SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT Dated as of February 7, 2007 among UNITED NATIONAL FILM CORPORATION and THE PURCHASERS LISTED ON EXHIBIT A
Exhibit
10.1
SERIES
A CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
Dated
as of February 7, 2007
among
UNITED
NATIONAL FILM CORPORATION
and
THE
PURCHASERS LISTED ON EXHIBIT A
TABLE
OF CONTENTS
PAGE
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ARTICLE
I Purchase and Sale of Preferred Stock
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1
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Section
1.1
|
Purchase
and Sale of Stock
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1
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Section
1.2
|
Warrants
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1
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Section
1.3
|
Conversion
Shares
|
2
|
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Section
1.4
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Purchase
Price and Closing
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2
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Section
1.5
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Share
Exchange Transaction
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2
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ARTICLE
II Representations and Warranties
|
3
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Section
2.1
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Representations
and Warranties of the Company
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3
|
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Section
2.2
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Representations
and Warranties of the Purchasers
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13
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ARTICLE
III Covenants
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16
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Section
3.1
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Securities
Compliance
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16
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Section
3.2
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Registration
and Listing
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16
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Section
3.3
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Inspection
Rights
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16
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Section
3.4
|
Compliance
with Laws
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17
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Section
3.5
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Keeping
of Records and Books of Account
|
17
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Section
3.6
|
Reporting
Requirements
|
17
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Section
3.7
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Amendments
|
17
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Section
3.8
|
Other
Agreements.
|
17
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Section
3.9
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Distributions.
|
17
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Section
3.10
|
Status
of Dividends
|
17
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Section
3.11
|
Use
of Proceeds
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18
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Section
3.12
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Reservation
of Shares
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18
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Section
3.13
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Transfer
Agent Instructions
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19
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Section
3.14
|
Disposition
of Assets
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19
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Section
3.15
|
Reporting
Status
|
19
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Section
3.16
|
Disclosure
of Transaction
|
19
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Section
3.17
|
Disclosure
of Material Information
|
19
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Section
3.18
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Pledge
of Securities
|
20
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Section
3.19
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Form
SB-2 Eligibility
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20
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Section
3.20
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Lock-Up
Agreement
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21
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Section
3.21
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Investor
and Public Relations Firm
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21
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Section
3.22
|
DTC
|
21
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Section
3.23
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Subsequent
Financings
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21
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Section
3.24
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Xxxxxxxx-Xxxxx
Act
|
23
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Section
3.25
|
Nasdaq
|
23
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Section
3.26
|
No
Commissions in connection with Conversion of Prefererd
Shares
|
23
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ARTICLE
IV Conditions
|
273
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Section
4.1
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Conditions
Precedent to the Obligation of the Company to Sell the
Shares
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23
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Section
4.2
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Conditions
Precedent to the Obligation of the Purchasers to Purchase the
Shares
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24
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ARTICLE
V Stock Certificate Legend
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27
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Section
5.1
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Legend
|
27
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ARTICLE
VI Indemnification
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28
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Section
6.1
|
General
Indemnity
|
28
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Section
6.2
|
Indemnification
Procedure
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28
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ARTICLE
VII Miscellaneous
|
29
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Section
7.1
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Fees
and Expenses
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29
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Section
7.2
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Specific
Enforcement, Consent to Jurisdiction
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29
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Section
7.3
|
Entire
Agreement; Amendment
|
30
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Section
7.4
|
Notices
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30
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Section
7.5
|
Waivers
|
31
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Section
7.6
|
Headings
|
31
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Section
7.7
|
Successors
and Assigns
|
31
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Section
7.8
|
No
Third Party Beneficiaries
|
32
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Section
7.9
|
Governing
Law
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32
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Section
7.10
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Survival
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32
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Section
7.11
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Counterparts
|
32
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Section
7.12
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Publicity
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32
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Section
7.13
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Severability
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32
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Section
7.14
|
Further
Assurances
|
32
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ii
This
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the “Agreement”)
is
dated as of February 7, 2007 by and among United National Film Corporation,
a
Nevada corporation (the “Company”),
and
each of the Purchasers of shares of Series A Convertible Preferred Stock of
the
Company whose names are set forth on Exhibit
A
hereto
(individually, a “Purchaser”
and
collectively, the “Purchasers”).
The
parties hereto agree as follows:
ARTICLE
I
Purchase
and Sale of Preferred Stock
Section
1.1 Purchase
and Sale of Stock.
Upon
the following terms and conditions, the Company shall issue and sell to the
Purchasers and each of the Purchasers shall purchase from the Company, the
number of shares of the Company’s Series A Convertible Preferred Stock, par
value $0.0001 per share and at a purchase price of $2.33 per share (the
“Preferred
Shares”),
convertible into shares of the Company’s common stock, par value $0.0001 per
share (the “Common
Stock”),
in
the amounts set forth opposite such Purchaser’s name on Exhibit
A
hereto.
The designation, rights, preferences and other terms and provisions of the
Series A Convertible Preferred Stock are set forth in the Certificate of
Designation of the Relative Rights and Preferences of the Series A Convertible
Preferred Stock attached hereto as Exhibit
B
(the
“Certificate
of Designation”).
The
Company and the Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Rule 506 of Regulation D (“Regulation
D”)
as
promulgated by the United States Securities and Exchange Commission (the
“Commission”)
under
the Securities Act of 1933, as amended (the “Securities
Act”)
or
Section 4(2) of the Securities Act.
Section
1.2 Warrants.
Upon
the following terms and conditions and for no additional consideration, (i)
each
of the Purchasers shall be issued Series A Warrants, in substantially the form
attached hereto as Exhibit
C-1
(the
“Series
A Warrants”),
to
purchase the number of shares of Common Stock equal to sixty percent (60%)
of
the number of Preferred Shares purchased by each Purchaser pursuant to the
terms
of this Agreement, as set forth opposite such Purchaser’s name on Exhibit
A
hereto
and (ii) provided that Vision Opportunity Master Fund, Ltd. (“Vision”),
QVT
Financial LP (“QVT”),
Old
Lane, L.P., on behalf of funds advised by it (“Old
Lane”),
Blue
Ridge Investments, L.L.C. (“Blue
Ridge”),
TCW
Americas Development Association LP (“TCW
Americas”)
each
purchases Preferred Shares for a purchase price equal to or greater than
$2,000,000 pursuant to the terms of this Agreement, Vision, QVT, Old Lane,
Blue
Ridge and TCW Americas shall each be issued (x) a Series J Warrant, in
substantially the form attached hereto as Exhibit
C-2
(the
“Series
J Warrant”),
to
purchase the number of shares of Common Stock equal to one hundred percent
(100%) of the number of Preferred Shares purchased by such Purchaser, as set
forth opposite such Purchaser’s name on Exhibit
A
hereto,
and (y) a Series B Warrant, in substantially the form attached hereto as
Exhibit
C-3
(the
“Series
B Warrant”
and,
together with the Series A Warrants and the Series J Warrant, the “Warrants”),
to
purchase the number of shares of Common Stock equal to sixty percent (60%)
of
the number of shares of Common Stock purchased by Vision, QVT, Old Lane, Blue
Ridge and TCW Americas pursuant to the Series J Warrant, as set forth opposite
such Purchaser’s name on Exhibit
A
hereto.
The Warrants shall expire five (5) years following the Closing Date, except
for
the Series J Warrants, which shall expire twenty-one (21) months following
the
Closing Date. Each of the Warrants shall have an exercise price per share equal
to the Warrant Price (as defined in the applicable Warrant).
Section
1.3 Conversion
Shares.
The
Company has authorized and has reserved and covenants to continue
to reserve, free of preemptive rights and other similar contractual rights
of
stockholders, a number of shares of Common Stock equal to one hundred
fifty
percent (150%) of the number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all of the Preferred Shares
and
exercise of the Warrants then outstanding. Any shares of Common Stock issuable
upon conversion of the Preferred Shares and exercise of the Warrants (and such
shares when issued) are herein referred to as the “Conversion
Shares”
and
the
“Warrant
Shares”,
respectively. The Preferred Shares, the Conversion Shares and the Warrant Shares
are sometimes collectively referred to as the “Shares”.
Section
1.4 Purchase
Price and Closing.
Subject
to the terms and conditions hereof, the Company agrees to issue and sell to
the
Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase the Preferred
Shares and the Warrants for an aggregate purchase price of up to $24,000,000
(the “Purchase
Price”).
The
closing of the purchase and sale of the Preferred Shares and the Warrants to
be
acquired by the Purchasers from the Company under this Agreement shall take
place at the offices of Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx LLP, 0000 Xxxxxx xx
xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (the “Closing”)
at
10:00 a.m., New York time on such date as the Purchasers and the Company may
agree upon; provided,
that
all of the conditions set forth in Article IV hereof and applicable to the
Closing shall have been fulfilled or waived in accordance herewith (the
“Closing
Date”).
Subject to the terms and conditions of this Agreement, at the Closing the
Company shall deliver or cause to be delivered to each Purchaser (x) a
certificate for the number of Preferred Shares set forth opposite the name
of
such Purchaser on Exhibit
A
hereto,
(y) its Warrants to purchase such number of shares of Common Stock as is set
forth opposite the name of such Purchaser on Exhibit
A
attached
hereto and (z) any other documents required to be delivered pursuant to Article
IV hereof. At the Closing, each Purchaser shall deliver its Purchase Price
by
wire transfer to the escrow account pursuant to the Escrow Agreement (as
hereafter defined). In addition, the parties acknowledge that Seven Hundred
Fifty Thousand Dollars ($750,000) of the Purchase Price funded on the Closing
Date shall be deposited in a separate escrow account with a separate escrow
agent to be used by the Company in connection with investor and public relations
and securities law compliance, including related legal fees and legal fees
relating to minor post-closing corporate matters in the British Virgin Islands,
in accordance with Section 3.21 hereof.
Section
1.5 Share
Exchange Transaction.
The
parties acknowledge that immediately prior to the consummation of the
transactions contemplated by this Agreement, the Company will issue shares
of
its Common Stock to the sole shareholder of Universe Faith Group Limited (the
name of which will be changed to Wuhan Blower and Generating Equipment Co.,
Ltd.) (“Wuhan
Blower”),
a
company organized in the British Virgin Islands, pursuant to that certain Share
Exchange Agreement dated as of the date hereof, and upon the consummation of
the
transactions contemplated by such Share Exchange Agreement, Wuhan Blower will
become a wholly-owned subsidiary of the Company (the “Share
Exchange Transaction”).
-2-
ARTICLE
II
Representations
and Warranties
Section
2.1 Representations
and Warranties of the Company.
The
Company hereby represents and warrants to the Purchasers, as of the date hereof
and Closing Date (except as set forth on the Schedule of Exceptions attached
hereto with each numbered Schedule corresponding to the section number herein),
as follows:
(a) Organization,
Good Standing and Power.
The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Nevada and has the requisite corporate
power to own, lease and operate its properties and assets and to conduct its
business as it is now being conducted. The Company does not have any
subsidiaries except as set forth in the Company’s Form 10-KSB for the year ended
June 30, 2006, including the accompanying financial statements (the
“Form
10-KSB”),
or in
the Company’s Form 10-QSB for the fiscal quarter ended September 30, 2006 (the
“Form
10-QSB”),
or on
Schedule
2.1(g)
hereto.
Except as set forth on Schedule
2.1(a),
the
Company and each such subsidiary is duly qualified as a foreign corporation
to
do business and is in good standing in every jurisdiction in which the nature
of
the business conducted or property owned by it makes such qualification
necessary except for any jurisdiction(s) (alone or in the aggregate) in which
the failure to be so qualified will not have a Material Adverse Effect (as
defined in Section 2.1(c) hereof) on the Company’s financial
condition.
(b) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement in the form attached
hereto as Exhibit
D
(the
“Registration
Rights Agreement”),
the
Lock-Up Agreement (as defined in Section 3.20 hereof) in the form attached
hereto as Exhibit
E,
the
Escrow Deposit Agreement by and among the Company, the Purchasers and the escrow
agent named therein, dated as of the date hereof, substantially in the form
of
Exhibit
F-1
attached
hereto (the “Escrow
Deposit Agreement”),
the
Securities Escrow Agreement by and among the Company, the Purchasers and the
escrow agent named therein, dated as of the date hereof, substantially in the
form of Exhibit
F-2
attached
hereto (the “Securities
Escrow Agreement”
and
together with the Escrow Deposit Agreement, the “Escrow
Agreements”),
the
Irrevocable Transfer Agent Instructions (as defined in Section 3.13), the
Certificate of Designation, and the Warrants (collectively, the “Transaction
Documents”)
and to
issue and sell the Shares and the Warrants in accordance with the terms hereof.
