good faith and by appropriate proceedings and appropriate reserves therefor
have
been established.
5.9 Perform
Covenants.
The
Seller shall (a) make full and timely payment of any and all payments on the
Notes, and all other obligations of the Seller to the Purchasers in connection
therewith, whether now existing or hereafter arising, and (b) duly comply with
all the terms and covenants contained herein and in each of the instruments
and
documents given to the Purchasers in connection with or pursuant to this
Agreement, all at the times and places and in the manner set forth herein or
therein.
5.10 Additional
Covenants.
(a) Except
for transactions approved by a majority of the disinterested directors of the
Board of Directors, neither the Seller nor any of its Subsidiaries shall enter
into any transaction with any director, officer, employee or holder of more
than
5% of the outstanding capital stock of any class or series of capital stock
of
the Seller or any of its Subsidiaries, member of the family of any such person,
or any corporation, partnership, trust or other entity in which any such person,
or member of the family of any such person, is a director, officer, trustee,
partner or holder of more than 5% of the outstanding capital stock thereof,
with
the exception of transactions which are consummated upon terms that are no
less
favorable than would be available if such transaction had been effected at
arms-length, in the reasonable judgment of the Board of Directors.
(b) The
Seller shall timely prepare and file with the Securities and Exchange Commission
the form of notice of the sale of securities pursuant to the requirements of
Regulation D regarding the sale of the Notes under this Agreement.
(c) The
Seller shall timely prepare and file such applications, consents to service
of
process (but not including a general consent to service of process) and similar
documents and take such other steps and perform such further acts as shall
be
required by the U.S. state securities law requirements of each jurisdiction
where a Purchaser resides as indicated on such Purchaser’s signature page hereto
with respect to the sale of the Notes under this Agreement.
18
(d) Neither
the Seller nor any of its Affiliates, nor any Person acting on its or their
behalf, shall directly or indirectly make any offers or sales of any securities
or solicit any offers to buy any securities under circumstances that would
cause
the loss of the 4(2) exemption under the Securities Act for the transactions
contemplated hereby. Subject to any consent or approval rights of the Purchasers
hereunder, in the event the Seller contemplates an offering of its equity or
debt securities within six months following the Closing Date, the Seller agrees
that it shall notify the Purchasers of such offering (without providing any
material non-public information to any Purchaser without its prior approval)
and
obtain the prior written consent of Purchasers.
5.11 Securities
Laws Disclosure; Publicity.
The
Seller shall (i) on or promptly after the Closing Date, issue a press release
acceptable to The Tail Wind Fund Ltd. disclosing the transactions contemplated
hereby, and (ii) promptly after the Closing Date, file with the Commission
a
Report on Form 8-K disclosing the transactions contemplated hereby. Except
as
provided in the preceding sentence, neither the Seller nor the Purchasers shall
make any press release or other publicity about the terms of this Agreement
or
the transactions contemplated hereby without the prior approval of the other
unless otherwise required by law or the rules of the Commission.
5.12 Like
Treatment of Purchasers and Holders.
Neither
the Seller nor any of its affiliates shall, directly or indirectly, pay or
cause
to be paid any consideration (immediate or contingent), whether by way of
interest, fee, payment for redemption, conversion or exercise of the Securities,
or otherwise, to any Purchaser or holder of Securities, for or as an inducement
to, or in connection with the solicitation of, any consent, waiver or amendment
to any terms or provisions of this Agreement or the Related Documents, unless
such consideration is required to be paid to all Purchasers or holders of
Securities bound by such consent, waiver or amendment. The Seller shall not,
directly or indirectly, redeem any Securities unless such offer of redemption
is
made pro rata to all Purchasers or holders of Securities, as the case may be,
on
identical terms.
5.13 Independent
Nature of Purchasers’ Obligations and Rights.
The
obligations of each Purchaser under this Agreement or any Related Documents
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 such agreement. Nothing contained herein or
in
any Related Documents, 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 such agreement. 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
Related Documents, and it shall not be necessary for any other Purchaser to
be
joined as an additional party in any proceeding for such purpose. Each Purchaser
represents that it has been represented by its own separate legal counsel in
its
review and negotiation of this Agreement and the Related Documents. For reasons
of administrative convenience only, the Purchasers acknowledge and agree that
they and their respective counsel have chosen to communicate with the Seller
through Xxxxx X. Xxxxxxx, P.C., but Xxxxx X. Xxxxxxx, P.C. does not represent
any of the Purchasers in this transaction other than The Tail Wind Fund Ltd.
