SECURITIES PURCHASE AGREEMENT
EXHIBIT
10.1
SECURITIES
PURCHASE AGREEMENT
(this
“Agreement”),
dated
as of May 29, 2008, by and among Kentucky USA Energy, Inc., a Delaware
corporation, (the “Company”),
and
the investors listed on the Schedule of Note Buyers attached hereto
(individually, a “Buyer”
and
collectively, the “Buyers”).
WHEREAS:
A.
The
Company and each Buyer is executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2) and/or
Rule 506 of Regulation D (“Regulation D”)
as
promulgated by the U.S. Securities and Exchange Commission (the “SEC”)
under
the Securities Act of 1933, as amended (the “1933
Act”).
B.
The
Company has authorized a new series of senior convertible notes of the Company
which notes shall be convertible into the Company’s common stock, par value
$0.0001 per share (“Common
Stock”),
in
accordance with the terms of the Notes (as defined below) (as converted,
collectively, the “Conversion
Shares”).
C.
The
Company intends to conduct a private placement offering of the Notes in an
aggregate principal amount of at least $2,500,000 (the “Minimum
PPO Amount”).
D.
Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate principal amount of
the
Notes, in substantially the form attached hereto as Exhibit
A
(the
“Notes”),
set
forth on the Buyer Omnibus Signature Page attached hereto (which aggregate
principal amount for all Buyers shall be a maximum of $5,000,000), and (ii)
warrants, in substantially the form attached hereto as Exhibit
B
(the
“Warrants”),
to
acquire that number of shares of Common Stock (as exercised, collectively,
the
“Warrant
Shares”)
set
forth opposite such Buyer’s name in column (3) on the Schedule of Note
Buyers.
E. Contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, substantially in
the
form attached hereto as Exhibit
C
(the
“Registration
Rights Agreement”),
pursuant to which the Company has agreed to provide certain registration rights
with respect to the Conversion Shares under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities
laws.
G. The
Notes
will rank senior to all indebtedness of the Company, subject to Permitted
Indebtedness (as defined in the Notes), and will be secured by a perfected
security interest in all of the assets of the Company, subordinate to any
security interest granted in connection with Permitted Indebtedness, as
evidenced by the security agreement attached hereto as Exhibit
D
(the
“Security
Agreement”)
and
together with any ancillary documents related thereto, collectively the
“Security
Documents”).
NOW,
THEREFORE,
the
Company and each Buyer hereby agree as follows:
1. PURCHASE
AND SALE OF NOTES AND WARRANTS.
(a) Purchase
of Notes and Warrants.
Subject
to the satisfaction (or waiver) of the conditions set forth in Sections 6 and
7
below, the Company shall issue and sell to each Buyer, and each Buyer severally,
but not jointly, will purchase from the Company on the Closing Date, (i) an
aggregate principal amount of Notes as set forth on the Buyer Omnibus Signature
Page attached hereto and (ii) Warrants to acquire an aggregate number of Warrant
Shares as set forth opposite such Buyer’s name in column (3) on the Schedule of
Note Buyers (the “Closing”).
The
Minimum PPO Amount need to be subscribed to for the Company to complete and
close the offering of the Notes.
(i) Closing.
The date and time of the Closing (the “Closing
Date”)
shall
be 10:00 a.m., New York City Time, on or before June 6, 2008 (or such later
date
as is mutually agreed to by the Company and the Required Holders (as defined
in
the Note) after notification of satisfaction (or waiver) of the conditions
to
the Closing set forth in Sections 6 and 7 below) at the offices of Gottbetter
& Partners, LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, XX 00000.
(ii) Notes
and Warrants Purchase Price.
Each
Buyer shall pay $1.00 for each $1.00 of principal amount of Notes to be
purchased by such Buyer. For each $1.00 in principal amount of Notes purchased
by the Buyer, such Buyer shall receive a Warrant to purchase one (1) share
of
Common Stock.
2.
BUYER’S
REPRESENTATIONS AND WARRANTIES.
Each
Buyer represents and warrants with respect to only itself that:
(a) No
Public Sale or Distribution.
Such Buyer is (i) acquiring the Notes and the Warrants and (ii) upon
conversion of the Notes and exercise of the Warrants will acquire the Conversion
Shares issuable upon conversion of the Notes and the Warrant Shares issuable
upon exercise of the Warrants, for its own account and not with a view towards,
or for resale in connection with, the public sale or distribution thereof,
except pursuant to sales registered or exempted under the 1933 Act. Such Buyer
is acquiring the Securities hereunder in the ordinary course of its business.
Such Buyer does not presently have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the
Securities.
2
(b) Accredited
Investor Status.
Such Buyer is an “accredited investor” as that term is defined in Rule
501(a) under the 1933 Act. Such Buyer is not a registered broker-dealer
under Section 15 of the Securities Exchange Act of 1934, as amended (the
“1934
Act”).
(c) Reliance
on Exemptions.
Such Buyer understands that the Securities are being offered and sold to
it in reliance on specific exemptions from the registration requirements of
federal and state securities laws and that the Company is relying in part upon
the truth and accuracy of, and such Buyer’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings
of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the
Securities.
(d) Information.
Such Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company
and
materials relating to the offer and sale of the Securities which have been
requested by such Buyer. Such Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company. Neither such
inquiries
nor any other due diligence investigations conducted by such Buyer or its
advisors, if any, or its representatives shall modify, amend or affect such
Buyer’s right to rely on the Company’s representations and warranties contained
herein. Such Buyer understands that its investment in the Securities
involves a high degree of risk. Such Buyer has sought such accounting,
legal and tax advice as it has considered necessary to make an informed
investment decision with respect to its acquisition of the
Securities.
(e) No
Governmental Review.
Such Buyer understands that no federal or state agency or any other
government or governmental agency has passed on or made any recommendation
or
endorsement of the Securities or the fairness or suitability of the investment
in the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.
(f) Transfer
or Resale.
Such Buyer understands that except as provided in the Registration Rights
Agreement: (i) the Securities have not been and are not being registered under
the 1933 Act or any state securities laws, and may not be offered for sale,
sold, assigned or transferred unless (A) subsequently registered thereunder,
(B)
such Buyer shall have delivered to the Company an opinion of counsel, in a
form
reasonably acceptable to the Company, to the effect that such Securities to
be
sold, assigned or transferred may be sold, assigned or transferred pursuant
to
an exemption from such registration, or (C) such Buyer provides the Company
with
reasonable assurance that such Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act (or a successor
rule thereto) (collectively, “Rule
144”);
(ii)
any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person (as defined in Section 3(s)) through whom the sale is made)
may
be deemed to be an underwriter (as that term is defined in the 0000 Xxx) may
require compliance with some other exemption under the 1933 Act or the rules
and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
Person is under any obligation to register the Securities under the 1933 Act
or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder. The Notes or Warrants may be pledged in connection
with a bona fide margin account or other loan or financing arrangement secured
by the Notes or Warrants and such pledge of Securities shall not be deemed
to be
a transfer, sale or assignment of the Notes or Warrants hereunder, and no Buyer
effecting a pledge of Notes or Warrants shall be required to provide the Company
with any notice thereof or otherwise make any delivery to the Company pursuant
to this Agreement or any other Transaction Document (as defined in Section
3(b)), including, without limitation, this Section 2(f).