The execution, delivery and performance of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby
and
thereby have been duly and validly authorized by all necessary corporate action,
and no further consent or authorization of the Company or its Board of Directors
or stockholders is required. This Agreement has been duly executed and delivered
by the Company. The other Transaction Documents will have been duly executed
and
delivered by the Company at the Closing. Each of the Transaction Documents
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor’s rights and remedies or by other
equitable principles of general application.
-3-
(c) Capitalization.
The
authorized capital stock of the Company and the shares thereof currently issued
and outstanding as of the date hereof are set forth on Schedule
2.1(c)
hereto.
All of the outstanding shares of the Common Stock and the Preferred Shares
have
been duly and validly authorized. Except as set forth on Schedule
2.1(c)
hereto,
no shares of Common Stock are entitled to preemptive rights or registration
rights and there are no outstanding options, warrants, scrip, rights to
subscribe to, call or commitments of any character whatsoever relating to,
or
securities or rights convertible into, any shares of capital stock of the
Company. There are no contracts, commitments, understandings, or arrangements
by
which the Company is or may become bound to issue additional shares of the
capital stock of the Company or options, securities or rights convertible into
shares of capital stock of the Company. Except as set forth on Schedule
2.1(c)
hereto,
the Company is not a party to any agreement granting registration or
anti-dilution rights to any person with respect to any of its equity or debt
securities. The Company is not a party to, and it has no knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of the Company. The offer and sale of all capital stock, convertible securities,
rights, warrants, or options of the Company issued prior to the Closing complied
with all applicable Federal and state securities laws, and no stockholder has
a
right of rescission or claim for damages with respect thereto which would have
a
Material Adverse Effect (as defined below). The Company has furnished or made
available to the Purchasers true and correct copies of the Company’s Articles of
Incorporation as in effect on the date hereof (the “Articles”),
and
the Company’s Bylaws as in effect on the date hereof (the “Bylaws”).
For
the purposes of this Agreement, “Material
Adverse Effect”
means
any material adverse effect on the business, operations, properties, prospects,
or financial condition of the Company and its subsidiaries and/or any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to perform any of its obligations under this
Agreement in any material respect.
(d) Issuance
of Shares.
The
Preferred Shares and the Warrants to be issued at the Closing have been duly
authorized by all necessary corporate action and the Preferred Shares, when
paid
for or issued in accordance with the terms hereof, shall be validly issued
and
outstanding, fully paid and nonassessable and entitled to the rights and
preferences set forth in the Certificate of Designation. When the Conversion
Shares and the Warrant Shares are issued in accordance with the terms of the
Certificate of Designation and the Warrants, respectively, such shares will
be
duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, and the holders shall be entitled
to
all rights accorded to a holder of Common Stock.
(e) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Designation and the consummation by the Company of the transactions contemplated
herein and therein do not and will not (i) violate any provision of the
Company’s Articles or Bylaws, (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company is
a
party or by which it or its properties or assets are bound, (iii) create or
impose a lien, mortgage, security interest, charge or encumbrance of any nature
on any property of the Company under any agreement or any commitment to which
the Company is a party or by which the Company is bound or by which any of
its
respective properties or assets are bound, or (iv) result in a violation of
any
federal, state, local or foreign statute, rule, regulation, order, judgment
or
decree (including Federal and state securities laws and regulations) applicable
to the Company or any of its subsidiaries or by which any property or asset
of
the Company or any of its subsidiaries are bound or affected, except, in all
cases other than violations pursuant to clauses (i) and (iv) above, for such
conflicts, defaults, terminations, amendments, accelerations, cancellations
and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company and its subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for possible violations which singularly or in
the
aggregate do not and will not have a Material Adverse Effect. The Company is
not
required under Federal, state or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with,
any
court or governmental agency in order for it to execute, deliver or perform
any
of its obligations under the Transaction Documents, or issue and sell the
Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares
in
accordance with the terms hereof or thereof (other than (x) any consent,
authorization or order that has been obtained as of the date hereof, (y) any
filing or registration that has been made as of the date hereof or (z) any
filings which may be required to be made by the Company with the Commission
or
state securities administrators subsequent to the Closing, any registration
statement which may be filed pursuant hereto, and the Certificate of
Designation); provided
that,
for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Purchasers herein.
-4-
(f) Commission
Documents, Financial Statements.
The
Common Stock is not currently registered pursuant to Section 12(b) or 12(g)
of
the Securities Exchange Act of 1934, as amended the “Exchange
Act”),
but
the Company has timely filed all reports, schedules, forms, statements and
other
documents required to be filed by it with the Commission pursuant to the
reporting requirements of the Exchange Act, including material filed pursuant
to
Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including
filings incorporated by reference therein being referred to herein as the
“Commission
Documents”).
The
Company has delivered or made available to each of the Purchasers true and
complete copies of the Commission Documents. The Company has not provided to
the
Purchasers any material non-public information or other information which,
according to applicable law, rule or regulation, was required to have been
disclosed publicly by the Company but which has not been so disclosed, other
than with respect to the transactions contemplated by this Agreement. At the
times of their respective filings, the Form 10-KSB and the Form 10-QSB complied
in all material respects with the requirements of the Exchange Act and the
rules
and regulations of the Commission promulgated thereunder and other federal,
state and local laws, rules and regulations applicable to such documents, and,
as of their respective dates, none of the Form 10-KSB and the Form 10-QSB
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Commission
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles (“GAAP”)
applied on a consistent basis during the periods involved (except (i) as may
be
otherwise indicated in such financial statements or the notes thereto or (ii)
in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements), and fairly present in
all
material respects the financial position of the Company and its subsidiaries
as
of 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
year-end audit adjustments).
-5-
(g) Subsidiaries.
Schedule
2.1(g)
hereto
sets forth each subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of each person’s
ownership. For the purposes of this Agreement, “subsidiary”
shall
mean any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other subsidiaries. All of the outstanding shares of capital
stock of each subsidiary have been duly authorized and validly issued, and
are
fully paid and nonassessable. There are no outstanding preemptive, conversion
or
other rights, options, warrants or agreements granted or issued by or binding
upon any subsidiary for the purchase or acquisition of any shares of capital
stock of any subsidiary or any other securities convertible into, exchangeable
for or evidencing the rights to subscribe for any shares of such capital stock.
Neither the Company nor any subsidiary is subject to any obligation (contingent
or otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Neither the Company
nor any subsidiary is party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of any
subsidiary.
(h) No
Material Adverse Change.
Other
than as disclosed in the Company’s Commission Documents, since June 30, 2006,
the Company has not experienced or suffered any Material Adverse
Effect.
(i) No
Undisclosed Liabilities.
Except
as set forth on Schedule
2.1(j),
neither
the Company nor any of its subsidiaries has any liabilities, obligations, claims
or losses (whether liquidated or unliquidated, secured or unsecured, absolute,
accrued, contingent or otherwise) other than those incurred in the ordinary
course of the Company’s or its subsidiaries respective businesses since June 30,
2006 and which, individually or in the aggregate, do not or would not have
a
Material Adverse Effect on the Company or its subsidiaries.
(j) No
Undisclosed Events or Circumstances.
No
event or circumstance has occurred or exists with respect to the Company or
its
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which has not
been
so publicly announced or disclosed.
-6-
(k) Indebtedness.
The
Form 10-KSB, Form 10-QSB or Schedule
2.1(k)
hereto
sets forth as of a recent date all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or
any
subsidiary has commitments. For the purposes of this Agreement, “Indebtedness”
shall
mean (a) any liabilities for borrowed money or amounts owed in excess of
$100,000 (other than trade accounts payable incurred in the ordinary course
of
business), (b) all guaranties, endorsements and other contingent obligations
in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company’s balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection
or
similar transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of $25,000 due under leases required
to be
capitalized in accordance with GAAP. Except as set forth on Schedule
2.1(k),
neither
the Company nor any subsidiary is in default with respect to any
Indebtedness.
(l) Title
to Assets.
Except
as set forth on Schedule
2.1(l),
each of
the Company and the subsidiaries has good and marketable title to all of its
real and personal property reflected in the Form 10-KSB, free and clear of
any
mortgages, pledges, charges, liens, security interests or other encumbrances,
except for those disclosed in the Form 10-KSB or such that, individually or
in
the aggregate, do not cause a Material Adverse Effect. Except as set forth
on
Schedule
2.1(l),
all
leases of the Company and each of its subsidiaries are valid and subsisting
and
in full force and effect.
(m) Actions
Pending.
There
is no action, suit, claim, investigation, arbitration, alternate dispute
resolution proceeding or any other proceeding pending or, to the knowledge
of
the Company, threatened against the Company or any subsidiary which questions
the validity of this Agreement or any of the other Transaction Documents or
the
transactions contemplated hereby or thereby or any action taken or to be taken
pursuant hereto or thereto. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or any other proceeding
pending or, to the knowledge of the Company, threatened, against or involving
the Company, any subsidiary or any of their respective properties or assets.
There are no outstanding orders, judgments, injunctions, awards or decrees
of
any court, arbitrator or governmental or regulatory body against the Company
or
any subsidiary or any officers or directors of the Company or subsidiary in
their capacities as such.
(n) Compliance
with Law.
The
business of the Company and the subsidiaries has been and is presently being
conducted in accordance with all applicable federal, state and local
governmental laws, rules, regulations and ordinances, except for such
noncompliance that, individually or in the aggregate, would not cause a Material
Adverse Effect. The Company and each of its subsidiaries have all franchises,
permits, licenses, consents and other governmental or regulatory authorizations
and approvals necessary for the conduct of its business as now being conducted
by it unless the failure to possess such franchises, permits, licenses, consents
and other governmental or regulatory authorizations and approvals, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
-7-
(o) Taxes.
The
Company and each of the subsidiaries has accurately prepared and filed all
federal, state and other tax returns required by law to be filed by it, has
paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected
in
the financial statements of the Company and the subsidiaries for all current
taxes and other charges to which the Company or any subsidiary is subject and
which are not currently due and payable. None of the federal income tax returns
of the Company or any subsidiary have been audited by the Internal Revenue
Service. The Company has no knowledge of any additional assessments, adjustments
or contingent tax liability (whether federal or state) of any nature whatsoever,
whether pending or threatened against the Company or any subsidiary for any
period, nor of any basis for any such assessment, adjustment or
contingency.
(p) Certain
Fees.
Except
as set forth on Schedule
2.1(p)
hereto,
no brokers, finders or financial advisory fees or commissions will be payable
by
the Company or any subsidiary or any Purchaser with respect to the transactions
contemplated by this Agreement.
(q) Disclosure.
Neither
this Agreement or the Schedules hereto nor any other documents, certificates
or
instruments furnished to the Purchasers by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material
fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(r) Operation
of Business.
Except
as set forth in Schedule
2.1(r),
the
Company and each of the subsidiaries owns or possesses all patents, trademarks,
domain names (whether or not registered) and any patentable improvements or
copyrightable derivative works thereof, websites and intellectual property
rights relating thereto, service marks, trade names, copyrights, licenses and
authorizations, and all rights with respect to the foregoing, which are
necessary for the conduct of its business as now conducted without any conflict
with the rights of others.
(s) Environmental
Compliance.
The
Company and each of its subsidiaries have obtained all material approvals,
authorization, certificates, consents, licenses, orders and permits or other
similar authorizations of all governmental authorities, or from any other
person, that are required under any Environmental Laws. Except as set forth
on
Schedule
2.1(s),
the
Form 10-KSB or Form 10-QSB describes all material permits, licenses and other
authorizations issued under any Environmental Laws to the Company or its
subsidiaries. “Environmental
Laws”
shall
mean all applicable laws relating to the protection of the environment
including, without limitation, all requirements pertaining to reporting,
licensing, permitting, controlling, investigating or remediating emissions,
discharges, releases or threatened releases of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. The Company
has
all necessary governmental approvals required under all Environmental Laws
and
used in its business or in the business of any of its subsidiaries. The Company
and each of its subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws. Except for such instances
as
would not individually or in the aggregate have a Material Adverse Effect,
there
are no past or present events, conditions, circumstances, incidents, actions
or
omissions relating to or in any way affecting the Company or its subsidiaries
that violate or may violate any Environmental Law after the Closing Date or
that
may give rise to any environmental liability, or otherwise form the basis of
any
claim, action, demand, suit, proceeding, hearing, study or investigation (i)
under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including without limitation
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance.
-8-
(t) Books
and Record Internal Accounting Controls.
The
books and records of the Company and its subsidiaries accurately reflect in
all
material respects the information relating to the business of the Company and
the subsidiaries, the location and collection of their assets, and the nature
of
all transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary. The Company and each of its subsidiaries maintain
a
system of internal accounting controls sufficient, in the judgment of the
Company, 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.
(u) Material
Agreements.
Except
as set forth on Schedule
2.1(u),
neither
the Company nor any subsidiary is a party to any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, a copy
of
which would be required to be filed with the Commission as an exhibit to a
registration statement on Form S-3 or applicable form (collectively,
“Material
Agreements”)
if the
Company or any subsidiary were registering securities under the Securities
Act.