(the “Lead Investor”), Solomon Strategic Holdings, Inc. and Tail Wind Advisory
& Management Ltd.
19
5.14 Other
Transactions. Until after the earlier of (a) four months following the date
on
which the Registration Statement (as defined in the Investor Rights Agreement)
is declared effective by the Commission and (b) nine months following the date
hereof, the Seller shall not issue or sell or agree to issue or sell any
securities in a financing or capital raising transaction which is a Variable
Rate Transaction or otherwise provides the purchasers of such securities with
more favorable terms (including without limitation with respect to the effective
purchase price per share, conversion, exercise or exchange price (whether before
or after adjustment), term, coupon, warrant coverage or otherwise) than those
contained in this Agreement and the Related Documents and the transactions
contemplated hereby and thereby. “Variable Rate Transaction” shall mean a
transaction in which the Seller issues or sells, or agrees to issue or sell
(a)
any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of, Common
Stock either (x) at a conversion, exercise or exchange rate or other price
that
is based upon and/or varies with the trading prices of or quotations for the
Common Stock at any time after the initial issuance of such debt or equity
securities, (y) with a fixed conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such
debt or equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Seller or the market
for
the Common Stock (but excluding standard stock split anti-dilution provisions),
or (z) under a warrant exercisable for a number of shares based upon and/or
varying with the trading prices of or quotations for the Common Stock at any
time after the initial issuance of such warrant, or (b) any securities of the
Seller pursuant to an “equity line” structure which provides for the sale, from
time to time, of securities of the Seller which are registered for resale
pursuant to the Securities Act.
5.15 Participation
Rights.
(a)
Subject to the terms and conditions specified in this Section 5.15, at any
time
while the Notes are outstanding, the Purchasers shall have a right to
participate with respect to the issuance or possible issuance by the Seller
in a
financing or capital raising transaction (“Issuance Transaction”), other than a
firm commitment underwritten public offering with a reputable nationally
recognized underwriter for in excess of $25 million, of any future equity or
equity-linked securities or debt which is convertible into equity or in which
there is an equity component (as the case may be, “Additional Securities”) on
the same terms and conditions as offered by the Seller to the other purchasers
of such Additional Securities. Each time the Seller proposes to offer any
Additional Securities, the Seller shall make an offering of such Additional
Securities to each Purchaser in accordance with the following
provisions:
(i) At
least
twenty (20) days prior to any Issuance Transaction, the Seller shall deliver
a
notice (the “Issuance Notice”) to the Purchasers stating (a) its bona fide
intention to offer such Additional Securities, (b) the number of such Additional
Securities to be offered, (c) the price and terms, if any, upon which it
proposes to offer such Additional Securities, and (d) the anticipated closing
date of the sale of such Additional Securities.
20
(ii) By
written notification received by the Seller, within ten (10) days after giving
of the Issuance Notice, each Purchaser may elect to purchase or obtain, at
the
price and on the terms specified in the Issuance Notice, up to that number
of
such Additional Securities which equals such Purchaser’s Participation Amount
for the same consideration and on the same terms and conditions as such
third-party sale, where the “Participation Amount” for each Purchaser shall
equal (a) 50% of the aggregate amount of such Additional Securities issued
or to
be issued to the Purchasers and the other investors participating in such
offering (such aggregate amount, the “Subsequent Offering Amount”), multiplied
by (b) a fraction, the numerator of which equals the principal amount of Notes
purchased hereunder and the denominator of which equals the aggregate principal
amount of Notes purchased by all Purchasers pursuant to this Agreement. The
Seller shall promptly, in writing, inform each Purchaser which elects to
purchase all of the Additional Securities available to it (“Fully-Exercising
Holder”) of any other Purchaser's failure to do likewise. During the five-day
period commencing after such information is given, each Fully-Exercising Holder
shall be entitled to obtain that portion of the Additional Securities for which
the Purchasers were entitled to subscribe but which were not subscribed for
by
such Purchasers which is equal to the proportion that the principal amount
of
Notes purchased by such Fully-Exercising Holder bears to the aggregate principal
amount of Notes purchased by all Fully-Exercising Holders who wish to purchase
some of the unsubscribed shares. Any Purchaser exercising its right to purchase
Additional Securities hereunder may designate any affiliate of such Purchaser,
or any entity advised or managed by such Purchaser, as the entity so purchasing
such Additional Securities.