3
(g) Legends.
Such Buyer understands that the certificates or other instruments
representing the Notes and the Warrants and, until such time as the resale
of
the Conversion Shares and the Warrant Shares have been registered under the
1933
Act as contemplated by the Registration Rights Agreement, the stock certificates
representing the Conversion Shares and the Warrant Shares, except as set forth
below, shall bear any legend as required by the “blue sky” laws of any state and
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which
it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection
with
a sale, assignment or other transfer, such holder provides the Company with
an
opinion of counsel, in a form reasonably acceptable to the Company, to the
effect that such sale, assignment or transfer of the Securities may be made
without registration under the applicable requirements of the 1933 Act, or
(iii)
such holder provides the Company with reasonable assurance that the Securities
can be sold, assigned or transferred pursuant to Rule 144 or Rule
144A.
4
(h) Validity;
Enforcement.
This Agreement, the Registration Rights Agreement and the Security
Documents to which such Buyer is a party have been duly and validly authorized,
executed and delivered on behalf of such Buyer and shall constitute the legal,
valid and binding obligations of such Buyer enforceable against such Buyer
in
accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to,
or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.
(i) No
Conflicts.
The execution, delivery and performance by such Buyer of this Agreement,
the Registration Rights Agreement and the Security Documents to which such
Buyer
is a party and the consummation by such Buyer of the transactions contemplated
hereby and thereby will not (i) result in a violation of the organizational
documents of such Buyer or (ii) conflict with, or constitute a default (or
an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which such Buyer
is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws)
applicable to such Buyer, except in the case of clauses (ii) and (iii) above,
for such conflicts, defaults, rights or violations
which would not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on the ability of such Buyer to perform its
obligations hereunder.
(j) Residency.
Such Buyer is a resident of that jurisdiction specified below its address
on the Buyer Omnibus Signature Page attached hereto.
(k) Independent
Investment Decision.
Such Buyer has independently evaluated the merits of its decision to
purchase Securities pursuant to the Transaction Documents (as defined herein),
and such Buyer confirms that it has not relied on the advice of any other
Buyer’s business and/or legal counsel in making such decision.
(l) Certain
Trading Activities.
Such Buyer’s trading activities with respect to the securities of the
Company shall be in compliance with all applicable federal and state securities
laws, rules and regulations and the rules and regulations of the principal
market on which such securities are listed or traded. Neither such Buyer nor
its
affiliates, nor any Person acting on behalf of or pursuant to any understanding
with such Buyer, has an open short position in the securities of the Company
and, except as set forth below, such Buyer shall not, and shall not cause any
of
its affiliates or any Person acting on behalf of or pursuant to any
understanding with such Buyer, to engage in any short sale as defined in any
applicable SEC or National Association of Securities Dealers rules on any
hedging transactions with respect to the securities of the Company until the
earlier to occur of (i) the third anniversary of the Closing Date and (ii)
such
Buyer no longer own a principal balance of the Notes. Without limiting the
foregoing, such Buyer agrees not to engage in any naked short transactions
in
excess of the amount of shares owned (or an offsetting long position) by such
Buyer.
5
(m) Limited
Ownership.
The purchase by such Buyer of the Securities issuable to it at any Closing
will not result in such Buyer or in the aggregate with other Buyers
(individually or together with other Persons with whom such Buyer has
identified, or will have identified, itself as part of a “group” in a public
filing made with the SEC involving the Company’s securities) acquiring, or
obtaining the right to acquire, in excess of 4.99% of the outstanding shares
of
Common Stock or the voting power of the Company on a post transaction basis
that
assumes that the Closing shall have occurred. Such Buyer does not presently
intend to, alone or together with others, make a public filing with the SEC
to
disclose that it has (or that it together with such other Persons have)
acquired, or obtained the right to acquire, as a result of the Closing (when
added to any other securities of the Company that it or they then
own
or have the right to acquire), in excess of 4.99% of the outstanding shares
of
Common Stock or the voting power of the Company on a post transaction basis
that
assumes that the Closing shall have occurred.
(n) General
Solicitation.
Such Buyer is not purchasing the Securities as a result of any
advertisement, article, notice or other communication regarding the Securities
published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar.
(o) Organization.
Such Buyer is an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with the
requisite corporate or partnership power and authority to enter into and to
consummate the transactions contemplated by the applicable Transaction Documents
and otherwise to carry out its obligations thereunder.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
The
Company represents and warrants to each of the Buyers that:
(a) Organization
and Qualification.
The Company and its “Subsidiaries”
(which
for purposes of this Agreement means any joint venture or any entity in which
the Company, directly or indirectly, holds an equity interest representing
50%
or more of the equity securities thereof) are entities duly organized and
validly existing in good standing under the laws of the jurisdiction in which
they are formed, and have the requisite power and authority to own their
properties and to carry on their business as now being conducted. Each of
the Company and its Subsidiaries is duly qualified as a foreign entity to do
business and is in good standing in every jurisdiction in which its ownership
of
property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not reasonably be expected to have a Material Adverse
Effect. As used in this Agreement, “Material
Adverse Effect”
means
any material adverse effect on the business, properties, assets, operations,
results of operations, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries, taken as a whole, or on the transactions
contemplated hereby and the other Transaction Documents or by the agreements
and
instruments to be entered into in connection herewith or therewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below). The Company has no Subsidiaries
except as set forth on Schedule
3(a).
The
Company owns, directly or indirectly, all of the equity interests of each
Subsidiary free and clear of any liens.
6
(b) Authorization;
Enforcement; Validity.