The Company and each of its subsidiaries has in all material respects performed
all the obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and are not in default under
any
Material Agreement now in effect, the result of which could cause a Material
Adverse Effect. Except as set forth on Schedule
2.1(u),
no
written or oral contract, instrument, agreement, commitment, obligation, plan
or
arrangement of the Company or of any subsidiary limits or shall limit the
payment of dividends on the Company’s Preferred Shares, other preferred stock,
if any, or its Common Stock.
(v) Transactions
with Affiliates.
Except
as set forth in the Commission Documents, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions between (a) the Company or any subsidiary
on
the one hand, and (b) on the other hand, any officer, employee, consultant
or
director of the Company, or any of its subsidiaries, or any person owning any
capital stock of the Company or any subsidiary or any member of the immediate
family of such officer, employee, consultant, director or stockholder or any
corporation or other entity controlled by such officer, employee, consultant,
director or stockholder, or a member of the immediate family of such officer,
employee, consultant, director or stockholder.
-9-
(w) Securities
Act of 1933.
Based
in material part upon the representations herein of the Purchasers, the Company
has complied and will comply with all applicable federal and state securities
laws in connection with the offer, issuance and sale of the Shares and the
Warrants hereunder. Neither the Company nor anyone acting on its behalf,
directly or indirectly, has or will sell, offer to sell or solicit offers to
buy
any of the Shares, the Warrants or similar securities to, or solicit offers
with
respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person, or has taken or will take any
action so as to bring the issuance and sale of any of the Shares and the
Warrants under the registration provisions of the Securities Act and applicable
state securities laws, and neither the Company nor any of its affiliates, nor
any person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of any of the Shares
and the Warrants.
(x) Governmental
Approvals.
Except
for the filing of any notice prior or subsequent to the Closing Date that may
be
required under applicable state and/or Federal securities laws (which if
required, shall be filed on a timely basis), including the filing of a Form
D
and a registration statement or statements pursuant to the Registration Rights
Agreement, and the filing of the Certificate of Designation with the Secretary
of State for the State of Nevada, no authorization, consent, approval, license,
exemption of, filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
is or
will be necessary for, or in connection with, the execution or delivery of
the
Preferred Shares and the Warrants, or for the performance by the Company of
its
obligations under the Transaction Documents.
(y) Employees.
Neither
the Company nor any subsidiary has any collective bargaining arrangements or
agreements covering any of its employees. Except as set forth on Schedule
2.1(y),
neither
the Company nor any subsidiary has any employment contract, agreement regarding
proprietary information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such subsidiary. No officer, consultant
or
key employee of the Company or any subsidiary whose termination, either
individually or in the aggregate, could have a Material Adverse Effect, has
terminated or, to the knowledge of the Company, has any present intention of
terminating his or her employment or engagement with the Company or any
subsidiary.
(z) Absence
of Certain Developments.
Except
as set forth on Schedule
2.1(z),
since
June 30, 2006, neither the Company nor any subsidiary has:
(i) issued
any stock, bonds or other corporate securities or any rights, options or
warrants with respect thereto;
-10-
(ii) borrowed
any amount or incurred or become subject to any liabilities (absolute or
contingent) except current liabilities incurred in the ordinary course of
business which are comparable in nature and amount to the current liabilities
incurred in the ordinary course of business during the comparable portion
of its
prior fiscal year, as adjusted to reflect the current nature and volume of
the
Company’s or such subsidiary’s business;
(iii) discharged
or satisfied any lien or encumbrance or paid any obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business;
(iv) declared
or made any payment or distribution of cash or other property to stockholders
with respect to its stock, or purchased or redeemed, or made any agreements
so
to purchase or redeem, any shares of its capital stock;
(v) sold,
assigned or transferred any other tangible assets, or canceled any debts
or
claims, except in the ordinary course of business;
(vi) sold,
assigned or transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property rights,
or
disclosed any proprietary confidential information to any person except to
customers in the ordinary course of business or to the Purchasers or their
representatives;
(vii) suffered
any substantial losses or waived any rights of material value, whether or
not in
the ordinary course of business, or suffered the loss of any material amount
of
prospective business;
(viii) made
any
changes in employee compensation except in the ordinary course of business
and
consistent with past practices;
(ix) made
capital expenditures or commitments therefor that aggregate in excess of
$100,000;
(x) entered
into any other transaction other than in the ordinary course of business,
or
entered into any other material transaction, whether or not in the ordinary
course of business;
(xi) made
charitable contributions or pledges in excess of $25,000;
(xii) suffered
any material damage, destruction or casualty loss, whether or not covered
by
insurance;
(xiii) experienced
any material problems with labor or management in connection with the terms
and
conditions of their employment;
(xiv) effected
any two or more events of the foregoing kind which in the aggregate would
be
material to the Company or its subsidiaries; or
-11-
(xv) entered
into an agreement, written or otherwise, to take any of the foregoing
actions.
(aa) Public
Utility Holding Company Act and Investment Company Act Status.
The
Company is not a “holding company” or a “public utility company” as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended.
The
Company is not, and as a result of and immediately upon the Closing will
not be,
an “investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as
amended.
(bb) ERISA.
No
liability to the Pension Benefit Guaranty Corporation has been incurred with
respect to any Plan (as defined below) by the Company or any of its subsidiaries
which is or would be materially adverse to the Company and its subsidiaries.
The
execution and delivery of this Agreement and the issuance and sale of the
Preferred Shares will not involve any transaction which is subject to the
prohibitions of Section 406 of ERISA or in connection with which a tax could
be
imposed pursuant to Section 4975 of the Internal Revenue Code of 1986, as
amended, provided that, if any of the Purchasers, or any person or entity
that
owns a beneficial interest in any of the Purchasers, is an “employee pension
benefit plan” (within the meaning of Section 3(2) of ERISA) with respect to
which the Company is a “party in interest” (within the meaning of Section 3(14)
of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(ac), the term “Plan”
shall
mean an “employee pension benefit plan” (as defined in Section 3 of ERISA) which
is or has been established or maintained, or to which contributions are or
have
been made, by the Company or any subsidiary or by any trade or business,
whether
or not incorporated, which, together with the Company or any subsidiary,
is
under common control, as described in Section 414(b) or (c) of the
Code.
(cc) Dilutive
Effect.
The
Company understands and acknowledges that its obligation to issue Conversion
Shares upon conversion of the Preferred Shares in accordance with this Agreement
and the Certificate of Designation and its obligations to issue the Warrant
Shares upon the exercise of the Warrants in accordance with this Agreement
and
the Warrants, is, in each case, absolute and unconditional regardless of
the
dilutive effect that such issuance may have on the ownership interest of
other
stockholders of the Company.
(dd) No
Integrated Offering.
Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or
solicited any offers to buy any security under circumstances that would cause
the offering of the Shares pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the Securities Act which would
prevent the Company from selling the Shares pursuant to Rule 506 under the
Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will the Company or any of its affiliates or subsidiaries
take
any action or steps that would cause the offering of the Shares to be integrated
with other offerings.
The
Company does not have any registration statement pending before the Commission
or currently under the Commission’s review and since May
1,
2006, the Company has not offered or sold any of its equity securities or
debt
securities convertible into shares of Common Stock.
-12-
(ee) Intentionally
Omitted.
(ff) Independent
Nature of Purchasers.
The
Company acknowledges that the obligations of each Purchaser under the
Transaction 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 the Transaction
Documents. The Company acknowledges that the decision of each Purchaser to
purchase securities pursuant to this Agreement has been made by such Purchaser
independently of any other purchase and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial
or
otherwise) or prospects of the Company or of its Subsidiaries which may have
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have
any
liability to any Purchaser (or any other person) relating to or arising from
any
such information, materials, statements or opinions. The Company acknowledges
that nothing contained herein, or in any Transaction Document, and no action
taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute
the Purchasers as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Purchasers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that each Purchaser shall be entitled to independently protect and enforce
its
rights, including without limitation, the rights arising out of this Agreement
or out of the other Transaction Documents, and it shall not be necessary
for any
other Purchaser to be joined as an additional party in any proceeding for
such
purpose. The Company acknowledges that for reasons of administrative convenience
only, the Transaction Documents have been prepared by counsel for one of
the
Purchasers and such counsel does not represent all of the Purchasers but
only
such Purchaser and the other Purchasers have retained their own individual
counsel with respect to the transactions contemplated hereby. The Company
acknowledges that it has elected to provide all Purchasers with the same
terms
and Transaction Documents for the convenience of the Company and not because
it
was required or requested to do so by the Purchasers.
(gg) Transfer
Agent.
The
name, address, telephone number, fax number, contact person and email address
of
the Company’s current transfer agent is set forth on Schedule
2.1(gg)
hereto.
Section
2.2 Representations
and Warranties of the Purchasers.
Each
Purchaser hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization
and Standing of the Purchasers.
If the
Purchaser is an entity, such Purchaser is a corporation, partnership or limited
liability company duly incorporated or organized, validly existing and in
good
standing under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization
and Power.
Each
Purchaser has the requisite power and authority to enter into and perform
this
Agreement and to purchase the Preferred Shares and Warrants being sold to
it
hereunder. The execution, delivery and performance of this Agreement and
the
Registration Rights Agreement by such Purchaser and the consummation by it
of
the transactions contemplated hereby and thereby have been duly authorized
by
all necessary corporate or partnership action, and no further consent or
authorization of such Purchaser or its Board of Directors, stockholders,
or
partners, as the case may be, is required. Each of this Agreement and the
Registration Rights Agreement has been duly authorized, executed and delivered
by such Purchaser and constitutes, or shall constitute when executed and
delivered, a valid and binding obligation of the Purchaser enforceable against
the Purchaser in accordance with the terms thereof.
-13-
(c) No
Conflicts.
The
execution, delivery and performance of this Agreement and the Registration
Rights Agreement and the consummation by such Purchaser of the transactions
contemplated hereby and thereby or relating hereto do not and will not (i)
result in a violation of such Purchaser’s charter documents or bylaws or other
organizational documents or (ii) conflict with, or constitute a default (or
an
event which with notice or lapse of time or both would become a default)
under,
or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument or obligation to which
such Purchaser is a party or by which its properties or assets are bound,
or
result in a violation of any law, rule, or regulation, or any order, judgment
or
decree of any court or governmental agency applicable to such Purchaser or
its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on such
Purchaser). Such Purchaser is not required to obtain any consent, authorization
or order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or the Registration Rights Agreement or to purchase
the
Preferred Shares or acquire the Warrants in accordance with the terms hereof,
provided that for purposes of the representation made in this sentence, such
Purchaser is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.
(d) Acquisition
for Investment.
Each
Purchaser is acquiring the Preferred Shares and the Warrants solely for its
own
account for the purpose of investment and not with a view to or for sale
in
connection with distribution. Each Purchaser does not have a present intention
to sell the Preferred Shares or the Warrants, nor a present arrangement (whether
or not legally binding) or intention to effect any distribution of the Preferred
Shares or the Warrants to or through any person or entity; provided,
however,
that by
making the representations herein and subject to Section 2.2(h) below, such
Purchaser does not agree to hold the Shares or the Warrants for any minimum
or
other specific term and reserves the right to dispose of the Shares or the
Warrants at any time in accordance with Federal and state securities laws
applicable to such disposition. Each Purchaser acknowledges that it is able
to
bear the financial risks associated with an investment in the Preferred Shares
and the Warrants and that it has been given full access to such records of
the
Company and the subsidiaries and to the officers of the Company and the
subsidiaries and received such information as it has deemed necessary or
appropriate to conduct its due diligence investigation and has sufficient
knowledge and experience in investing in companies similar to the Company
in
terms of the Company’s stage of development so as to be able to evaluate the
risks and merits of its investment in the Company.
(e) Status
of Purchasers.
Each
Purchaser is an “accredited investor” as defined in Regulation D promulgated
under the Securities Act. Such Purchaser is not required to be registered
as a
broker-dealer under Section 15 of the Exchange Act and such Purchaser is
not a
broker-dealer.
-14-
(f) Opportunities
for Additional Information.
Each
Purchaser acknowledges that such Purchaser has had the opportunity to ask
questions of and receive answers from, or obtain additional information from,
the executive officers of the Company concerning the financial and other
affairs
of the Company, and to the extent deemed necessary in light of such Purchaser’s
personal knowledge of the Company’s affairs, such Purchaser has asked such
questions and received answers to the full satisfaction of such Purchaser,
and
such Purchaser desires to invest in the Company.
(g) No
General Solicitation.
Each
Purchaser acknowledges that the Preferred Shares and the Warrants were not
offered to such Purchaser by means of any form of general or public solicitation
or general advertising, or publicly disseminated advertisements or sales
literature, including (i) any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media, or
broadcast over television or radio, or (ii) any seminar or meeting to which
such
Purchaser was invited by any of the foregoing means of
communications.