(iii) The
Seller may, during the 75-day period following the expiration of the 10-day
and
5-day periods referenced in Section 5.15(a)(ii) above, offer up to the
Subsequent Offering Amount of such Additional Securities to any person or
persons at a price not less than, and upon terms no more favorable to the
offeree than, those specified in the Issuance Notice. If the Seller does not
consummate the sale of such Additional Securities within such period, the right
provided hereunder shall be deemed to be revived and such Additional Securities
shall not be offered or sold unless the Participation Amount is again first
reoffered to the Purchasers in accordance herewith.
(b) In
addition to Section 5.15(a) above and notwithstanding anything contained herein
and notwithstanding the Participation Amount, following any Issuance Notice
each
Purchaser shall have the right to purchase up to such amount of Additional
Securities, on the same terms and conditions offered by the Seller to the other
purchasers of Additional Securities, which have a purchase price therefore
equal
to the then outstanding Principal Amount due hereunder, provided that such
Purchaser shall pay such purchase price by exchanging such portion of the
outstanding Principal Amount of this Note as is equal to the purchase price
of
the Additional Securities so elected to be purchased by such
Purchaser.
(c) Notwithstanding
anything contained herein, no Purchaser shall have the right to purchase
Additional Securities hereunder to the extent same would cause such holder
to
exceed the Restricted Ownership Percentage (as defined in the Notes), provided
that to the extent such Additional Securities constitute Convertible Securities
(as defined in the Notes), such Additional Securities shall have inserted into
the terms thereof a beneficial ownership limitation similar to that set forth
in
Section 3(i) of the Notes.
21
ARTICLE
VI - CONDITIONS TO CLOSINGS
6.1 Conditions
to Obligations of Purchasers to Effect each Closing.
The
obligations of a Purchaser to consummate the Closing and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to Closing, of each of the following conditions, any of which may be waived,
in
writing, by a Purchaser:
(a) Representations
and Warranties.
The
representations and warranties of the Seller set forth in this Agreement shall
be true and correct in all material respects (except for those qualified as
to
materiality or a Material Adverse Effect, which shall be true and correct in
all
respects) as of the date of this Agreement and as of the Closing Date (except
to
the extent that such representation or warranty speaks of an earlier date,
in
which case such representation or warranty shall be true and correct in all
material respects (or if qualified as to materiality or a Material Adverse
Effect, true and correct in all respects) as of such date) as though made on
and
as of the Closing Date. On or prior to the Closing Date the Seller shall deliver
to each of the Purchasers a certificate of the Chief Executive Office and Chief
Financial Officer of the Seller to the effect that all of the representations
and warranties of the Seller set forth in this Agreement are true and correct
as
of the Closing Date (including, to the extent necessary, updated disclosure
schedules which shall be reasonably acceptable to each Purchaser) and that
the
Seller has performed all of its obligations under this Agreement required to
be
performed prior to the Closing Date.
(b) Performance
of Obligations of Seller.
The
Seller shall have performed in all material respects all agreements and
covenants required to be performed by it under this Agreement on or prior to
the
Closing Date.
(c) No
Suspension of Trading.
From
the date hereof to the Closing Date, 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 Seller, which suspension shall be terminated
prior to Closing), and, at any time prior to the 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 any trading 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 each Purchaser, makes
it impracticable or inadvisable to purchase the Notes at the
Closing.
(d) Deliverables.
The
Seller shall deliver or cause to be delivered to each of the Purchasers the
following on or prior to the Closing Date:
1. One
or
more Notes, in the aggregate principal amount as is to be purchased at the
Closing by such Purchaser, registered in the name of such Purchaser;
and
22
2. The
Investor Rights Agreement, in the form attached hereto as Exhibit
B
(the
“Investor Rights Agreement”), duly executed by the Seller.