The Company has the requisite power and authority to enter into and
perform its obligations under this Agreement, the Notes, the Warrants, the
Registration Rights Agreement, the Security Documents, and each of the other
agreements entered into by the Company hereto in connection with the
transactions contemplated by this Agreement (collectively, the “Transaction
Documents”)
and to
issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of this Agreement and the other Transaction Documents
by
the
Company
and the consummation by the Company of the transactions contemplated hereby
and
thereby, including, without limitation, the issuance of the Notes and the
Warrants, the reservation for issuance and the issuance of the Conversion Shares
issuable upon conversion of the Notes, the reservation for issuance and issuance
of Warrant Shares issuable upon exercise of the Warrants, and the granting
of a
security interest in the Collateral (as defined in the Security Documents)
have
been duly authorized by the Company’s Board of Directors and (other than (i) the
filing of appropriate UCC financing statements with the appropriate states
and
other authorities pursuant to the Security Agreement, (ii) the filing of a
Form
D under Regulation D of the 1933 Act, and (iii) the filing with the SEC of
one or more registration statements in accordance with the requirements of
the
Registration Rights Agreement) no further filing, consent or authorization
is
required by the Company, its Board of Directors or its stockholders. This
Agreement and the other Transaction Documents of even date herewith have been
duly executed and delivered by the Company, and constitute the legal, valid
and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.
(c) Issuance
of Securities.
The issuance of the Notes and the Warrants are duly authorized and are
free from all taxes, liens and charges with respect to the issue thereof. As
of
the Closing, a number of shares of Common Stock shall have been duly authorized
and reserved for issuance which equals the maximum number of shares Common
Stock
issuable upon conversion of the Notes and upon exercise of the Warrants.
Upon conversion in accordance with the Notes or exercise in accordance
with the Warrants, as the case may be, the Conversion Shares and the Warrant
Shares, respectively, will be validly issued, fully paid and nonassessable
and
free from all preemptive or similar rights, taxes, liens and charges with
respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock. The offer and issuance by the
Company of the Securities is exempt from registration under the 1933 Act.
(d) No
Conflicts.
The execution, delivery and performance of this Agreement and the other
Transaction Documents by the Company and the consummation by the Company of
the
transactions contemplated hereby and thereby (including, without limitation,
the
issuance of the Notes and the Warrants, the granting of a security interest
in
the Collateral and reservation for issuance and issuance of the Conversion
Shares and the Warrant Shares) will not (i) result in a violation of the
Certificate of Incorporation (as defined in Section 3(r)) or Bylaws (as defined
in Section 3(r)) of the Company 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 material agreement, indenture or instrument to which the
Company or any of its Subsidiaries is a party, or (iii) result in a violation
of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of the
NASD
Over-the-Counter Bulletin Board (the “Principal
Market”)
applicable to the Company or any of its Subsidiaries or by which any property
or
asset of the Company or any of its Subsidiaries is bound or affected, except
to
the extent that any such violation would not reasonably be expected to have
a
Material Adverse Effect.
7
(f) Acknowledgment
Regarding Buyer’s Purchase of Securities.
The Company acknowledges and agrees that each Buyer is acting solely in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby and that no
Buyer
is (i) an officer or director of the Company, (ii) to the knowledge of the
Company, an “affiliate” of the Company (as defined in Rule 144) or (iii) to the
knowledge of the Company, a “beneficial owner” of more than 10% of the shares of
Common Stock (as defined for purposes of Rule 13d-3 of the 1934 Act. The
Company further acknowledges that no Buyer is acting as a financial advisor
or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the other Transaction Documents and the transactions contemplated
hereby and thereby, and any advice given by a Buyer or any of its
representatives or agents in connection with this Agreement and the other
Transaction Documents and the transactions contemplated hereby and thereby
is
merely incidental to such Buyer’s purchase of the Securities. The Company
further represents to each Buyer that the Company’s decision to enter into the
Transaction Documents has been based solely on the independent evaluation by
the
Company and its representatives.
(g) No
General Solicitation.
Neither the Company, nor any of its Subsidiaries or affiliates, nor, to
the Company’s knowledge, any Person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D) in connection with the offer or sale of the
Securities.
8
(h) No
Integrated Offering.
None of the Company, its Subsidiaries, any of their affiliates, or 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 require registration of any of the Securities
under the 1933 Act or cause this offering of the Securities to be integrated
with prior offerings by the Company for purposes of the 1933 Act or any
applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed or
designated. None of the Company, its Subsidiaries, their affiliates or any
Person acting on its or their behalf will take any action or steps referred
to
in the preceding sentence that would require registration of any of the
Securities under the 1933 Act or cause the offering of the Securities to be
integrated with other offerings.
(i) Dilutive
Effect.
The Company understands and acknowledges that the number of Conversion
Shares issuable upon conversion of the Notes and the Warrant Shares issuable
upon exercise of the Warrants will increase in certain circumstances. The
Company further acknowledges that its obligation to issue Conversion Shares
upon
conversion of the Notes in accordance with this Agreement and the Notes and
its
obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrants is, in each case, absolute
and
unconditional regardless of the dilutive effect that such issuance may have
on
the ownership interests of other stockholders of the Company.
(j) Application
of Takeover Protections; Rights Agreement.
The Company and its Board of Directors have taken all necessary action, if
any, in order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Certificate of Incorporation
or the laws of the jurisdiction of its formation which is or could become
applicable to any Buyer as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company’s issuance of the
Securities and any Buyer’s ownership of the Securities. The Company has
not adopted a stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control
of
the Company.
(k) SEC
Documents; Financial Statements.
Except as disclosed in Schedule
3(k),
during
the two (2) years prior to the date hereof or such shorter period of time during
which it has been so obligated, the Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the 1934 Act (all of the foregoing
filed prior to the date hereof and all exhibits included therein and financial
statements, notes and schedules thereto and documents incorporated by reference
therein being hereinafter referred to as the “SEC
Documents”).
The Company has delivered to the Buyers or their respective
representatives true, correct and complete copies of the SEC Documents not
available on the XXXXX system if such SEC Documents have been requested in
writing by Buyers. As of their respective filing dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and
the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with
the
SEC, contained any untrue statement of a material fact or omitted to state
a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. As of their respective filing dates, the financial
statements of the Company included in the SEC Documents complied as to form
in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as
may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent
they may exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company as of
the
dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments). No
other
information provided by or on behalf of the Company to
the
Buyers in connection with the transactions contemplated hereby which is
not
included in the SEC Documents, including, without limitation,
information
referred
to in Section 2(d) of this Agreement or in any disclosure schedules,
contains
any untrue statement of a material fact or omits to state any
material fact
necessary in order to make the statements therein, in the light of
the
circumstance under which they are or were made, not
misleading.
9
(l) Absence
of Certain Changes.
Except
as disclosed in Schedule 3(l),
since
the date of the Company’s most recent audited financial statements contained in
a Form 10-K, there has been no material adverse change and no material adverse
development in the business, assets, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company.