(h) Rule
144.
Such
Purchaser understands that the Shares must be held indefinitely unless such
Shares are registered under the Securities Act or an exemption from registration
is available. Such Purchaser acknowledges that such Purchaser is familiar
with
Rule 144 of the rules and regulations of the Commission, as amended, promulgated
pursuant to the Securities Act (“Rule
144”),
and
that such person has been advised that Rule 144 permits resales only under
certain circumstances. Such Purchaser understands that to the extent that
Rule
144 is not available, such Purchaser will be unable to sell any Shares without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(i) General.
Such
Purchaser understands that the Shares are being offered and sold in reliance
on
a transactional exemption from the registration requirement of Federal and
state
securities laws and the Company is relying upon the truth and accuracy of
the
representations, warranties, agreements, acknowledgments and understandings
of
such Purchaser set forth herein in order to determine the applicability of
such
exemptions and the suitability of such Purchaser to acquire the
Shares.
(j) Independent
Investment.
Except
as may be disclosed in any filings with the Commission by the Purchasers
under
Section 13 and/or Section 16 of the Exchange Act, no Purchaser has agreed
to act
with any other Purchaser for the purpose of acquiring, holding, voting or
disposing of the Shares purchased hereunder for purposes of Section 13(d)
under
the Exchange Act, and each Purchaser is acting independently with respect
to its
investment in the Shares.
(k) Trading
Activities.
Each
Purchaser agrees that it shall not, directly or indirectly, engage in any
short
sales with respect to the Common Stock for a period of one (1) year following
the Closing.
-15-
ARTICLE
III
Covenants
The
Company covenants with each of the Purchasers as follows, which covenants
are
for the benefit of the Purchasers and their permitted assignees (as defined
herein).
Section
3.1 Securities
Compliance.
The
Company shall notify the Commission in accordance with their rules and
regulations, of the transactions contemplated by any of the Transaction
Documents, including filing a Form D with respect to the Preferred Shares,
Warrants, Conversion Shares and Warrant Shares as required under Regulation
D
and applicable “blue sky” laws, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Preferred Shares, the
Warrants, the Conversion Shares and the Warrant Shares to the Purchasers
or
subsequent holders.
Section
3.2 Registration
and Listing.
The
Company shall (a) either (i) cause its Common Stock to become registered
under
Section 12(b) or 12(g) of the Exchange Act, or (ii) to continue to voluntarily
file all reports required to be filed as if the Company were so registered,
and
in any event shall comply in all respects with its reporting and filing
obligations under the Exchange Act, (b) comply with all requirements related
to
any registration statement filed pursuant to this Agreement, and (c) not
take
any action or file any document (whether or not permitted by the Securities
Act
or the rules promulgated thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under the
Exchange Act or Securities Act, except as permitted herein. The Company will
take all action necessary to continue the listing or trading of its Common
Stock
on the OTC Bulletin Board or other exchange or market on which the Common
Stock
is trading or may be traded in the future. Subject to the terms of the
Transaction Documents, the Company further covenants that it will take such
further action as the Purchasers may reasonably request, all to the extent
required from time to time to enable the Purchasers to sell the Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act. Upon the request
of
the Purchasers, the Company shall deliver to the Purchasers a written
certification of a duly authorized officer as to whether it has complied
with
such requirements.
Section
3.3 Inspection
Rights.
The
Company shall permit, during normal business hours and upon reasonable request
and reasonable notice, each Purchaser or any employees, agents or
representatives thereof, so long as such Purchaser shall be obligated hereunder
to purchase the Preferred Shares or shall beneficially own any Preferred
Shares,
or shall own Conversion Shares which, in the aggregate, represent more than
2%
of the total combined voting power of all voting securities then outstanding,
for purposes reasonably related to such Purchaser’s interests as a stockholder
to examine and make reasonable copies of and extracts from the records and
books
of account of, and visit and inspect the properties, assets, operations and
business of the Company and any subsidiary, and to discuss the affairs, finances
and accounts of the Company and any subsidiary with any of its officers,
consultants, directors, and key employees.
-16-
Section
3.4 Compliance
with Laws.
The
Company shall comply, and cause each subsidiary to comply, with all applicable
laws, rules, regulations and orders, noncompliance with which could have
a
Material Adverse Effect.
Section
3.5 Keeping
of Records and Books of Account.
The
Company shall keep and cause each subsidiary to keep adequate records and
books
of account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company
and
its subsidiaries, and in which, for each fiscal year, all proper reserves
for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and
other
purposes in connection with its business shall be made.
Section
3.6 Reporting
Requirements.
If the
Commission ceases making periodic reports filed under the Exchange Act available
via the Internet, then at a Purchaser’s request the Company shall furnish the
following to such Purchaser so long as such Purchaser shall be obligated
hereunder to purchase the Preferred Shares or shall beneficially own any
Shares:
(a) Quarterly
Reports filed with the Commission on Form 10-QSB as soon as practical after
the
document is filed with the Commission, and in any event within five (5) days
after the document is filed with the Commission;
(b) Annual
Reports filed with the Commission on Form 10-KSB as soon as practical after
the
document is filed with the Commission, and in any event within five (5) days
after the document is filed with the Commission; and
(c) Copies
of
all notices and information, including without limitation notices and proxy
statements in connection with any meetings, that are provided to holders
of
shares of Common Stock, contemporaneously with the delivery of such notices
or
information to such holders of Common Stock.
Section
3.7 Amendments.
The
Company shall not amend or waive any provision of the Articles or Bylaws
of the
Company in any way that would adversely affect the liquidation preferences,
dividends rights, conversion rights, voting rights or redemption rights of
the
Preferred Shares; provided,
however,
that
any creation and issuance of another series of Junior Stock (as defined in
the
Certificate of Designation) or any other class or series of equity securities
which by its terms shall rank on parity with the Preferred Shares shall not
be
deemed to materially and adversely affect such rights, preferences or
privileges.
Section
3.8 Other
Agreements.
The
Company shall not enter into any agreement in which the terms of such agreement
would restrict or impair the right or ability to perform of the Company or
any
subsidiary under any Transaction Document.
Section
3.9 Distributions.
So long
as any Preferred Shares remain outstanding, the Company agrees that it shall
not
(i) declare
or pay any dividends or make any distributions to any holder(s) of Common
Stock
or (ii) purchase or otherwise acquire for value, directly or indirectly,
any
Common Stock or other equity security of the Company.
-17-
Section
3.10 Status
of Dividends.
The
Company covenants and agrees that (i) no Federal income tax return or claim
for
refund of Federal income tax or other submission to the Internal Revenue
Service
(the “Service”)
will
adversely affect the Preferred Shares, any other series of its Preferred
Stock,
or the Common Stock, and no deduction shall operate to jeopardize the
availability to Purchasers of the dividends received deduction provided by
Section 243(a)(1) of the Code or any successor provision, (ii) in no report
to
shareholders or to any governmental body having jurisdiction over the Company
or
otherwise will it treat the Preferred Shares other than as equity capital
or the
dividends paid thereon other than as dividends paid on equity capital unless
required to do so by a governmental body having jurisdiction over the accounts
of the Company or by a change in generally accepted accounting principles
required as a result of action by an authoritative accounting standards setting
body, and (iii) it will take no action which would result in the dividends
paid
by the Company on the Preferred Shares out of the Company’s current or
accumulated earnings and profits being ineligible for the dividends received
deduction provided by Section 243(a)(1) of the Code. The preceding sentence
shall not be deemed to prevent the Company from designating the Preferred
Stock
as “Convertible Preferred Stock” in its annual and quarterly financial
statements in accordance with its prior practice concerning other series
of
preferred stock of the Company. In the event that the Purchasers have reasonable
cause to believe that dividends paid by the Company on the Preferred Shares
out
of the Company’s current or accumulated earnings and profits will not be treated
as eligible for the dividends received deduction provided by Section 243(a)(1)
of the Code, or any successor provision, the Company will, at the reasonable
request of the Purchasers of 51% of the outstanding Preferred Shares, join
with
the Purchasers in the submission to the Service of a request for a ruling
that
dividends paid on the Shares will be so eligible for Federal income tax
purposes, at the Purchasers expense. In addition, the Company will reasonably
cooperate with the Purchasers (at Purchasers’ expense) in any litigation, appeal
or other proceeding challenging or contesting any ruling, technical advice,
finding or determination that earnings and profits are not eligible for the
dividends received deduction provided by Section 243(a)(1)
of the Code, or any successor provision to the extent that the position to
be
taken in any such litigation, appeal, or other proceeding is not contrary
to any
provision of the Code. Notwithstanding the foregoing, nothing herein contained
shall be deemed to preclude the Company from claiming a deduction with respect
to such dividends if (i) the Code shall hereafter be amended, or final Treasury
regulations thereunder are issued or modified, to provide that dividends
on the
Preferred Shares or Conversion Shares should not be treated as dividends
for
Federal income tax purposes or that a deduction with respect to all or a
portion
of the dividends on the Shares is allowable for Federal income tax purposes,
or
(ii) in the absence of such an amendment, issuance or modification and after
a
submission of a request for ruling or technical advice, the Service shall
issue
a published ruling or advise that dividends on the Shares should not be treated
as dividends for Federal income tax purposes. If the Service specifically
determines that the Preferred Shares or Conversion Shares constitute debt,
the
Company may file protective claims for refund.
Section
3.11 Use
of
Proceeds.
The
net
proceeds from the sale of the Shares hereunder shall be used by the Company
for
working capital and general corporate purposes and not to redeem any Common
Stock or securities convertible, exercisable or exchangeable into Common
Stock
or to settle any outstanding litigation.
-18-
Section
3.12 Reservation
of Shares.
So long
as any of the Preferred Shares or Warrants remain outstanding, the Company
shall
take all action necessary to at all times have authorized, and reserved for
the
purpose of issuance, no less than one
hundred fifty
percent (150%) of the aggregate number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares and the Warrant
Shares.
Section
3.13 Transfer
Agent Instructions.
The
Company shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates, registered in the name
of each
Purchaser or its respective nominee(s), for the Conversion Shares and the
Warrant Shares in such amounts as specified from time to time by each Purchaser
to the Company upon conversion of the Preferred Shares or exercise of the
Warrants in the form of Exhibit
G
attached
hereto (the “Irrevocable
Transfer Agent Instructions”).
Prior
to registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred
to
in this Section 3.13 will be given by the Company to its transfer agent and
that
the Shares shall otherwise be freely transferable on the books and records
of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. If a Purchaser provides the Company with an opinion of
counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of the Shares may be made without registration
under the Securities Act or the Purchaser provides the Company with reasonable
assurances that such Shares can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date
that
can then be immediately sold, the Company shall permit the transfer, and,
in the
case of the Conversion Shares and the Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Purchaser and without any restrictive
legend.
The Company acknowledges that a breach by it of its obligations under this
Section 3.13 will cause irreparable harm to the Purchasers by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 3.13 will be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Section
3.13, that the Purchasers shall be entitled, in addition to all other available
remedies, to an order and/or injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic
loss
and without any bond or other security being required.
Section
3.14 Disposition
of Assets.
So long
as any Preferred Shares remain outstanding, neither the Company nor any
Subsidiary shall sell, transfer or otherwise dispose of any of its properties,
assets and rights including, without limitation, its software and intellectual
property, to any person except for sales to customers in the ordinary course
of
business or with the prior written consent of the holders of a majority of
the
Preferred Shares then outstanding.
Section
3.15 Reporting
Status. So
long
as a Purchaser beneficially owns any of the Shares, the Company shall timely
file all reports required to be filed with the Commission pursuant to the
Exchange Act as if the Common stock were registered pursuant to Section 12(b)
or
12(g) of the Exchange Act, and the Company shall not cease filing reports
under
the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination.
-19-
Section
3.16 Disclosure
of Transaction.
The
Company shall issue a press release describing the material terms of the
transactions contemplated hereby (the “Press
Release”)
as
soon as practicable after the Closing but in no event later than 9:00 A.M.
Eastern Time on the first Trading Day following the Closing. The Company
shall
also file with the Commission a Current Report on Form 8-K (the “Form
8-K”)
describing the material terms of the transactions contemplated hereby (and
attaching as exhibits thereto this Agreement, the Registration Rights Agreement,
the Certificate of Designation, the Lock-Up Agreement, the Securities Escrow
Agreement, the form of each series of Warrant and the Press Release) as soon
as
practicable following the Closing Date but in no event more than four (4)
Trading Days following the Closing Date, which Press Release and Form 8-K
shall
be subject to prior review and comment by counsel for the Purchasers.
“Trading
Day”
means
any day during which the OTC Bulletin Board (or other quotation venue or
principal exchange on which the Common Stock is traded) shall be open for
trading.