3. A
legal
opinion of counsel to the Seller (“Seller’s Counsel”), in the form attached
hereto as Exhibit
C.
4. A
certificate of the Secretary of the Seller (the “Secretary’s Certificate”), in
form and substance satisfactory to the Purchasers, certifying as follows as
of
the date of such Closing:
(i) that
attached to the Secretary’s Certificate is true and complete copy of the
Articles of Incorporation of the Seller, as amended, including any certificate
of designation;
(ii) that
a
true copy of the Bylaws of the Seller, as amended to the Closing Date, is
attached to the Secretary’s Certificate;
(iii) that
attached thereto are true and complete copies of the resolutions of the Board
of
Directors of the Seller authorizing the execution, delivery and performance
of
this Agreement and the Related Documents, instruments and certificates required
to be executed by it in connection herewith and approving the consummation
of
the transactions in the manner contemplated hereby including, but not limited
to, the authorization and issuance of the Notes;
(iv) the
names
and true signatures of the officers of the Seller signing this Agreement and
all
other documents to be delivered in connection with this Agreement;
(v) such
other matters as required by this Agreement; and
(vi) such
other matters as the Purchasers may reasonably request.
5. A
wire
transfer representing the amount due for legal fees and other expenses set
forth
in Section 8.2 hereof (which may be offset from the Purchase Price at the
election of the applicable Purchaser).
6. Seller
shall have applied to each U.S. securities exchange, interdealer quotation
system and other trading market where its Common Stock is currently listed
or
qualified for trading or quotation for the listing or qualification of the
Conversion Shares for trading or quotation thereon in the time and manner
required thereby.
7. Such
other documents as the Purchasers shall reasonably request.
(e)
There
shall have been no Material Adverse Effect with respect to the
Seller.
6.2 Conditions
to Obligations of the Seller to Effect each Closing.
The
obligations of the Seller to effect the Closing and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, by the Seller:
23
(a) Representations
and Warranties.
The
representations and warranties of each Purchaser set forth in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date (except to the extent that such
representation or warranty speaks of an earlier date, in which case such
representation or warranty shall be true and correct in all material respects
as
of such date) as though made on and as of the Closing Date.
(b) Performance
of Obligations of the Purchasers.
Each of
the Purchasers shall have performed in all material respects all agreements
and
covenants required to be performed by it under this Agreement on or prior to
the
Closing Date.
(c) Deliverables.
Each of
the Purchasers shall deliver or cause to be delivered to the Seller (i) upon
receipt of the Seller’s items described in Section 6.1(d) above, payment of the
portion of the Purchase Price set forth on such Purchaser’s signature page
hereto, in cash by wire transfer of immediately available funds to an account
designated in writing by Seller prior to the date hereof; (ii) an executed
copy
of the Investor Rights Agreement; and (iii) such other documents as the Seller
shall reasonably request.
ARTICLE
VII – INDEMNIFICATION AND LIQUIDATED DAMAGES
7.1 Survival
of Representations.
The
representations and warranties of the Seller and the Purchasers contained in
or
made pursuant to this Agreement shall survive the execution and delivery of
this
Agreement. The Seller’s and the Purchasers’ warranties and representations shall
in no way be affected by any investigation of the subject matter thereof made
by
or on behalf of the Seller or the Purchasers.
7.2 Indemnification.
The
Seller agrees to indemnify and hold harmless the Purchasers, their Affiliates,
each of their officers, directors, employees and agents and their respective
successors and assigns, from and against any losses, damages, or expenses which
are caused by or arise out of (i) any breach or default in the performance
by
the Seller of any covenant or agreement made by the Seller in this Agreement
or
in any of the Related Documents; (ii) any breach of warranty or representation
made by the Seller in this Agreement or in any of the Related Documents; (iii)
any and all third party actions, suits, proceedings, claims, demands, judgments,
costs and expenses (including reasonable legal fees and expenses) incident
to
any of the foregoing; and (iv) any enforcement of this
indemnification.
7.3 Indemnity
Procedure.