Except as disclosed in Schedule 3(l),
since
the date of the Company’s most recent audited financial statements contained in
a Form 10-K, neither the Company nor any of its Subsidiaries has
(i) declared or paid any dividends, (ii) sold any assets, individually
or in the aggregate, in excess of $100,000 outside of the ordinary course of
business or (iii) except as set forth in Schedule 3(l),
had
capital expenditures, individually or in the aggregate, in excess of $100,000.
Neither Company nor any of its Subsidiaries has taken any steps to seek
protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so.
(m) No
Undisclosed Events, Liabilities, Developments or Circumstances.
No event, liability, development or circumstance has occurred or exists,
or is contemplated to occur with respect to the Company, its Subsidiaries or
their respective business, properties, prospects, operations or financial
condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement on Form S-1 filed with
the SEC relating to an issuance and sale by the Company of its Common Stock
and
which has not been publicly announced.
(n) Conduct
of Business; Regulatory Permits.
Neither the Company nor any of its Subsidiaries is in violation of any
term of or in default under its Certificate of Incorporation or Bylaws or their
organizational charter or certificate of incorporation or bylaws, respectively.
Neither the Company nor any of its Subsidiaries is in violation of any judgment,
decree or order or any law, statute, ordinance, rule or regulation applicable
to
the Company or its Subsidiaries, and neither the Company nor any of its
Subsidiaries will conduct its business in violation of any of the foregoing,
except for possible violations which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
Without limiting the generality of the foregoing, the Company is not in
violation of any of the rules, regulations or requirements of the Principal
Market and has no knowledge of any facts or circumstances which would reasonably
lead to delisting or suspension of the Common Stock by the Principal Market
in
the foreseeable future. The Company has received no communication, written
or
oral, from the SEC or the Principal Market regarding the suspension or delisting
of the Common Stock from the Principal Market. The Company and its
Subsidiaries possess all certificates, authorizations and permits issued by
the
appropriate regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect, and neither the Company nor
any
such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or
permit.
10
(o) Foreign
Corrupt Practices.
Neither the Company, nor any of its Subsidiaries, nor any director,
officer, agent, employee or other Person acting on behalf of the Company or
any
of its Subsidiaries has, in the course of its actions for, or on behalf of,
the
Company or any of its Subsidiaries (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign
or
domestic government official or employee.
(p) Xxxxxxxx-Xxxxx
Act.
The Company is in material compliance with any and all applicable
requirements of the Xxxxxxxx-Xxxxx Act of 2002 that are effective as of the
date
hereof, and any and all applicable rules and regulations promulgated by the
SEC
thereunder that are effective as of the date hereof.
(q) Transactions
with Affiliates.
Except as set forth in the SEC Documents filed at least ten days prior to
the date hereof and other than the grant of stock options disclosed
on
Schedule 3(q),
none of
the officers, directors or employees of the Company or any of its Subsidiaries
is presently a party to any transaction with the Company or any of its
Subsidiaries (other than for ordinary course services as employees, officers
or
directors), including any contract, agreement or other arrangement providing
for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any such
officer, director or employee or, to the knowledge of the Company or any of
its
Subsidiaries, any corporation, partnership, trust or other entity in which
any
such officer, director, or employee has a substantial interest or is an officer,
director, trustee or partner.
11
(r) Equity
Capitalization.
As of the date hereof, the authorized capital stock of the Company
consists of (i) 300,000,000 shares of Common Stock, of which as of the date
hereof, 35,000,000 shares are issued and outstanding, no shares are reserved
for
issuance pursuant to the Company’s stock option and purchase plans and no shares
are reserved for issuance pursuant to securities (other than the Notes and
the
Warrants) exercisable or exchangeable for, or convertible into, shares of Common
Stock and (ii) 20,000,000 shares of preferred stock, par value $0.0001 per
share, of which as of the date hereof, none are issued
and outstanding. All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable.
Except as disclosed in Schedule
3(r):
(i)
none of the Company’s capital stock is subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or permitted by the
Company; (ii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or
securities or rights convertible into, or exercisable or exchangeable for,
any
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of
its
Subsidiaries is or may become bound to issue additional capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or
securities or rights convertible into, or exercisable or exchangeable for,
any
capital stock of the Company or any of its Subsidiaries; (iii) there are no
outstanding debt securities, notes, credit or loan agreements, credit facilities
or other agreements, documents or instruments evidencing Indebtedness (as
defined below) of the Company or any of its Subsidiaries or by which the Company
or any of its Subsidiaries is or may become bound; (iv) there are no financing
statements securing obligations in any material amounts, either singly or in
the
aggregate, filed in connection with the Company or any of its Subsidiaries;
(v)
there are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their securities under
the 1933 Act (except pursuant to the Registration Rights Agreement); (vi) there
are no outstanding securities or instruments of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there
are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to purchase, repurchase,
retire or redeem a security of the Company or any of its Subsidiaries; (vii)
there are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Securities; (viii)
the
Company does not have any stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement; and (ix) the Company and its
Subsidiaries have no liabilities or obligations required to be disclosed in
the
SEC Documents but not so disclosed in the SEC Documents, other than those
incurred in the ordinary course of the Company’s or its Subsidiaries’ respective
businesses and which, individually or in the aggregate, do not or would not
reasonably be expected to have a Material Adverse Effect. The Company has
furnished to the Buyer true, correct and complete copies of the Company’s
Certificate of Incorporation, as amended and as in effect on the date hereof
(the “Certificate
of Incorporation”),
and
the Company’s Bylaws, as amended and as in effect on the date hereof (the
“Bylaws”),
and
the terms of all securities convertible into, or exercisable or exchangeable
for, shares of Common Stock and the material rights of the holders thereof
in
respect thereto.
12
(s) Indebtedness
and Other Contracts.
Except as disclosed in Schedule
3(s),
neither
the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness
(as
defined below) or, (ii) is in violation of any term of or in default under
any
contract, agreement or instrument relating to any Indebtedness, except where
such violations and defaults would not reasonably be expected to result,
individually or in the aggregate, in a Material Adverse Effect. Schedule
3(s)
provides
a detailed description of the material terms of any such outstanding
Indebtedness. For purposes of this Agreement: (x) “Indebtedness”
of
any
Person
means, without duplication (A) all indebtedness for borrowed money, (B) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services including (without limitation) “Capital Leases” in
accordance with generally accepted accounting principles (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and
other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect
to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in
the
event of default are limited to repossession or sale of such property), (F)
all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment
of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; (y) “Contingent
Obligation”
means,
as to any Person, any direct or indirect liability, contingent or otherwise,
of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) “Person”
means
an individual, a limited liability company, a partnership, a joint venture,
a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
(t) Absence
of Litigation.