Section
3.17 Disclosure
of Material Information.
The
Company covenants and agrees that neither it nor any other person acting
on its
behalf has provided or will provide any Purchaser or its agents or counsel
with
any information that the Company believes constitutes material non-public
information (other than with respect to the transactions contemplated by
this
Agreement), unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The
Company understands and confirms that each Purchaser shall be relying on
the
foregoing representations in effecting transactions in securities of the
Company.
Section
3.18 Pledge
of Securities.
The
Company acknowledges and agrees that the Shares may be pledged by a Purchaser
in
connection with a bona fide
margin
agreement or other loan or financing arrangement that is secured by the Common
Stock. The pledge of Common Stock shall not be deemed to be a transfer, sale
or
assignment of the Common Stock hereunder, and no Purchaser effecting a pledge
of
Common Stock shall be required to provide the Company with any notice thereof
or
otherwise make any delivery to the Company pursuant to this Agreement or
any
other Transaction Document; provided that a Purchaser and its pledgee shall
be
required to comply with the provisions of Article V hereof in order to effect
a
sale, transfer or assignment of Common Stock to such pledgee. At the Purchasers'
expense, the Company hereby agrees to execute and deliver such documentation
as
a pledgee of the Common Stock may reasonably request in connection with a
pledge
of the Common Stock to such pledgee by a Purchaser.
Section
3.19 Form
SB-2 Eligibility.
The
Company currently meets the “registrant eligibility” and transaction
requirements set forth in the general instructions to Form SB-2 applicable
to
“resale” registrations on Form SB-2 and the Company shall file all reports
required to be filed by the Company with the Commission in a timely
manner.
Section
3.20 Lock-Up
Agreement.
The
persons listed on Schedule
3.20
attached
hereto shall be subject to the terms and provisions of a lock-up agreement
in
substantially the form as Exhibit
E
hereto
(the “Lock-Up
Agreement”),
which
shall provide the manner in which such persons will sell, transfer or dispose
of
their shares of Common Stock.
-20-
Section
3.21 Investor
and Public Relations.
The
Company shall deposit or cause to be deposited Seven Hundred Fifty Thousand
Dollars ($750,000) of the Purchase Price funded on the Closing Date in a
separate escrow account with a separate escrow agent to be used by the Company
in connection with investor and public relations and securities law compliance,
including related legal fees and legal fees relating to minor post-closing
corporate matters in the British Virgin Islands.
Section
3.22 DTC.
Not
later than the effective date of the Registration Statement (as defined in
the
Registration Rights Agreement), the Company shall cause its Common Stock
to be
eligible for transfer with its transfer agent pursuant to the Depository
Trust
Company Automated Securities Transfer Program.
Section
3.23 Subsequent
Financings.
(a) For
a
period of two (2) years following the effective date of the Registration
Statement (as defined in the Registration Rights Agreement), the Company
covenants and agrees to promptly notify (in no event later than five (5)
days
after making or receiving an applicable offer) in writing (a “Rights
Notice”)
each
holder of Preferred Shares (each, a “Preferred
Stockholder”
and
collectively the “Preferred
Stockholders”)
of the
terms and conditions of any proposed offer or sale to, or exchange with (or
other type of distribution to) any third party (a “Subsequent
Financing”),
of
Common Stock or any debt or equity securities convertible, exercisable or
exchangeable into Common Stock; provided,
however,
prior
to delivering to each Preferred
Stockholder
a Rights
Notice, the Company shall first deliver to each Preferred Stockholder a written
notice of its intention to effect a Subsequent Financing (“Pre-Notice”)
within
three (3) Trading Days of receiving an applicable offer, which Pre-Notice
shall
ask such Preferred Stockholder if it wants to review the details of such
financing. Upon the request of a Preferred Stockholder, and only upon a request
by such Preferred Stockholder within three (3) Trading Days of receipt of
a
Pre-Notice, the Company shall promptly, but no later than two (2) Trading
Days
after such request, deliver a Rights Notice to such Preferred Stockholder.
The
Rights Notice shall describe, in reasonable detail, the proposed Subsequent
Financing, the names and investment amounts of all investors participating
in
the Subsequent Financing (if known), the proposed closing date of the Subsequent
Financing, which shall be no earlier than ten (10) Trading Days from the
date of
the Rights Notice, and all of the terms and conditions thereof and proposed
definitive documentation to be entered into in connection therewith. The
Rights
Notice shall provide each Preferred Stockholder an option (the “Rights
Option”)
during
the ten (10) Trading Days following delivery of the Rights Notice (the
“Option
Period”)
to
inform the Company whether such Preferred Stockholder will purchase up to
its
pro rata portion of all or a portion of the securities being offered in such
Subsequent Financing on the same, absolute terms and conditions as contemplated
by such Subsequent Financing, provided the amount of such purchase shall
not
exceed the Purchase Price hereunder of the Preferred Shares held by such
Preferred Stockholder except as allowed by the following sentence. If any
Preferred Stockholder elects not to participate in such Subsequent Financing,
the other Preferred Stockholders may participate on a pro-rata basis so long
as
such participation in the aggregate does not exceed the total Purchase Price
hereunder. For purposes of this Section, all references to “pro
rata”
means,
for any Preferred Stockholder electing to participate in such Subsequent
Financing, the percentage obtained by dividing (x) the number of Preferred
Shares held by such Preferred Stockholder at the Closing by (y) the total
number
of all of the Preferred Shares outstanding. Delivery of any Rights Notice
constitutes a representation and warranty by the Company that there are no
other
material terms and conditions, arrangements, agreements or otherwise except
for
those disclosed in the Rights Notice, to provide additional compensation
to any
party participating in any proposed Subsequent Financing, including, but
not
limited to, additional compensation based on changes in the Purchase Price
or
any type of reset or adjustment of a purchase or conversion price or to issue
additional securities at any time after the closing date of a Subsequent
Financing. If the Company does not receive notice of exercise of the Rights
Option from the Preferred Stockholder within the Option Period, the Company
shall have the right to close the Subsequent Financing on the scheduled closing
date with a third party; provided
that all
of the material terms and conditions of the closing are the same as those
provided to the Preferred Stockholder in the Rights Notice. If the closing
of
the proposed Subsequent Financing does not occur that date, any closing of
the
contemplated Subsequent Financing or any other Subsequent Financing shall
be
subject to all of the provisions of this Section 3.21(a), including, without
limitation, the delivery of a new Rights Notice. The provisions of this Section
3.21(a) shall not apply to issuances of securities in a Permitted
Financing.
-21-
(b) For
purposes of this Agreement, a Permitted Financing (as defined hereinafter)
shall
not be considered a Subsequent Financing. A “Permitted
Financing”
shall
mean (i) securities issued (other than for cash) in connection with a merger,
acquisition, or consolidation, (ii) securities issued pursuant to the conversion
or exercise of convertible or exercisable securities issued or outstanding
on or
prior to the date of this Agreement or issued pursuant to this Agreement
(so
long as the conversion or exercise price in such securities are not amended
to
lower such price and/or adversely affect the Purchasers), (iii) securities
issued in connection with bona fide strategic license agreements or other
partnering arrangements so long as such issuances are not for the purpose
of
raising capital, (iv) Common Stock issued or the issuance or grants of options
to purchase Common Stock pursuant to the Company’s stock option plans and
employee stock purchase plans outstanding as they exist on the date of this
Agreement, and (v) any warrants issued to the placement agent and its designees
for the transactions contemplated by the Purchase Agreement.
(c) Nothing
herein shall prohibit the Company from establishing an employee stock option,
restricted stock or other form of equity incentive plan for employees, officers
or directors of the Company, and any awards made under such plan or exercises
of
such awards by the recipients thereof shall be deemed to be a Permitted
Financing.
Section
3.24 Xxxxxxxx-Xxxxx
Act.
The
Company shall use its best efforts to be in compliance with the applicable
provisions of the Xxxxxxxx-Xxxxx Act of 2002, and the rules and regulations
promulgated thereunder, as required under such Act.
Section
3.25 Nasdaq.
The
Company shall list and trade its shares of Common Stock on the Nasdaq Capital
Market or the Nasdaq Global Market (collectively, “Nasdaq”) or any successor
market thereto no later than December 31, 2007. In the event the shares of
Common Stock are not listed and trading on Nasdaq by December 31, 2007, Fame
Good International Limited (the “Principal
Stockholder”)
shall
distribute, on a pro rata basis, to each of the Purchasers, shares of Common
Stock owned by it as follows: (x) 1,500,000 shares of Common Stock if the
shares
are not listed by December 31, 2007, (y) an additional 3,000,000 shares of
Common Stock if the shares are not listed by March 31, 2008 and (z) an
additional 1,500,000 shares of Common Stock for each calendar month thereafter
that the shares of Common Stock are not listed on the last day of such month.
In
connection with the foregoing, each Purchaser may elect, at each Purchaser’s
sole discretion, to receive (i) shares of Common Stock owned by the Principal
Stockholder; (ii) upon notice to the Company, Escrow Agent, Purchaser
Representative and Principal Stockholder (each as defined in the Securities
Escrow Agreement), the Escrow Shares (as defined in the Securities Escrow
Agreement) in such amount as set forth in the preceding sentence; or (iii)
newly
issued shares of Common Stock of the Company. In the event a Purchaser elects
to
receive shares of Common Stock from the Escrow Shares, the Principal Stockholder
shall deliver to the Escrow Agent additional shares of Common Stock owned
by it
in the amounts released to such Purchaser within thirty (30) days of the
release
of such shares from escrow.
-22-
Section
3.26 No
Commissions in connection with Conversion of Preferred Shares.
In
connection with the conversion of the Preferred Shares into Conversion Shares,
neither the Company nor any Person acting on its behalf will take any action
that would result in the Conversion Shares being exchanged by the Company
other
than with the then existing holders of the Preferred Shares exclusively where
no
commission or other remuneration is paid or given directly or indirectly
for
soliciting the exchange in compliance with Section 3(a)(9) of the Securities
Act.
ARTICLE
IV
CONDITIONS
Section
4.1 Conditions
Precedent to the Obligation of the Company to Sell the Shares.
The
obligation hereunder of the Company to issue and sell the Preferred Shares
and
the Warrants to the Purchasers is subject to the satisfaction or waiver,
at or
before the Closing, of each of the conditions set forth below. These conditions
are for the Company’s sole benefit and may be waived by the Company at any time
in its sole discretion.
(a) Accuracy
of Each Purchaser’s Representations and Warranties.
The
representations and warranties of each Purchaser shall be true and correct
in
all material respects as of the date when made and as of the Closing Date
as
though made at that time, except for representations and warranties that
are
expressly made as of a particular date, which shall be true and correct in
all
material respects as of such date.
(b) Performance
by the Purchasers.
Each
Purchaser shall have performed, satisfied and complied in all respects with
all
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Purchaser at or prior to the
Closing.
-23-
(c) No
Injunction.
No
statute, rule, regulation, executive order, decree, ruling or injunction
shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any
of
the transactions contemplated by this Agreement.
(d) Delivery
of Purchase Price.
The
Purchase Price for the Preferred Shares and Warrants has been delivered to
the
escrow agent pursuant to the Escrow Agreement.
(e) Delivery
of Transaction Documents.
The
Transaction Documents have been duly executed and delivered by the Purchasers
to
the Company.
Section
4.2 Conditions
Precedent to the Obligation of the Purchasers to Purchase the
Shares.
The
obligation hereunder of each Purchaser to acquire and pay for the Preferred
Shares and the Warrants is subject to the satisfaction or waiver, at or before
the Closing, of each of the conditions set forth below. These conditions
are for
each Purchaser’s sole benefit and may be waived by such Purchaser at any time in
its sole discretion.
(a) Accuracy
of the Company’s Representations and Warranties.
Each of
the representations and warranties of the Company in this Agreement and the
Registration Rights Agreement shall be true and correct in all respects as
of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that are expressly made as of
a
particular date), which shall be true and correct in all respects as of such
date.
(b) Performance
by the Company.
The
Company shall have performed, satisfied and complied in all respects with
all
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the
Closing.
(c) No
Suspension, Etc.
Trading
in the Company’s Common Stock shall not have been suspended by the Commission or
the OTC Bulletin Board (except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated prior to the
applicable Closing), and, at any time prior to the Closing Date, trading
in
securities generally as reported by Bloomberg Financial Markets (“Bloomberg”)
shall
not have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by Bloomberg, or on the
New
York Stock Exchange, 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 or crisis of such magnitude in its effect on, or any
material adverse change in any financial market which, in each case, in the
judgment of such Purchaser, makes it impracticable or inadvisable to purchase
the Preferred Shares.
(d) No
Injunction.
No
statute, rule, regulation, executive order, decree, ruling or injunction
shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any
of
the transactions contemplated by this Agreement.
-24-
(e) No
Proceedings or Litigation.