The
Seller is referred to herein as the “Indemnifying Party” and the other party or
parties claiming indemnity is referred to as the “Indemnified Party”. An
Indemnified Party under this Agreement shall, with respect to claims asserted
against such party by any third party, give written notice to the Indemnifying
Party of any liability which might give rise to a claim for indemnity under
this
Agreement within sixty (60) business days of the receipt of any written claim
from any such third party, but not later than twenty (20) days prior to the
date
any answer or responsive pleading is due, and with respect to other matters
for
which the Indemnified Party may seek indemnification, give prompt written notice
to the Indemnifying Party of any liability which might give rise to a claim
for
indemnity; provided, however, that any failure to give such notice will not
waive any rights of the Indemnified Party except to the extent the rights of
the
Indemnifying Party are materially prejudiced.
24
The
Indemnifying Party shall have the right, at its election, to take over the
defense or settlement of such claim by giving written notice to the Indemnified
Party at least fifteen (15) days prior to the time when an answer or other
responsive pleading or notice with respect thereto is required. If the
Indemnifying Party makes such election, it may conduct the defense of such
claim
through counsel of its choosing (subject to the Indemnified Party’s approval of
such counsel, which approval shall not be unreasonably withheld), shall be
solely responsible for the expenses of such defense and shall be bound by the
results of its defense or settlement of the claim. The Indemnifying Party shall
not settle any such claim without prior notice to and consultation with the
Indemnified Party, and no such settlement involving any equitable relief or
which might have an adverse effect on the Indemnified Party may be agreed to
without the written consent of the Indemnified Party (which consent shall not
be
unreasonably withheld). So long as the Indemnifying Party is diligently
contesting any such claim in good faith, the Indemnified Party may pay or settle
such claim only at its own expense and the Indemnifying Party will not be
responsible for the fees of separate legal counsel to the Indemnified Party,
unless the named parties to any proceeding include both parties or
representation of both parties by the same counsel would be inappropriate due
to
conflicts of interest or otherwise. If the Indemnifying Party does not make
such
election, or having made such election does not, in the reasonable opinion
of
the Indemnified Party proceed diligently to defend such claim, then the
Indemnified Party may (after written notice to the Indemnifying Party), at
the
expense of the Indemnifying Party, elect to take over the defense of and proceed
to handle such claim in its discretion and the Indemnifying Party shall be
bound
by any defense or settlement that the Indemnified Party may make in good faith
with respect to such claim. In connection therewith, the Indemnifying Party
will
fully cooperate with the Indemnified Party should the Indemnified Party elect
to
take over the defense of any such claim. The parties agree to cooperate in
defending such third party claims and the Indemnified Party shall provide such
cooperation and such access to its books, records and properties as the
Indemnifying Party shall reasonably request with respect to any matter for
which
indemnification is sought hereunder; and the parties hereto agree to cooperate
with each other in order to ensure the proper and adequate defense
thereof.
With
regard to claims of third parties for which indemnification is payable
hereunder, such indemnification shall be paid by the Indemnifying Party upon
the
earlier to occur of: (i) the entry of a judgment against the Indemnified Party
and the expiration of any applicable appeal period, or if earlier, five (5)
days
prior to the date that the judgment creditor has the right to execute the
judgment; (ii) the entry of an unappealable judgment or final appellate decision
against the Indemnified Party; or (iii) a settlement of the claim.
Notwithstanding the foregoing, the reasonable expenses of counsel to the
Indemnified Party shall be reimbursed on a current basis by the Indemnifying
Party. With regard to other claims for which indemnification is payable
hereunder, such indemnification shall be paid promptly by the Indemnifying
Party
upon demand by the Indemnified Party.
7.4 Liquidated
Damages.
The
Seller and the Purchasers agree that the Purchasers will suffer damages if
a
Breach Event (as defined below) occurs or is ongoing. The Seller and the
Purchasers further agree that it may not be feasible to ascertain the extent
of
such damages with precision. If a Breach Event (as defined below) occurs, then
the Purchasers may elect, as liquidated damages, and in addition to any other
remedies legally available to such Purchasers, to require that the Seller shall
pay to the Purchasers liquidated damages at a rate of 12% per annum of the
aggregate Purchase Price of such Purchasers payable monthly in cash at the
end
of each month (or part thereof) in which the Breach Event is outstanding.