There is no action, suit, proceeding, inquiry or investigation before or
by the Principal Market, any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries,
the Common Stock or any of the Company’s Subsidiaries or any of the Company’s or
its Subsidiaries’ officers or directors, except as set forth in Schedule
3(t).
(u) Insurance.
The Company and each of its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in
the
businesses in which the Company and its Subsidiaries are engaged. Neither
the Company nor any such Subsidiary has been refused any insurance coverage
sought or applied for and neither the Company nor any such Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not reasonably be expected to have a Material Adverse
Effect.
13
(v) Employee
Relations.
(i)
Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or employs any member of a union. The
Company and its Subsidiaries believe that their relations with their employees
are good. No executive officer of the Company or any of its Subsidiaries
(as defined in Rule 501(f) of the 0000 Xxx) has notified the Company or any
such
Subsidiary that such officer intends to leave the Company or any such Subsidiary
or otherwise terminate such officer’s employment with the Company or any such
Subsidiary. No executive officer of the Company or any of its
Subsidiaries, to the knowledge of the Company or any such Subsidiary, is, or
is
now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does
not
subject the Company or any of its Subsidiaries to any liability with respect
to
any of the foregoing matters.
(ii)
The
Company and its Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, either individually or
in
the aggregate, reasonably be expected to result in a Material Adverse
Effect.
(w) Title.
The Company and its Subsidiaries have good and marketable title in fee
simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and
its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and any of its Subsidiaries. Any real property and facilities held
under lease by the Company and any of its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such
property and facilities by the Company and its Subsidiaries.
(x) Intellectual
Property Rights.
The Company and its Subsidiaries own or possess adequate rights or
licenses to use all trademarks, trade names, service marks, service xxxx
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and other
intellectual property rights (“Intellectual
Property Rights”)
necessary to conduct their respective businesses as now conducted. Except
as set forth in Schedule
3(x),
none of
the Company’s Intellectual Property Rights have expired or terminated, or are
expected to expire or terminate, within three years from the date of this
Agreement. The Company does not have any knowledge of any infringement by
the Company or its Subsidiaries of Intellectual Property Rights of others.
There is no claim, action or proceeding being made or brought or, to the
knowledge of the Company, being threatened, against the Company or any of its
Subsidiaries regarding its Intellectual Property Rights. The Company is
unaware of any facts or circumstances which might give rise to any of the
foregoing infringements or claims, actions or proceedings. The Company and
its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property
Rights.
14
(y) Environmental
Laws.
The Company and its Subsidiaries (i) are in compliance with any and all
Environmental Laws (as hereinafter defined), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws
to conduct their respective businesses and (iii) are in compliance with all
terms and conditions of any such permit, license or approval where, in each
of
the foregoing clauses (i), (ii) and (iii), the failure to so comply could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. The term “Environmental
Laws”
means
all federal, state, local or foreign laws relating to pollution or protection
of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous
Materials”)
into
the environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands
or
demand letters, injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered, promulgated or approved
thereunder.
(z) Subsidiary
Rights.
Except as set forth in Schedule
3(z),
the
Company or one of its Subsidiaries has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by the
Company or such Subsidiary.
(aa) Investment
Company.
The Company is not, and is not an affiliate of, an “investment company”
within the meaning of the Investment Company Act of 1940, as
amended.
(bb) Tax
Status.
The Company and each of its Subsidiaries (i) has made or filed all
foreign, federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject, (ii) has
paid
all taxes and other governmental assessments and charges that are material
in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and (iii) has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know
of no
basis for any such claim. No
liens
have been filed and no claims are being asserted by or against the Company
or
any of its Subsidiaries with respect to any taxes (other than liens for taxes
not yet due and payable). Neither the Company nor it Subsidiaries has received
notice of assessment or proposed assessment of any taxes claimed to be owed
by
it or any other Person on its behalf. Except as disclosed on Schedule 3(bb),
neither the Company nor any Subsidiary is a party to any tax sharing or tax
indemnity agreement or any other agreement of a similar nature that remains
in
effect. Each of the Company and its Subsidiaries has complied in all material
respects with all applicable legal requirements relating to the payment and
withholding of taxes and, within the time and in the manner prescribed by law,
has withheld from wages, fees and other payments and paid over to the proper
governmental or regulatory authorities all amounts required.
15
(cc) Internal
Accounting and Disclosure Controls.
The Company and each of its Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset and liability accountability, (iii)
access to assets or incurrence of liabilities is permitted only in accordance
with management’s general or specific authorization and (iv) the recorded
accountability for assets and liabilities is compared with the existing assets
and liabilities at reasonable intervals and appropriate
action is taken with respect to any difference (the “Internal
Accounting Controls”).
The Company maintains disclosure controls and procedures (as such term is
defined in Rule 13a-14 under the 0000 Xxx) that are effective in ensuring that
information required to be disclosed by the Company in the reports that it
files
or submits under the 1934 Act is recorded, processed, summarized and reported,
within the time periods specified in the rules and forms of the SEC, including,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is accumulated and communicated to the Company’s management,
including its principal executive officer or officers and its principal
financial officer or officers, as appropriate, to allow timely decisions
regarding required disclosure.
(dd) Off
Balance Sheet Arrangements.
There is no transaction, arrangement or other relationship between the
Company or any of its Subsidiaries and an unconsolidated or other off balance
sheet entity that is required to be disclosed by the Company in its 1934 Act
filings and is not so disclosed or that otherwise would be reasonably likely
to
have a Material Adverse Effect.
(ee) Ranking
of Notes.
Except as set forth on Schedule
(ee),
no
Indebtedness of the Company is senior to or ranks
pari
passu
with the
Notes in right of payment, whether with respect of payment of redemptions,
interest, damages or upon liquidation or dissolution or otherwise.
(ff) Form
S-1 Eligibility.
The Company is eligible to register the Conversion Shares and the Warrant
Shares for resale by the Buyers using Form S-1 promulgated under the 1933
Act.
(gg) Transfer
Taxes.
On the Closing Date, all stock transfer or other taxes (other than income
or similar taxes) which are required to be paid in connection with the sale
and
transfer of the Securities to be sold to each Buyer hereunder will be, or will
have been, fully paid or provided for by the Company, and all material laws
imposing such taxes will be or will have been complied with.
(hh) Disclosure.