No
action, suit or proceeding before any arbitrator or any governmental authority
shall have been commenced, and no investigation by any governmental authority
shall have been threatened, against the Company or any subsidiary, or any
of the
officers, directors or affiliates of the Company or any subsidiary seeking
to
restrain, prevent or change the transactions contemplated by this Agreement,
or
seeking damages in connection with such transactions.
(f) Certificate
of Designation of Rights and Preferences.
Prior
to the Closing, the Certificate of Designation in the form of Exhibit
B
attached
hereto shall have been filed with the Secretary of State of Nevada.
(g) Opinion
of Counsel, Etc.
At the
Closing, the Purchasers shall have received an opinion of counsel to the
Company, dated the date of the Closing, in substantially the form of
Exhibit
H
hereto,
and such other certificates and documents as the Purchasers or its counsel
shall
reasonably require incident to the Closing.
(h) Registration
Rights Agreement.
At the
Closing, the Company shall have executed and delivered the Registration Rights
Agreement to each Purchaser.
(i) Certificates.
The
Company shall have executed and delivered to the Purchasers the certificates
(in
such denominations as such Purchaser shall request) for the Preferred Shares
and
the Warrants being acquired by such Purchaser at the Closing (in such
denominations as such Purchaser shall request).
(j) Resolutions.
The
Board of Directors of the Company shall have adopted resolutions consistent
with
Section 2.1(b) hereof in a form reasonably acceptable to such Purchaser (the
“Resolutions”).
(k) Reservation
of Shares.
As of
the Closing Date, the Company shall have reserved out of its authorized and
unissued Common Stock, solely for the purpose of effecting the conversion
of the
Preferred Shares and the exercise of the Warrants, a number of shares of
Common
Stock equal to one hundred fifty percent (150%) of the aggregate number of
Conversion Shares issuable upon conversion of the Preferred Shares issued
or to
be issued pursuant to this Agreement and the number of Warrant Shares issuable
upon exercise of the number of Warrants issued or to be issued pursuant to
this
Agreement.
(l) Transfer
Agent Instructions.
As of
the Closing Date, the Irrevocable Transfer Agent Instructions, in the form
of
Exhibit
G
attached
hereto, shall have been delivered to and acknowledged in writing by the
Company’s transfer agent.
(m) Lock-Up
Agreement.
As of
the Closing Date, the persons listed on Schedule
3.20
hereto
shall have delivered to the Purchasers a fully executed Lock-Up Agreement
in the
form of Exhibit E
attached
hereto.
-25-
(n) Secretary’s
Certificate.
The
Company shall have delivered to such Purchaser a secretary’s certificate, dated
as of the Closing Date, as to (i) the Resolutions, (ii) the Articles, (iii)
the
Bylaws, (iv) the Certificate of Designation, each as in effect at the Closing,
and (iv) the authority and incumbency of the officers of the Company executing
the Transaction Documents and any other documents required to be executed
or
delivered in connection therewith.
(o) Officer’s
Certificate.
The
Company shall have delivered to the Purchasers a certificate of an executive
officer of the Company, dated as of the Closing Date, confirming the accuracy
of
the Company’s representations, warranties and covenants as of the Closing Date
and confirming the compliance by the Company with the conditions precedent
set
forth in this Section 4.2 as of the Closing Date.
(p) Escrow
Deposit Agreement.
At the
Closing, the Company and the escrow agent shall have executed and delivered
the
Escrow Deposit Agreement in the form of Exhibit
F-1
attached
hereto to each Purchaser.
(q) Securities
Escrow Agreement.
The
Securities Escrow Agreement shall have been executed by the parties thereto
and
the Escrow Shares (as defined in the Securities Escrow Agreement) shall have
been deposited into the escrow account pursuant to the terms of the Securities
Escrow Agreement in the form of Exhibit
F-2
attached
hereto.
(r) Material
Adverse Effect.
No
Material Adverse Effect shall have occurred at or before the Closing Date.
(s) Share
Exchange Transaction.
Prior
to the Closing, the Share Exchange Transaction shall have been
consummated.
(t) Audited
Financial Statements.
On or
prior to the Closing Date, the Company shall have delivered to the Purchasers
the audited financial statements of Wuhan Blower for the fiscal years ended
December 31, 2005 and 2004 prepared by Xxxxxx X. Xxxx & Co. LLP, certified
public accountants.
ARTICLE
V
Stock
Certificate Legend
Section
5.1 Legend.
Each
certificate representing the Preferred Shares and the Warrants, and, if
appropriate, securities issued upon conversion thereof, shall be stamped
or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or “blue sky”
laws):
THESE
SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)
OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR UNITED NATIONAL FILM CORPORATION SHALL HAVE RECEIVED
AN
OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES
ACT
AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
-26-
The
Company agrees to reissue certificates representing any of the Conversion
Shares
and the Warrant Shares, without the legend set forth above if at such time,
prior to making any transfer of any such securities, such holder thereof
shall
give written notice to the Company describing the manner and terms of such
transfer and removal as the Company may reasonably request. Such proposed
transfer and removal will not be effected until: (a) either (i) the Company
has
received an opinion of counsel reasonably satisfactory to the Company, to
the
effect that the registration of the Conversion Shares or the Warrant Shares
under the Securities Act is not required in connection with such proposed
transfer, (ii) a registration statement under the Securities Act covering
such
proposed disposition has been filed by the Company with the Commission and
has
become effective under the Securities Act, (iii) the Company has received
other
evidence reasonably satisfactory to the Company that such registration and
qualification under the Securities Act and state securities laws are not
required, or (iv) the holder provides the Company with reasonable assurances
that such security can be sold pursuant to Rule 144 under the Securities
Act;
and (b) either (i) the Company has received an opinion of counsel reasonably
satisfactory to the Company, to the effect that registration or qualification
under the securities or “blue sky” laws of any state is not required in
connection with such proposed disposition, or (ii) compliance with applicable
state securities or “blue sky” laws has been effected or a valid exemption
exists with respect thereto. The Company will respond to any such notice
from a
holder within five (5) business days. In the case of any proposed transfer
under
this Section 5.1, the Company will use reasonable efforts to comply with
any
such applicable state securities or “blue sky” laws, but shall in no event be
required, (x) to qualify to do business in any state where it is not then
qualified, (y) to take any action that would subject it to tax or to the
general
service of process in any state where it is not then subject, or (z) to comply
with state securities or “blue sky” laws of any state for which registration by
coordination is unavailable to the Company. The restrictions on transfer
contained in this Section 5.1 shall be in addition to, and not by way of
limitation of, any other restrictions on transfer contained in any other
section
of this Agreement. Whenever
a
certificate representing the Conversion Shares or Warrant Shares is required
to
be issued to a Purchaser without a legend, in lieu of delivering physical
certificates representing the Conversion Shares or Warrant Shares (provided
that a registration statement under the Securities Act providing for the
resale
of the Warrant Shares and Conversion Shares is then in effect),
the
Company shall cause its transfer agent to electronically transmit the Conversion
Shares or Warrant Shares to a Purchaser by crediting the account of such
Purchaser or such Purchaser's Prime Broker with the Depository Trust Company
(“DTC”)
through its Deposit Withdrawal Agent Commission (“DWAC”)
system
(to the extent not inconsistent with any provisions of this
Agreement).
-27-
ARTICLE
VI
Indemnification
Section
6.1 General
Indemnity.
The
Company agrees to indemnify and hold harmless the Purchasers (and their
respective directors, officers, managers, partners, members, shareholders,
affiliates, agents, successors and assigns) from and against any and all
losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys’ fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein.
Section
6.2 Indemnification
Procedure.
Any
party entitled to indemnification under this Article VI (an “indemnified party”)
will give written notice to the indemnifying party of any matters giving
rise to
a claim for indemnification; provided, that the failure of any party entitled
to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to
the
extent that the indemnifying party is actually prejudiced by such failure
to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder,
the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between
it
and the indemnifying party may exist with respect of such action, proceeding
or
claim, to assume the defense thereof with counsel reasonably satisfactory
to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle
or
compromise, at its sole cost and expense, any action, proceeding or claim
(or
discontinues its defense at any time after it commences such defense), then
the
indemnified party may, at its option, defend, settle or otherwise compromise
or
pay such action or claim. In any event, unless and until the indemnifying
party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party’s costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party
and
shall furnish to the indemnifying party all information reasonably available
to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to
the
status of the defense or any settlement negotiations with respect thereto.
If
the indemnifying party elects to defend any such action
or
claim, then the indemnified party shall be entitled to participate in such
defense with counsel of its choice at its sole cost and expense. The
indemnifying party shall not be liable for any settlement of any action,
claim
or proceeding effected without its prior written consent. Notwithstanding
anything in this Article VI to the contrary, the indemnifying party shall
not,
without the indemnified party’s prior written consent, settle or compromise any
claim or consent to entry of any judgment in respect thereof which imposes
any
future obligation on the indemnified party or which does not include, as
an
unconditional term thereof, the giving by the claimant or the plaintiff to
the
indemnified party of a release from all liability in respect of such claim.
The
indemnification required by this Article VI shall be made by periodic payments
of the amount thereof during the course of investigation or defense, as and
when
bills are received or expense, loss, damage or liability is incurred, so
long as
the indemnified party irrevocably agrees to refund such moneys if it is
ultimately determined by a court of competent jurisdiction that such party
was
not entitled to indemnification. The indemnity agreements contained herein
shall
be in addition to (a) any cause of action or similar rights of the indemnified
party against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
-28-
ARTICLE
VII
Miscellaneous
Section
7.1 Fees
and Expenses.
Except
as otherwise set forth in this Agreement and the other Transaction Documents,
each party shall pay the fees and expenses of its advisors, counsel, accountants
and other experts, if any, and all other expenses, incurred by such party
incident to the negotiation, preparation, execution, delivery and performance
of
this Agreement, provided
that the
Company shall pay all reasonable attorneys' fees and expenses (including
disbursements and out-of-pocket expenses) incurred by the Purchasers in
connection with (i) the preparation, negotiation, execution and delivery
of this
Agreement and the other Transaction Documents and the transactions contemplated
thereunder, which payment shall be made at the Closing, (ii) the filing and
declaration of effectiveness by the Commission of the Registration Statement
and
(iii) any amendments, modifications or waivers of this Agreement or any of
the
other Transaction Documents. The Company shall also pay to Vision
Opportunity Master Fund, Ltd.
at the
Closing in connection with due diligence expenses incurred by Vision Opportunity
Master Fund, Ltd. an amount of $100,000. The Company shall pay all reasonable
fees and expenses incurred by the Purchasers in connection with the enforcement
of this Agreement or any of the other Transaction Documents, including, without
limitation, all reasonable attorneys' fees and expenses but only if the
Purchasers are successful in any litigation or arbitration relating to such
enforcement.
Section
7.2 Specific
Enforcement, Consent to Jurisdiction.
(a) The
Company and the Purchasers acknowledge and agree that irreparable damage
would
occur in the event that any of the provisions of this Agreement or the other
Transaction Documents were not performed in accordance with their specific
terms
or were otherwise breached. It is accordingly agreed that the parties shall
be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement or the Registration Rights Agreement and to
enforce
specifically the terms and provisions hereof or thereof, this being in addition
to any other remedy to which any of them may be entitled by law or
equity.
(b) Each
of
the Company and the Purchasers (i) hereby irrevocably submits to the
jurisdiction of the United States District Court sitting in the Southern
District of New York and the courts of the State of New York located in New
York
county for the purposes of any suit, action or proceeding arising out of
or
relating to this Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby and (ii) hereby waives, and agrees
not to assert in any such suit, action or proceeding, any claim that it is
not
personally subject to the jurisdiction of such court, that the suit, action
or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Each of the Company and the Purchasers
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
7.2
shall affect or limit any right to serve process in any other manner permitted
by law.
-29-
Section
7.3 Entire
Agreement; Amendment.
This
Agreement and the Transaction Documents contains the entire understanding
and
agreement of the parties with respect to the matters covered hereby and,
except
as specifically set forth herein or in the Transaction Documents, neither
the
Company nor any of the Purchasers makes any representations, warranty, covenant
or undertaking with respect to such matters and they supersede all prior
understandings and agreements with respect to said subject matter, all of
which
are merged herein. No provision of this Agreement may be waived or amended
other
than by a written instrument signed by the Company and the holders of at
least
seventy-five percent (75%) of the Preferred Shares then outstanding, and
no
provision hereof may be waived other than by an a written instrument signed
by
the party against whom enforcement of any such amendment or waiver is sought.
No
such amendment shall be effective to the extent that it applies to less than
all
of the holders of the Preferred Shares then outstanding. No consideration
shall
be offered or paid to any person to amend or consent to a waiver or modification
of any provision of any of the Transaction Documents unless the same
consideration is also offered to all of the parties to the Transaction Documents
or holders of Preferred Shares, as the case may be.