25
“Breach
Event” means either:
(i) Any
breach of any warranty or representation of the Seller as of the date made
in
this Agreement, any Related Agreement or any other agreement delivered herewith,
which breach, or the facts and circumstances concerning such breach, has or
is
reasonably likely to have a Material Adverse Effect; or
(ii) Any
breach by the Seller of any material covenant or obligation under this
Agreement, any Related Agreement or any other agreement delivered herewith,
and
which breach, if capable of being cured, has not been cured within ten (10)
days
after notice of such breach has been given by the holders of a majority of
principal amount of Notes to the Seller.
The
Seller and the Purchasers have expressly negotiated this Section 7.4, and have
agreed that in light of the circumstances existing at the time of execution
of
this Agreement, the liquidated damages expressed herein represent a reasonable
estimate of the harm likely to be suffered by the Purchasers upon the occurrence
of a Breach Event.
ARTICLE
VIII - MISCELLANEOUS
8.1 Further
Assurances.
Each
party agrees to cooperate fully with the other parties and to execute such
further instruments, documents and agreements and to give such further written
assurances as may be reasonably requested by any other party to better evidence
and reflect the transactions described herein and contemplated hereby and to
carry into effect the intents and purposes of this Agreement, and further agrees
to take promptly, or cause to be taken, all actions, and to do promptly, or
cause to be done, all things necessary, proper or advisable under applicable
law
to consummate and make effective the transactions contemplated hereby, to obtain
all necessary waivers, consents and approvals, to effect all necessary
registrations and filings, and to remove any injunctions or other impediments
or
delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this Agreement for the purpose of securing to
the
parties hereto the benefits contemplated by this Agreement.
8.2 Fees
and Expenses.
The
parties hereto shall pay their own costs and expenses in connection herewith,
except that the Seller shall pay to Tail Wind Advisory and Management Ltd.
a
non-refundable sum equal to $60,000 as and for legal and due diligence expenses
incurred in connection herewith, $25,000 of which amount has been previously
paid. The Seller shall pay all fees and expenses of any placement agents,
finders and escrow agents in connection with the transactions contemplated
by
this Agreement pursuant to a separate agreement between such
parties.
8.3 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 5:00 p.m. (New York City time) on a business day, (b) the next business
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 business day or later than 5:00 p.m. (New York City time) on any business
day, (c) the business day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service such as Federal Express, or
(d)
actual receipt by the party to whom such notice is required to be given. The
address for such notices and communications shall be as
follows:
26
If
to the
Purchasers at each Purchaser’s address set forth on such Purchaser’s signature
page hereto, or with respect to the Seller, addressed to:
NetSol
Technologies, Inc.
00000
Xxxxxxxxx Xxxx,
Xxxxx
0000
Xxxxxxxxx,
XX 00000
Attention:
General Counsel
Facsimile
No.: (000) 000-0000
or
to
such other address or addresses or facsimile number or numbers as any such
party
may most recently have designated in writing to the other parties hereto by
such
notice. Copies of notices to any Purchaser shall be sent to the addresses,
if
any, listed on such Purchaser’s signature page hereto, with a copy
to:
Xxxxx
X.
Xxxxxxx, P.C.
000
Xxxx
00xx
Xxxxxx,
00xx
Xx.
Xxx
Xxxx,
XX 00000
Fax:
(000) 000-0000
Unless
otherwise stated above, such communications shall be effective when they are
received by the addressee thereof in conformity with this Section. Any party
may
change its address for such communications by giving notice thereof to the
other
parties in conformity with this Section.
8.4 Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by and enforced in accordance with the
laws
of the State of New York without reference to the conflicts of laws principles
thereof.
8.5 Jurisdiction
and Venue.