The Company confirms that neither it nor any other Person acting on its
behalf has provided any of the Buyers or their agents or counsel with any
information that constitutes or could reasonably be expected to constitute
material, nonpublic information other than the existence of the transactions
contemplated by this Agreement or the other Transaction Documents. The
Company understands and confirms that each of the Buyers will rely on the
foregoing representations in effecting transactions in the Securities. All
disclosure provided to the Buyers regarding the Company, its business and the
transactions contemplated by this Agreement and the other Transaction Documents,
including the Schedules and Exhibits hereto and thereto, furnished by or on
behalf of the Company is true and correct and does not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made herein or herein, in the light of the
circumstances under which they were made, not misleading. No material event
or
circumstance has occurred or information exists with respect to the Company
or
any of its Subsidiaries or its or their business, assets, liabilities,
properties, prospects, operations or financial conditions (financial or
otherwise), 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.
16
4. COVENANTS.
(a) Best
Efforts.
Each party shall use its best efforts timely to satisfy each of the
conditions to be satisfied by it as provided in Sections 6 and 7 of this
Agreement.
(c) Reporting
Status.
Until the date on which the Investors (as defined in the Registration
Rights Agreement) shall have sold all the Conversion Shares and Warrant Shares
and none of the Notes or Warrants is outstanding (the “Reporting
Period”),
the
Company shall file all reports required to be filed with the SEC pursuant to
the
1934 Act, and the Company shall not terminate its status as an issuer required
to file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would otherwise permit such termination.
(d) Use
of
Proceeds.
The Company will use the proceeds from the sale of the Securities for
general corporate and for working capital purposes, provided,
that
the Company may not use the proceeds from the sale of the Securities for (i)
the
repayment of any other outstanding Indebtedness of the Company or any of its
Subsidiaries, other than Indebtedness set forth on Schedule
4(d)
or (ii)
the redemption or repurchase of any of its or its Subsidiaries’ equity
securities.
(e) Financial
Information.
The Company agrees to send the following to each Investor (as defined in
the Registration Rights Agreement) during the Reporting Period (i) unless the
following are filed with the SEC through XXXXX and are available to the public
through the XXXXX system, within one (1) Business Day after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-K, any interim reports
or
any consolidated balance sheets, income statements, stockholders’ equity
statements and/or cash flow statements for any period other than annual, any
Current Reports on Form 8-K and any registration statements (other than on
Form
S-8) or amendments filed pursuant to the 1933 Act and (ii) copies of any notices
and other information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to
the
stockholders. As used herein “Business Day” means any other day other than a
Saturday, Sunday or other day on which commercial banks in The City of New
York
are authorized or required by law to remain closed.
17
(f) Listing.
The Company shall promptly secure the listing of all of the Registrable
Securities (as defined in the Registration Rights Agreement) upon each national
securities exchange and automated quotation system, if any, upon which the
Common Stock is then listed (subject to official notice of issuance) and shall
maintain such listing of all Registrable Securities from time to time issuable
under the terms of the Transaction Documents. The Company shall maintain
the Common Stock’s authorization for
quotation on the Principal Market. Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal Market.
The Company shall pay all fees and expenses in connection with satisfying
its obligations under this Section 4(f).
(g) Fees.
The Company shall be responsible for the payment of any placement agent’s
fees, financial advisory fees, or broker’s commissions (other than for Persons
engaged by any Buyer) relating to or arising out of the transactions
contemplated by the Transaction Documents. The Company shall pay, and hold
each
Buyer harmless against, any liability, loss or expense (including, without
limitation, reasonable attorney’s fees and out-of-pocket expenses) arising in
connection with any claim against a Buyer relating to any such payment.
Except as otherwise set forth in the Transaction Documents, each party to
this Agreement shall bear its own expenses in connection with the sale of the
Securities to the Buyers.
(h) Pledge
of Securities.
The Company acknowledges and agrees that the Notes or Warrants may be
pledged by an Investor (as defined in the Registration Rights Agreement) in
connection with a bona fide margin agreement or other loan or financing
arrangement that is secured by the Notes or Warrants. The pledge of Notes
or Warrants shall not be deemed to be a transfer, sale or assignment of the
Notes or Warrants hereunder, and no Investor effecting a pledge of Notes or
Warrants shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document, including, without limitation, Section 2(f) hereof;
provided that an Investor and its pledgee shall be required to comply with
the
provisions of Section 2(f) hereof in order to effect a sale, transfer or
assignment of Notes or Warrants to such pledgee. The Company hereby agrees
to execute and deliver such documentation as a pledgee of the Notes or Warrants
may reasonably request in connection with a pledge of the Notes or Warrants
to
such pledgee by an Investor.
(i) Disclosure
of Transactions and Other Material Information.
On or before 5:00 p.m., New York Time, on the fourth Business Day
following the date of this Agreement, the Company shall file a Current Report
on
Form 8-K describing the terms of the transactions contemplated by the
Transaction Documents in the form required by the 1934 Act and attaching the
material Transaction Documents (including, without limitation, this Agreement
(and all schedules to this Agreement), the form of each of the Notes, the form
of Warrants, the Registration Rights Agreement and the Security Documents)
as
exhibits to such filing (including all attachments, the “8-K
Filing”).
From and after the filing of the 8-K Filing with the SEC, no Buyer shall
be in possession of any material,
nonpublic information received from the Company, any of its Subsidiaries or
any
of their respective officers, directors, employees, stockholders,
representatives or agents, that is not disclosed in the 8-K Filing. The
Company shall not, and shall cause each of its Subsidiaries and its and each
of
their respective officers, directors, employees and agents not to, provide
any
Buyer with any material, nonpublic information regarding the Company or any
of
its Subsidiaries from and after the filing of the 8-K Filing with the SEC
without the express written consent of such Buyer. In
the
event of a breach of the foregoing covenant by the Company, any of their
Subsidiaries, or any of their respective officers, directors, employees and
agents, in addition to any other remedy provided herein or in the Transaction
Documents, a Buyer shall have the right to make a public disclosure, in the
form
of a press release, public advertisement or otherwise, of such
material, nonpublic information without
the prior approval by the Company, their Subsidiaries, or any of their
respective officers, directors, employees or agents.
No Buyer
shall have any liability to the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees, stockholders or agents for
any
such disclosure.
18
(j) Restriction
on Redemption and Cash Dividends.
So long as any Note is outstanding, the Company shall not, directly or
indirectly, redeem, or declare or pay any cash dividend or distribution on,
the
Common Stock without the prior express written consent of the Required Holders
(as defined in the Notes).
(k) Additional
Notes and Other Issuances.