Section
7.4 Notices.
Any
notice, demand, request, waiver or other communication required or permitted
to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery by telex (with correct answer back received), telecopy or facsimile
at
the address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business
day
during normal business hours where such notice is to be received) or (b)
on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such communications
shall be:
If
to the Company:
|
Wuhan
Blower Co.
Canglongdao
Science Park of Wuhan
East
Lake Hi-Tech Development Zone
Wuhan,
Hubei 430200
People’s
Republic of China
Attention:
Xx Xxx
Tel.
No.: (00) 000 0000 0000
Fax
No.: (00) 000 0000 0000
|
with
copies to:
|
Xxxxxxxx
Xxxxxxx LLP
The
Chrysler Building
000
Xxxxxxxxx Xxxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attention:
Xxxxx X. Xxxxxxx, Esq.
Tel.
No.: (000) 000-0000
Fax
No.: (000) 000-0000
|
-30-
If
to any Purchaser:
|
At
the address of such Purchaser set forth on Exhibit
A
to
this Agreement, with copies to Purchaser’s counsel as set forth on
Exhibit
A
or
as specified in writing by such Purchaser with copies
to:
|
Xxxxxx
Xxxxx Xxxxxxxx & Xxxxxxx LLP
0000
Xxxxxx xx xxx Xxxxxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attention:
Xxxxxxxxxxx X. Xxxxxxx, Esq.
Tel
No.: (000) 000-0000
Fax
No.: (000) 000-0000
|
Any
party
hereto may from time to time change its address for notices by giving at
least
ten (10) days written notice of such changed address to the other party
hereto.
Section
7.5 Waivers.
No
waiver by either party of any default with respect to any provision, condition
or requirement of this Agreement shall be deemed to be a continuing waiver
in
the future or a waiver of any other provisions, condition or requirement
hereof,
nor shall any delay or omission of any party to exercise any right hereunder
in
any manner impair the exercise of any such right accruing to it
thereafter.
Section
7.6 Headings.
The
article, section and subsection headings in this Agreement are for convenience
only and shall not constitute a part of this Agreement for any other purpose
and
shall not be deemed to limit or affect any of the provisions
hereof.
Section
7.7 Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns.
Section
7.8 No
Third Party Beneficiaries.
This
Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns
and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
Section
7.9 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York, without giving effect to any of the conflicts
of
law principles which would result in the application of the substantive law
of
another jurisdiction. This Agreement shall not be interpreted or construed
with
any presumption against the party causing this Agreement to be
drafted.
-31-
Section
7.10 Survival.
The
representations and warranties of the Company and the Purchasers shall survive
the execution and delivery hereof and the Closings hereunder for a period
of two
years following the Closing Date.
Section
7.11 Counterparts.
This
Agreement may be executed in any number of counterparts, each of which when
so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement and shall become effective when
counterparts have been signed by each party and delivered to the other parties
hereto, it being understood that all parties need not sign the same counterpart.
In the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing
(or on
whose behalf such signature is executed) the same with the same force and
effect
as if such facsimile signature were the original thereof.
Section
7.12 Publicity.
The
Company agrees that it will not disclose, and will not include in any public
announcement, the name of the Purchasers without the consent of the Purchasers
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
Section
7.13 Severability.
The
provisions of this Agreement and the Transaction Documents are severable
and, in
the event that any court of competent jurisdiction shall determine that any
one
or more of the provisions or part of the provisions contained in this Agreement
or the Transaction Documents shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision
of
this Agreement or the Transaction Documents and such provision shall be reformed
and construed as if such invalid or illegal or unenforceable provision, or
part
of such provision, had never been contained herein, so that such provisions
would be valid, legal and enforceable to the maximum extent
possible.
Section
7.14 Further
Assurances.
From
and after the date of this Agreement, upon the request of any Purchaser or
the
Company, each of the Company and the Purchasers shall execute and deliver
such
instrument, documents and other writings as may be reasonably necessary
or desirable to confirm and carry out and to effectuate fully the intent
and
purposes of this Agreement, the Preferred Shares, the Conversion Shares,
the
Warrants, the Warrant Shares, the Certificate of Designation, and the
Registration Rights Agreement.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
-32-
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officer as of the date first above
written.
UNITED
NATIONAL FILM CORPORATION
|
||
|
|
|
By: |
/s/
Xx Xxx
|
|
Name:
Xx Xxx
|
||
Title:
President and Chief Executive
Officer
|
PURCHASER
|
||
|
|
|
By: |
/s/
Xxxx Xxxxxxxx
|
|
Name:
Xxxx Xxxxxxxx
|
||
Title: Portfolio Manager |
PURCHASER
|
||
|
|
|
By: |
/s/
Xxxxx Xxxxx
|
|
Name:
Xxxxx Xxxxx
|
||
Title: Vice President |
PURCHASER
|
||
|
|
|
By: |
/s/
Xxxxxxxx Xxxxxx
|
|
Name:
Xxxxxxxx Xxxxxx
|
||
Title: Chief Financial Officer | ||
Old Lane, LP | ||
Old Lane, L.p. representing as advisors for
- Old Lane Cayman Master Fund, LP
- Old Lane US Master Fund, LP
- Old Lane HMA Master Fund,
LP
|
PURCHASER
|
||
QVT
FUND LP, by its general partner, QVT Associates GP LLC
|
||
|
|
|
By: |
/s/
Yi Cen
|
|
Name: Yi Cen |
||
Title: Authorized Signatory | ||
By: |
/s/
Xxxxx Xx
|
|
Name:
Xxxxx Xx
|
||
Title: Managing Member |
PURCHASER
|
||
TCW
AMERICAS DEVELOPMENT ASSOCIATION, L.P.
|
||
|
|
|
By: |
/s/
Xxxxxxxx Xxxxx
|
|
Name:
Xxxxxxxx Xxxxx
|
||
Title: Managing Director |
-33-
PURCHASER
|
||
|
|
|
By: |
/s/
Xxxxxxx X. Xxxx
|
|
Name:
Xxxxxxx X. Xxxx
|
||
Title: President - Halter/Xxxx USX China Fund |
PURCHASER
|
||
MidSouth
Investor Fund LP
|
||
|
|
|
By: |
/s/
L.O. Xxxxxxx
|
|
Name:
L.O. Xxxxxxx
|
||
Title: General Partner |
PURCHASER
|
||
Whitebox
Intermarket Partners, L.P.
|
||
|
|
|
By: |
Whitebox
Intermarket Advisors, LLC, its G.P.
|
|
By: | Whitebox Advisors LLC, its Managing Members | |
By: |
/s/
Xxxxxxxx Xxxx
|
|
Name:
Xxxxxxxx Xxxx
|
||
Title: CFO/Director |
PURCHASER
|
||
Lighthouse
Consulting Limited
|
||
|
|
|
By: |
/s/
Bai Ye Feng
|
|
Name:
Bai Ye Feng
|
||
Title: Director |
ACKNOWLEDGED
AND AGREED AS TO SECTION 3.25:
|
|||
FAME
GOOD INTERNATIONAL LIMITED
|
|||
By: /s/ Xx Xxx | |||
Name:
Xx
Xxx
|
|||
Title: Director |
-34-
EXHIBIT
A to the
UNITED
NATIONAL FILM CORPORATION
Investor
|
Investment
|
Shares
Purchased
|
Series
A
Warrants
|
Series
B
Warrants
|
Series
J
Warrants
|
|||||||||||
Vision
OpportunityMaster Fund Ltd.
|
$
|
7,000,000.36
|
3,004,292
|
1,802,575
|
1,802,575
|
3,004,292
|
||||||||||
00
Xxxx 00xx Xxxxxx
|
||||||||||||||||
Xxx
Xxxx, Xxx Xxxx 00000
|
||||||||||||||||
Attn
Xxxxxx Xxx
|
||||||||||||||||
Blue
Ridge Investments, L.L.C.
|
5,000,000.59
|
2,145,923
|
1,287,554
|
1,287,554
|
2,145,923
|
|||||||||||
c/o
Bank of America
|
||||||||||||||||
0
Xxxx 00xx Xxxxxx
|
||||||||||||||||
Xxx
Xxxx, Xxx Xxxx 00000
|
||||||||||||||||
Attn:
Xxxxxxx X. Xxxxx
|
||||||||||||||||
Old
Lane LP [IN THE NAME OF THREE SEPARATE FUNDS]
|
||||||||||||||||
Old
Lane Cayman Master Fund, LP
|
2,863,779.70
|
1,229,090
|
737,454
|
737,454
|
1,229,090
|
|||||||||||
Old
Lane US Master Fund, LP
|
1,129,175
|
484,625
|
290,775
|
290,775
|
484,625
|
|||||||||||
Old
Lane HMA Master Fund, LP
|
812,044.61
|
348,517
|
209,110
|
209,110
|
348,517
|
|||||||||||
000
Xxxx Xxxxxx
|
||||||||||||||||
Xxx
Xxxx, Xxx Xxxx 00000
|
||||||||||||||||
Attn:
Xxxxx X. Xxxx
|
||||||||||||||||
QVT
Financial, LP
|
3,000,000.82
|
1,287,554
|
772,532
|
772,532
|
1,287,554
|
|||||||||||
0000
Xxxxxx xx xxx Xxxxxxxx
|
||||||||||||||||
Xxx
Xxxx, Xxx Xxxx 00000
|
||||||||||||||||
Attn:
Yi Cen
|
||||||||||||||||
TCW
Americas Development Association LP
|
1,999,999.77
|
858,369
|
515,021
|
515,021
|
858,369
|
|||||||||||
000
Xxxx Xxxxxx
|
||||||||||||||||
Xxx
Xxxx, Xxx Xxxx 00000
|
||||||||||||||||
Attn:
Xxxxx Xxxxx
|
||||||||||||||||
Halter/Xxxx
USX China Fund
|
699,000.00
|
300,000
|
180,000
|
|||||||||||||
0000
Xxxxxx Xxxxxx
|
||||||||||||||||
Xxxxx
000
|
||||||||||||||||
Xxxxxxx,
Xxxxxxxxx 00000
|
||||||||||||||||
Attn:
Xxxxxxx X. Xxxx
|
||||||||||||||||
MidSouth
Investors Fund LP
|
499,999.36
|
214,592
|
128,755
|
|||||||||||||
000
0xx Xxxxxx Xxxxx
|
||||||||||||||||
Xxxxx
0000
|
||||||||||||||||
Xxxxxxxxx,
Xxxxxxxxx 00000
|
||||||||||||||||
Attn:
Xxxxx X. Xxxxxxx
|
||||||||||||||||
White
Box Advisors, LLC
|
499,999.36
|
214,592
|
128,755
|
|||||||||||||
0000
Xxxxxxxxx Xxxx.
|
||||||||||||||||
Xxxxx
000
|
||||||||||||||||
Xxxxxxxxxxx,
Xxxx 00000
|
||||||||||||||||
Attn:
Xxx Xx
|
||||||||||||||||
Lighthouse
Consulting Limited
|
466,000.00
|
200,000
|
120,000
|
|||||||||||||
Xxxx
Xxxx Xxxxxxxx
|
||||||||||||||||
00
Xxxxxxxxxx Xxxxxx
|
||||||||||||||||
Xxxxxxx,
Xxxx Xxxx
|
||||||||||||||||
Attn:
Bai Feng
|
||||||||||||||||
Total
|
$
|
23,970,000.82
|
10,287,554
|
6,172,531
|
5,615,021
|
9,358,370
|
-35-
EXHIBIT
B to the
UNITED
NATIONAL FILM CORPORATION
FORM
OF CERTIFICATE OF DESIGNATION
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EXHIBIT
C-1 to the
UNITED
NATIONAL FILM CORPORATION
FORM
OF SERIES A WARRANT
-37-
EXHIBIT
C-2 to the
UNITED
NATIONAL FILM CORPORATION
FORM
OF SERIES J WARRANT
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EXHIBIT
C-3 to the
UNITED
NATIONAL FILM CORPORATION
FORM
OF SERIES B WARRANT
-39-
EXHIBIT
D to the
UNITED
NATIONAL FILM CORPORATION
FORM
OF REGISTRATION RIGHTS AGREEMENT
-40-
EXHIBIT
E to the
UNITED
NATIONAL FILM CORPORATION
FORM
OF LOCK-UP AGREEMENT
-41-
EXHIBIT
F-1 to the
UNITED
NATIONAL FILM CORPORATION
FORM
OF ESCROW DEPOSIT AGREEMENT
-42-
EXHIBIT
F-2 to the
SERIES
A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
UNITED
NATIONAL FILM CORPORATION
FORM
OF SECURITIES ESCROW AGREEMENT
-43-
EXHIBIT
G to the
SERIES
A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
UNITED
NATIONAL FILM CORPORATION
FORM
OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
UNITED
NATIONAL FILM CORPORATION
as
of
February 7, 2007
[Name
and address of Transfer Agent]
Attn:
_____________
Ladies
and Gentlemen:
Reference
is made to that certain Series A Convertible Preferred Stock Purchase Agreement
(the “Purchase
Agreement”),
dated
as of February 7, 2007, by and among United National Film Corporation, a
Nevada
corporation (the “Company”),
and
the purchasers named therein (collectively, the “Purchasers”)
pursuant to which the Company is issuing to the Purchasers shares of its
Series
A Convertible Preferred Stock, par value $0.0001
per share, (the “Preferred
Shares”)
and
warrants (the “Warrants”)
to
purchase shares of the Company’s common stock, par value $0.0001 per share (the
“Common
Stock”).