This
Agreement shall be subject to the exclusive jurisdiction of the Xxxxxxx Xxxxxxxx
Xxxxx, Xxxxxxxx Xxxxxxxx of New York and if such court does not have proper
jurisdiction, the State Courts of New York County, New York. The parties to
this
Agreement agree that any breach of any term or condition of this Agreement
shall
be deemed to be a breach occurring in the State of New York by virtue of a
failure to perform an act required to be performed in the State of New York
and
irrevocably and expressly agree to submit to the jurisdiction of the Xxxxxxx
Xxxxxxxx Xxxxx, Xxxxxxxx Xxxxxxxx of New York and if such court does not have
proper jurisdiction, the State Courts of New York County, New York for the
purpose of resolving any disputes among the parties relating to this Agreement
or the transactions contemplated hereby. The parties irrevocably waive, to
the
fullest extent permitted by law, any objection which they may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of
or
relating to this Agreement, or any judgment entered by any court in respect
hereof brought in New York County, New York, and further irrevocably waive
any
claim that any suit, action or proceeding brought in Xxxxxxx Xxxxxxxx Xxxxx,
Xxxxxxxx Xxxxxxxx of New York and if such court does not have proper
jurisdiction, the State Courts of New York County, New York has been brought
in
an inconvenient forum. Each of the parties hereto consents to process being
served in any such suit, action or proceeding, by mailing a copy thereof 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 in this Section 8.5 shall affect or limit any right
to
serve process in any other manner permitted by law.
27
8.6 Successors
and Assigns.
This
Agreement is personal to each of the parties and may not be assigned without
the
written consent of the other parties; provided, however, that any of the
Purchasers shall be permitted to assign this Agreement to any Person to whom
it
assigns or transfers securities issued or issuable pursuant to this Agreement.
Any assignee must be an “accredited investor” as defined in Rule 501(a)
promulgated under the Securities Act.
8.7 Severability.
If any
provision of this Agreement, or the application thereof, shall for any reason
or
to any extent be invalid or unenforceable, the remainder of this Agreement
and
application of such provision to other persons or circumstances shall continue
in full force and effect and in no way be affected, impaired or
invalidated.
8.8 Entire
Agreement.
This
Agreement and the other agreements and instruments referenced herein constitute
the entire understanding and agreement of the parties with respect to the
subject matter hereof and supersedes all prior agreements and
understandings.
8.9 Other
Remedies.
Except
as otherwise provided herein, any and all remedies herein expressly conferred
upon a party shall be deemed cumulative with and not exclusive of any other
remedy conferred hereby or by law, or in equity on such party, and the exercise
of any one remedy shall not preclude the exercise of any other.
8.10 Amendment
and Waivers.
Subject
to Section 5.12, any term or provision of this Agreement may be amended, and
the
observance of any term of this Agreement may be waived (either generally or
in a
particular instance and either retroactively or prospectively) only by a writing
signed by the Seller and at least 75% in interest of the Purchasers, and such
waiver or amendment, as the case may be, shall be binding upon all Purchasers.
The waiver by a party of any breach hereof or default in the performance hereof
shall not be deemed to constitute a waiver of any other default or any
succeeding breach or default. This Agreement may not be amended or supplemented
by any party hereto except pursuant to a written amendment executed by the
Seller and at least 75% in interest of the Purchasers. No amendment shall be
effected to impact a Purchaser in a disproportionately adverse fashion without
the consent of such individual Purchaser.
8.11. Termination.
This
Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations
hereunder only and without any effect whatsoever on the obligations between
the
Seller and the other Purchasers, by written notice to the Seller, if the Closing
has not been consummated on or before August 12, 2008; provided, however, that
no such termination will affect the right of any party to xxx for any breach
by
the other party (or parties).
8.12 No
Waiver.
The
failure of any party to enforce any of the provisions hereof shall not be
construed to be a waiver of the right of such party thereafter to enforce such
provisions.
28
8.13 Construction
of Agreement; Knowledge.
For
purposes of this Agreement, the term “knowledge,” when used in reference to a
corporation means the knowledge of the directors and executive officers of
such
corporation (including, if applicable, any person designated as a chief
scientific, medical or technical officer) assuming such persons shall have
made
inquiry that is customary and appropriate under the circumstances to which
reference is made, and when used in reference to an individual means the
knowledge of such individual assuming the individual shall have made inquiry
that is customary and appropriate under the circumstances to which reference
is
made.
8.14 Counterparts.
This
Agreement may be executed in any number of counterparts, each of which shall
be
an original as against any party whose signature appears thereon and all of
which together shall constitute one and the same instrument. This Agreement
shall become binding when one or more counterparts hereof, individually or
taken
together, shall bear the signatures of all of the parties reflected hereon
as
signatories. 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.
8.15 No
Third Party Beneficiary.
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 and their
respective heirs, personal representatives, legal representatives, successors
and permitted assigns, any rights or remedies under or by reason of this
Agreement.