So long as any Buyer beneficially owns any Securities, the Company will
not issue any Notes (other than to the Buyers as contemplated hereby) and the
Company shall not issue any other securities that would cause a breach or
default under the Notes. For long as any Notes or Warrants remain
outstanding, the Company shall not, in any manner, issue or sell any rights,
warrants or options to subscribe for or purchase Common Stock or directly or
indirectly convertible into or exchangeable or exercisable for Common Stock
if
the effect of such issuance is to cause the Company to be required to issue
upon
conversion of any Note or exercise of any Warrant any shares of Common Stock
in
excess of that number of shares of Common Stock which the Company has authorized
and reserved for purposes of such conversions or exercises or which the Company
may issue upon conversion of the Notes and exercise of the Warrants without
breaching the Company’s obligations under the rules or regulations of the
Principal Market.
(m) Reservation
of Shares.
So long as any Buyer owns any Securities, the Company shall take all
action necessary to at all times have authorized, and reserved for the purpose
of issuance, no less than the number of shares of Common Stock issuable upon
conversion of all of the Notes and issuable upon exercise of the Warrants then
outstanding (without taking into account any limitations on the conversion
of
the Notes or exercise of the Warrants set forth in the Notes and Warrants,
respectively).
19
(n) Conduct
of Business.
The business of the Company and its Subsidiaries shall not be conducted in
violation of any law, ordinance or regulation of any government, or any
department or agency thereof or governmental entity, except where such
violations would not reasonably be expected to result, either individually
or in
the aggregate, in a Material Adverse Effect.
(o) Additional
Registration Statements.
Until the Effective Date (as defined in the Registration Rights
Agreement), the Company will not file a registration statement under the 1933
Act relating to securities that are not the Securities.
(p) No
Short Position.
Each of
the Buyers and its Affiliates do not have an open short position in the Common
Stock.
5. [Intentionally
Omitted]
6. CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL.
(a) Closing
Date.
The obligation of the Company hereunder to issue and sell the Notes and
the related Warrants to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company’s sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:
20
(i) Such
Buyer shall have executed each of the Transaction Documents to which it is
a
party and delivered the same to the Company.
(ii) Such
Buyer and each other Buyer shall have delivered to the Company the Purchase
Price to be paid by such Buyers on the Closing Date in accordance with Section
1(b) hereof for the Notes and the related Warrants being purchased by such
Buyer on the Closing Date by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.
(iii) The
representations and warranties of such Buyer shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as
of a
specific date), and such Buyer shall have performed, satisfied and complied
in
all material respects with the covenants, agreements and conditions required
by
this Agreement to be performed, satisfied or complied with by such Buyer at
or
prior to the Closing Date.
7. CONDITIONS
TO EACH BUYER’S OBLIGATION TO PURCHASE.
(a) Closing
Date.
The obligation of each Buyer hereunder to purchase the Notes and the
Warrants at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for each Buyer’s sole benefit and may be waived by such Buyer at any time in its
sole discretion by providing the Company with prior written notice
thereof:
(i) The
Company shall have executed and delivered to such Buyer (A) each of the
Transaction Documents, (B) the Notes (in such principal amounts as such Buyer
shall request) being purchased by such Buyer at the Closing pursuant to this
Agreement and (C) the Warrants (in such amounts as such Buyer shall
request) being purchased by such Buyer at the Closing pursuant to this
Agreement.
(ii) Such
Buyer shall have received the opinion of Gottbetter & Partners, LLP, the
Company’s outside counsel, dated as of the Closing Date, in substantially the
form of Exhibit E
attached
hereto.
(iii) The
Company shall have delivered to such Buyer a true copy of certificate evidencing
the formation and good standing of the Company and each of its Subsidiaries
in
such entity’s jurisdiction of formation issued by the Secretary of State (or
comparable office) of such jurisdiction, as of a date within 10 days of the
Closing Date.
21
(v) The
Company shall have delivered to such Buyer a certificate, executed by the Chief
Executive Officer of the Company and dated as of the Closing Date, as to (i)
the
resolutions consistent with Section 3(b), as adopted by the Company’s Board of
Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate
of
Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the
form attached hereto as Exhibit F.
(vi) The
representations and warranties of the Company shall be true and correct in
all
material respects (other than representations and warranties that are already
qualified by materiality or Material Adverse Effect which shall be true and
correct in all respects) as of the date when made and as of the Closing Date
as
though made at that time (except for representations and warranties that speak
as of a specific date) and the Company shall have performed, satisfied and
complied in all respects with the covenants, agreements and conditions required
by the Transaction Documents to be performed, satisfied or complied with by
the
Company at or prior to the Closing Date. Such Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company, dated
as of
the Closing Date, to the foregoing effect and as to such other matters as may
be
reasonably requested by such Buyer in the form attached hereto as
Exhibit G.
(vii) The
Company shall have delivered to such Buyer a letter from the Company’s transfer
agent certifying the number of shares of Common Stock outstanding as of a date
within five days of the Closing Date.
(viii) The
Common Stock (I) shall be designated for quotation or listed on the Principal
Market and (II) shall not have been suspended, as of the Closing Date, by the
SEC or the Principal Market from trading on the Principal Market
(ix) The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Securities.
(a) Governing
Law; Jurisdiction; Jury Trial.
All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of
the
State of New York, without giving effect to any choice of law or conflict of
law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than
the
State of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in The City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding
is
improper. Each party hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding
by
mailing a copy thereof to such party at the address for such notices to it
under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be
deemed to limit in any way any right to serve process in any manner permitted
by
law. EACH
PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
22
(b) Counterparts.
This Agreement may be executed in two or more identical counterparts, all
of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party; provided that a facsimile signature shall be considered due
execution and shall be binding upon the signatory thereto with the same force
and effect as if the signature were an original, not a facsimile
signature.
(c) Headings.
The headings of this Agreement are for convenience of reference and shall
not form part of, or affect the interpretation of, this Agreement.
(e) Entire
Agreement; Amendments.
This Agreement and the other Transaction Documents supersede all other
prior oral or written agreements between the Buyers, the Company, their
Affiliates and Persons acting on their behalf with respect to the matters
discussed herein, and this Agreement, the other Transaction Documents and the
instruments referenced herein and therein contain the entire understanding
of
the parties with respect to the matters covered herein and therein and, except
as specifically set forth herein or therein, neither the Company nor any Buyer
makes any representation, warranty, covenant or undertaking with respect to
such
matters. No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the Required Holders, and any
amendment to this Agreement made in conformity with the provisions of this
Section 8(e) shall be binding on all Buyers and holders of Securities, as
applicable. No provision hereof may be waived other than by an instrument
in writing signed by the party against whom enforcement is sought. No such
amendment shall be effective to the extent that it applies to less than all
of
the holders of the applicable Securities then outstanding.
(f) Notices.