This
letter shall serve as our irrevocable authorization and direction to you
provided that you are the transfer agent of the Company at such time) to
issue
shares of Common Stock upon conversion of the Preferred Shares (the
“Conversion
Shares”)
and
exercise of the Warrants (the “Warrant
Shares”)
to or
upon the order of a Purchaser from time to time upon (i) surrender to you
of a
properly completed and duly executed Conversion Notice or Exercise Notice,
as
the case may be, in the form attached hereto as Exhibit I and Exhibit II,
respectively, (ii) in the case of the conversion of Preferred Shares, a copy
of
the certificates (with the original certificates delivered to the Company)
representing Preferred Shares being converted or, in the case of Warrants
being
exercised, a copy of the Warrants (with the original Warrants delivered to
the
Company) being exercised (or, in each case, an indemnification undertaking
with
respect to such share certificates or the warrants in the case of their loss,
theft or destruction), and (iii) delivery of a treasury order or other
appropriate order duly executed by a duly authorized officer of the Company.
So
long as you have previously received (x) written confirmation from counsel
to
the Company that a registration statement covering resales of the Conversion
Shares or Warrant Shares, as applicable, has been declared effective by the
Securities and Exchange Commission (the “SEC”)
under
the Securities Act of 1933, as amended (the “1933
Act”),
and
no subsequent notice by the Company or its counsel of the suspension or
termination of its effectiveness and (y) a copy of such registration statement,
and if the Purchaser represents in writing that the Conversion Shares or
the
Warrant Shares, as the case may be, were sold pursuant to the Registration
Statement, then certificates representing the Conversion Shares and the Warrant
Shares, as the case may be, shall not bear any legend restricting transfer
of
the Conversion Shares and the Warrant Shares, as the case may be, thereby
and
should not be subject to any stop-transfer restriction. Provided, however,
that
if you have not previously received those items and representations listed
above, then the certificates for the Conversion Shares and the Warrant Shares
shall bear the following legend:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS
REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS,
OR
UNITED NATIONAL FILM CORPORATION SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL
THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.”
and,
provided further, that the Company may from time to time notify you to place
stop-transfer restrictions on the certificates for the Conversion Shares
and the
Warrant Shares in the event a registration statement covering the Conversion
Shares and the Warrant Shares is subject to amendment for events then
current.
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A
form of
written confirmation from counsel to the Company that a registration statement
covering resales of the Conversion Shares and the Warrant Shares has been
declared effective by the SEC under the 1933 Act is attached hereto as Exhibit
III.
Please
be
advised that the Purchasers are relying upon this letter as an inducement
to
enter into the Purchase Agreement and, accordingly, each Purchaser is a third
party beneficiary to these instructions.
Please
execute this letter in the space indicated to acknowledge your agreement
to act
in accordance with these instructions. Should you have any questions concerning
this matter, please contact me at ___________.
Very
truly yours,
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UNITED
NATIONAL FILM CORPORATION
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By:
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Name:
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Title:
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ACKNOWLEDGED
AND AGREED:
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[TRANSFER
AGENT]
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By:
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Name:
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Title:
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Date:
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-45-
EXHIBIT
I
UNITED
NATIONAL FILM CORPORATION
CONVERSION
NOTICE
Reference
is made to the Certificate of Designation of the Relative Rights and Preferences
of the Series A Preferred Stock of United National Film Corporation (the
“Certificate of Designation”). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the
number
of shares of Series A Preferred Stock, par value $0.0001
per share (the “Preferred Shares”), of United National Film Corporation a Nevada
corporation (the “Company”), indicated below into shares of Common Stock, par
value $0.0001 per share (the “Common Stock”), of the Company, by tendering the
stock certificate(s) representing the share(s) of Preferred Shares specified
below as of the date specified below.
Date
of
Conversion: ______________________________________
Number
of
Preferred Shares to be converted: _________
Stock
certificate no(s). of Preferred Shares to be converted: _______
The
Common Stock have been sold pursuant to the Registration Statement (as
defined
in the Registration Rights Agreement): YES _______ NO______
Please
confirm the following information:
Conversion
Price: _______________________________________
Number
of
shares of Common Stock
to
be
issued: _______________________________________
Number
of
shares of Common Stock beneficially owned or deemed beneficially owned
by the
Holder on the Date of Conversion: _____________________
Please
issue the Common Stock into which the Preferred Shares are being converted
and,
if applicable, any check drawn on an account of the Company in the following
name and to the following address:
Issue
to:
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Facsimile
Number:
Authorization:
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By:
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Title:
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Dated:
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-46-
EXHIBIT
II
FORM
OF EXERCISE NOTICE
EXERCISE
FORM
UNITED
NATIONAL FILM CORPORATION
The
undersigned____________, pursuant to the provisions of the within Warrant,
hereby elects to purchase ______ shares of Common Stock of United National
Film
Corporation covered by the within Warrant.
Dated: | Signature | |
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Address
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Number
of
shares of Common Stock beneficially owned or deemed beneficially owned
by the
Holder on the date of Exercise: _______________________
ASSIGNMENT
FOR
VALUE
RECEIVED, ________________ hereby sells, assigns and transfers unto
_______________ the within Warrant and all rights evidenced thereby and
does
irrevocably constitute and appoint ______________, attorney, to transfer
the
said Warrant on the books of the within named corporation.
Dated: | Signature | |
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Address
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PARTIAL
ASSIGNMENT
FOR
VALUE
RECEIVED, ________________ hereby sells, assigns and transfers unto
_______________ the right to purchase ___________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint __________________, attorney, to transfer
that part of the said Warrant on the books of the within named
corporation.
Dated: | Signature | |
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Address
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FOR
USE
BY THE ISSUER ONLY:
This
Warrant No. W-_________ canceled (or transferred or exchanged) this _______
day
of __________, _______, shares of Common Stock issued therefor in the name
of
_______________, Warrant No. W-______ issued for _______ shares of Common
Stock
in the name of ________________.
-47-
EXHIBIT
III
FORM
OF NOTICE OF EFFECTIVENESS
OF
REGISTRATION STATEMENT
[Name
and address of Transfer Agent]
Attn:
_________
Re: United
National Film Corporation
Ladies
and Gentlemen:
We
are
counsel to United National Film Corporation, a Nevada corporation (the
“Company”),
and
have represented the Company in connection with that certain Series A
Convertible Preferred Stock Purchase Agreement (the “Purchase
Agreement”),
dated
as of February 7, 2007, by and among the Company and the purchasers named
therein (collectively, the “Purchasers”)
pursuant to which the Company issued to the Purchasers shares of its Series
A
Convertible Preferred Stock, par value $0.0001 per share, (the “Preferred
Shares”)
and
warrants (the “Warrants”)
to
purchase shares of the Company’s common stock, par value $0.0001 per share (the
“Common
Stock”).
Pursuant to the Purchase Agreement, the Company has also entered into a
Registration Rights Agreement with the Purchasers (the “Registration
Rights Agreement”),
dated
as of February 7, 2007, pursuant to which the Company agreed, among other
things, to register the Registrable Securities (as defined in the Registration
Rights Agreement), including the shares of Common Stock issuable upon conversion
of the Preferred Shares and exercise of the Warrants, under the Securities
Act
of 1933, as amended (the “1933
Act”).
In
connection with the Company’s obligations under the Registration Rights
Agreement, on ________________, 2007, the Company filed a Registration
Statement
on Form SB-2 (File No. 333-________) (the “Registration
Statement”)
with
the Securities and Exchange Commission (the “SEC”)
relating to the resale of the Registrable Securities which names each of
the
present Purchasers as a selling stockholder thereunder.
In
connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us by telephone that the SEC has entered an order declaring
the
Registration Statement effective under the 1933 Act at [ENTER
TIME OF EFFECTIVENESS]
on
[ENTER
DATE OF EFFECTIVENESS]
and we
have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that
any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the
SEC and
accordingly, the Registrable Securities are available for resale under
the 1933
Act pursuant to the Registration Statement.
Very
truly yours,
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[COMPANY
COUNSEL]
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By: | ||
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cc: [LIST
NAMES OF PURCHASERS]
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-48-
EXHIBIT
H to the
SERIES
A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
UNITED
NATIONAL FILM CORPORATION
FORM
OF OPINION OF COUNSEL
1. The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Nevada and has the requisite corporate
power to own, lease and operate its properties and assets, and to carry
on its
business as presently conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction
in
which the nature of the business conducted or property owned by it makes
such
qualification necessary.
2. The
Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents and to issue the
Preferred Stock, the Warrants and the Common Stock issuable upon conversion
of
the Preferred Stock and exercise of the Warrants. The execution, delivery
and
performance of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
and
validly authorized by all necessary corporate action and no further consent
or
authorization of the Company or its Board of Directors or stockholders
is
required. Each of the Transaction Documents have been duly executed and
delivered, and the Preferred Stock and the Warrants have been duly executed,
issued and delivered by the Company and each of the Transaction Documents
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms. The Common
Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants
are
not subject to any preemptive rights under the Articles of Incorporation
or the
Bylaws.
3. The
Preferred Stock and the Warrants have been duly authorized and, when delivered
against payment in full as provided in the Purchase Agreement, will be
validly
issued, fully paid and nonassessable. The shares of Common Stock issuable
upon
conversion of the Preferred Stock, have been duly authorized and reserved
for
issuance, and, when delivered upon conversion or against payment in full
as
provided in the Certificate of Designation will be validly issued, fully
paid
and nonassessable.
4. The
execution, delivery and performance of and compliance with the terms of
the
Transaction Documents and the issuance of the Preferred Stock, the Warrants
and
the Common Stock issuable upon conversion of the Preferred Stock and exercise
of
the Warrants do not (i) violate any provision of the Articles of Incorporation
or Bylaws, (ii) conflict with, or constitute a default (or an event which
with
notice or lapse of time or both would become a default) under, or give
to others
any rights of termination, amendment, acceleration or cancellation of,
any
material agreement, mortgage, deed of trust, indenture, note, bond, license,
lease agreement, instrument or obligation to which the Company is a party,
(iii)
create or impose a lien, charge or encumbrance on any property of the Company
under any agreement or any commitment to which the Company is a party or
by
which the Company is bound or by which any of its respective properties
or
assets are bound, or (iv) result in a violation of any federal, state,
local or
foreign statute, rule, regulation, order, judgment, injunction or decree
(including Federal and state securities laws and regulations) applicable
to the
Company or by which any property or asset of the Company is bound or affected,
except, in all cases other than violations pursuant to clauses (i) and
(iv)
above, for such conflicts, default, terminations, amendments, acceleration,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect.
5. No
consent, approval or authorization of or designation, declaration or filing
with
any governmental authority on the part of the Company is required under
Federal,
state or local law, rule or regulation in connection with the valid execution
and delivery of the Transaction Documents, or the offer, sale or issuance
of the
Preferred Stock, the Warrants or the Common Stock issuable upon conversion
of
the Preferred Stock and exercise of the Warrants other than the Certificate
of
Designation and the Registration Statement.
-49-
6. To
our
knowledge, there is no action, suit, claim, investigation or proceeding
pending
or threatened against the Company which questions the validity of this
Agreement
or the transactions contemplated hereby or any action taken or to be taken
pursuant hereto or thereto. To our knowledge, there is no action, suit,
claim,
investigation or proceeding pending, or to our knowledge, threatened, against
or
involving the Company or any of its properties or assets and which, if
adversely
determined, is reasonably likely to result in a Material Adverse Effect.
There
are no outstanding orders, judgments, injunctions, awards or decrees of
any
court, arbitrator or governmental or regulatory body against the Company
or any
officers or directors of the Company in their capacities as such.
7. Based
upon the representations of the Purchaser, the offer, issuance and sale
of the
Preferred Stock and the Warrants and the offer, issuance and sale of the
shares
of Common Stock issuable upon conversion of the Preferred Stock and exercise
of
the Warrants pursuant to the Purchase Agreement, the Certificate of Designation
and the Warrants, as applicable, are exempt from the registration requirements
of the Securities Act.
8. The
Company is not, and as a result of and immediately upon Closing will not
be, an
“investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as
amended.
Very
truly yours,
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-50-