8.16 Waiver
of Trial by Jury.
THE
PARTIES HERETO IRREVOCABLY WAIVE TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
[Signature
Page Follows]
29
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date
first above written.
|
SELLER:
|
|
|
NETSOL
TECHNOLOGIES, INC.
|
|
|
By:
|
|
|
Name:
Xxxxxx Xxxxxx
|
|
|
Title:
Chief Executive Officer
|
|
|
PURCHASER:
|
||
|
THE
TAIL WIND FUND LTD.
|
||
|
By:
|
THE TAIL WIND ADVISORY & MANAGEMENT LTD., | |
| as investment manager | ||
|
By:
|
||
|
Xxxxx
Xxxxx, CEO
|
||
Address:
c/o
Tail
Wind Advisory & Management Ltd.
00
Xxxx
Xxxx
Xxxxxx,
XX0X 0XX, XX
Attn:
Xxxxx Xxxxx
Telephone:
000-00-000-000-0000
Facsimile:
011-44-207-420-3819
Email:
xxxxxx@xxxxxxxxxx.xxx
Residence/Jurisdiction
of Organization: B.V.I.
Amount
of
Investment/Purchase Price: $4,250,000
[Omnibus
NTWK Convertible Note Purchase Agreement Signature Page]
|
PURCHASER:
|
|
|
SOLOMON
STRATEGIC HOLDINGS, INC.
|
|
|
By:
|
|
|
Xxxxxx
X. Xxxxxxxxx, Director
|
|
Address:
c/o
Xxxxxx X. XxxXxxxxx
Greenlands
The
Red
Gap
Xxxxxxxxxx,
XX0 0XX, Xxxxxxx Xxxxx
Telephone:
x000 (00) 0000 000000
Facsimile:
x000 (00) 0000 000000
Email:
xxxxxxxxx_xxx@xxxx.xxx
Residence/Jurisdiction
of Organization: B.V.I.
Amount
of
Investment/Purchase Price: $750,000
[Omnibus
NTWK Convertible Note Purchase Agreement Signature Page]
|
THE TAIL WIND ADVISORY & MANAGEMENT LTD.
|
|
|
By:
|
|
|
Xxxxx
Xxxxx, CEO
|
|
Address:
00
Xxxx
Xxxx
Xxxxxx,
XX0X 0XX, XX
Attn:
Xxxxx Xxxxx
Telephone:
000-00-000-000-0000
Facsimile:
011-44-207-420-3819
Email:
xxxxxx@xxxxxxxxxx.xxx
Residence/Jurisdiction
of Organization: U.K.
Amount
of
Investment/Purchase Price: $1,000,000
[Omnibus
NTWK Convertible Note Purchase Agreement Signature Page]
Schedule
3.1
Seller’s
Subsidiaries
|
1.
|
NetSol
Technologies Ltd. located in Lahore,
Pakistan.
|
|
2.
|
NetSol
Connect (Pvt) Limited located in Karachi, Pakistan. (51%
interest)
|
|
3.
|
NetSol
Abraxas, Inc., located in Adelaide,
Australia.
|
|
4.
|
NetSol
USA, Inc., located in Calabasas,
California
|
|
5.
|
NetSol
Technologies Ltd. located in London,
England.
|
|
6.
|
NetSol
Technologies Europe, Ltd., Located in Horsham,
England
|
|
7.
|
TIG-NetSol
(Pvt) Limited, Located in Lahore, Pakistan.(50.1%
interest)
|
|
8.
|
NetSol
Technology Institute, located in Lahore,
Pakistan.
|
|
9.
|
NetSol
Technologies North America, Located in Burlingame,
California
|
Schedule
3.10
None
Schedule
3.11 (b), (d) and (e)
3.11(b):
On May 6, 2008, the Company amended its articles of incorporation to increase
the authorized capital stock to 100,000 shares comprised of 95,000,000 shares
of
Common Stock, $.001 par value and 5,000,000 shares of Preferred Stock, $.001
par
value.
Schedule
3.15
None
Schedule
3.17
None
Schedule
3.18
None
Schedule
3.19
See
Schedule 3.1
Schedule
3.20
None
Schedule
3.21
None
Schedule
3.22
None