Any
notices, consents, waivers or other communications required or permitted to
be
given under the terms of this Agreement must be in writing and will be deemed
to
have been delivered: (i) upon receipt, when delivered personally; (ii)
upon receipt, when sent by facsimile (provided confirmation of transmission
is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one Business Day after deposit with an overnight courier service,
in
each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall
be:
23
If
to the
Company:
000
Xxxxxxxx Xxxx
Xxxxxx,
XX 00000
Facsimile:
Attention:
Xxxxxx
X.
Xxxxxxxx, CEO
Copy
to
(for informational purposes only):
Gottbetter
& Partners, LLP
000
Xxxxxxx Xxxxxx
Xxx
Xxxx,
XX 00000
Telephone:
(000)
000-0000
Facsimile:
(000)
000-0000
Attention:
Xxxx
X.
Xxxxxxxxxx, Esq.
If
to a
Buyer, to its address and facsimile number set forth on the Buyer Omnibus
Signature Page attached hereto, with copies to such Buyer’s representatives as
set forth on the Schedule of Note Buyers or to such other address and/or
facsimile number and/or to the attention of such other Person as the recipient
party has specified by written notice given to each other party five (5) days
prior to the effectiveness of such change. Written confirmation of receipt
(A) given by the recipient of such notice, consent, waiver or other
communication, (B) mechanically or electronically generated by the sender’s
facsimile machine containing the time, date, recipient facsimile number and
an
image of the first page of such transmission or (C)
provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above,
respectively.
(g) Successors
and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns, including any purchasers
of
the Notes or the Warrants. The Company shall not assign this Agreement or
any rights or obligations hereunder without the prior written consent of the
Required Holders (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
Warrants). A Buyer may assign some or all of its rights hereunder without
the consent of the Company, in which event such assignee shall be deemed to
be a
Buyer hereunder with respect to such assigned rights; provided that such
assignee agrees in writing to be bound by all of the provisions contained
herein.
(h) No
Third Party Beneficiaries.
This Agreement is intended for the benefit of the parties hereto and their
respective permitted successors and assigns, and is not for the benefit of,
nor
may any provision hereof be enforced by, any other Person.
24
(i) Survival.
The representations and warranties of the Company and the Buyers contained
in Sections 2 and 3 and the agreements and covenants set forth in Sections
4 and
8 shall survive the Closing. Each Buyer shall be responsible only for its
own representations, warranties, agreements and covenants
hereunder.
(j) Further
Assurances.
Each party shall do and perform, or cause to be done and performed, all
such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as any other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated
hereby.
(k) Indemnification.
In consideration of each Buyer’s execution and delivery of the Transaction
Documents and acquiring the Securities thereunder and in addition to all of
the
Company’s other obligations under the Transaction Documents, the Company shall
defend, protect, indemnify and hold harmless each Buyer of its stockholders,
partners, members, officers, directors and employees (collectively, the
“Indemnitees”)
from
and against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith,
and including reasonable attorneys’ fees and disbursements (the “Indemnified
Liabilities”),
incurred by any Indemnitee as a result of, or arising out of, or relating to
(a)
any misrepresentation or breach
of
any representation or warranty made by the Company in the Transaction Documents
or any other certificate, instrument or document contemplated hereby or thereby
or (b) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or any other certificate, instrument
or
document contemplated hereby or thereby. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each
of
the Indemnified Liabilities which is permissible under applicable
law.
(l) No
Strict Construction.
The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.
(m) Independent
Nature of Buyers’ Obligations and Rights.
The obligations of each Buyer under any Transaction Document are several
and not joint with the obligations of any other Buyer, and no Buyer shall be
responsible in any way for the performance of the obligations of any other
Buyer
under any Transaction Document. Nothing contained herein or in any other
Transaction Document, and no action taken by any Buyer pursuant hereto or
thereto, shall be deemed to constitute the Buyers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Buyers are in any way acting in concert or as a group
with
respect to such obligations or the transactions contemplated by the Transaction
Documents and the Company acknowledges that to its knowledge the Buyers are
not
acting in concert or as a group, and the Company will not assert any such claim,
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Buyer confirms that it has independently
participated in the negotiation of the transaction contemplated hereby with
the
advice of its own counsel and advisors. Each Buyer shall be entitled to
independently protect and enforce its rights, including, without limitation,
the
rights arising out of this Agreement or out of any other Transaction Documents,
and it shall not be necessary for any other Buyer to be joined as an additional
party in any proceeding for such purpose.
[Remainder
of Page Intentionally Left Blank]
25
IN
WITNESS WHEREOF,
each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
|
By:
|
|
|
Name: Xxxxxx
X. Xxxxxxxx
|
|
|
Title:
Chief
Executive Officer
|
|
26
Buyer
Omnibus Signature Page
The
undersigned, desiring to: (A) enter into (i) Securities Purchase Agreement
(the
“Agreement”),
(ii)
Registration Rights Agreement, (iii) Security Agreement and (iv) Subsidiary
Guaranty, each dated as of May __, 2008 between the undersigned and the other
parties thereto, in or substantially in the forms furnished to the undersigned
and (ii) purchase the Notes of the Company as set forth below, hereby agrees
to
purchase such Notes from the Company and further agrees to join the Agreement,
the Registration Rights Agreement, the Security Agreement and the Subsidiary
Guaranty as a party thereto, with all the rights and privileges appertaining
thereto, and to be bound in all respects by the terms and conditions thereof.
The undersigned specifically acknowledges having read the representations
section in the Agreement entitled “Buyer’s Representations and Warranties,” and
hereby represent that the statements contained therein are complete and accurate
with respect to the undersigned as a Buyer.
The
Buyer
hereby elects to purchase Notes in the principal amount of $_______________
[to
be completed by the Buyer] under the Agreement.
|
Name
of Buyer:
|
|
|
If
an entity:
|
|
|
Print
Name of Entity:
|
|
|
By:
|
|
|
Name:
|
|
|
Title:
|
|
|
If an individual:
|
|
|
Print Name:
|
|
|
Signature:
|
|
|
All Buyers:
|
|
|
Address:
|
|
|
Jurisdiction:
|
|
|
Telephone No.:
|
|
|
Facsimile No.:
|
|
|
Email Address:
|
|
27
|
(2)
|
(3)
|
(4)
|
(5)
|
||||||||||
|
Buyer
|
Aggregate
Principal
of Note
|
Aggregate
Number of
Warrant
Shares
|
Purchase
Price
|
Legal Representative’s
Address and
Facsimile Number
|
|||||||||
|
$
|
2,500,000
|
2,500,000
|
$
|
2,500,000
|
|||||||||
|
Total:
|
$
|
2,500,000
|
2,500,000
|
$
|
2,500,000
|
||||||||
